Putin to expand strategic partnership with China

Asia Times ^ | 3/12/04

[Ranger]

MOSCOW - President Vladimir Putin, certain of re-election to a second term, evidently intends to expand Russia's strategic ties with China in military sales and economic cooperation between the two Asian giants. Still, some divisive issues remain, such as the likely awarding of a major Siberian oil pipeline to Tokyo, not Beijing. The United States is watching closely and warily as the former communist allies forge powerful new ties in Asia and view Washington as a potential menace.

In Sunday's election, Putin is expected to sweep to a second four-year term and move ahead briskly with improving ties between Moscow and Beijing.

Once China and Russia were closely allied, but later the Sino-Soviet split opened and the United States took advantage of the bitter division to forge new diplomatic relations with China, sidelining the Soviets. Now the situation is very different, as both Russia and China espouse capitalism and have resolved many of their differences in the face of what they perceive to be a common rival - the US.

Last month, the US Defense Intelligence Agency (DIA) said the United States might anticipate potential problems with both China and Russia, although the US currently has good relations with the two countries. The US effort to seek bases in Central Asia - strategically important to both Moscow and Beijing - is one of many causes of concern, as well as US unilateralism in its foreign policy.

Testifying before the Senate Select Committee on Intelligence on February 25, Vice Admiral Lowell E Jacoby, director of the DIA, said Beijing "likely fears a long-term US presence on its borders", while Russia is improving its relations with some countries, most notably China, in pursuit of a multipolar world and to enhance its arms sales.

China the top customer for Russian arms
During Putin's first term, China consolidated its position as the top customer for Russia's arms industry, purchasing billions of dollars' worth of jet aircraft, missiles, submarines and other military hardware.

Russia and China were both disturbed by the Iraq war - especially the US decision to attack without broad international support - and Moscow and Beijing protested what they viewed as a rejection of the rules of the international game. They still back the primacy of the United Nations Security Council in resolving international crises, and they support the principle of non-interference in the internal affairs of sovereign states.

Apart from shared concerns about US dominance in the Middle East, Asia and elsewhere, the two nations have other common interests and mutually reinforcing needs. They are weary of - and alarmed by - militant Islamic groups in their border regions, and want stability in Central Asia.

Russia and China have said they hope to increase bilateral trade to US$20 billion a year, from the current $12 billion.

Last June, Chinese President Hu Jintao, leader of the world's most populous nation, visited Russia on his first trip abroad and signed a strategic energy pact with President Putin. Hu's speeches in Moscow emphasized the importance of a multipolar world and the need for the UN to play a central role in Iraq.

China, Russia now pledge eternal friendship
Last week, Chinese Foreign Minister Li Zhaoxing announced that presidents Hu and Putin would meet in Beijing in the second half of this year. Li also noted that the two nations share a 4,300-kilometer border - once the site of major troop deployments and occasional skirmishes - and pledge to be eternal friends. He also announced that chairman Wu Bangguo of China's National People's Congress as well as Premier Wen Jiabao would visit Russia this year to discuss enhancing their strategic partnership based on common political, economic and military interests.

Russia's ongoing government reshuffle has sent some positive signals to China. In an apparent reiteration of their shared belief in the primacy of the UN in conflict resolution, Putin appointed UN Ambassador Sergei Lavrov to be Moscow's new foreign minister. Putin also retained Defense Minister Sergei Ivanov, a close ally who also has been mentioned as a possible heir to the Kremlin leader in 2008. Ivanov has considerable China experience; last year he and his Chinese counterpart, General Cao Gangchuan, agreed to strengthen their defense cooperation. That will continue.

When Putin sacked the government of Mikhail Kasyanov on February 24, the new prime minister, Mikhail Fradkov, pledged to pledged to develop the oil sector and boost Russia's crude-oil output to ports in Asia.

However, some bilateral economic issues could prove divisive. Putin's cabinet reshuffle eclipsed - but not in Beijing - the announcement this month that Moscow would probably exclude China and accept a Japanese-backed plan to build a new oil pipeline to Nakhodka. A formal decision has not been announced. China and Japan have been competing for Russian crude - both trying to reduce their dependence on Middle East oil - and each has been backing rival pipeline routes. China National Petroleum Corp is backing a US$2.8 billion link to China's northeastern city of Daqing. Tokyo has offered to fund a $6 billion pipeline to the port of Nakhodka on Russia's Pacific coast.

Last May, Russia and China signed a non-binding contract that involves the eventual expansion of oil exports to China, up to 220.6 million barrels (30 million tons) a year. Russia's major oil corporation Yukos and China's National Petroleum Corp (CNPC) have signed a $150 billion deal for a pipeline to China to ship up to 700 million tons of oil from 2005 to 2030. Under the agreement, CNPC would buy up to 5.13 billion barrels of Russian oil, worth $150 billion, between 2005 and 2030. The $2.5 billion pipeline will run from Russia's Western Siberian field in Angarsk to to China's Daqing oilfield and refinery.

Russia to hike oil exports to China by rail
In late February, Putin supported plans of the state-owned Russian Railways Co (RZD) to boost oil exports to China. "Using railway routes for oil supplies to China is a good idea," Putin said.

The RZD said it would boost oil exports to China by rail. Shipments to China would rise to 110,000 barrels per day (bpd) in 2005 from 88,000 bpd this year, according to the company, and by 2006, oil supplies to China by rail would be running at 200,000 bpd. RZD also said it was technically feasible to boost rail shipments to China even sixfold to 600,000 bpd. An increase in rail deliveries across the border, however, makes up only a fraction of the planned pipeline deliveries.

Beijing has been viewing the Angarsk-Daqing pipeline as an important way to reduce its growing dependence on oil shipped from the Middle East. As China has been pursuing this and other oil and gas projects in the former Soviet republics, Russian pledges to boost rail shipments of crude oil to China could hardly be viewed as an alternative to Angarsk-Daqing.

Nonetheless, this month China Petroleum & Chemical Corp, the Sinopec Group, reiterated its interest in extracting Russian oil and gas. Sinopec is also willing to consider ventures in hydrocarbon refining with Russian companies. Sinopec is engaged in talks to set up joint ventures with Russia's two top oil producers, LUKoil and Yukos, the Chinese company's vice president, Wang Jiming, told Russia's Interfax news agency.

Putin, when visiting Khabarovsk in Russia's Far East last month, described the Angarsk-Nakhodka oil pipeline as a strategic project. Earlier in February, Russia's government said it wanted to build the 3,900km Angarsk-Nakhodka crude oil pipeline. The rival proposal to build a pipeline to Daqing and give China exclusive access to the oil might be abandoned, then-energy minister Igor Yusufov said.

Japan also wants to explore for oil in Russia's Far East
On the other hand, Japan Petroleum Exploration Co, a state-owned oil explorer, said it might join a research project to explore oil reserves in Russia's Far East and in Eastern Siberia, which have been estimated at as much as 100 billion barrels. Japan Petroleum Exploration would be the first Japanese company to join an oil-reserve survey in this part of Russia.

Meanwhile, last year Russia Petroleum agreed with consumers in China and South Korea to start supplies from 2008, gradually rising to 30 billion cubic meters of natural gas per year. Tyumen Oil Co-British Petroleum (TNK-BP) also plans to build Russia's first gas pipeline to Asia, also going to China and South Korea. Kovykta field in Irkutsk region, eastern Siberia, is estimated to contain some 2 trillion cubic meters of gas reserves. The $4 billion project calls for the installation of a 3,700km pipeline between Kovykta field, 400km north of Irkutsk near Lake Baikal, and China's Pacific coast port of Lianyunggang, via Ulan Bator in Mongolia.

This month TNK-BP oil company announced plans to invest $650 million to develop the major Kovykta gas field in eastern Siberia from 2004-09. TNK-BP controls 63 percent of Russia Petroleum, whose main asset is the giant Kovykta field. BP owns a 50 percent stake in TNK-BP.

The Russian government has said it projects crude output growth of up to 441 million barrels (60 million tons) in Eastern Siberia and up to 147 million barrels (20 million tons) at offshore oilfields around Sakhalin Island by 2020. According to the Russian estimates, the development of untapped oil reserves in Eastern Siberia would require some $55 billion of investments in the next 25 years. Given the scale of the projected growth, Chinese and Japanese hydrocarbon interests could be eventually reconciled in Siberia.

In the meantime, both Russia and China have been recently subject to US criticism. The State Department censured Russia and China for their poor human-rights records in a report on February 25. And the DIA has said there are reasons to anticipate potential problems with Russia and China, despite good relations with both nations at this time.

The US criticism and shared concerns in Beijing and Moscow about Washington's dominance could provide further impetus for Russia and China to overcome differences and unite on a variety of international issues.

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