Wednesday, January 5, 2011

China makes Russian calculations

Russia, China and Energy security calculations....


On New Year’s Day, a Chinese bureaucrat pushed a button in the northeastern border province of Heilongjiang to inaugurate a monumental oil pipeline between Russian Siberia and the Chinese city of Daqing. Built at a cost of $25 billion, the 1,000-kilometre-long conduit ties the world’s largest oil producer—Russia—and the second largest oil consumer—China—into an ever tighter relationship that has significant implications for energy cooperation and world order.

Russia will export as much as 15 million tonnes of crude oil per annum for two decades to China through this pipeline, adding $8 billion to the already roaring annual bilateral trade of around $60 billion between the two BRIC nations. That China financed the construction of the pipeline through a massive oil-backed loan to Russian state-owned energy majors shows how much Beijing’s industrial and economic planning are still predicated on fossil fuels....

Chinese officialdom is hailing the Siberian oil deal for “improving the nation’s energy-imports structure”, a reference to the fact that 80% of China’s energy supplies have until now come from the volatile Middle East and distant Africa. As a stable neighbour with whom China has already settled territorial border disputes, energy-endowed Russia is a natural choice to invest in for the sake of steady crude oil imports.

For a while, Japan competed with China to bag Siberian oil from Russia, but Beijing stole a march over Tokyo by speedily laying on the table the financial aid that the Kremlin wanted. Today, the Eastern Siberian Oil Pipeline (ESPO) pumps a far higher volume of crude into China compared to Japan, which has lagged in offering lucrative infrastructure advances and investments despite repeated Russian urging. Budget-strapped and deflationary Japan is today unable to compete in any bidding wars over energy with a China that has accumulated the world’s most enviable foreign exchange reserve chest. Moreover, Japan’s unresolved Pacific island disputes with Russia have recently re-emerged as political irritants.

It is in Russia’s economic interests that Japan and South Korea also buy maximum possible oil from Siberia the way China is beginning to. Moscow has adopted a long-term market diversification strategy—termed the ‘energy window to Asia’—in a bid to wean itself away from overdependence on European customers. The parallel growth of the eastern Siberian routes to Asia is a deliberate attempt on the part of Russia to correct its previous heavy leaning on the western Siberian pipeline network that is geared towards eastern and central Europe.

While both buyers and sellers rationally wish to have options in order to maximise their respective benefits and bargaining power, the geostrategic implications of the new Sino-Russian pipeline are no less significant in the international political realm. The Chinese state-run Xinhua news agency has made no bones about the fact that the latest milestone “would not only increase the crude trade, but also improve mutual trust between China and Russia, laying an economic foundation for the two countries’ strategic partnership”.

In the last decade, Russia and China have aligned to counterbalance the US in Central Asia, East Asia and across major international institutions. The two swallowed considerable nationalistic pride to finalise a territorial concession of 67 square miles in 2008 by Russia to China against the backdrop of a ‘new Cold War’ with the US under George W Bush.

US-Russia relations have undergone a softening under the Barack Obama administration, but the structural dynamic of still-shifting global power distribution is such that Russia and China are taking stabs at the dollar’s hegemony and opposing American objectives on keynote problems like North Korea.

The Siberian pipeline plays into a complex mix of ‘multi-vectoral’ foreign policies being pursued by China, Russia and the US itself. In a multipolar world, no great power can be assured of security and prosperity through one stable alliance or preferential business arrangements with just one peer. The diplomatic dance floor today is more akin to the Cuban Rueda di Casino, where multiple couples keep exchanging partners, rather than the classic two-partner Tango. In uncertainty, one hedges bets and the oil consequentially flows along zigzag paths.....

Dancing with the Dragon....

.....China's IPR thorn
still needles West

Chinese companies producing rip-off copies of famous brand-name goods, from fancy scarves to high-tech gadgets, have long been the bane of Western companies, although copyright protection is improving. The real danger will be when Chinese companies execute their own brand development and intellectual property. - Benjamin A Shobert

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