An interesting look at the relations between Russia and China and their impact on the global balance of power.
Written by HB exclusively for SouthFront: Analysis & Intelligence
Is there a new economic regime on the horizon?
In the last couple of years we´ve seen a lot of news about the emerging economic powers, the so called BRICS nations. Events such as the launching of the new development bank the AIIB, the denomination of the Chinese renminbi and most recently its admission in to the IMF´s SDR-basket have hit the headlines in recent times. But to what extent is this just rhetoric, and how much of this is of real significance? Are we really closing in on a historical shift in terms of the global economic structure, such as occurred in the 1870´s,1914,1944 or 1971?
The time frame certainly seems to fit but what are the implications? Do Sino-Russian relations have any significance at all in this aspect, and in particular the latest gas deals with China? The answer lies in analysing the tri-polar relations of the leading world powers China-Russia and the U.S.A.
The opening of China and Nixon´s abolishment of the dollar-goldstandard in 1971.
In the 1860´s and 1870´s different economic unions where established such as the Latin Monetary Union and the Nordic Monetary Union. The currencies of these unions as well as other currencies such as the British Pound Sterling at that time where all based on a gold standard. Hence this period of monetary history has been called “the age of the classic gold standard”. In 1914 at the outbreak of world war I, most countries had to abandon the gold-convertibility of their currencies.
Two prominent nations however continued to have gold-redeemable currencies. One was Great Britain (the old empire) under the Bank of England and the other was (the emerging power), the United States of America with its newly launched Federal Reserve Bank. In 1944 at the end of world war II, the U.S. officially overtook Great Britain´s role as the sole economic hegemon of the world, not as an adversary, but as an important ally to the old empire. At the Bretton Woods Conference that year it was decided that only the dollar was to be convertible to gold, but the value of other currencies where to be measured in dollars. This system has been called the “Bretton Woods system” or “the dollar-goldstandard”. In 1971 becouse of pressure mainly from Germany and France to redeem large amounts of dollar-holdings to gold, president Nixon abandoned the convertibility of the American dollar. This occurred as the European manufacturing-base was beginning to surpass the American output for the first time since the end of the war. This event marks a new era in terms of the world monetary system. It also marks the beginning of the U.S.A´s conversion from a production driven economy to a mainly consumer based one.
The opening of China, and its emergence on the global market can also be traced back to 1971. That year Nixon sent Henry Kissinger on his two historic and secret missions to Beijing to pave the way for the opening of China´s economy. Since its opening in 1972, China has gradually grown in to the biggest manufacturing base in the world. In a recent CCTV interview Kissinger spoke about his historic trips to Bejing and their implications. He explains that when he came to Beijing for the first time in 1971, there were no automobiles on the streets, no consumer goods, no skyscrapers and the people were all dressed the same. He further caims that if someone had told him then, what Beijing were to look like in the year 2015, he would have considered that person out of his mind. It is an astonishing achievement of the Chinese people he asserts. Kissinger also explains how the trade relationship with the U.S. has been a big part of this development in China. In 1971 the U.S.´s trade with China was less than with Honduras . Today it´s of global proportions and neither U.S. or China can benefit at the expense of the other he argues.
The joined economies of the two countries now represent half of the global economy. For this reason Kissinger assumes the two countries need to deepen their diplomatic dialogues. The accomplishments of such a dialogue he maintains need to be viewed by the long term trends, but not in terms of the day to day statements. As China is re-emerging in to its historical place as a global power, Kissinger hopes the relationship will not be one of Military confrontations, but one of common problem solving. He proclaims that if one of the economies gets damaged, not only will the other follow suit but the whole world-economy will suffer.
When Kissinger is asked about the implications of the recent slowdown in the Chinese economy, he affirms that it is an unavoidable side-effect of China´s transformation, from a production driven economy to a consumer based one. He also points out that in a historical perspective “western economies” (like th U.S.A. after 1971) have gone through similar transformations before and suffered periodical crisis during that process. Both China and the U.S. should acknowledge this fact according to Kissinger, and synchronize their economic policies to minimize the impact.
The economic relationship with China he points out is now and has been for a while, an indispensable part of the current world system and for that reason it has also been the most continual and consistent foreign policy of the U.S.A. since 1971. Every U.S. president since 1971 has been brought to this reality, whatever the rhetoric in the election campaign was, Kissinger explains.
The Shanghai summits, Sino-Russian relations
As I have explained an economic regime-change can happen gradually over a long period of time like in the case of the U.S.A. and Great Britain around 30 years from the launching of the federal reserve in 1914 to the Bretton Woods conference in 1944. Also, as in the case of Great Britain and the U.S. the old and the new hegemon can in fact be allies just as well as adversaries through this evolution. Although Russia is not a candidate to compete for the role of world economic hegemon, the Sino-Russian relationship is an important factor that can influence how the shift from west to east develops and at what speed.
American strategic experts know that Sino-Russian relations have an effect on U.S.-Chinese relations, therefore they pay attention to important developments. A series of such developments have taken place this year. The two eastern countries have laid the foundation for massive economic co-operation. In the latest Shanghai summit, Russia committed to supply China with 25% of its current consumption level of natural gas before the year 2018. CSIS held a conference recently to discuss what effect the deepening Sino-Russian economic ties can have for the U.S.-Chinese relations. Former U.S. National Security adviser Zbigniew Brzezinski maintained that Russia is not a global economic power. Furthermore, he does not view Russia as a global military power except with regards to its nuclear capabilities, which are close to those of the U.S. A´s.
China however is a global economic power but it is very limited in its nuclear capabilities. Brzezinski thinks this fact makes Russia an important ally for China. He regards China and the U.S. as the pre-eminent gobal powers, but he acknowledges the fact that China has the option of utilizing Russia against the U.S. when ever convenient. Although Brzezinski believes the U.S.-China relationship is the pre-eminent relationship of the triangle and not the Russian-Chinese one, he acknowledges that the Chinese media is very hostile to the U.S.A. and vice versa. This is not the case in the Russia-China relations and in fact Putin is very popular among the Chinese public. The Chinese leadership also appreciates the fact that the Russians accept their political accommodations (one party system). Brzezinski also worries about how the Chinese view the growing disparity between the rich and the poor in the west, and thinks this could be a damaging factor in the U.S. relationship with China.
Ambassador J. Stapleton Roy, Founding director of the Kissinger institute on China and the United States, and a leading expert at the Wilson-center thinks that both China and Russia have very strong impulses to develop their relationship. Neither country likes to see a “one-polar” world system emerging. Stapleton Roy explains that China and Russia settled their historic border disputes peacefully ten years ago. So geo-strategically they now stand back to back so to speak. He views the Sino-Russian relationship as being currently at its best in post worldwar II history, including the years of communist co-operation.
Ambassador Stapleton focuses his analyses on energy supplies. He points out that before 1990 China´s energy policy was one aimed at self sufficiency, after 1993 however it became increasingly dependent on energy imports. So far it has had an energy policy aimed at diversified supplies. He explains that Europe wants to diversify away from Russia since they don´t like to be dependent on Russia for gas. This he assumes will inevitably increase Chinese demand for Russian gas, and push the two giants even closer to one another. So in a way here Europe and China are competing for the same energy base.
Those that read my previous article about the political economy surrounding the Turkish-Russian crisis know that there may be American impulses to scale down Russian influence in Turkey by altering the energy flows from Russia through Turkey in to Europe. Perceptive readers however might also have noticed that the increased Iranian supply was to be re-directed out of China and in to Europe through Turkey. So this would serve as a good example of what Stapleton Roy is talking about.
The latest Russian-Chinese gas-agreement seems a very important one, a commitment of 38 billion cubic meters annually, that´s a very big deal by any measure. Also China agreed to Russia´s oil based price-formula. The Chinese have been resisting the formula (an oil- indexed gas-price) in negotiations with Russia for ten years but now all of a sudden they agreed to it. The total Chinese consumption is 70-100 billion cubic meters annually, so the deal is 25%-50% of Chinas current consumption levels. It will however have to be increased drastically before 2018, maybe even doubled, since China is moving away from coal and in to cleaner energy. Since China is doing other gas-deals such as with Turkmenistan and others, the Russian deal should not make China dependent on Russia, Stapleton claims, at least not in the sense of political influence.
The former prime-minister of Australia, Kevin Rudd is an expert on International relations and a long time student of China. Rudd also speaks Mandarin. He views the latest Shanghai agreements as a dramatic world event that fundamentally turns the dial on the arrangements made by Henry Kissinger and Richard Nixon in the early 1970´s. He thinks they represent a combination of forces which have been at work in the Sino-Russian relationship and U.S.-China relationship for a long time and which will fundamentally begin to alter the premises of the 1972 strategic concorde.
Regarding how the Chinese view the Russian relationship, Rudd mentions 4 factors.
- The Chinese leadership´s first priority is to remain in power. There is no critique of their political arrangements coming from Moscow as opposed to Washington.
- The Sino-Russian historic border settlements are a major comforting factor. China no longer views Russia as a threat.
- China is in the stage of converting the economy from a production driven (energy intensive) economy to a consumer based (less energy intense) economy. China is looking for securing longtime energy security, food security, raw materials e.t.c. In this sense China views Russia as a huge long time strategic partner of fundamental significance.
- China has recently launched a new kind of pro-active diplomacy towards its neighbors, aimed at increasing its influence. The strategic relationship with Russia is an indispensable part of that new diplomacy, according to Rudd.
Regarding the Russian perspective on the relationship Rudd names 3 factors.
- China does not challenge their political arrangements.
- Their economic relationship with China is an insurance policy against pressure coming from elsewhere (such as western sanctions).
- Russia wants to see a multi-polar world. Relations with China are important to retain that world order.
Rudd also points out that there are some anxieties in Russia regarding China too. Being the weaker of the two countries, they fear Chinese influence growing too much. The Russians don´t want to be told what to do by the Chinese.
Brzezinski thinks this anxiety will eventually bring Russia closer to the west. That however, he explains, depends on how the U.S.-Chinese relations will develop. The U.S. therefore needs a better relationship with China, Brzezinski adds.
So it´s in this context that closer relations between Russia and China have great significance. How they develop in the future, will have a major impact on how a new world order unfolds.
The power triangle of the three nations can be visualized as a color-triangle. The dimensions of power in the relations between the old and the new empire (U.S.A-China) are probably somewhere in the light green area for the moment. China needs to draw power from Russia to move the U.S. relations closer to the blue area. That would also mean their Russian relations turned a little red-purple in the process.
The Chinese gas-deal with Russia moves the Sino-Russian relations more towards the red-purple, without however visibly moving the U.S.-China relations at all. But China also gave in to an oilprice-indexed deal, they´ve been resisting for years. That gives OPEC some leverage too, I assume. Which I would also imagine moves both the Green and Orange squares closer to the yellow at the same time on the triangle. That would mean an overall power movement of North-West on the triangle, (Directly away from China). The simple explanation to that is simply, China really needs that energy. However, as J. Stapleton Roy pointed out we have to be careful here “we don´t know the details of this deal, and it´s very likely that Russia was dealing from a weak position”. So maybe the key factor in the deal is not the gas, but the unknown factor . This leads to the question, did China get something else in return?