Russia-China: Putin's next term

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 http://www.atimes.com/atimes/Central_Asia/FC12Ag01.html
Putin to expand strategic partnership with China
By Sergei Blagov
Mar 12, 2004

MOSCOW - President Vladimir Putin, certain of re-election to a second
term, evidently intends to expand Russia's strategic ties with China in
military sales and economic cooperation between the two Asian giants.
Still, some divisive issues remain, such as the likely awarding of a major
Siberian oil pipeline to Tokyo, not Beijing. The United States is watching
closely and warily as the former communist allies forge powerful new ties
in Asia and view Washington as a potential menace.

In Sunday's election, Putin is expected to sweep to a second four-year
term and move ahead briskly with improving ties between Moscow and
Beijing.

Once China and Russia were closely allied, but later the Sino-Soviet split
opened and the United States took advantage of the bitter division to
forge new diplomatic relations with China, sidelining the Soviets. Now the
situation is very different, as both Russia and China espouse capitalism
and have resolved many of their differences in the face of what they
perceive to be a common rival - the US.

Last month, the US Defense Intelligence Agency (DIA) said the United
States might anticipate potential problems with both China and Russia,
although the US currently has good relations with the two countries. The
US effort to seek bases in Central Asia - strategically important to both
Moscow and Beijing - is one of many causes of concern, as well as US
unilateralism in its foreign policy.

Testifying before the Senate Select Committee on Intelligence on February
25, Vice Admiral Lowell E Jacoby, director of the DIA, said Beijing
"likely fears a long-term US presence on its borders", while Russia is
improving its relations with some countries, most notably China, in
pursuit of a multipolar world and to enhance its arms sales.

China the top customer for Russian arms
During Putin's first term, China consolidated its position as the top
customer for Russia's arms industry, purchasing billions of dollars' worth
of jet aircraft, missiles, submarines and other military hardware.

Russia and China were both disturbed by the Iraq war - especially the US
decision to attack without broad international support - and Moscow and
Beijing protested what they viewed as a rejection of the rules of the
international game. They still back the primacy of the United Nations
Security Council in resolving international crises, and they support the
principle of non-interference in the internal affairs of sovereign states.

Apart from shared concerns about US dominance in the Middle East, Asia and
elsewhere, the two nations have other common interests and mutually
reinforcing needs. They are weary of - and alarmed by - militant Islamic
groups in their border regions, and want stability in Central Asia.

Russia and China have said they hope to increase bilateral trade to US$20
billion a year, from the current $12 billion.

Last June, Chinese President Hu Jintao, leader of the world's most
populous nation, visited Russia on his first trip abroad and signed a
strategic energy pact with President Putin. Hu's speeches in Moscow
emphasized the importance of a multipolar world and the need for the UN to
play a central role in Iraq.

China, Russia now pledge eternal friendship
Last week, Chinese Foreign Minister Li Zhaoxing announced that presidents
Hu and Putin would meet in Beijing in the second half of this year. Li
also noted that the two nations share a 4,300-kilometer border - once the
site of major troop deployments and occasional skirmishes - and pledge to
be eternal friends. He also announced that chairman Wu Bangguo of China's
National People's Congress as well as Premier Wen Jiabao would visit
Russia this year to discuss enhancing their strategic partnership based on
common political, economic and military interests.

Russia's ongoing government reshuffle has sent some positive signals to
China. In an apparent reiteration of their shared belief in the primacy of
the UN in conflict resolution, Putin appointed UN Ambassador Sergei Lavrov
to be Moscow's new foreign minister. Putin also retained Defense Minister
Sergei Ivanov, a close ally who also has been mentioned as a possible heir
to the Kremlin leader in 2008. Ivanov has considerable China experience;
last year he and his Chinese counterpart, General Cao Gangchuan, agreed to
strengthen their defense cooperation. That will continue.

When Putin sacked the government of Mikhail Kasyanov on February 24, the
new prime minister, Mikhail Fradkov, pledged to pledged to develop the oil
sector and boost Russia's crude-oil output to ports in Asia.

However, some bilateral economic issues could prove divisive. Putin's
cabinet reshuffle eclipsed - but not in Beijing - the announcement this
month that Moscow would probably exclude China and accept a
Japanese-backed plan to build a new oil pipeline to Nakhodka. A formal
decision has not been announced. China and Japan have been competing for
Russian crude - both trying to reduce their dependence on Middle East
oil - and each has been backing rival pipeline routes. China National
Petroleum Corp is backing a US$2.8 billion link to China's northeastern
city of Daqing. Tokyo has offered to fund a $6 billion pipeline to the
port of Nakhodka on Russia's Pacific coast.

Last May, Russia and China signed a non-binding contract that involves the
eventual expansion of oil exports to China, up to 220.6 million barrels
(30 million tons) a year. Russia's major oil corporation Yukos and China's
National Petroleum Corp (CNPC) have signed a $150 billion deal for a
pipeline to China to ship up to 700 million tons of oil from 2005 to 2030.
Under the agreement, CNPC would buy up to 5.13 billion barrels of Russian
oil, worth $150 billion, between 2005 and 2030. The $2.5 billion pipeline
will run from Russia's Western Siberian field in Angarsk to to China's
Daqing oilfield and refinery.

Russia to hike oil exports to China by rail
In late February, Putin supported plans of the state-owned Russian
Railways Co (RZD) to boost oil exports to China. "Using railway routes for
oil supplies to China is a good idea," Putin said.

The RZD said it would boost oil exports to China by rail. Shipments to
China would rise to 110,000 barrels per day (bpd) in 2005 from 88,000 bpd
this year, according to the company, and by 2006, oil supplies to China by
rail would be running at 200,000 bpd. RZD also said it was technically
feasible to boost rail shipments to China even sixfold to 600,000 bpd. An
increase in rail deliveries across the border, however, makes up only a
fraction of the planned pipeline deliveries.

Beijing has been viewing the Angarsk-Daqing pipeline as an important way
to reduce its growing dependence on oil shipped from the Middle East. As
China has been pursuing this and other oil and gas projects in the former
Soviet republics, Russian pledges to boost rail shipments of crude oil to
China could hardly be viewed as an alternative to Angarsk-Daqing.

Nonetheless, this month China Petroleum & Chemical Corp, the Sinopec
Group, reiterated its interest in extracting Russian oil and gas. Sinopec
is also willing to consider ventures in hydrocarbon refining with Russian
companies. Sinopec is engaged in talks to set up joint ventures with
Russia's two top oil producers, LUKoil and Yukos, the Chinese company's
vice president, Wang Jiming, told Russia's Interfax news agency.

Putin, when visiting Khabarovsk in Russia's Far East last month, described
the Angarsk-Nakhodka oil pipeline as a strategic project. Earlier in
February, Russia's government said it wanted to build the 3,900km
Angarsk-Nakhodka crude oil pipeline. The rival proposal to build a
pipeline to Daqing and give China exclusive access to the oil might be
abandoned, then-energy minister Igor Yusufov said.

Japan also wants to explore for oil in Russia's Far East
On the other hand, Japan Petroleum Exploration Co, a state-owned oil
explorer, said it might join a research project to explore oil reserves in
Russia's Far East and in Eastern Siberia, which have been estimated at as
much as 100 billion barrels. Japan Petroleum Exploration would be the
first Japanese company to join an oil-reserve survey in this part of
Russia.

Meanwhile, last year Russia Petroleum agreed with consumers in China and
South Korea to start supplies from 2008, gradually rising to 30 billion
cubic meters of natural gas per year. Tyumen Oil Co-British Petroleum
(TNK-BP) also plans to build Russia's first gas pipeline to Asia, also
going to China and South Korea. Kovykta field in Irkutsk region, eastern
Siberia, is estimated to contain some 2 trillion cubic meters of gas
reserves. The $4 billion project calls for the installation of a 3,700km
pipeline between Kovykta field, 400km north of Irkutsk near Lake Baikal,
and China's Pacific coast port of Lianyunggang, via Ulan Bator in
Mongolia.

This month TNK-BP oil company announced plans to invest $650 million to
develop the major Kovykta gas field in eastern Siberia from 2004-09.
TNK-BP controls 63 percent of Russia Petroleum, whose main asset is the
giant Kovykta field. BP owns a 50 percent stake in TNK-BP.

The Russian government has said it projects crude output growth of up to
441 million barrels (60 million tons) in Eastern Siberia and up to 147
million barrels (20 million tons) at offshore oilfields around Sakhalin
Island by 2020. According to the Russian estimates, the development of
untapped oil reserves in Eastern Siberia would require some $55 billion of
investments in the next 25 years. Given the scale of the projected growth,
Chinese and Japanese hydrocarbon interests could be eventually reconciled
in Siberia.

In the meantime, both Russia and China have been recently subject to US
criticism. The State Department censured Russia and China for their poor
human-rights records in a report on February 25. And the DIA has said
there are reasons to anticipate potential problems with Russia and China,
despite good relations with both nations at this time.

The US criticism and shared concerns in Beijing and Moscow about
Washington's dominance could provide further impetus for Russia and China
to overcome differences and unite on a variety of international issues.