Russia’s Second Asian Pivot

 

In the aftermath of Western sanctions on Ukraine, many analysts have predicted that Russia will reorient its economy away from the West, with which it has profitably traded energy in exchange for investment and consumer goods, toward the East, toward China above all.

There are some signs that economies ties between Russia and China are developing. Chinese direct investment in Russia more than doubled in 2014, reaching $8 billion, according to China’s Ministry of Commerce. Leading Russian banks including VTB and VEB have received loans from Chinese banks, according to Gordon Orr of McKinsey. And 2014 also saw several notable Chinese investments in Russian manufacturing and infrastructure projects.

Yet there are reasons to be skeptical that the two countries are beginning a new era of closer economic relations. As Sergey Tsyplakov of Sberbank noted recently, trade relations between the two countries “stand on one leg”—oil and gas. That explains why, despite the high profile deals mentioned above, the dollar value of Russian-Chinese trade has fallen sharply in recent months. Because oil and gas makes up the bulk of Russian exports to China, trade volumes are very sensitive to energy prices. Because oil prices fell by 50% over 2014, the dollar value (and the yuan value) of Russian exports to China plummeted, too.

So how should analysts interpret Russia’s economic relations with China? This is not Moscow’s first “pivot to Asia.” In the 1980s, Soviet leader Mikhail Gorbachev sought to improve political and economic ties with Asian countries, including China, South Korea, and Japan. For several years during the late 1980s, it appeared that Gorbachev’s “pivot” was making great strides, but Gorbachev’s policy fell apart amidst his country’s economic collapse in 1990 and 1991. Understanding the Kremlin’s Asian pivot of the 1980s sheds light on the possibilities of today’s policy—and on the serious challenges it faces.

In the 1980s, many Soviet analysts believed that the West was…

Continue reading “Russia’s Second Asian Pivot”