Neighbors, Partners, Competitors: Drivers and Limitations of China-Russia Relations

 31.12.2021

Neighbors, Partners, Competitors: Drivers and Limitations of China-Russia Relations

Russia in the Asia-PacificPax Sinica

A Russian honour guard attends the parade of the participants of the military drills at Tsugol training ground not far from the borders with China and Mongolia in Siberia. Photo: Mladen ANTONOV/AFP/Getty Images)

Alexander Gabuev

Over the course of the last thirty years, China and Russia have demonstrated that their partnership is resilient and expanding. Any pragmatic leadership in the Kremlin—even a democratic one that seeks to improve ties with the West—will try to maintain stable and friendly relations with China, just as any pragmatic Chinese leadership will do with Russia.

“While not being a military and political alliance, such as those formed during the Cold War, Russian-Chinese relations exceed this form of interstate interaction. They are not opportunistic, are free of ideologization, involve comprehensive consideration of the partner’s interests and non-interference in each other’s internal affairs, they are self-sufficient,” reads a joint statement adopted by the Chinese and Russian leaders Xi Jinping and Vladimir Putin during their virtual summit on June 28, 2021 commemorating the twentieth anniversary of the Treaty of Good Neighborliness and Friendly Cooperation.

Despite obvious diplomatic finesse, this official formula has a ring of truth to it. In the thirty years since the collapse of the Soviet Union, China and Russia have vastly improved their relationship. They have managed to resolve a territorial dispute that had dogged ties since the Sino-Soviet border conflict of 1969; Beijing and Moscow are engaged in a multifaceted political dialogue; and trade between the two neighbors has seen a fourteenfold increase since 2001. Thus, when Xi and Putin characterize the relationship as “the best it has ever been,” this depiction is correct—at least for now.

There are, however, multiple limitations to the China-Russia entente, not to mention headwinds that could disrupt this partnership in the future.

Drivers

There are four major drivers behind the improved China-Russia ties. First, both countries want to maintain peace along their 4,200-kilometer border, and do not want to go back to the years of costly and risky confrontation. Overcoming that confrontation took a resolute effort by political leaders in the Kremlin and Zhongnanhai going back to Mikhail Gorbachev and Deng Xiaoping, and since 1989, Beijing and Moscow have been remarkably consistent. By 2006 the territorial dispute was fully resolved, removing the major irritant in bilateral ties.

Moreover, since China’s population is rapidly aging, and its economy provides better employment opportunities at home compared to the depressed Russian Far East, Moscow’s fears about China’s demographic expansion to that part of the country have been significantly allayed. Good markers of this changed attitude are the Vostok 2018 military drills that included a large contingent of Chinese troops for the first time, as well as infrastructure projects to link the two banks of the Amur River border by bridges. The sheer distance between Moscow and Beijing serves to ease the security concerns of both sides, including the Russian leadership’s fears over Chinese intermediate range missiles. Nor are there any countries in between Russia and China that are as significant to the Kremlin’s sense of security and national pride as Ukraine or Belarus on Russia’s western flank.

Second, the two economies naturally complement each other. Russia has a huge endowment of natural resources, but needs technology and capital. China is, in many ways, the opposite, which means there is a potential to explore these synergies. Beijing has pledged to decarbonize its economy by 2060 but switching power generation away from coal to natural gas is part of China’s strategy to achieve that target. Trade between the two neighbors has grown from $10.7 billion in 2001 to nearly $140 billion in 2021 and is set to expand more with existing projects like the Power of Siberia gas pipeline reaching full capacity of 36 bcm/year and the launch of new projects like Power of Siberia 2 with 50 bcm/year capacity. Beijing wants to ensure access to commodities transported over secure land routes from a friendly state, while Moscow wants to decrease its dependency on European markets and monetize Russia’s natural resources before the global energy transition takes its toll on hydrocarbon prices in coming decades.

Third, despite significant differences between their domestic political setups, both China and Russia are ultimately authoritarian regimes. They don’t interfere in each other’s domestic politics, and issues like the imprisonment of the opposition leader Alexei Navalny in Russia or Beijing’s human rights record in Xinjiang and Hong Kong never poison the exchanges between the two governments. Moreover, as two permanent members of the United Nations Security Council, Beijing and Moscow cooperate on multiple issues such as global internet governance, with both leaderships sharing an outlook and pushing back against the United States and its allies. Cementing the political dimension of the relationship is the strong personal bond between Putin and Xi.      

The complementary economies, the need to maintain peace along the border, and the authoritarian nature of the two regimes are the three internal drivers of the China-Russia rapprochement that would force the two sides to move closer to each other even with the West out of the picture. It’s the parallel confrontation with the United States, however, that is driving Beijing and Moscow even closer together and amplifying the effect of those three factors.

Russia and China trade arms, are developing new weapons together, and have expanded the scope of joint annual military drills. They both engage in parallel disinformation campaigns against the West. Amid U.S./EU sanctions against Russia, Moscow is increasingly reliant on its neighbor as an alternative source of capital and technology to withstand Western pressure, while Beijing’s money targets members of Putin’s inner circle in order to win more friends for China in the Kremlin. In a similar way, Beijing turns to Moscow for support on weapons design and has tapped into Russia’s pool of IT talent to help the embattled tech company Huawei, which recently tripled the number of its research staff in the country. Putin and Xi’s drive to make their countries great again and push back against the American global leadership is another ingredient in the secret sauce of the China-Russia entente.

Limitations

Despite the bilateral relationship reaching new depths, there are several significant factors limiting Chinese-Russian cooperation. Most importantly, both countries are extremely sensitive about their strategic autonomy, and therefore will seek to avoid entering into legally binding security guarantees with one another like those that knit together NATO or the United States’ alliances in the Indo-Pacific. The two countries also have different global security interests. For example, China is not incentivized to support Russia’s annexation of Crimea, the war in eastern Ukraine, or Moscow’s military operations in Syria and Africa. By the same token, Moscow has few reasons to support China on Taiwan beyond paying lip service to the One China policy, or on the nine-dash line in the South China Sea.

As two independent great powers, China and Russia are also engaged in espionage against each other. In 2020 and 2021, evidence mounted over the level of Chinese spies’ aggression in Russia, including hacking attempts aimed at stealing designs for the latest weapons systems. Despite the professional concerns of the Russian counterintelligence community, these activities are unlikely to cause an overly emotional response in the Kremlin, as Moscow firmly believes that every great power will inevitably conduct espionage, even against its closest allies. The degree of mutual mistrust between the Chinese and Russian intelligence and secret services will, however, most likely prevent deeper cooperation on sensitive issues like joint information warfare against common adversaries.

There are also obstacles to expanding economic ties between China and Russia. The Russian investment climate is becoming increasingly hostile for foreigners, and historically Russia has not been a major investment destination for Chinese companies. Constantly changing rules, rampant corruption, and state dominance in many lucrative sectors make Russia a very hard place for Chinese companies to invest in, despite the burgeoning bilateral trade relationship.

In addition, U.S. economic sanctions against both China and Russia complicate their cooperation even further. Ever since the United States and the EU levied sectoral sanctions against Russia, Chinese commercial banks have been extremely cautious in providing loans and services to Russian entities, partly due to their limited exposure to the Russian market, and the scarcity of resources available to do compliance for existing or prospective Russian clients. Large-scale loans from Chinese political banks for major projects like Yamal LNG are more an exception driven not only by market considerations, but to a large extent by politics.

In a similar vein, Russian imports of Huawei cellphones have collapsed in the wake of U.S. export restrictions against that company, and Moscow generally has become more cautious in deepening its partnership with Huawei to develop 5G communications in Russia. Politically driven efforts to expand bilateral trade in the countries’ national currencies are also facing headwinds due to capital controls in China, causing frustration among Russian oligarchs who want to diversify away from Western capital markets, and among Russian officials who want to safeguard trade with Beijing against potential U.S./EU sanctions.

Taken together, these political and economic limitations will serve to prevent China and Russia from forging a full-fledged anti-Western alliance, as well as slow down plans for joint economic projects. 

Potential Friction

There are several issues that could push the relationship toward a more confrontational direction in the medium- to long-term. The key factor here is the rapidly growing strategic asymmetry between the two parties. Across numerous metrics, China is poised to either expand its lead over or close the gap with Russia. Later in this decade, for instance, China is projected to possess a significantly larger and more potent nuclear deterrent than its present-day posture, and its expanded investments in overall military capabilities will likely generate significant advantages over Russia’s navy, air force, and army.

In economic terms, Moscow is increasingly reliant on Beijing. China’s share in Russia’s external trade has increased from 10.5 percent in 2013—right before the war in Ukraine—to nearly 20 percent this year, and is set to increase even further in the coming years, as Western sanctions and the energy transition in the EU take their effect on Russia’s economic exposure to traditional partners in the West. Meanwhile, Beijing’s economic dependency on Moscow is hardly growing: Russia’s share in China’s trade stands at 2.4 percent at the end of 2021.

The bottom line is that Russia needs China more than China needs Russia. Over time, as the strategic balance tilts increasingly in Beijing’s favor, Chinese leaders could become tempted to use this growing leverage to coerce Russia into accepting commercial agreements benefitting Beijing more than Moscow or making more explicit gestures of support for China’s foreign policy decisions. They could even take a hardliner stance against Russia on issues over which the countries disagree.

On trade and investment, China increasingly has the stronger hand in dictating the terms of commercial deals. Whereas Beijing is diversified in terms of its imports of energy resources, in Asia, the Russian gas monopoly Gazprom is set to operate expensive pipelines that only serve Chinese customers, while Rosneft, the state-owned oil giant, is also heavily reliant on the Skovorodino-Mohe oil pipeline that ships 30 million tons a year to China only.

If Beijing opts to temporarily halt imports via these pipelines or threatens to terminate contracts altogether, China will be able to switch to new import sources, while the Russian energy companies will be hit very hard. This asymmetry may enable Beijing to renegotiate existing contracts and seek lower prices from Gazprom and Rosneft, while Moscow will have limited options for pushing back. There was a recent precedent for such developments in 2011, when Rosneft offered China National Petroleum Corporation a discount of $1.50 per barrel because of a contractual dispute. As Moscow’s customers are projected to become less reliant on Russian hydrocarbons over time, China’s influence over Russia will grow even larger.

Of course, Russia is no stranger to commercial disputes and the use of market power to extract economic concessions. Moscow’s experience on the European gas market is a good example, with Gazprom customers in the EU taking advantage of low prices and Gazprom’s vulnerability to push for compensation and contract reviews over the last decade, and Moscow taking its revenge during the European energy crunch. These developments will have prepared the Russian leadership for the eventuality of China becoming tempted to play its stronger hand due to altered market conditions, and the Kremlin is unlikely to be overly emotional about any commercial concessions it may be forced to grant its neighbor.

A potentially much more disruptive scenario for the China-Russia partnership could see Beijing using its economic leverage over Moscow to secure some major adjustments to Russian foreign policy in the Indo-Pacific, specifically with respect to its relationships with China’s rivals in the region: India and Vietnam. For many decades going back to Soviet times, the Kremlin has been trying to cultivate deeper ties with Hanoi and New Delhi, particularly through arms sales.

Russian weapons sales to India have grown significantly in the last five years, accounting for 23 percent of Moscow’s global arms exports between 2016 and 2020, while arms sales to Vietnam have been steadily growing since the mid-1990s.

Historically, China has viewed Russia’s arms trade with India and Vietnam as an irritant, but has refrained from elevating the issue to become a major strain on the bilateral relationship. However, China’s recent successes in closing the gap with Russia in terms of military technology support Beijing’s broader attempts to rapidly extend its security presence in the South China Sea and along its border with India, which has caused serious friction with Vietnam and India. Amid this rapidly shifting security landscape, Beijing has the opportunity and rationale to pressure Moscow to limit its partnerships with India and Vietnam. Although China is not presently in a position to coerce the Kremlin to abandon arms sales to these two countries, it might be increasingly tempted to do so in the future.

As China’s assertiveness grows, so do Beijing’s ambitions in its shared neighborhood with Russia in Central Asia. Over the last few decades, Beijing’s economic clout in the region has grown dramatically in tandem with increases in Central Asian exports of raw materials to the vast Chinese market.

Despite China’s growing influence in Central Asia, Moscow has managed to find ways to co-exist with Beijing thanks to a significant overlap in bilateral interests. Both powers want to see the region stable, secular, governed by authoritarian rulers, and not hosting U.S. troops. Russia and China have developed a division of labor, in which Beijing’s demand for commodities and infrastructure investments has been the key economic driver for regional development, while Moscow has remained the key external security guarantor. China has also opted not to challenge the Russian-led Eurasian Economic Union with its Belt and Road Initiative, while Beijing and Moscow have even found ways to symbolically link the two frameworks.

Still, China’s security footprint in the region is gradually growing, with more arms deals and military aid to Central Asian nations, as well as two facilities built in Tajikistan by the Chinese People’s Armed Police to patrol the Wakhan corridor that links China and Afghanistan. The carefully crafted co-existence formula could be jeopardized if Beijing continues to push for a bigger security role for itself in Central Asia, for example, through deployments of private military companies. So far, however, Moscow and Beijing have demonstrated a remarkable ability to compete in a way that is not disruptive to the joint pursuit of shared interests. The Kremlin is aware that strong anti-China sentiment in the region, particularly in Kyrgyzstan and Kazakhstan, is a factor that will significantly limit Beijing’s freedom of movement on regional security issues. Still, a stronger push to deepen security partnerships with Russia’s treaty allies without even notifying Moscow may be an irritant.

The Arctic is another region where Russia and China cooperate and compete at the same time. Moscow is a member of exclusive Arctic Council, which possesses a unique legitimacy over Arctic governance. Despite multiple sources of conflict with other members, including the United States and other NATO countries, Russia has a keen interest in preventing outside powers from having a say in Arctic affairs.

Although China is an observer in the Arctic Council and thus has no voice in setting the rules for regional governance, it has officially defined itself as a “near-Arctic state” and is actively seeking ways to become more involved in scientific research and the commercial exploration of natural resources. Russia is China’s biggest partner in this endeavor through two separate cooperation agreements to develop Russian-led LNG projects in the Arctic: Yamal LNG and Arctic LNG 2.

So far, Beijing has not sought to use these investments as leverage to co-opt Russian support for its broader objective of exerting greater influence in Arctic governance affairs. That could be a consequence of Moscow’s successful attempts to mitigate risk by raising financing from non-Chinese investors. Attempts by Beijing to leverage Moscow’s dependence on Chinese assistance in the Arctic can’t be ruled out, however, particularly if there are new Western sanctions targeting Russian economic efforts in the region.

Finally, despite the legal settlement of the territorial dispute between China and Russia, historical issues might come back to haunt the relationship in the future. As Beijing’s power grows, so does the assertiveness of its leadership and the strong nationalist feeling among the population, rooted in the narrative of reemerging after the “century of humiliation” that followed China’s defeat in the Opium Wars. Imperial Russia was one of the colonial powers that took advantage of China’s weakness back then to gain control over territories in the Far East that the Qing rulers considered part of their empire.

So far, Beijing has demonstrated little desire to address the national perception of the problematic chapters of China-Russia history. Problems are toned down in the official media, but never fully resolved, and the memory of Russia’s predatory behavior is preserved in history textbooks and museums. Dormant anti-Russian sentiment is present in Chinese society, and becomes visible online when triggered by events like the celebration of the 160th anniversary of the city of Vladivostok, which prompted a wave of angry criticism by Chinese netizens.

With China growing ever stronger than Russia, and the nationalist emotions of China’s society and leadership playing a bigger role in Beijing’s foreign policy (as evidenced by the “wolf warrior diplomacy” phenomenon), historical issues are likely to become a factor in the relationship once again. Stronger Chinese nationalism, if directed at Moscow, is likely to fuel a revival of Sinophobia in Russian society too, complicating the relationship even further.

Over the course of the last thirty years, China and Russia have demonstrated that their partnership is resilient and expanding. Despite several limiting factors, Beijing and Moscow have so far sought to cooperate in areas where there is significant complementarity of interests while carefully addressing sources of mutual concern. Any pragmatic leadership in the Kremlin—even a democratic one that seeks to improve ties with the West—will try to maintain stable and friendly relations with China, just as any pragmatic Chinese leadership will do with Russia.

The key variables that will determine the future of the increasingly asymmetrical bilateral relationship are China’s growing assertiveness and nationalism, and whether Beijing will seek to manage relations with Moscow in the same careful way as it does now, or whether it will use its growing leverage to seek concessions from a weaker partner. On the Russian side, the level of anti-American obsession and the progress of domestic reforms will be the key variables in defining the future of ties with China.

This publication is part of a project carried out with the support of the Swedish Foreign Ministry.