Russia Seeks Investment, Trade Links on China’s New ‘Silk Road’

MOSCOW — Russia’s President Vladimir Putin is heading to China Sunday to join leaders of 27 other nations at the One Belt, One Road (OBOR) summit in Beijing.

Workers install wires on a Golden Bridge of Silk Road structure outside the National Convention Center, the venue for the Belt and Road Forum for International Cooperation, in Beijing, April 18, 2017. Starting Sunday, Vladmir Putin of Russia, Recep Tayyip Erdogan of Turkey and Spain's Mariano Rajoy are among those attending a summit to discuss Xi's "One Belt, One Road" infrastructure investment program to stitch together the Eurasian continent.

The massive China-led project aims to revive the ancient Silk Road and maritime trade routes by expanding investment in infrastructure linking Asia, Africa and Europe.

While China plans to invest tens of billions of dollars in the ambitious vision, few details have been made clear on how the project will proceed.

Russia wants investment

A lack of specifics and long-term prospects for the project has led some observers to conclude China’s new Silk Road so far is about politics and symbolism. But analysts in Moscow say Russia is mainly in it for the money.

“First, Russia’s economy desires foreign investments and it hopes to get some funds through OBOR,” said Petr Topychkanov of the Carnegie Moscow Center. “Second, Russia wants to bring new drive to the dying Eurasian Economic Union by connecting it with OBOR. Third, Russia wants to compensate the vanished economic agenda of the SCO (Shanghai Cooperation Organization) with the Chinese-led OBOR. Fourth, Russia wants to make European countries more nervous with the prospects of Russian-Chinese economic cooperation.”

Banners promoting the Belt and Road Forum for International Cooperation are placed between skyscrapers in the central business district in Beijing, May 11, 2017.

China in the last few years has invested more than $300 billion in projects in One Belt, One Road countries, and Chinese officials say more than 50 agreements will be signed at next week’s meetings in Beijing.

Leaders attending the summit include the other two founding members of the struggling Russia-led Eurasian Economic Union (EAEU), Belarus and Kazakhstan.

“Russian interest in the OBOR project in general is attracting additional Chinese investment into the Russian infrastructure and industry sectors,” said Vasily Kashin, a senior research fellow at the Center for Comprehensive European and International Studies at Moscow’s Higher School of Economics. “Russia is also trying to achieve a high level of coordination between the Chinese OBOR policy and the Russian policy concerning the Eurasian Economic Union.”

Russia established the EAEU in 2015 with the aim of integrating economies of former Soviet states. However, critics say the Kremlin uses the group for geopolitics and influence, and other members have shown little interest in deepening economic ties.

Russia looking east?

Western sanctions against Russia over its military involvement in Ukraine have led some Russian officials and analysts to say Moscow will pivot to the east for its political and economic future.

“China did provide significant loans for the Russian state-owned companies currently under the Western sanctions, helping them a lot,” Kashin said.

Russia-China trade is recovering from a 2014-2015 slump and was up 26 percent in the first quarter of 2017, to nearly $25 billion. China’s exports to Russia rose 22 percent while China’s imports from Russia were up 30 percent in the first four months of this year.

“China is Russia’s most important individual trading partner. Its share is growing, and it is already a significant source of investment, loans and technology. However, it will take China a long time to overtake the EU in these roles,” Kashin added.

An attendee at a conference looks up near a portrait of Chinese President Xi Jinping with the words "Xi Jinping and One Belt One Road" and "One Belt One Road strategy," in Beijing, April 28, 2017. The “Belt and Road Forum” opens Sunday.

There has been no dramatic pivot by Russia away from the West and toward the East, but there is a gradual trend for trade in that direction.

“The share of the APEC countries, not just China, but Japan and Korea as well, in Russian trade has been growing at the expense of the EU for a long time,” Kashin said. “The process did speed up after the beginning of the Ukrainian crisis, but not dramatically. Turn to the East is inevitable since the European market for Russian commodities will likely have long-term negative growth, because of EU economic stagnation and industrial decline.

“However, building the necessary infrastructure and negotiating the trade deals with the Asian countries will take Russia years,” economic researcher Kashin added. “The historical dependence on the single European market will be overcome, probably at some point in the late 2020s to early 2030s.”

Developing relationship

Russia-China relations are developing steadily but are sometimes exaggerated by Russian officials for propaganda purposes.

“The leaders of Russia and China came to a point where they clearly realized the possibilities and limits of bilateral relations,” Topychkanov said. “Despite comments from some experts about the possibility of any kind of union between Russia and China — let it be political, economic, or military — there is no chance for such a union.

“Even the bilateral trust between both countries isn’t limitless,” the Carnegie associate added. “In short, Russia and China value the visibility of friendship between them, but they can’t transform it in deep-rooted strategic relationships and long-term, mutually beneficial economic cooperation.”

China’s New Silk Road initiative has attracted more interest as the United States under President Donald Trump has looked inward and pulled out of global trade deals.

But Russia does not see OBOR as a future substitute or even competitor for trade pacts like the formerly U.S.-led Trans-Pacific Partnership.

“I doubt, that Russian officials think about OBOR and Russia in the context of global trade,” Topychkanov said. “For Moscow this remains to be the issue of both bilateral cooperation with China and regional economic networks.”