China quietly reshapes Asia

China on April 21, 2009, formally concluded an agreement to lend US$25 billion to Russian state-owned oil company Rosneft and pipeline monopoly Transneft in exchange for the completion of an oil pipeline from Skovorodino in Russia to Daqing in China. Russian commentators claim that the deal was not commercially favorable to China. That contention, however, is arguably misplaced.

Admittedly, the price of the oil was set at the floating price of Brent crude oil when it arrives at the projected Kozmino Bay terminal and Russia has finally gained an Asian entree for its energy exports. Yet, while Chinese leaders may cringe at the deal’s price tag, Beijing has gained serious geopolitical advantages over Moscow in the Russian Far East (RFE) because

of the effect that the global economic crisis is having on the latter’s economy and on Moscow’s ability to control the RFE.

Moscow also now looks favorably on China’s investments in Central Asia. By opening up the RFE to Chinese investment and blessing similar investments in Central Asia, Moscow is reversing its policies toward both the Far East and Central Asia. In effect, this and other similar deals opens the door to a huge expansion – with Moscow’s assent – of China’s strategic profile in both regions. The creation of a new regional order in the RFE and Central Asia is beginning to take shape and China is set to become the region’s security manager, ensuring foremost that its portfolio investments are safe and secure.

The deal provided the impetus for significant increases in Chinese access to the development of Russian energy assets in the RFE that has hitherto been blocked (China loan turns Russian oil east, Asia Times Online, February 24, 2009). Since Moscow failed to develop the RFE under present economic conditions, it had to invite Chinese participation starting in late 2008 when it began to negotiate this loan.

Although the direct cause of this move is the global economic crisis, the root cause is the mismanagement of the Russian energy industry, which is Moscow’s main – if not only – trump card in the Far East. Yet, in doing so Moscow is undermining what experts say has been the strategic rationale behind its East Asian policy. That policy operated on the premise that Moscow would use its energy revenues to develop the RFE and Eastern Siberia further and promote Russia’s full integration into Northeast Asia as a major great power [2]. The failure of this policy does not bode well for Russia’s quest to be recognized as an independent and key player in Asia.

Asia Times Online