Ukraine Crisis Pushing Putin Toward China

The New York Times
By NEIL MacFARQUHAR and DAVID M. HERSZENHORNMAY 19, 2014

MOSCOW — President Vladimir V. Putin said Monday that he was withdrawing Russian troops from the border with Ukraine, the second time he has said that in less than two weeks. He also praised the government in Kiev, which he had previously called an illegal, fascist junta, for its willingness to negotiate structural changes.

But the intended audience for these conciliatory remarks may not have been the United States and Europe, who would distrust them in any event. No, Mr. Putin’s gaze was more likely fixed on China, where he arrives on Tuesday by all accounts determined to show that he, too, wants to pivot to Asia.

While Mr. Putin has been casting an eye eastward practically since he returned to the presidency in 2012, the crisis in relations with the West over Ukraine has made ties to Asia, and particularly relations with its economic engine, China, a key strategic priority. With Europe trying to wean itself off Russian gas, and the possibility of far more serious Western sanctions looming should the crisis deepen, Moscow needs an alternative.

Mr. Putin has stressed repeatedly in recent weeks that Russia sees its economic future with China, noting that its Asian neighbor was on track to surpass the United States as the leading global economic power. A tilt to the East is also in keeping with Mr. Putin’s recent turn to a conservative nationalist ideology, emphasizing religion, family values and patriotism in contrast to what he sees as the increasingly godless, relativist and decadent West.

“Today, Russia firmly places China at the top of its foreign trade partners,” Mr. Putin said in an interview with Chinese journalists on the eve of his visit, according to a transcript released Monday by the Kremlin. “In the context of turbulent global economy, the strengthening of mutually beneficial trade and economic ties, as well as the increase of investment flows between Russia and China, are of paramount importance.”

Mr. Putin’s announcement of a pullback of Russian forces from the Ukraine border was likely to help calm the situation there before presidential elections scheduled for Sunday. But it could also be seen as a gesture to Chinese sensitivities about separatism, given Beijing’s continuing troubles with Tibet, the Uighurs and scores of lesser-known ethnic and religious minorities.

It was also the third time Mr. Putin had announced a pullback without any evidence of troops actually departing, the NATO secretary general, Anders Fogh Rasmussen, noted Monday at a news conference in Brussels.

The centerpiece of Mr. Putin’s two-day visit to China could well be a long-stalled deal with Russia to ship natural gas from new Siberian fields to China starting around 2019. The two have been haggling over the deal for a decade, but could not agree on a price for the gas.

Experts anticipate that Russia is finally prepared to come to terms, if only to let Washington and Western Europe know that it has other markets for its gas and important friends in the world.

“Because of this current disaster in our relations with the West, they have no alternative,” said Vasily B. Kashin, a China expert at the Center for Analysis of Strategies and Technologies, a Moscow policy organization. “They need to go to Asia to make any deals possible as quickly as possible.”

Mr. Putin is due in Normandy on June 6 for the 70th anniversary of the D-Day invasion. He is likely to meet with President Obama and the German chancellor, Angela Merkel, to discuss the Ukraine crisis. Brandishing a new gas deal with China would strengthen Mr. Putin’s hand, helping deflate the threat of Western sanctions.

In the interview with Chinese journalists, Mr. Putin noted that bilateral trade with China last year was close to $90 billion. Although Russian trade with the European Union as a bloc is far larger, amounting to some $370 billion in 2012, trade with China is on par with leading individual partners like Germany. Trade with the United States was only $26 billion in 2012.

Russia needs new markets because it is hugely dependent on commodity exports, earning some 67 percent of its export income from oil and gas alone. Financing from China would also help offset reluctance by Western banks to extend new loans, given the threat of sanctions.

“There will be a natural gas agreement, which is very important not for the agreement itself, but because it will open the road for further, much bigger agreements in natural gas and other raw materials,” Mr. Kashin said.

Mr. Putin said Russia would try to increase trade volume with China to $100 billion next year and double that by 2020.

Aside from what he described as a “strategic energy alliance,” Mr. Putin mentioned possible joint projects in airplanes and helicopters, mining, agricultural processing and transportation infrastructure. Other technical and military cooperation agreements will also be discussed, but both sides tend to keep those secret, so details might not emerge for some months, experts said.

Russia and China, which share a border of more than 2,600 miles, have long had uneasy relations. Russia, wary about the economic gorilla along its southern borders, blocked Chinese investment, particularly in fields considered strategic like energy, except for two small deals. Mr. Putin on Monday clearly enunciated a more welcoming message.

“That is a big shift,” said Clifford Gaddy, of the Brookings Institution in Washington and the author of a book on Mr. Putin, “and indicates how serious they are in taking a step toward China.”

Mr. Gaddy added, “It is a shift in rhetoric, and we will see if it is followed up with a shift in action.”

In highlighting that the sanctions are helping to disrupt the Russian economy, the Obama administration has virtually ignored that it is pushing Russia toward greater dependence on China, Mr. Gaddy noted.

The Russians are hoping that China will also agree to help build a bridge linking the mainland to the Crimean port of Kerch, lending not only valuable expertise but also tacit endorsement of an annexation that much of the world considers illegal. There is no current land link to the annexed territory.

China abstained from a United Nations Security Council vote in March rejecting the referendum that Russia organized in Crimea before annexing it. That earned China special praise from Mr. Putin in his speech announcing the annexation.

Russia and China are also scheduled to hold joint naval exercises in China toward the end of the month, and President Xi Jinping was one of the few world leaders to put in an appearance at the Winter Olympics in Sochi.

There is, of course, no guarantee that the two sides will come to terms on the gas deal. Alexei Miller, the chief executive of state-run Gazprom, announced over the weekend that Russia and China had agreed on everything in the 30-year contract except the price.

Experts noted that the price gap had endured for years, although it is generally believed to have shrunk from hundreds of dollars per thousand cubic meters to $50 or less. Before, Moscow’s bargaining strategy was to wait out the Chinese, figuring that their insatiable appetite for natural resources would bring them to Russia’s doorstep at favorable terms.

But analysts believe that passive strategy is over.

“There is no more time, with sanctions escalating,” said Ildar Davletshin, the head of oil and gas research at Renaissance Capital, an investment bank. “Russia has become more desperate to get a real outlet.”

Mr. Davletshin also noted that as negotiations had dragged on, Russia gradually lost market share to other suppliers in Central Asia.

Russia, with its massive resources, is attractive to the Chinese. “Russia is just across the river and it is vast and underpopulated, so it is attractive for China to own a piece,” Mr. Davletshin said.

That also puts its resources out of reach of American sanctions and the United States Navy, analysts noted.

As initially conceived, Russian gas was to enter China in its far west, where the demand was lowest, and in the ensuing years China negotiated deals for other, cheaper sources.

So the current deal concentrates on selling 38 billion cubic meters of gas, worth about $14 billion if they agree to a price of around $380 per thousand cubic meters, as analysts expect. Part of the bargaining also concerns the financing China might provide to build the nearly 1,500 mile pipeline, estimated to cost $30 billion.

Andrew Higgins contributed reporting from Brussels.