Putin looks to improve China relations amid rising tensions with the west

http://www.theguardian.com/world/2014/may/20/russia-looks-to-china-as-relations-with-west-get-worse

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Vladimir Putin arrived in China on Tuesday set on increasing cooperation after Russia's relations with the west soured over the Ukraine crisis. But Beijing holds far more cards at the negotiating table, and the most significant deal, a gas export agreement, had yet to be signed as the visit wound down.

Meanwhile, the two countries began joint military exercises in the East China Sea in a clear show of strength against Japan, a western ally that has long-running territorial disputes with both Russia and China.

Coming after multiple rounds of sanctions from the United States, the European Union and Japan, Putin's China trip has been interpreted as part of a pivot toward Asia.

"This is where it's important for Putin to demonstrate that he has other centres of geopolitical power to turn to … to demonstrate to domestic society and to the international community that relations with the west are not as important as people think," said Vladimir Milov, a former deputy energy minister who is now director of the Moscow-based Institute of Energy Policy. "He wants to show he has partner in the east. If the west doesn't want our energy, then we'll sell it to China."

"The US sanctions upgrade China's importance to Russia as the one major economy in the world that is not susceptible to the US-led sanctions drive," wrote Carnegie Moscow Centre director Dmitri Trenin in a post published on Monday.

Closer ties between Moscow and Beijing have been expected since long before the Ukraine crisis, however. Russia has been looking eastward to diversify its energy customers since Europe, which gets 24% of its gas from Russia, is expected to reduce its dependence. A new foreign policy concept published by the Russian government in 2013 noted the importance of friendly relations with China and India, and Russia and China have often joined together to oppose the western members of the United Nations security council.

Nonetheless, trade has remained relatively small at $89bn in 2013, and Russia has not been able to ink a gas export deal that has been in the works since 2006. Moscow has long been resistant to allowing Chinese investment in strategic oil and gas infrastructure in Russia.

But that informal ban has reportedly been lifted, and in an interview with Chinese media before his trip, Putin said Russia and China were "moving toward the formation of a strategic energy alliance." He also pledged to increase trade volumes to $200bn by 2020 and said $20bn was being invested in joint projects between the countries.

A number of deals were signed during the visit: Russia's state-owned United Aircraft Corporation and China's Comac also signed a memorandum to cooperate on creating a long-distance airliner to compete with Boeing and Airbus, and the Russian Direct Investment Fund announced the construction of a railway bridge across the Amur River between China and Russia. Putin and Xi were also expected to discuss possible arms deals offering China favourable conditions to purchase Russian weapons.

But the centrepiece of the visit was clearly meant to be the long-awaited gas deal, and some of the most powerful men in Russia's fossil fuels industry reportedly accompanied Putin, including Gazprom head Alexei Miller and recently sanctioned Rosneft head Igor Sechin. The final list of documents signed during the trip, however, didn't contain the gas agreement.

The sticking point, by all indications, was the price: Although the details are secret, China was reportedly demanding $10-11 per cubic foot of gas, below Gazprom's typical minimum of $12. Chinese financing is also needed to develop the virgin east Siberian gas fields and build a new pipeline, which will cost tens of billions of dollars.

Milov said he expects Russia to eventually cave to Chinese demands "because it needs the contract more."

Putin is making this deal "keeping in mind that most of his trade ties are with the west, which is quickly becoming an adversary," Milov said. "He thinks russia needs to develop new partners and he's willing to pay for it."

Meanwhile, military exercises involving a total of 14 ships, two submarines and 15 aircraft began in the East China Sea, near the disputed Senkake Islands controlled by Japan. Ruslan Pukhov, head of the Centre for the Analysis of Strategies and Technologies, said the conditions of the war games were more advantageous for China, but Russia had to accept them due to the "strategic solitude" following the Ukraine crisis.

"Chinese support in Ukraine is tacit, not proactive, but here they are trying to use us to show that we are doing joint exercises against Japan," Pukhov said. "It's like two bargaining chips but the Chinese chip is cheaper and smaller than ours."

"We have powerful enemies but we don't have powerful friends, that's why we need the support of such a giant as China," he added.