Leering bear, rising dragon

Two months ago, the BRIC countries - Brazil, Russia, India and China - came together in the Russian town of Yekaterinburg to challenge the global dominance of the United States. At the core of this new grouping lies a G2. Not the putative link between China and the US, but an "eastern G2", a Sino-Russian alliance. Yet like the Sino-Soviet link of old, this new relationship will end in tears for Russia. 

The basis for the Russia-China rapprochement was already laid by Mikhail Gorbachev in the latter part of the 1980s and built upon by Boris Yeltsin during the 1990s. But under Vladimir Putin the link has taken off, underpinned by a shared weltanschauung, defined largely by rejection of US dominance and support for the principle of non-interference in the internal matters of all states.

But there are other reasons for Moscow and Beijing, who share a 2,640-mile frontier, to cooperate. Trade is one. In 2006, commercial ties hit a record 33.4 billion U.S. dollars, up 15 percent from the previous year. Russia is now China's eighth largest trade partner and China is Russia's fourth largest trade partner.

Energy links represents a particularly important item on the Russian-Chinese agenda. As a result of China's surging economy, Beijing has become one of the world's largest purchasers of oil, natural gas, and nuclear technologies.

In early 2009, China agreed to lend $25 billion to Russian oil and pipeline companies in exchange for oil deliveries. Under the agreement, Russia's state-owned Rosneft will get $15 billion in loans from the China Development Bank to supply 15 million tons of oil per year. Another $10 billion will go to Russia's Transneft pipeline company, which is building a new oil line to the Chinese border from East Siberia.

Then there is defense industrial cooperation. For over a decade, Russian military exports to China have constituted the most important dimension of the two countries' security relationship. Russian firms have derived substantial revenue from the sales, which also helped sustain Russia's military industrial complex during the lean years of the 1990s. China's People's Liberation Army was, in turn, able to acquire advanced conventional weapons that Chinese firms could not yet manufacture.

Military-to-military links have also increased. In late July, Russian and Chinese militaries took part in a five-day joint exercise involving 3,000 army soldiers, 300 armored vehicles and 45 aircraft.

But despite these points of convergence, the Sino-Russian relationship is destined to falter. The signs are already apparent. Though China's loans-for-oil deal is seen as a breakthrough, it took nearly eight years to negotiate after an agreement on the pipeline was initially signed in July 2001. Russia only agreed to the deal under pressure of the worldwide economic crisis. And even then, Moscow has kept Chinese oil companies at arms' length. China has largely been barred from establishing a presence in Russia's oilfields.

The military dimension is also fraying. Like all other exporters, Russia fears that China will produce cheap knock-offs. So far, Moscow has balked at selling its SU-33 carrier-based fighter jets for this reason while China has already copied Russia's SU-27K fighter in violation of previous agreements. The Chinese defense industry can now produce its own sophisticated armaments and will account for less and less of Russia's weapons exports.

Soviet premier Nikita Khrushchev may have promised to bury the West, but economically China is likely to bury Russia. In the next ten years, China's economy is likely to increase at a rate 7% - 8%, despite the economic crisis. Russia meanwhile is propped up by its large, energy reserves - thus making it vulnerable to world prices -- and has struggled to diversify its economy.

Illegal Chinese immigration will also grow, gradually extending Beijing's reach into Russia's demographically and economically stagnant eastern regions. Today, 6.7 million Russians face over 100 million Chinese who live in the border provinces of Heilongjiang, Jilin, and Liaoning. Cut down by the economic crisis, Russia is struggling to promote economic development in these regions and provide attractive incentives for internal migration.

Even on energy cooperation, Chinese decision-makers are taking an increasingly hostile view of Russia. Moscow's consistent delays in shipments, foot-dragging on the issue of pipeline construction, and attempts to play Chinese, Asian, and European companies against each other have bred suspicion in Beijing.

Though Russia has fought long and hard to keep the America out of the Caucasus, here too the real threat is from China. China-bound oil and gas pipeline projects in Central Asia are already competing against Moscow's projects to tie Central Asian petroleum and power supplies to the Russian system.

But this is only one part of the region's eastward re-direction. Chinese companies are grabbing more of the region's business while state-owned investment vehicles are thickening ties. China's Export-Import Bank is lending the Development Bank of Kazakhstan $5 billion, and CNPC is lending Kazmunaigaz National Co., Kazakhstan's state-run gas giant, another $5 billion. China is now controls over about 15 percent of Kazakhsan's total oil output. Apart from lending Kazakhstan money, China is also building power plants in Tajikistan and Kyrgyzstan and pipelines in Turkmenistan.  

Economic ties between China and the Caucasus have grown across a range of sectors. From having virtually no trade links in 1991, the volume of trade from Caucasus to China is comparable with that of Russia. In 2006, the volume of trade between Russia and Central Asia was of the order of $14.9 billion, while that between China and Central Asia was $10.8 billion.

Future trends will push Russia and China further apart. Though a split will take a few years to emerge, it will be driven by divergent economic and strategic interests. Enmity of the US may keep Moscow and Beijing close today, but in future this glue will be insufficient. Expect cracks in the alliance to become visible in 2011, fifty years after the original Sino-Soviet split.