Central Asia

The Bear and the Dragon mean business
By Sergei Blagov

MOSCOW - Relations between Russia and China are set to reach new heights on a wave of geopolitical self-interest, bilateral trade and - ironically for two such old and bitter Cold War sparring partners - a growing trade in arms.

Economically, trade turnover between the two countries was up roughly 20 percent in the first half of this year compared to the same period in 2001, to about US$5.5 billion. Of this amount, $1.3 billion accounted for China's exports to Russia (Russia runs a healthy surplus in its trade with China). To encourage this trend, Russian Prime Minister Mikhail Kasyanov will travel to Shanghai from August 21-23 for talks with his Chinese counterpart Zhu Rongji. The two are expected to ink four business deals, including an agreement on banking cooperation.

Also, a group of Chinese officials and 50 businessmen traveled to Moscow, Zelenograd and Nizhny Novgorod earlier this month to find ways to work with Russia in high technology. During the course of their visit, which ended on August 8, the Chinese representatives of 26 energy, aviation, metals and agriculture firms reportedly discussed joint ventures and projects.

Then, on August 12, Grigory Polischuk, deputy head of Russia's space agency, announced that Russia and China had finalized a blueprint for cooperation in space research through the year 2005. In the first six months of this year, a total of 27 hi-tech contracts worth $20.8 million were signed between Russian and Chinese firms (compared to contracts worth $11.7 million signed in 2001), according to Russian statistics.

However, "it is well understood" (as an unreconstructed old-style Soviet would say) that Moscow is largely interested in tapping China's armaments market. That interest was symbolized by the August 19 flight of 10 brand new Su-30MKK fighters from Komsomolsk-on-Amur to China's Uhu airbase as a part of a contract to supply China with a total of 28 Sukhois. Over the past year, Russia has secured a number of multi-million dollar contracts to build military hardware for China, including a $1.4 billion deal to supply the Chinese navy with two Sovremenny-class destroyers. Moscow and Beijing have even reportedly drafted plans for Sino-Russian joint military exercises designed to test the reliability of bilateral military communications.

From the point of view of domestic Russian politics, what's interesting about all this is that the Chinese market has set off a series of fierce competitive battles among Russian producers and lobbying groups, battles marked by court disputes and corruption allegations. Notably, the government's plans to reverse an earlier decision to award a $1.5 billion contract to build 38 Sukhoi-30MKK jet fighters for China to Komsomolsk-on-Amur Plant, or KnAAPO, and give it to an umbrella firm, AVPK Sukhoi, has caused an uproar.

Following Prime Minister Kasyanov's decision to take the contract from the KnAAPO and give it to AVPK Sukhoi, the Khabarovsk region's governor Viktor Ishayev said that the move could cause massive unemployment in Komsomolsk-on-Amur town. Ishayev also pledged to lobby Russian President Vladimir Putin in an attempt to secure the lucrative contract for KnAAPO.

Last month, in an unprecedented move for a state-controlled company, KnAAPO sued the Russian government to contest the decision. On August 4, Russia's Supreme Arbitration Court reportedly held closed hearings but did not pronounce any ruling.

At the moment, it remains to be seen whether the controversy around KnAAPO could affect deliveries of the Su-30MKK, as well as AA-12 missiles, designed to be deployed on Su-27s and Su-30s.

Moreover, Russia's deal to build two more Sovremenny-class destroyers for the Chinese navy has also been marred by scandals. The $1.4 billion deal to supply the destroyers, known as "Project 956E" in Russia, was clinched in Moscow last January. The government had initially named the Northern Wharf shipbuilding facility in St Petersburg as the contractor for the deal, the firm having built destroyers for the Russian navy and supplied two previous such destroyers to China, delivered in December 1999 and November 2000. After China reportedly transferred $610 million to Northern Wharf as payment for the destroyers, the deputies of the Russian parliament claimed that the company had failed to pay $300 million in taxes. Subsequent to this, a government tender commission recommended that Baltiysky wharf carry out the rest of the contract.

But then the government moved to give the contract back to the Northern Wharf, and in response, Baltiysky wharf sent a letter to Kasyanov saying that the plant, which contributes heavily to the construction of the Project 956 destroyers, would refuse to supply components should the contract be taken away. The government replied that it would not tolerate any ultimatums from Baltiysky, yet the situation around this contract reportedly remains unresolved.

So much for the scandals. Geopolitically, the growing Russo-Chinese arms trade has some even more interesting aspects. It has been more than a year since Russian and Chinese political leaders pledged in July 2001 to forge some sort of "strategic partnership". At the time, Putin and Chinese President Jiang Zemin signed the "Treaty of Good Neighborly Relations, Friendship and Cooperation" to be valid till 2021. The treaty specifically states that the two nations are not forming a military alliance, adding that bilateral "military-technical cooperation is not directed against third countries". In the treaty, Russia also acknowledged that "Taiwan is an inalienable part of China", and opposed "any kind of independence for Taiwan".

Yet, even as Russia sells its Sukhois to China, it also continues deliveries of the final modification of its Su-30MKI fighter jet to India - 10 fighters this year, and another 22 to be delivered next year. The Sukhoi-30, known as MKI (Multipurpose Commercial for India) is equivalent to the Su-37 under development for the Russian Air Force and has been reported to have an edge over the "MKK" (Multipurpose Commercial for China).

There are other issues, including tax disputes and allegations of espionage. Earlier this month, authorities of Russia's Nakhodka port city, Primorie region, announced plans to shut down roughly 100 out of a total of 125 companies there fully owned by Chinese businessmen. Chinese firms dodged taxes, says Sergei Piliyugin, Nakhodka's chief tax inspector, who has already shut down six such offending companies. And Vladimir Schurov, professor of Russia's Far Eastern Institute of Oceanology, is still being sued on espionage charges relative to his alleged attempts to sell Russia's hydrosonary know-how to China.

Nonetheless, these small incidents have hardly affected bilateral Russo-Chinese ties so far. The Kremlin has been very keen to remain on good terms with Beijing, and last week refused to grant an entry visa to the Dalai Lama, who was due to enter the country on September 2 on a three-week journey to Russia's Buddhist regions Buryatia, Kalmykia and Tuva. A few Russian Buddhists demonstrated outside the Russian Foreign Ministry in Moscow, and Buddhist community leaders did send an open letter to Putin calling on him to allow the Dalai Lama to visit. Yet they failed to convince the Kremlin as the Russian Foreign Ministry said that it was concerned about the possible "political overtones" of such a visit. (In 2001, Moscow refused to give transit visa to the Dalai Lama to travel to Mongolia.)

So the dance continues. Last month, Russian Foreign Minister Igor Ivanov traveled to Hong Kong and Macau to explore closer economic and trade cooperation. Subsequently, he met with his Chinese counterpart Tang Jiaxuan on the sidelines of an Association of Southeast Asian Nations meeting in Brunei, where he described the countries' bilateral ties as possessing "great vitality". He also characterized trip to China as one heralding "a new stage of long-term, all-round bilateral cooperation".

Expect more such rhetoric when Putin visits Beijing later this year for a planned state visit. Expect a few more arms deals, too.

(©2002 Asia Times Online Co, Ltd. All rights reserved. Please contact content@atimes.com for information on our sales and syndication policies.)

Aug 21, 2002


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