Russia’s OBOR Perspectives – President Putin’s and Academic Viewpoints

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putin-xiThe Russian President Vladimir Putin gave the secondary address to delegates attending China’s OBOR conference, currently being held in Beijing. The conference, hosted by Chinese President Xi Jinping, is aimed at promoting dialogue between interested nations about plans for China’s new vision of the Silk Road, of which Russia is a major part. President Putin had this to say, underscoring the need   to establish a greater Eurasian partnership to build a bridge between Asia and Europe.

“The creation of the economic development belt and organization of mutually beneficial trade between Asia and Europe seem to be an important initiative that takes into account the current trends in the world economy and also reflects the overall need for coordination of diverse integration processes on the Eurasian continent and in other regions of the world. In order to deepen integration processes in Eurasia it is necessary to liberalize trade rules, unify regulatory norms for all kinds of products and create new transportation corridors and infrastructure capabilities. It is important that all integration structures – both existing in Eurasia and newly formed – would rely on universal internationally recognized rules, and, of course, take into account the specific features of the national models of development of the participating states, act openly and transparently.”

Russian expectations for involvement in the One Belt One Road project have also been high. Sergei Kanavsky, the Shanghai Cooperation Organization (SCO) Business Council’s executive secretary, has stated that the initiative has great potential to benefit Russia. “The potential is enormous, the potential is big, interesting. The benefit that Russia can enjoy from this common movement from the east to the west is that, at least, inside the process we can control it and [influence] some projects which are necessary for Russia, for the development of the region and neighboring countries.”

However, in contrast, Alexander Gabuyev, chief of Russia in the Asia-Pacific Region program at the Carnegie Moscow Center, is more skeptical and has said that the New Silk Road project has so far failed to meet Russia’s expectations. According to Gabuyev, previous Beijing invested projects have gone ahead regardless of the potential profitability. This resulted in serious problems in the Chinese banking system in 2015. As a result, China reconsidered its strategy, placing a focus only on projects with bright financial future. “For example, since 2014, the $40 billion Silk Road Fund has invested only in five projects. If it had been a regular commercial fund it would have been dissolved long ago. So far Russia hasn’t seen much in ‘the belt and the road, because all those expectations about the influx of cheap or politically motivated money haven’t materialized.  At the same time, the Silk Road Fund has not actively been investing in Russian projects, except for buying a 9.9 percent stake in the Yamal liquefied natural gas (LNG) project and a 10 percent stake in petrochemical holding SIBUR. These are the only practical result for Russia so far. Beijing has merely used the fund as “a wallet which is not connected to the global financial system and therefore immune to US sanctions. China’s participation in these two deals should be regarded as “political investments” into friendly relations between the leaders of the two countries, which would have occurred anyway.”

The Kremlin’s press office has reported that China sees Russia as a key partner in the implementation of the New Silk Road initiative. For Moscow, cooperation with Beijing will create the opportunity to modernize underdeveloped areas in the Far East and Siberia, which are in need of investment and modern infrastructure.
Igor Denisov, a senior research fellow at the Institute for International Studies, the Moscow State Institute of International Relations (MGIMO), has stated that one of the key criteria behind China’s investments is the level of readiness of the project since Beijing does not want to be a “charity giver” for other countries, including for Russia.  “Russia should be more focused on winning the interest of Chinese investors. Taking into account the economic situation in China, Beijing will be more cautious in the selection and evaluation of economic projects abroad.” he said.

Meanwhile, during a recent Moscow summit Presidents Putin and Xi reached an agreement on integration between the New Silk Road and the Eurasian Economic Union (EEU). However, the integration principles are still in development. The key issue is to establish rules that would harmonize ties between China and the EUU member countries. We covered this potential in this article “China & Russia Propose Vast New Free Trade Area

It is normal given the tentative responses to China’s Silk Road ambitions that differing views apply. However, of all the countries involved, it is arguably Moscow that has the deeper understanding of the Chinese mindset and potential weaknesses in its OBOR plans. The underlying message seems to be that China needs to be seen to be ding more, rather than conveniently badging as “OBOR successes” politically influenced investments that would have occurred anyway.  Large parts of the Central Asian landmass have long been previously under Moscow’s influence. Knowing aspects of diplomacy and politics that China still has to come to terms with will be key to how Moscow and Beijing interact over what remains a difficult feat to pull off.

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Dezan Shira & Associates provide business intelligence, due diligence, legal, tax and advisory services throughout the Eurasian region. We maintain offices in Moscow and St.Petersburg through our Russian partner firm, as well as our own offices in China, South-East Asia and India. For assistance with Russian issues or investments into Russia and Asia, please contact us at russia@dezshira.com or visit us at www.dezshira.com

 

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