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PANEL | Potential versus performance in the Far East

Chess China, Ukraine and Russia

March 9, 2015

This post is part one of a three-part series on a panel discussing Russia’s relationship with China in the context of current events.

By Sarah McPhee

Most people are trying to leave campus as quickly as possible on a Friday evening, but in Thomson Hall, students, faculty and community members were gathering to finish the week off strong. Spearheaded by doctoral candidate Greg Shtraks and sponsored by the Ellison Center, the East Asia Center, and the Center for Global Studies, a panel on “Russia’s Pivot to China in the Context of a Burning Ukraine” brought together experts in economics and political science, including Judith Thornton, Liz Wishnick, and Mikhail Alekseev,  to examine the Sino-Russian relationship in light of the current events in Ukraine.

Judith Thornton, UIMG_3736W Department of Economics

Dr. Thornton, professor of economics at the University of Washington, posed the question, “What can be done about the growing gap between economic potential and performance in Asian Russia?”

According to Thornton, the Far East typifies the problems of all the provinces, but the size, wealth of resources, and proximity to a rapidly developing Asia make it a barometer of storm winds for the Russian federal government, which often seems blind to these problems.

Is there a pivot to Asia?

Thonton says yes and no.

China is the #2 destination of all products and the #1 source of supply. In this way, there is a pivot, as exports to China are 10 times larger than to Japan. However, these are not diversified, they are primarily fossil fuels and iron. As for imports, China accounts for 7.3% with cars, pharmaceuticals, vehicle parts, computers, and trucks the most imported objects.

“Russia is still the Nigeria of Asia, a major energy exporter without much else on its plate.”

There is a pivot, but agreements with China are twenty times larger than what has been delivered. Rosneft and China have a deal to send 50 million tons of oil to China over 20 years. This is a large amount of oil for Russia, but pales in comparison to Chinese demand, amounting to less than 10% of projected need. Rosneft is holding $12 billion in debt and China is helping them to fund their debts with $3 billion in loans, which will be used to expand deliveries for China through eight upstream projects in Siberia. They have offered a $400 billion credit for deliveries.IMG_3725

Unfortunately, none of the pipelines have a rate of return of more than 1% and the cost is three times more expensive than a Canadian company building the same pipeline in Alberta. Thornton believes that this is most likely a result of corruption.

Russia needs cash and the government is selling military hardware it has never sold before, such as rockets and jets. Thornton explained that while a third of the population lives in the Far East, there has been almost no investment there. Siberia will require huge amount of capital but the power vertical and corruption keep investors away. The money that has been invested in this region — less than $1 billion — is not thriving. Thornton contended that 600,000 Americans in Alaska produce as much as 6 million Siberians and there is a high level of unemployment among young people in their 20s. “This is a region that’s in big, big trouble.”

As for Ukraine, Thornton believes that the situation is more important for understanding China, not Russia. She explained that China observed the weak sanctions and became even more aggressive at sea, disputing maritime borders, claiming 80% of the South China Sea.

So what is to be done?

Thornton insists that it is vital to support Trans-Pacific Partnerships as well as US security forces in the Asia Pacific. She also believes that the US should encourage Japan and South Korea to increase their economic cooperation to counterbalance China, despite historic tensions.

Interested in listening to the entire panel? Check it out on SoundCloud! (We thank you in advance for your patience with the sound quality as we continue to improve our technology and social media offerings!)