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Russia’s Second Asian Pivot

24 February 2015
Chris Miller

Chris Miller, PhD Candidate at Yale University, Associated Scholar at the Foreign Policy Research Institute

 

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 in decline and Asia was on the rise. The United States was struggling to recover from the ‘stagflation’ of the 1970s, and the manufacturing industries that had propelled its economy were under pressure from lower-cost Asian firms.

Meanwhile, Asian countries posted impressive economic results throughout the 1980s. Japan, which had become the world’s second largest economy, was proving that it was not only a center of low-cost production, but that it had mastered advanced technology, too. Ezra Vogel’s influential book Japan as Number One celebrated the attributes that he believed made Japan successful. Vogel’s conclusions were studied not only in the United States, but in the Soviet Union, too. As analysts increasingly looked at Asian economies during the 1980s, they noticed that Japan was not alone. The Asian tigers—South Korea, Taiwan, Singapore, and Hong Kong—had also posted impressive growth rates, beginning with textile manufacturing and slowly moving up the value chain toward more complicated production. At the same time, after Mao Zedong’s death, Chinese leader Deng Xiaoping built a capitalist economy closely linked with world markets.

Upon taking office in 1985, Mikhail Gorbachev was impressed by the surge of economic activity in Asia, and made revitalizing economic connections with Asia a priority. Many influential Soviet institutions increased their focus on Asia during the late 1980s. The Institute for the World Economy and International Relations, one of the most influential Soviet research institutes, founded a new ‘Pacific Ocean Division’ in 1985, to more closely study the region. The Institute also hosted the USSR National Committee for Asian-Pacific Cooperation, chaired by Evgeny Primakov, which promoted commercial ties between the USSR and Asia’s rising economic powers. The Soviet Foreign Ministry followed with its own institutional changes, creating a section that covered the countries of the Pacific Ocean and South East Asia, which combined Japan with the fast-growing countries of South East Asia.

Realizing that many others—both within the Soviet Union and abroad—did not see the USSR as a real Asian player, Gorbachev deliberately asserted Moscow’s role in East Asia. In 1986, during the early days of perestroika, he gave a speech in Vladivostok—a territory that Russia acquired from the Qing Empire through a mix of diplomacy and coercion—to reiterate the Soviet Union’s position in Asia, and to set forth policies that would further connect the USSR with fast-growing Asian economies.

Gorbachev began his Vladivostok speech by emphasizing economic development in Siberia and the Soviet Far East, and calling for more exports—the economic motor that had driven development in other East Asian countries. But increased trade was only possible if the Soviet Union played an active role in the Asia Pacific region. Gorbachev argued that Soviet citizens needed to take Asia more seriously. The reasons were geography and economics. “Many major states of the world,” Gorbachev argued, “including the United States, India, China, Japan, Vietnam, Mexico and Indonesia,” border the Pacific Ocean. “Here are situated states which are considered to be medium-sized ones, but are rather big by European standards—Canada, the Philippines, Australia, and New Zealand.” Scale alone meant that the Soviet Union needed to focus on Asia, Gorbachev insisted: “this colossal human and socio-political massif calls for close attention, study and respect.”

On top of that, Gorbachev argued, Asia was experiencing a new bout of dynamism, perhaps even replacing the Atlantic as a center of economic and political activity. Asia “woke up to a new life in the 20th century,” Gorbachev argued, and now was catching up to Europe. He cited a “whirlwind of changes—social, scientific, and technological…a renaissance of world history.” The USSR needed closer economic ties as a result. “The laws of growing interdependence,” explained Gorbachev, “and the need for economic integration urge one to look for ways leading to agreement and to the establishment of open ties between states.”

Much of this rhetoric mirrors calls in contemporary Russia for closer ties with China. The rationales are similar, too: then as now, closer ties with China’s economy was not only seen as offering economic possibilities, it was also perceived as a way to strengthen the Kremlin’s geopolitical position.

Yet the Soviet Union’s Asian pivot failed, as an excellent recent book by Sergey Radchenko illustrated. The Kremlin succeeded in improving relations with South Korea and China, but ties with other Asian countries, notably Japan, remained strained by disputes over the Kuril Islands. The collapse of the Soviet economy meant that few Asian companies were interested in investing in the country. At the same time, Russia’s elite remained resolutely oriented toward Europe, with comparatively few of the country’s leaders learning Asian languages or studying in Asian countries.

Russia’s present-day Asian pivot faces many of the same headwinds. If Russia’s economy shrinks by about 5% next year, as many analysts think is likely, it will be less attractive to Asian investors or exporters. Similarly, while diplomatic ties with China are strong, Russia’s position in Asia remains hamstrung by the ongoing border dispute with Japan, Asia’s second-largest economy and a country with growing geopolitical ambitions. What is perhaps most surprising is that the Russian government’s declared interest in Asia has not been matched by a serious attempt to build relationships by supporting, for example, greater familiarity with Asian cultures. Until Russia’s elite develops more interest in Asian countries, analysts are right to be skeptical of whether Moscow’s current Asian pivot will be any more successful than the previous one.