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Russia engages Chinese capital in North Caucasus

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Russian company Northern Caucasus Resorts (NCR OJSC) and Chinese Dalian Wanda Group Corporation and China Oceanwide Holdings Group – in the presence of Heads of both states – signed a Memorandum of Intent regarding China’s investment in the development of Northern Caucasus resorts.

The amount of the said investment is expected to reach about USD 3 bl. to facilitate building of residential premises, trade, hotel and commercial complexes.

Chinese companies intend to invest in projects on the territory of Northern Caucasus federal district, the Krasnodar territory and the Republic of Adydea. According to Russian representatives the key investments are expected to target the regions of the Caspian Lowland in Dagestan, the city of Sochi and resort Arkhyz in Karachayevo-Circassian Republic.

Earlier this region was deemed a potential target by South African, French and Turkish investors. However, the amount of the expected investments was way smaller than those announced by China.

Thus, in June last year NCR OJSC entered into a similar contract with French Caisse des Depots et Consignations group which intended to invest about USD 1.7 bl. in building of recreation infrastructure in the Northern Caucasus. At the same time, public authorities promised back then to increase capitalization of NCR to USD 2 bl. Northern Caucasus is – in theory – an attractive target for investors in tourism infrastructure. Unique climate and rich natural resources make it a promising direction for the development of this business sector. At the same time, however, high rates of crime, separatism, economic underdevelopment and the fact that the main contribution into the gross regional product is made by public administration and social (including community) services sector, abate the investment attractiveness of the region. That is why the volumes of state investments here reach 60-90%, the average Russian indicator being 30%.

High birth and unemployment rates along with the cultural and religious peculiarities bring investment risks to the maximum. The average unemployment rate in the Caucasus (18%) twice exceeds that of Russia in general. This indicator is highest in Chechnya (43.1%) and Ingushetia (49.7%).

Unfavourable social and economic indicators cause destabilization of the situation. According to Caucasian Knot periodical for the first quarter of 2012 no less than 258 people became victims of the armed conflict in the Northern Caucasus. Thus, 163 people were killed and another 95 injured. 82 of them were announced members of an underground armed organization.

Relative stability in the region today is mainly achieved due to Kremlin financing. The Northern Caucasus receives around USD 5.6 bl. annually. The main objectives of public authorities in terms of NCFD development by 2025 are annual gross regional product growth at the level of 7.7%, annual industrial growth of over 10%, reduction of the scale of unemployment to 5%.

At the same time, tremendous rates of corruption will not allow using this support to the benefit of the whole population. Thus, Plenipotentiary Envoy of the President of the Russian Federation in the NCFD Aleksandr Khloponin stated that the Northern Caucasus is the Russia’s leader in terms of money laundering.

According to the obtained information the separatist mood in the region remains the same, and in some districts even grows. In this situation, the Kremlin will need to increase financial support in the nearest future which will be distributed among the local elite. In our opinion, such strategy is not efficient, and the Kremlin’s attempts to set the vertical of the recreation industry in the Northern Caucasus are ill-fated because these tactics of implementation of projects ‘from Moscow to the regions’ is a priori much less effective than allowing local authorities to participate in their management. This will not allow for the full-scale involvement of the local elite in the projects and creation of the interested local powerful forces to ensure their secure functioning. The present-day business model de facto has nothing to do with the attempt of real integration of the NCFD in the RF economy and has a large corruption element instead.

According to our estimations Russia has faced a serious deficit of resources which are of crucial importance for the harmonious development of all the country’s regions. This triggers the necessity of attracting foreign capital to be allocated in the most underdeveloped regions. A similar scheme is now being implemented in Siberia and in the Far East where the same Chinese capital is being actively raised. Therefore, Moscow is striving to ensure provision of the necessary financial resources to the economically depressed Russian regions.

It is worth noting that on May 21st this year Vice-President of China Oceanwide Holdings Tsi Tszysin highlighted the lack of specifics of investment projects in the NCFD and the need to conduct serious work in this direction. Therefore, at the time of signing, the determination of investment volumes could not be based on the actually existing projects. Consequently, the amount of investments can hardly be deemed justified.

Press Secretary of RF Prime-Minister Dmitriy Peskov said that Chinese investors asked for support in entering investment markets of Moscow and Saint-Petersburg in lieu of the Northern Caucasian projects. According to the information provided by the sources in Moscow government, however, these Chinese companies never addressed the Mayer’s office with development project proposals. At the same time, China is one of the key foreign investors in Saint-Petersburg which may be a proof of existence of secret covenants between Moscow and Beijing related to investments in the Northern Caucasus.

In view of the aforesaid, we believe that involvement by Moscow of significant geopolitical players in the NCFD is aimed at ensuring capital inflow to the region for the purpose of levelling social and economic destabilization factors the influence of which is now growing.

The main interest for China, in our opinion, lies in the area of consistent interstate arrangements. Today Russian and China have a number of strategic projects related to the joint use of raw materials and high technologies. This refers to aircraft engineering, nuclear energy, oil and gas industry etc. Investments in the Northern Caucasus district may be one of the aspects of some broader arrangements, a sort of payment for the compromises in other areas of cooperation.

We believe that China’s participation in investing in this region will allow it to increase geopolitical competition with Turkey. Quite a lot of Turkic peoples inhabit the territory of the Northern Caucasus, the largest of them being Kumyks, Karachais, Balkarians, Nogais, Azerbaijani, Akhaltsikhe Turks. China with its serious problems with the Uigurs and concern about the activation of pan-Turkish sentiments in the region may consider investments in the Northern Caucasus as a way to strengthen its position, thus opposing Ankara. A similar system of geopolitical behaviour may be also caused by the concern about the enhancement of radical Islamist activities within the region. At this point, the key goal of Chinese geopolitics in the Caucasus is strengthening of economic connections with the region aimed at decreasing the possibility of penetration of pan-Turkism and Islamic fundamentalism in China.

These interests go in line with those of Moscow which due to the strengthening of China slows down the rapid growth of Ankara’s influence. It is not impossible that the choice of French investors in 2011 was determined by the peculiarities of France-Turkey relations. Therefore, Moscow may select investors for cooperation in the NCFD purposely – those who would have interests in the Northern Caucasus similar with the Kremlin’s aimed at the creation of a system of external balances and geopolitical counter weights in the region.

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Russia Postpones BRICS Summit to Later Date

Kester Kenn Klomegah

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The summits of the BRICS (Brazil, Russia, India, China and South Africa) and Shanghai Cooperation Organization (SCO) member states have been postponed from July to a later date, due to the coronavirus pandemic, the Kremlin press service said on May 27.

The Shanghai Cooperation Organization (SCO), established in 2001, brings together China, India, Kazakhstan, Kyrgyzstan, Pakistan, Russia, Tajikistan and Uzbekistan. Afghanistan, Belarus, Iran and Mongolia are SCO observers, while Azerbaijan, Armenia, Cambodia, Nepal, Sri Lanka and Turkey are dialogue partners.

“In light of the global pandemic and the temporary restrictions linked to it, the Organizing Committee for the preparation and securement of the chairmanship of the Russian Federation in the SCO in 2019-2020 and BRICS in 2020 has made a decision to postpone the meeting of the BRICS leaders and the session of the SCO Heads of State Council earlier scheduled for July 21-23 in St. Petersburg to a later date,” the press service said in a statement.

The new dates for the summits will be determined depending on the further development of the epidemiological situation in the member states and in the world in general, the statement said.

As part of the events, Foreign Ministers from BRICS held their meeting online late April while the Ministers of Health held theirs in May. BRICS members were, particularly, looking for ways to step up cooperation within the bloc to contain coronavirus pandemic, as well as to revive the economies that have received a major blow due to the travel restrictions and lockdown imposed in most countries to curb the spread of coronavirus. 

Throughout 2020, – under the theme “BRICS Partnership for Global Stability, Shared Security and Innovative Growth” – Russia holds the BRICS pro tempore presidency.

The emphasis of the Russian presidency is on promoting science, technology and innovation and digital economy and health, and strengthening cooperation in the fight against transnational crimes.

In addition to those, dozens of academic, sporting, cultural and artistic events planned for the year. St Petersburg was chosen as the venue in accordance with the Presidential Executive Order No. 380 of 15 August 2019.

BRICS is the group composed by the five major emerging countries – Brazil, Russia, India, China and South Africa, – which together represent about 42% of the population, 23% of Gross Domestic Product (GDP), 30% of the territory and 18% of the global trade.

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Russia vs China

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Cooperation between Russia and China has deep historical roots, and its earliest manifestations can be found already during the Chinese civil war. It seems that both countries should be most united by their communist ideology, but the ambitions of their leaders and the willingness to be the first and the most powerful was in fact the dominating force. Relations between these nations have seen times of flourishing, as well as times of military conflict.

The relationship between both countries are currently presented as friendly, but it is difficult to call them truly friendly. Even in the past, relations between the USSR and China were based on each nation’s calculations and attempts to play the leading role, and it doesn’t seem like something has changed at the present, although China has become a “smarter” and resource-wise richer player than Russia.

We will now look at the “similarities” between China and Russia, the ways they are cooperating and future prospects for both of them.

Russia is a semi-presidential federative republic, while China is a socialist nation ruled by the secretary general of its Communist Party.

Already we can see formal differences, but if we dive deeper both countries essentially feel like Siamese twins. There are more than one party in Russia, but only one party decides everything that takes places in the country – United Russia. Russia isn’t even attempting to hide the aim of establishing the said party, which is to support the course taken by Russian President Vladimir Putin.

China, too, has nine parties, but only one of them is allowed to rule and it is the Communist Party of China which answers to the secretary general who is also the president of the state.

Therefore, there is a single ruling party both in Russia and China, and this party is responsible for implementing and executing whatever the president wishes, meaning that both countries are ruled by a rather narrow circle of people. Forecasting election results in Russia and China is as difficult as being able to tell that the day after Monday is Tuesday. To write this piece, I spent a lot of time reading about the history of China and Russia and the current events taking place in these countries, and for this reason I figured that we also have to look at the meaning of the word “totalitarianism”.

Totalitarianism is a political system in which a country is governed without the participation of its people and decisions are made without the agreement of the majority of the people; in a totalitarian regime the most important social, economic and political affairs are controlled by the state. It is a type of dictatorship where the regime restricts its people in all of the imaginable aspects of life.

Notable characteristics:

Power is held by a small group of people – a clique;

Opposition is suppressed and general terror is a tool for governing the state;

All aspects of life are subordinate to the interests of the state and the dominating ideology;

The public is mobilized using a personality cult of the leader, mass movements, propaganda and other similar means;

Aggressive and expansionist foreign policy;

Total control over public life.

Are China and Russia truly totalitarian states? Formally, no, but if we look at the essence of it we see a completely different picture. We will look at all of the signs of totalitarianism in China and Russia, but we will not delve too deep into events and occurrences that most of us are already familiar with.

Can we say that the majority of Russian and Chinese citizens are engaged in decision making? Formally, sort of, because elections do take place in these countries, but can we really call them “elections”? It would be impossible to list all the video footage or articles that reveal how polling stations operate in order to provide the required election results. Therefore, we can say that the general public is involved in making decisions, it’s just that the results are always determined by those in power.

The last paragraph brings us to the first point: power is held by a small group of people – a clique. Both nations are ruled by presidents who appoint whoever they wish and dismiss whoever they wish. This is power held by a small group of people. The next point – suppressing the opposition and using general terror to govern the state. Media outlets have written enough about suppressing the opposition in both countries, and everyone has seen at least a video or two on this topic. To stop their political opponents and any events organized by them Russia and China use not only their police forces, but the army as well. From time to time, information appears that an opposition activist has been murdered in either of the countries, and these murders are never solved. We will not even begin talking about criminal cases and administrative arrests of opposition activists. We can say that the point in question is completely true. Regarding all of the aspects of life being subordinate to the state and ideology – is there anyone who isn’t convinced by this? If Russia is engaged in restricting and “teaching” its citizens quite inconspicuously, China has no time for ceremony – the Communist Party of China has published new guidelines on improving the “moral quality” of its citizens, and this touches upon all of the imaginable aspects of one’s private life – from organizing wedding ceremonies to dressing appropriately.3 Is the public in Russia and China mobilized using the cult of personality, mass movements, propaganda and other means? We can look at 9 May celebrations in Russia and all of the surrounding rhetoric, and the events dedicated to the anniversary of founding the People’s Republic of China. I’m sorry, but it feels like I’m watching some Stalin and Hitler era montage but in a more modern fashion, and instead of Stalin and Hitler there are some new faces. What is left? Of course, aggressive and expansionist foreign policy. China has been very active in the South China Sea for many years now, which has aggravated tensions among the armed forces of its neighbors – Brunei, Malaysia, the Philippines, Taiwan and Vietnam.

China is continuing to physically seize, artificially build and arm islands far from its shores. And in the recent years China has been particularly aggressive towards Taiwan, which the regime sees as being rightfully theirs. China is also willing to impose sanctions against those nations who intend to sell arms to Taiwan.

However, when it comes to armed aggression China pales in comparison to Russia, which isn’t shy to use armed aggression against its close and far neighbors in order to reach its goals. Russia’s aggression goes hand in hand with its nihilism. I am sure I don’t have to remind you about the events in Georgia, Ukraine and previously in Chechnya as well. Russia will use every opportunity to show everyone its great weaponry, and this also includes directly or covertly engaging in different military conflicts.

Maybe some of you will disagree, but as I see it China and Russia currently are totalitarian states in their essence.

History has shown us that up to a certain point even two totalitarian countries are able to cooperate. Let’s remember the “friendship” between Nazi Germany and the USSR, but let’s also not forget what this friendship resulted in.

It is also true that the economic sanctions imposed against Russia have pushed it to be more friendly with China, but it seems that China will come out as the winner of this relationship.

According to data from the Chinese Ministry of Commerce, in 2018 the Chinese economy received 56.6 million USD in direct investments from Russia (+ 137.4%), meaning that by the end of 2018 the amount of direct investments from Russia reached 1,066.9 million USD.

In 2018, the Russian economy received 720 million USD in direct investments from China, resulting in a total of 10,960 million USD in direct investments from China by the end of 2018.

The main spheres of Chinese investments in Russia are energy, agriculture and forestry, construction and construction materials, trade, light industry, textiles, household electric goods, services, etc.

The main spheres of Russian investments in China are production, construction and transportation.5 We can see from the amount of investments that in this “friendship” China has far exceeded Russia. We also cannot ignore the fact that China has launched more large-scale investment projects in other nations than Russia has.

It should be noted that China’s procurement of military equipment has allowed Russian armaments programs to exist. Russia sold modern armaments to China, despite the concerns that China will be able to “copy” the received armaments and then improve them. But the need for money was much greater to worry about such things. As a result, in early 2020 it was concluded that China has surpassed Russia in producing and selling armaments.

If we look at the ways Russia and China are attempting to shape public opinion in the long term, we can see some differences. Russia tries to do this using publications, demonstrative activities and attempts for its compatriots to become citizens of their country of residence while maintaining their cultural identity in order to establish an intellectual, economic and spiritually-cultural resource in global politics. China, in addition to all of this, has established Confucius Institutes that are subordinate to the Chinese Ministry of Education. There are a total of 5,418 Confucius Institutes or classes around the world. These institutes, named after the most known Chinese philosopher, have drawn sharp criticism globally for its foreign policy views – ones that avoid discussing human rights or believe that Taiwan or Tibet are inseparable parts of China. These institutes have been accused of espionage and restricting academic freedom.

“The Confucius Institutes are an attractive brand for our culture to spread abroad,” representative of the Communist Party’s Politburo Li Changchun said in 2011. “They have always been an important investment in expanding our soft power. The brand name “Confucius” is quite attractive. By using language tuition as a cover, everything looks logical and acceptable from the outside.” The leadership of the Communist Party calls these institutes a crucial part of its propaganda toolset abroad, and it is estimated that over the past 12 years China has spent roughly two billion USD on them. The constitution of these institutes9 stipulates that their leadership, personnel, guidelines, tuition materials and most of their funding is ensured by the Hanban institution which is under the Chinese Ministry of Education.

Both Russian and Chinese citizens either buy or rent property abroad. Russians do this so they have somewhere to go in case the necessity arises.

Chinese citizens and companies slowly rent or purchase large swathes of land in in the Russian Far East. There is no precise estimate of the amount of land handed over to the Chinese, but it is said it could range between 1–1.5 billion hectares.

What can we conclude from all of this? China and Russia are, in essence, totalitarian states with bloated ambitions. If Russia tries to reach its ambitions in an openly aggressive and shameless manner, then China is doing the same with caution and thought. If Russia often uses military means to reach its goals, China will most likely use financial ones. If Russia attempts to fulfill its ambitions arrogantly, then China achieves the same result with seeming kindness and humility.

Which country has gotten closer to its goal? I believe it is definitely not Russia. In addition, just as the USSR, Russia too believes it is better than China. But for those observing from the sidelines, it is evident that in many areas China has far succeeded Russia and is now even acquiring Russian land.

This brings us back to history – what happens when two totalitarian states share a border? One of them eventually disappears. For now, it seems that China has done everything in its power to stay on the world map.

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COVID-19 Presents Both Opportunities and Threats to Russia’s Foreign Policy

Dr. Andrey KORTUNOV

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Like every major global crisis, the coronavirus pandemic both generates additional risks, challenges and threats to every state’s foreign policy and opens up new opportunities and prospects. Russia is no exception in this. The specific nature of Russia’s case lies, we believe, in its opportunities being mostly tactical and situational, while the threats it faces are strategic and systemic. The balance of opportunities and threats depends on many variables but primarily on how Russia ultimately copes with COVID-19 compared to other states, particularly its international opponents. Any comparative advantage that Moscow has in fighting the virus, be it the numbers infected and lost to COVID-19 or the relative scale of economic losses will somehow expand Moscow’s range of opportunities in the post-virus world. Any failure will increase foreign policy threats and curtail opportunities. Let us compile a preliminary list of these opportunities and threats.

Opportunities

Confirming Russia’s Perspective of the World

Over recent years, Russia’s leadership has insistently advanced its own “Westphalian” picture of international relations, emphasizing the priority of national states and the importance of sovereignty, questioning the stability of Western solidarity and the effectiveness of Western multilateral diplomacy. Thus far, the epidemiological crisis is bearing out the Russian perspective: the crisis is bolstering national states, demonstrating the helplessness of international organizations and generating doubts as to whether the West does, indeed, follow its own declared values and principles. This development both opens up a huge number of additional opportunities for Russia’s domestic and foreign propaganda and justifies the Kremlin’s ambition to be one of the principal architects of the post-crisis world order.

The Possibility of the West Adjusting its International Priorities

The global pandemic that has delivered a particularly grievous (at the moment!) blow to the leading western states may well result in them revising their hierarchy of external threats and, accordingly, adjusting their system of foreign political priorities. In recent years, the established idea of Russia has come to be that of the “main problem” in global politics and the “main threat’ to the interests of the West, while COVID-19 is rapidly eroding this. Such a mental shift is unlikely to result immediately in practical positive shifts in Moscow’s relations with its western partners, but we do believe that it will open up opportunities for a “mini-reset” of these relations. At the very least, we might expect increasing pressure from the West on Moscow, as well as further escalation of the confrontation, to be averted.

The Expanding Global “Power Vacuum”

Proposals for curbing international commitments were popular in developed states, primarily the US, long before the COVID-19 pandemic. The pandemic will, however, apparently be a powerful catalyst to such sentiments, which will have an increased effect on foreign political practices. This development will manifest itself, in particular, in a possible curtailing of bilateral and multilateral financial and economic aid programmes for the global South and in reduced military and political commitments to developing partner states. The expanding “power vacuum” in the Middle East, Africa, South Asia and the post-Soviet space can create additional opportunities for Russia’s foreign policy.

Threats

Russia’s Global Economic Standing Deteriorating

The experience of the last global financial and economic crisis in 2008–2009 allows us to conjecture that, in the new upheaval, Russia will be hit harder than other countries. The prospects of even a partial recovery of global oil prices are dubious, accumulated financial reserves will be shrinking rapidly, the timeframe for Russia’s economy returning to the global average growth rate will be revised, and the threat of Russia being pushed on to the periphery of the global economy will remain. Accordingly, there is an emerging threat of Russia’s defence and foreign policy resource base shrinking, and that includes support for Russia’s allies and partners, funding for international organizations, and Russia’s participation in cost-intensive multilateral initiatives (such as implementing the Paris Climate Agreement). If the country’s current socio-economic model remains unchanged in the post-crisis world, the consequences for the “national brand” will be no less significant.

The Rise of Isolationism in Russia

Russian society’s initial reaction to Moscow’s efforts to assist several foreign states (from Italy to Venezuela) was mixed. In general, however, the pandemic is certainly boosting isolationist sentiments and reducing public support for an active and energetic foreign policy. Previously, the public saw demonstration of Russia’s presence in the Middle East, Africa, and Latin America as an affirmation of it as a “superpower”, which was perceived in a solely positive light. Now, this presence is, with increasing frequency, viewed as an unfounded waste of shrinking resources. It may be concluded that, given the pandemic, the so-called “Crimean consensus” is becoming entirely ineffective, and it is becoming harder and harder to justify Russia’s foreign policy in the eyes of the country’s population.

The Harsh Bipolarity of the Post-Virus World

The COVID-19 pandemic has evidently accelerated the shaping of the new US-China bipolarity. The recently-launched electoral campaign in the US is marked by Trump and Biden outdoing each other in demonstrating their harsh attitude toward Beijing. The confrontation between the two states is undermining the effectiveness of the UN Security Council, the WHO, G20 and other international organizations. The emerging rigid bipolarity carries systemic risks for all participants in global relations; Russia, additionally, faces other specific threats. The growing asymmetry between the Moscow and Beijing potentials is becoming increasingly visible and cooperation with China’s real or potential opponents (such as India, Vietnam or even Japan) more and more problematic.

P.S.

“Never waste a good crisis”: this paradoxical adage credited to Winston Churchill is relevant today as never before. Neither Russia nor other states should waste the systemic global crisis triggered by the coronavirus pandemic. A crisis does not give anyone grounds for crossing out their past mistakes or forgetting their past achievements. Yet a crisis is not just a convenient pretext but also a solid reason for shaking up one’s old foreign political “wardrobe.” Close scrutiny is certain to reveal things that are moth-eaten, no longer fit, or are simply no longer fashionable.

From our partner RIAC

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