Carnegie Moscow Center19.03.2021
As Russia and China Draw Closer, Europe Watches With Foreboding
Chinese President Xi Jinping, Russia's President Vladimir Putin and German Chancellor Angela Merkel arrive for the opening ceremony of the G20 Leaders Summit. Photo: NICOLAS ASFOURI/AFP/ Getty Images
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Alexander
Gabuev
The emergence of a Pax Sinica including Russia could draw new dividing lines over Eurasia.
The rapprochement between China and Russia is becoming an increasingly important issue in European politics. The emergence of the Moscow-Beijing axis will exert an ever-growing influence on European and transatlantic interests, both economically and in terms of security. Accordingly, more and more European leaders are taking an interest in halting Russia’s drift into China’s embrace. For the Kremlin, which strives to retain its strategic autonomy, European concerns about the rapprochement between Russia and China could theoretically create the conditions for a narrow and pragmatic improvement of relations with the EU, thus providing a resource for counterbalancing Moscow’s relations with Beijing.
The appearance of this window of opportunity is unlikely, however, because of domestic politics in both Russia and the EU, as well as the ongoing confrontation between Russia and the West. In this context, both Moscow and the European capitals will focus on their individual uncoordinated efforts, which will keep the asymmetric Sino-Russian relationship from shifting further in China’s favor.
On February 10, German Foreign Minister Heiko Maas made a speech at the Bundestag in which he warned against burning all bridges with Russia in response to the crackdown on the Russian opposition that followed the arrest of its leader, Alexei Navalny. “You would be driving Russia and China into each other’s arms, and thereby also be creating the largest economic and military alliance in the world. I do not think this should be the West’s strategy when critically engaging with Russia,” warned Maas. It was the first time that one of Berlin’s crucial strategic concerns had been voiced so directly: the West’s tough stance on Moscow fosters Russia’s closer ties with China, which is not in Europe’s interests.
Just a few years ago, following the war in Ukraine and the first sectoral sanctions against Russia, Europe and the United States were quite skeptical about Russia’s pivot to the East. In private conversations, European officials were saying that any real closeness between Moscow and Beijing was impossible: Russia is too dependent on Western markets and banks, and too afraid and distrustful of its neighbor to the east, while China values its relations with the EU and United States far more than ties with an unpredictable and aggressive country subject to international sanctions. Washington shared a similar view. In 2015, a high-ranking U.S. official told this author: “The rapprochement itself is fake, but if Russia really wants to fall under China’s sway, I don’t understand why that should be of any concern to the West.”
But European capitals are now changing their attitudes toward the growing partnership between Moscow and Beijing. French President Emmanuel Macron was the first to talk about the consequences of the Sino-Russian rapprochement for Europe during a November 2019 interview with the Economist. That interview—specifically, Macron’s call for engaging with the Kremlin to keep Russia from becoming “China’s vassal”—stirred lively debate (and, naturally, criticism) in Europe. Judging by Maas’s speech in the Bundestag, Berlin largely shares the French leader’s apprehensions. As for the UK, the Integrated Review of Security, Defence, Development, and Foreign Policy published by the British government on March 16 doesn’t single out cooperation between Russia and China, but it does name both Moscow and Beijing’s behavior among the principal threats. So what has caused such a change in European views on the Sino-Russian rapprochement?
Growing Stakes
Several factors are at play here. First and foremost, since 2014, there have been changes in the nature and magnitude of Sino-Russian relations that are hard to ignore. These changes are most visible in the economic sphere. The Russian Federal Customs Service reports that China’s share in Russian foreign trade grew from 10.5 percent in 2013 (before the Ukraine crisis and sanctions) to 16.7 percent in 2019 and 18.3 percent in the pandemic-struck 2020. It’s important to note that this near doubling is happening as the EU’s share in Russia’s foreign trade is steadily declining. While business with the EU accounted for 49.4 percent of Russia’s foreign trade in 2013, that figure dropped to 41.6 percent in 2019 and 38.5 percent in 2020.
Russia-EU trade may still be twice as big as Russia-China commerce, but it was a fivefold difference just seven years ago, and many elements suggest that this trend will continue. For instance, as the West moves to block the completion of the Nord Stream 2 pipeline, the Russian-Chinese Power of Siberia pipeline, which was ridiculed by European analysts not so long ago, is nearing its 2024 target capacity of 38 billion cubic meters, while talks on a second pipeline via Mongolia are ongoing (the Power of Siberia 2 would pump gas to China from the Yamal Peninsula and Western Siberia, which are Gazprom’s current resource base for EU gas shipments). And it’s not just trade that’s on the up. While China is still very far behind in terms of cumulative investment in the Russian economy, European investment has been gradually decreasing since the start of the Ukraine crisis. In contrast, Chinese investment is on the rise. Although 2020 can hardly be considered a normal year, it’s telling that Sinopec’s purchase of a 40 percent share in the Amur gas processing plant alone accounted for $250 million of $1.4 billion in foreign investment into the Russian economy last year.
Even more noticeable are the substantive changes in military cooperation. For the first time since the mid-2000s, Russia is selling China the newest weapons systems (Su-35 fighter jets and S-400 missile systems) and helping Beijing to create a missile warning system. President Vladimir Putin has also made it clear that there is one more joint large-scale military project that Moscow and Beijing are not yet ready to announce (the standard Sino-Russian practice is to make such deals public eighteen months to two years after they are signed).
Nor does security cooperation between Moscow and Beijing stop at military technology, with the countries hosting increasingly regular and large-scale joint military exercises. In 2018, a Chinese military contingent even took part in the Vostok (East) exercise, in which China used to be designated one of the key supposed adversaries. The strategic air forces of the two countries conducted joint patrols in Northeast Asia in 2019 and continued that practice in 2020. Finally, Putin’s speech at the Valdai Club at the end of last year marked the first time the Russian president had alluded to the possibility of a military alliance between Russia and China in the future, despite the fact that Russian and Chinese officials have always clearly stated that there were no plans to formalize such a relationship. Most likely, Putin was simply signaling to the West the worst side effects of pressuring Russia. Nevertheless, it’s clear that Moscow and Beijing have been intensifying their military cooperation since early 2014, and even the most stubborn skeptics now have a hard time dismissing it as fake and shallow.
Second, European attitudes toward China have changed in the past few years. While just several years ago China was primarily seen as a trade partner and a source of growth for European economies, now the Europeans increasingly see it as a competitor or even rival. The new consensus was reflected in a 2019 European Commission document titled EU-China–A Strategic Outlook, in which China was named a “systemic rival” of united Europe for the first time ever. It stands to reason that the confluence of the already familiar Russian threat with the new Chinese one is becoming the subject of greater attention.
Finally, the European powers are increasingly cognizant that the rapprochement between Moscow and Beijing exacerbates both the Russian and Chinese problem for Europe. Although cooperation with China hasn’t completely offset Russian losses from Western sanctions, the partnership with Beijing has helped Moscow in some aspects of its confrontation with the West. Chinese companies, for example, assisted the Russian authorities in building an “energy bridge” to Crimea by laying power cables along the bottom of the Black Sea, thus helping the peninsula to survive the energy blockade launched by Kyiv. Chinese technologies have come to replace some sensitive European technologies, including military ones. The Chinese cashflow skillfully directed at the CEOs of strategic state-owned enterprises and Putin’s closest associates (primarily the tycoon Gennady Timchenko, who became head of the Russian-Chinese Business Council in April 2014 soon after being added to the U.S. sanctions list) partly lightened the sanctions burden and made the recipients more receptive to closer cooperation with China.
In this way, Beijing helped Moscow—at least to some extent—to withstand U.S. and EU pressure. This assistance also allowed Moscow to become more assertive elsewhere in the world, from being present in the Middle East and Africa to supporting the Venezuelan regime and interfering in U.S. elections. Of course, Russia’s resilience can be primarily attributed to the limited scope of Western sanctions, the Russian government’s relatively proficient steps to stem their effects, and the reserves accumulated over years of pragmatic monetary and fiscal policies. Nevertheless, China also made a modest contribution that enabled Moscow to stay its foreign policy course despite pushback from the West.
For its part, Russia complicates the “Chinese problem” for the Europeans and their allies. This is especially noticeable in the military sphere, as the partnership with Russia strengthens the People’s Liberation Army of China. In addition, scientific and technological cooperation with Russia in certain areas allows China to improve its products and therefore better compete with European and American equipment manufacturers. According to Huawei’s founder Ren Zhengfei, for example, a Russian engineer played a key role in developing the company’s 3G solutions, and Huawei is currently increasing its research personnel in Russia to offset U.S. pressure.
Europe’s Concerns
The problems created by increased Sino-Russian cooperation begin far away from European shores. European NATO members increasingly view the Indo-Pacific region, including the South China Sea, as an area of their security interests.
London has been especially active in this regard. The UK included the issue of the Indo-Pacific in its March 16 Integrated Review, and the British cabinet hasn’t stopped at strategic declarations. In February, General Nick Carter, chief of the British defense staff, announced that the newest British aircraft carrier, HMS Queen Elizabeth, would make its maiden voyage to Asia and patrol the South China Sea as part of a strike group jointly with the U.S. navy. The navies of other NATO members, especially that of France, are also exhibiting greater activity in the region.
While these actions are aimed at supporting U.S. freedom of navigation operations and limiting China’s ability to forcefully impose its own rules of the game in the South China Sea, the military and technological cooperation between Russia and China only strengthens the capabilities of the Chinese navy. Deploying the S-400 systems and Su-35 jets that China purchased from Russia in Guangdong Province, on Hainan Island, or on China’s artificial land masses would significantly reinforce China’s ability to control airspace above the disputed area of the South China Sea.
In addition, thanks to its cooperation with Moscow, Beijing has the chance to acquaint its emerging blue-water navy with the Mediterranean and Baltic seas, having taken part in joint exercises with Russia in the Mediterranean in 2015 and the Baltic in 2017. Considering the regularity of these exercises, NATO countries are bound to see more Chinese military vessels alongside their Russian counterparts near their shores. In 2021, there might even be a sizeable contingent of Chinese ground troops on European soil for the first time as part of Russia’s Zapad (West) strategic military exercise (Russia has been inviting Chinese military personnel to its strategic exercises since 2018, making no exceptions even during COVID restrictions last year).
Apart from the growing military capabilities of the Chinese army enhanced by Russian arms acquisitions, the Sino-Russian cooperation in cyberspace may also elicit Europe’s concern. Many European governments are constantly recording an increased interest in government and commercial data from hackers supposedly working for Russian or Chinese intelligence services. So far, there is no evidence of coordination or data exchanges between Moscow and Beijing, but given the progress and dynamics of the Sino-Russian partnership, cooperation in this area appears quite possible. There are reports that the two countries began cooperating on the sensitive subject of counterintelligence after 2014.
Another reason for Europe to worry is the possible interaction between Beijing and Moscow to influence public opinion in the West, especially through social networks. At this point, there are no examples of their coordination, but the official social media accounts of Russian and Chinese government agencies (especially the English-language Twitter accounts of the countries’ diplomats) increasingly express similar positions, repeat each other’s arguments, and repost links to “friendly” content. Chinese “digital diplomacy” on Facebook and Twitter increasingly resembles the aggressive Russian approach to digital media. The same is true of China’s state-run media outlets like CGTN and People’s Daily, whose European-language coverage tends to imitate that of Russia’s RT. It’s unlikely that this evolution resulted from cooperation between Moscow and Beijing; rather, the Chinese creatively copy Russian content and adopt more advanced propaganda techniques. Nevertheless, the challenge posed by disinformation is increasingly associated with cooperation between Russia and China.
Sino-Russian economic ties also unnerve the Europeans. On the one hand, Russia’s “pivot to the East” to some extent undermines the effectiveness of Western sanctions against Russia, as outlined earlier. But the effects of the sanctions go well beyond that. Russia had been expanding its trade and investment ties with the Asia-Pacific—and primarily China as the largest economy—before the Ukraine crisis, but Western sanctions accelerated and expanded that process. The Chinese are slowly but steadily becoming important players on the Russian market, occasionally driving out established European companies from some market segments. A decade ago, Germany dominated industrial equipment imports into Russia. Now China has assumed its place, having overtaken Germany in 2016.
According to Russian industrial equipment importers interviewed in depth for this article, there is a direct link between Western sanctions and growing demand for Chinese machinery and components. The business community fears that the expansion of sectoral sanctions may impact civilian sectors of the economy, and is therefore trying to replace European and American suppliers with alternative ones—in most cases, Chinese. Of course, the increased quality of Chinese products is also important, as well as their comparatively low prices, and, in some instances, Chinese manufacturers’ willingness to localize production. These cumulative factors account for the domination of Chinese smartphones on the Russian market, and also explain the success of Chinese automobile manufacturers (Haval SUVs assembled at a plant near Tula are even purchased by the Russian Defense Ministry).
Chinese state-owned companies happen to be the only foreign contractors to win infrastructure construction tenders, alongside entities run by Putin’s friends Timchenko and Arkady Rotenberg: China Railway Construction Corporation, for example, won the contract to build part of the Moscow–Kazan freeway. The problem is that once a large number of Russian companies adopt Chinese technologies and respective standards, it will be difficult for them to return to European producers: reversing this trend will require an upheaval comparable to the Ukraine crisis that caused the rift between Russia and the West.
Similar dynamics are at play in the financial sphere. Before 2014, Russian private and state-owned businesses largely depended on European lenders. Moscow saw London as the chief financial center, and the London Stock Exchange and New York platforms were used to place stocks and bonds overseas. But following the Ukraine crisis, the Russian business community and especially the banking sector are becoming less dependent on the West (as per Russian Central Bank statistics), in no small measure thanks to the sanctions imposed on the Russian financial sector.
China’s investments in Russian publicly traded assets, as well as its lending powers, are still insignificant, but they have been growing since 2014. The only noticeable area of Chinese influence on Russia’s finances is an abnormally high yuan share in the central bank’s foreign exchange reserves (as of mid-2020, it holds 12.2 percent of its foreign exchange reserves in yuan: approximately 10 times more than other central banks around the world). Nevertheless, an increasing number of Russian companies are experimenting with issuing securities in Hong Kong and Shanghai, and the Moscow Stock Exchange is actively pursuing Asian—and particularly Chinese—clients. Despite regulatory obstacles, Russian investors are showing more interest in the Chinese stock market. For instance, Alfa Capital (an investment subsidiary of Alfa Bank) managed to attract over 2 billion rubles to its Chinese Stocks fund, launched in late 2020, in a matter of two months.
It will take years for China to equal Europe as a foreign financial market for Russian companies and affluent retail investors. How fast this process develops will depend on the pace of China’s financial sector reforms (primarily, opening its capital account), as well as on the dynamics of sanctions against Russia.
The main economic risk to Europe brought about by closer ties between Moscow and Beijing and worsening relations between Russia and the West is Russia’s gradual drift toward a Pax Sinica. This China-centric geoeconomic arrangement would spell Beijing’s dominant role as a trade partner, investor, creditor, and issuer of regional currency to be used for payments and savings, as well as its leadership in cutting-edge technologies and technological standards. The process won’t be fast, but by the early 2030s, the Chinese presence in the Russian economy may be similar to the European influence in the 1990s, 2000s, and 2010s if the current trends persist.
The emergence of a Pax Sinica including Russia could draw new dividing lines over Eurasia. These lines will be much more flexible and transparent than the Iron Curtain between NATO and Warsaw Pact countries, but will nevertheless limit the export of European standards, goods, and services. This change will also deal a blow to the plans of some European countries, particularly the UK, to create technological alliances of Western democracies to compete with Chinese technologies on the global scale. Integrating a space and nuclear power like Russia in Pax Sinica (for instance, through Huawei’s key role in building 5G networks) will serve as a showcase for developing countries.
Risks for Russia
Being slowly drawn into a Pax Sinica can only benefit Russia in the short term: the next ten to fifteen years. Thereafter, if China accounts for over 40 percent of Russian foreign trade, a large proportion of Russian exports will flow into China through pipelines (like the Skovorodino–Mohe oil pipeline or Power of Siberia gas pipeline). Beijing will play an important role as a source of technologies and finance. Given the current trends on the global energy markets, China will be even more of a buyer’s market. Although gas power plants are expected to double their capacities in the next ten years, Chinese experts (for instance, those from the Tsinghua Energy Research Center) believe that gas generation will stop growing in the 2030s, since China is investing heavily in renewable energy sources and hydrogen. Considering the country’s focus on the growth of domestic output (one of the objectives of the latest Five-Year Plan) and the increase in seaborne hydrocarbon imports, China will be able to choose its suppliers and dictate its conditions.
While Russia’s current Power of Siberia gas contract is protected by a “take or pay” provision, the Power of Siberia 2 contract hasn’t been signed yet. But Chinese state-owned companies have already been successful in pressuring Russia on oil contracts. In 2011, CNPC managed to force Rosneft and Transneft to amend a contract for Skovorodino–Mohe oil shipments that had already been signed, obtaining a discount of approximately $1.50 per barrel. In 2020, pressure from Beijing forced Rosneft to stop drilling in Vietnam’s offshore zone, part of which China considers its own territory. In the future, as trade increases—and with it, Russia’s dependence on China—Beijing may have more leverage than Moscow to negotiate favorable terms.
The most unpleasant scenario for Moscow is potential attempts by Beijing to use its economic powers to alter Russia’s positions on non-economic issues that interest China. For instance, it may demand that Moscow refuse to sell weapons to Vietnam and India, or ask that Russia talk Central Asian countries into allowing Chinese private military companies to protect Chinese sites on their territory. So far, Beijing has been cautious and respectful with Moscow and pressured it only on specific transactions. However, there is no guarantee that China will maintain the same attitude in the future, so Russia needs to take steps now to try to minimize such risks.
What Can Be Done?
The question of how Europe and the West as a whole should react to the Sino-Russian rapprochement is being discussed in capitals on both sides of the Atlantic. The West hasn’t yet formulated specific approaches to the problem, but politicians have expressed their positions. Macron’s interview with the Economist, in which the French president advocates for actively engaging Moscow to prevent its closer cooperation with Beijing, fell on fertile ground. According to the Financial Times, back in 2019, the European Union Delegation to Russia suggested that EU members (which then included the UK) start a dialogue with Russia on the issue of 5G networks to thwart Chinese companies from dominating the Eurasian markets in this and other high-tech spheres. The idea never materialized.
In other European quarters, Macron’s position is criticized as vague and naive. In any event, Europe’s ability to engage Russia in order to distance it from China will be hampered by several internal factors. First, existing EU and U.S. sanctions against Russia will probably remain in effect, since the situation in Crimea and Ukraine is not about to change in the foreseeable future.
Second, Russia is gearing up for parliamentary elections in 2021 and presidential elections in 2024. Judging by the authorities’ recent conduct (Alexei Navalny’s incarceration, the harsh crackdown on rallies in his support, pressure on Twitter, arrests at a conference for municipal legislators, and so on), the Kremlin has opted to intensify pressure on the opposition, as well as block any outside means of influencing Russian political life. This is clearly not an environment in which relations between Russia and Europe could improve, as exemplified by the EU chief diplomat Josep Borrell’s disastrous visit to Moscow in February 2021.
Third, a tougher stance on Russia is one of the priorities of the new U.S. administration, and, given Europe’s own concerns and problems with Russia, the transatlantic policy toward Moscow will likely become more coordinated and muscular.
Under such conditions, Europe first needs to forge an analytical and then political consensus on a number of key issues within the EU and, subsequently, within the transatlantic partnership. What specific aspects of the Sino-Russian rapprochement have an adverse impact on European and, more broadly, Western interests? Which elements in relations between Moscow and Beijing are unchangeable, and which ones can be influenced using the instruments accessible to the West?
Meanwhile, the Russian government and public, which are trying to strike the right balance in relations with China, need to take a more sober assessment of future relations with Europe. At this point, commercial, technological, and financial ties between Russia and Europe are still significantly stronger than they are between Russia and China. It might appear, therefore, that Russia has ample room to transfer its eggs from the European basket to the Chinese one. That belief, however, will get a reality check in the next ten to fifteen years, so it’s important to assess Europe’s potential role in balancing Russia’s relations with China now. So far, many Russian officials feel that although Europe is concerned by Russia’s drift toward China, it can’t offer Moscow anything specific in exchange for correcting its course. Perhaps Russian leaders expect to start receiving more serious offers in a few years’ time.
It’s crucial to understand, however, that the United States and Europe are not concerned enough about Sino-Russian relations right now to change their policy on Russia. Besides, many of Russia’s actions both on the domestic front and in its interaction with the West make any attempts to engage Moscow impossible. There are some intrinsic reasons for the deterioration of Russia’s relations with the West, and until either or both parties to the conflict undergo some serous internal transformation or are confronted by a shared challenge (considering that even the global coronavirus pandemic effected no changes), the Chinese factor will not alter relations between them. Since Russia is not about to change the foundations of its foreign or domestic policies, which would allow it to diversify its international contacts and rely on faster and steadier economic growth resulting from structural reform, Moscow’s room for maneuver in its relations with Beijing will narrow over time. But for now, it still exists.
First of all, Russia could engage in a dialogue with the EU and the United States through various channels. In particular, the parties could discuss the side effects of potential sanctions that would deprive Moscow of important civilian technologies that have Chinese alternatives. Second, Russia might choose to prioritize projects that deliver resources to China via sea routes, and where there are alternative buyers for those resources. 
Finally, Moscow could manage its cooperation with Beijing more effectively. There are currently four Russian-Chinese intergovernmental commissions on economic issues, which often have overlapping responsibilities and don’t always communicate with each other. If the parties don’t want to reduce the number of commissions, Russia could create and provide expert support for one back office for the four negotiating teams. The extremely disjointed Russian business community in China would also benefit from greater self-organization. In this respect, it could follow the successful model of the EU Chamber of Commerce in China.
These tactical moves won’t substitute for structural reforms inside Russia or make the country’s foreign policy more pragmatic. But they will allow Russia to reap more benefit from cooperation with China, and slow down the asymmetric development of bilateral relations.
This publication is part of the Sino-Russian Entente project carried out with the support of the UK Foreign and Commonwealth Office.
By:
Alexander Gabuev
Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.
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