Russia’s Ukraine Invasion Leaves China In A Quandry

CHINA DID NOT want a Russian invasion of Ukraine and, ahead of Russia sending in troops, had distanced itself slightly from Moscow despite the agreement between Presidents Xi Jinping and Vladimir Putin during the Beijing Winter Olympics reaffirming their ‘no limits’ partnership.

A shared antipathy to US foreign policies is one thing; going to war as allies is another. Historically, the relationship between Beijing and Moscow has blown hot and cold. Partly, that is because there has rarely been the parity of power that is one of the prerequisites for a strong security alliance. Today, China is far the stronger of the two. Nor is ‘my enemy’s enemy is my friend’ the true confluence of interests that is another prerequisite.

Beijing has not followed Moscow in recognising the Russian-backed separatist-held areas of Donetsk and Luhansk as independent. (It was not happy when Russia annexed Crimea in 2014.) It will be keen to avoid the diplomatic gymnastics necessary to avoid violating its oft-repeated principle that China does not interfere in the internal affairs of others and that other countries should not interfere in its internal affairs.

However, it will now face having to make realpolitik choices.

It is unlikely to endorse the invasion formally but equally unlikely to condemn it. Nor will it join international sanctions against Russia, arguing that sanctions are ineffective. In doing so, it is taking a swipe at US sanctions against China more than advancing an argument on first principles (not that that argument is not without foundation).

Moscow will undoubtedly look to Beijing for economic support to provide sanctions relief. That will mostly come from increased Chinese purchases of Russian gas, as already agreed via Gazprom’s newly signed second gas supply contract.

Beyond that, China will offer little more than rhetorical support. In November, the two countries signed a three-year military cooperation agreement for joint military exercises and patrols. However, the primary purpose is political, and military inter-operability is limited.

Of several joint exercises undertaken in 2021, most served to bolster Beijing’s display of force towards Japan and South Korea, neither country being a particular focus of Russian foreign policy concern. Tellingly, China did not reciprocate by participating in Russian exercises on its European borders.

If Putin thought he could expect China’s full-hearted support for an invasion of Ukraine, he misread Xi badly. China has distanced itself from the invasion, with officials stressing that Russia ‘is an independent major country, and it decides its policy and actions independently according to its own strategic judgment and interests’.

Foreign Minister Wang Yi has repeatedly made China’s usual milquetoast calls for restraint on all sides and for the situation to be resolved through dialogue. Yet his spokesperson — Hua Chunying, making an unexpected return to the podium to conduct the ministry’s routine press conference on February 23 despite her recent promotion of assistant minister — was typically pugnacious towards the United States:

A key question here is what role the US, the culprit of current tensions surrounding Ukraine, has played. If someone keeps pouring oil on the flame while accusing others of not doing their best to put out the fire, such kind of behaviour is clearly irresponsible and immoral.

She struck the same note the following day, following the start of the Russian military action. State media and social media, too, reinforce the narrative that the United States is responsible for the tensions in Ukraine. They are also dampening any discussion about Russia protecting or reincorporating minorities that could raise awkward questions inside China about the situations of many of its population.

Beijing will also be warry of nationalist voices that say Russia’s invasion of Ukraine provides a template for invading Taiwan. However, it will be calibrating the West’s response to Putin’s moves into Ukraine as a guide to how far it can continue to push against Taipei without getting significant international pushback.

Further complicating China’s position over Ukraine is its trade and investment interests along the Belt and Road, particularly in the former Soviet states of Central Asia. While it accepts Moscow’s security dominance there, it has sought to deploy its commercial power to establish its influence.

Ukraine is a way station along the Belt and Road’s routes to Europe. Last year, China signed an investment agreement with Ukraine, which it also hopes will become a source of food imports. China is already Ukraine’s largest trading partner.

War in Ukraine will set back Beijing’s efforts to drive a wedge between the EU and the United States over their strategic responses to China.
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Cyber And Space, More Than Blue Water, Next Theatres Of War

 

CHINA HAS BEEN reclaiming land for the deployment of dual-use facilities such as radar stations and landing strips in the disputed waters of the South China Sea for a while. Long-standing readers may recall this 2012 photograph of a radar station at the Zhubi reef in the Nansha Islands (the Subi Reef in the Spratly Islands to much of the rest of the world).

However, the rhetoric around the reclamation — and the reclamation itself — has been ratcheted up in recent weeks. Washington’s new defense secretary, Ashton Carter, is among those recently weighing in to air his concerns. Those of China’s regional neighbours have also been well and repeatedly advertised.

Beijing’s recently released new defense strategy document will do little to calm those concerns. While to this Bystander’s eye, the document does little more than codify developments that have been in train for sometime, explicitly laying out the greater priority China is placing on its navy and “open seas protection” makes a statement in more senses than one.

There is no doubt that China is modernizing its navy to ensure its access to open sea and its ability to defend its sea lanes beyond. Plans for new aircraft carriers, destroyers and nuclear-power subs bear ready witness to that. But for all its rapidly rising defence budget, Beijing still has a long way to go before it can match the capabilities of Washington’s blue-water fleet.

The United States will continue its Asian ‘pivot’ and, more particularly, military overflights to undermine the notion that land reclamation establishes sovereignty over the artificial islands created in those waters — ‘meddling in South China Sea affairs’ by Beijing’s lights, which is one of the risk factors for ‘security and stability along China’s periphery’, as the new strategy document puts it.

However, it is easy to be distracted by China’s naval build-out from the the other priority areas that the new strategy document highlights. The new frontiers of military competition are, to Beijing’s mind, outer space and cyber warfare. The new strategy document puts it thus:

The world revolution in military affairs is proceeding to a new stage. Long-range, precise, smart, stealthy and unmanned weapons and equipment are becoming increasingly sophisticated. Outer space and cyber space have become new commanding heights in strategic competition among all parties. The form of war is accelerating its evolution to informationization. World major powers are actively adjusting their national security strategies and defense policies, and speeding up their military transformation and force restructuring. The aforementioned revolutionary changes in military technologies and the form of war have not only had a significant impact on the international political and military landscapes, but also posed new and severe challenges to China’s military security.

We have noted before China’s ambitious space plans, and the opportunities they provide for developing dual use technologies. The new strategy document promises:

China will keep abreast of the dynamics of outer space, deal with security threats and challenges in that domain, and secure its space assets to serve its national economic and social development, and maintain outer space security.

Earlier this year, there was confirmation of the poorly kept secret that China has both military and state-security-services run cyber-warfare units. Previously Beijing had dismissed all suggestions made in Washington and Brussels that China was behind repeated cyber attacks on U.S. and European targets. Indeed, its sees itself as more hacked than hacker:

Cyberspace has become a new pillar of economic and social development, and a new domain of national security. As international strategic competition in cyberspace has been turning increasingly fiercer, quite a few countries are developing their cyber military forces. Being one of the major victims of hacker attacks, China is confronted with grave security threats to its cyber infrastructure. As cyberspace weighs more in military security, China will expedite the development of a cyber force, and enhance its capabilities of cyberspace situation awareness, cyber defense, support for the country’s endeavors in cyberspace and participation in international cyber cooperation, so as to stem major cyber crises, ensure national network and information security, and maintain national security and social stability.

In the case of international cyber cooperation, China has already been working more closely with Russia on cyber operations further extending Beijing’s strategic cooperation with Moscow.

China Picks And Chooses Its Gas Suppliers

Gazprom’s decision to put off construction of a $38 billion trans-Siberian gas pipeline for a year will trouble Moscow more than Beijing. The delay is because the two countries continue to be apart on pricing for new Russian gas exports to China.

China, for all its energy hunger, is the more ready of the two to wait to get the pricing it wants on the 38 billion cubic meters of gas it has agreed to buy annually from Gazprom. Russia, on the other hand, is anxious to get its oil and gas companies selling to Asia to cut their reliance on European markets.

The International Energy Agency recently estimated that China will absorb one-third of new LNG supplies worldwide over the next five years as its demand grows by 12% a year. In June, Rosneft signed a contract to supply 2.6 billion barrels of crude oil to China National Petroleum Corp. (CNPC) over the next 25 years, with CNPC also taking its first stake in a Russian gas-export project, 20% of Novatek’s Yamal LNG fields. Novatek, as Russia’s second-largest gas producer, is a Gazprom rival. CNPC will import 4 billion cubic meters of gas a year under its deal, likely starting in 2016.

Earlier this week, CNPC secured a deal to buy more gas from Turkmenistan. State-owned TurkmenGas will up its annual sales from 40 billion cubic meters a year to 65 billion cubic meters a year by 2020. China last year imported 20 billion cubic meters from Turkmenistan. The extra 25 billion cubic meters will come from opening up the second phase of TurkmenGas’s giant Galkynysh field. CNPC will do the development which is being paid for with Chinese financing. Gazprom can wait.

Carrier Chess

A passing symmetry to Russian president Vladimir Putin’s visit to China that caught this Bystander’s eye: his country has sold unwanted aircraft carriers to both Beijing and New Delhi. India’s INS Vikramaditya, the former Admiral Gorshkov, started sea trials this week while China’s Varyag completed its seventh sea trial last month. China’s is of more recent vintage, but India’s is likely to be able to deploy more advanced fighters and helicopters at sea. For both countries, though, it is all about a symmetrical projection of power at sea.

Fear Of China Holds Back Brics

Five Apart

All that the Brics nations — Brazil, Russia, India, China and South Africa — really have in common is that they aren’t quite yet developed economies while calling them developing nations no longer does them justice. They have repeatedly found it difficult to make common cause. Witness their inability to come up with an agreed candidate for the presidency of the World Bank, or the managing directorship of the International Monetary Fund last year, come to that. On big issues like climate change, where the quintet could assert global leadership, they have been even more divided.

All the old divisions were on view at their summit in New Delhi this week, as was one of the main underlying causes of them. While the five nations agreed to study the feasibility of creating a Brics multilateral agency to fund infrastructure and core sector projects — a sort of mash-up of the World Bank, the regional development banks and the IMF, but their own — and to make it a tad easier to settle bilateral trade between Brics nations in local currencies, both decisions fell short of the progress in institution building that had been hoped for ahead of the meeting.

The reason is that Brazil, Russia, India and South Africa are all rivals of China in various ways. Each has their economic and geopolitical interests that don’t necessarily align with those of the others. All are competing for investment and trade, not just with each other but with developed and developing countries. All are seeking a sphere of influence and a place at the global high table. China’s is the common shadow they see falling over their efforts. Hence the wary progress in Delhi, beyond the easy sweeping joint statements of concern at global imbalances and criticisms of loose monetary policy in developed economics. Brazil, Russia, India and South Africa fear the clout that China would have in a Brics Bank and a growing trading block, however informal, in which the yuan would be trending towards being its single currency to the exclusion of the dollar. So none is rushing to bring any of that any closer. As long as those sorts of fears persist, the Brics, as a group, will have little influence on world affairs, regardless of the members’ individual economic clout.

China’s Military Modernization: Stepping Ahead

One can see pretty much anything one wants in the 2012 defense budget China announced last weekend, and which the National People’s Congress (NPC) will approve this week: more military build-up from an increasingly assertive regional power; catch-up spending for a developing nation’s armed forces still in need of substantial modernization; even a proxy for the expected slowdown in the economy overall. It is arguably all those things, but most of all it is pretty much more of the same. China has had double-digit increases in its official defense budget every year since 1989, with the exception of 2009’s 7.5%.

Ahead of the NPC’s opening, spokesman, Li Zhaoxing  announced that defense spending in 2012 would be 670.2 billion yuan ($110 billion),  a rise of 11.2% on 2011’s figure. It is the first time the budget has topped $100m, if that arbitrary threshold matters to you. The proposed increase for this year is  smaller than last year’s 12.7% rise, reflecting, as promised under the current five-year plan, the slowdown in the overall economy.

This year, for the first time, China says, it is including weapons R&D and acquisition in its numbers, which have in the past been overwhelmingly for personnel pay, maintenance and equipment. Quite what difference this makes to the headline number is unclear. How big a bite, for example, is the new aircraft carrier, or China’s new anti-ship missiles and J-10B jet fighters taking out of the official defense budget, if, indeed, that is where they are being accounted?

As is well accepted, the official defense budget is reckoned to account for less than two-thirds of China’s total military spending. The People’s Armed Police has its own budget, as does the militia. Some, if not all, of both budgets can reasonably be considered military spending. But more opaque is the question of how much is being spent under the aegis of the space program and the development of the strategically important “national champion” industries on R&D that has dual military-civilian use, or in the space program’s case, pure military use.

Not only does China still spend less than a third as much on defense as the world’s largest military power, the U.S. (however you add up the figures),  much of the operational deployment of China’s new military toys is still years away. Nor are its aircraft, missiles and ships yet comparable in the aggregate with those in the most advanced fighting forces, despite the ambitious development of a huge domestic aerospace and defense contracting industry.

Pravda reports from Russia that China is trying to buy 48 of Russia’s new Su-35 fighter jets. The $4 billion deal is being held up Moscow’s concerns that their advanced frontline fighter will be cloned by the Chinese military, as happened with its Su-27 (the inspiration for China’s J-10) and the Su-30 (the J-11). If this deal comes off, it would be the first time that Beijing has bought foreign fighters for the PLA Air Force in more than a decade. What is unclear is whether this is an attempt to leap-frog to the future or a deal that is necessary because domestic development is falling behind. Aircraft engines and radar systems, we are told, are the critical areas where progress is not as rapid as hoped.

That may be one reason that President assumptive Xi Jinping reportedly rebuffed U.S. President Barack Obama’s suggestion during his recent visit to Washington that the two countries’ military hold regular talks, as their economic and security officials do. A peep behind the curtain may reveal a less than flattering picture for the world’s second most expensive military force. Xi, who has close ties with the army–his father was one of Mao’s revolutionary generals before falling from grace–will not want to embarrass the PLA, and especially not while he is assuming the reins of power.  And just as he will want to keep his military onside during the transition, he will want to keep America’s off-balance and guessing to the extent he can.

There is no doubt that Beijing will continue to build-up its military forces, particularly the navy, which is developing submarine and carrier fleets to the extent it can be a power in regional waters, the logistics capability of the national command and support infrastructure, and the capacity to fight in space and cyberspace. It wants a modern, self-sufficient fighting force by the early 2020s. The 2012 military budget just keeps it marching in that direction.

China, Russia Settle East Siberian Oil Pricing Dispute.

The long-troubled negotiations over China’s purchases of Russian oil have reportedly taken a step forward. Russian press reports say a new deal ensures a below-market price for China’s oil imports from East Siberia. Russia’s largest state-controlled oil company, Rosneft, and the pipeline monopoly, Transneft, are to give China National Petroleum Corporation (CNPC) a $1.50 a barrel discount on the oil it gets via the East Siberian-Pacific Ocean pipeline relative to the market price of Russian oil shipped to other buyers from the Pacific Ocean port of Kozmino.

China receives the vast majority of its Russian oil via a spur on the pipeline from Skovorodino to Daqing, shown above, that opened in January, 2011. But it is starting to buy Kozmino cargoes as an alternative to Iranian oil. Rosneft reportedly says the deal will cost the Russian side $3 billion a year in revenue. That seems haggling hyperbole, rather than a real number. The arithmetic suggests $3 billion over the life of the contract would be closer to the mark. Whatever the true figure, the Russians may just have to write it off as the cost of ending the dispute. China funded the building of the pipeline with a $25 billion loan but claimed Transneft overcharged for transport costs. These are part of the formula for pricing the oil with which the loan is to be repaid at a rate of 15 million tonnes of crude a year from 2011 to 2030.

The two countries still have outstanding negotiations over natural gas. Price is a point of contention in those discussions, too. However, there has been agreement that Russia will start supplying China with Eastern Siberian gas in 2015.

Beijing’s Home-From-Home Syrian Veto

China’s veto of a UN Security Council resolution on Syria this weekend was not its first, but it is the more controversial. Forget China’s protestations that it exercised its veto to be supportive of Moscow’s “reasonable concerns” over the resolutions’s wording and to help maintain the unity and authority of the Security Council, seen above in session on Feb. 4th. Forget, too, the Iranian dimension to all this. There was never a realistic chance that Beijing would support a resolution calling for forced regime change in the face of popular protests and “a political transition to a democratic, plural political system.”

“The sovereignty, independence and territorial integrity of Syria should be fully respected,” said Li Baodong, China’s permanent representative to the UN. Change one proper noun in that sentence and it will sound awfully familiar.

China, Russia Make Scant Progress In Resolving Energy Disputes

The agreement signed with Russia after the latest round of Sino-Russian energy cooperation talks just concluded in Moscow papers over some wide cracks. For one, there doesn’t seem to be much more to the agreement than that the two countries will continue to try to conclude their long running discussions over two long-term gas-supply deals. Xinhua’s report is all cheer and no content.

What the two sides have been talking about, seemingly since when the Siberian forests that became the oil and gas were still forests, is to expand an outline agreement under which from 2015 Russia’s gas monopoly Gazprom would supply 30 billion cubic meters a year–roughly one-third of China’s 2009 consumption and a quarter of Russia’s total exports–to more than double the volume, supplied via two direct pipelines from Siberia to western and central China. The formula for determining the price has been the main sticking point.

Been there, done that, got nowhere. Pricing is at the heart of the dispute over the Russian oil China has recently started getting via the Daqing spur to Russia’s East Siberia Pacific Ocean pipeline (ESPO). The deliveries are the result of $25 billion-worth of loans in 2009 from China National Petroleum Company (CNPC) and the China Development Bank to the energy company Rosneft and the state-owned pipeline monopoly Transneft that was to be repaid in oil, expected to be 15m tonnes a year (150,000 b/d) for 20 years starting this year.

The oil started flowing at the start of the year, but since then China has accused Russia of overcharging it for the deliveries, and demanded more oil as a make-up, while Russia said China was way underpaying given market conditions. The pricing formula has broken China’s way and Russia can sell to Japanese, South Korean and American customers far more profitably. It certainly has no intent to double up on its losses supplying China. Transneft has threatened to sue CNPC in court. Hard ball meets hard ball.

Meanwhile, the deliveries continue at their original levels. Last month CNPC and Rosneft broke ground for a joint-venture oil refinery in Tianjin that will be able to refine 260,000 barrels a day and is due to start operations in late 2013.

On the gas front, China’s increasing ability to source domestically and from Central Asia and some doubts about Gazprom’s capacity to deliver the extra gas has strengthened Beijing’s negotiating hand, while the higher prices Russia can get for its gas in Europe make Moscow in no hurry to resolve the issue, let alone buckle. Vice Premier Wang Qishan said after the Moscow that China “hopes the two sides could make further essential progress in gas talks as soon as possible and that the two sides exchanged views and plans on future energy cooperation, demonstrating mutual trust as well as candid and pragmatic spirit of cooperation between China and Russia”. Which pretty much says there was no progress.

 

 

Cheap Russian Oil Starts Flowing To Northern China

The first Russian oil has flowed through the Daqing spur of the 2,750 kilometers pipeline connecting East Siberia to the Pacific Ocean (ESPO). The picture above shows the 1,000 kilometers spur at Mohe, where it enters China. Up to now China’s deliveries of Russian oil have come via Russia’s Far Eastern port of Kozmino to which it travels by rail from the Skovorodino terminal of the main ESPO pipeline.

The pipeline has been built by the Russian state companies, Transneft and Rosneft, using a 20 year $25 billion loan repayable in oil on favorable terms. China will be paying one-fifth as much for Daqing-delivered oil as it does for the supplies that come via Kozmino.

Russia sees a growing export market for its energy in China, though progress on oil stands in marked contrast to natural gas, the fuel to which China is switching from coal to generate heat and power. Negotiations over supplies and building the infrastructure to deliver them are stalled over price, and to a lesser extent some geopolitical jockeying in Central Asia. However, there has been agreement that Russia will start to supply China with Eastern Siberian gas in 2015.