RUSSIA/CIS RISKWATCH – ISSUE 3 – DECEMBER 2013

Welcome to Control Risks' Russia/CIS RiskWatch: Issue 3


Amid all the articles about the scale of Chinese investments into Africa, there’s another story which gets less coverage but which arguably has the potential to be equally transformative to existing geopolitical structures and the global economy – the increasing presence of China as a social and economic player in the countries of the former Soviet Union. In this third edition of the Russia/CIS RiskWatch newsletter, we take a look at the scale of these investments, and examine some of the geopolitical and economic implications.

Any visitor to the major cities of Central Asia – Almaty and Astana in Kazakhstan, Bishkek in Kyrgyzstan or Dushanbe in Tajikistan, (Tashkent in Uzbekistan being the exception) – will immediately be struck by two things. Firstly, the amount of Chinese-funded and manned construction, including roads, bridges, infrastructure, industrial facilities, hotel and office complexes, and, occasionally too, folies de grandeur such as the largest chaikhona (or tea house) in the world. And secondly, the roads leading to and from the Chinese border, invariably clogged day and night with trucks bringing in the cement, tiles, marble, wood, pipes, industrial goods and labour needed for the construction.

What this suggests is that the states of Central Asia are fast integrating into Beijing’s economic orbit, at the expense of Moscow and western donor nations. And who can blame them? There are many ethnic and cultural connections between the peoples of the region which were dismissed for generations but which are now being re-discovered. And as Anna Walker discusses in the first article ”China in Central Asia”, Beijing has the cash to invest, can take decisions quickly and implement them within a few short years, with few strings attached and none of the finger-wagging lectures about human rights and democracy that often accompany western investments. But where does this leave Russia, which has always considered the states of Central Asia its ‘near abroad’?

Today, relations between the two Asian giants have rarely been better. Former Premier Wen Jiabao went on record to state that developing ties with Russia is one of China’s key priorities. On multilateral issues they often share a common position in opposition to the main western powers, and vote accordingly in bodies such as the UN. Trade ties are strong and growing stronger – at this year’s St Petersburg International Economic Forum, for example, far and away the most significant deal announced was a long-term oil supply agreement between Rosneft and China National Petroleum Corporation (CNPC) worth up to US$270 billion. And joint military exercises along their shared 4,200 km land borders are now a regular occurrence.

For Russia, this ability to pivot east is a satisfying counterfoil to the long-running squabbles with its European neighbours. And of course there are huge mutually advantageous trading opportunities between the two countries – oil and gas, water, and timber from Russia, and labour and rare minerals from China –  provided the right infrastructures can be created to support this. But more worrying even than losing its influence in Central Asia may be recent Chinese investments into Ukraine and Belarus, the two former Soviet territories that more than any other share many common characteristics with Russia as ethically Slavonic and culturally Orthodox. In the second article “Chinatown in Belarus?”, Steven Eke reveals some of the Chinese investments going into these two European nations, including the remarkable plans for a Chinese-built and populated town in the heart of eastern Europe.

Trade and geopolitics are never a zero sum game, and it is clear that China’s influence in the region is likely to be on balance positive. But the scale of the interdependences that are being created across the region are set to rival the current economic interdependence between the US and China. Whether this results in increased stability or rivalry and competition remains to be seen.

As always, we welcome your comments and feedback on the articles we present here. We would be very interested to hear if you have any particular interests that you would like to be covered in future newsletters, so please do not hesitate to contact me at tim.stanley@controlrisks.com. As 2013 draws to a close, we would like to take this opportunity to extend our best seasonal wishes to all our readers, and we look forward to working with you in 2014.

Tim Stanley

Tim Stanley, Managing Director, Russia/CIS