The causes and pitfalls of Russia's turn to the East

19:32, 12 сентября 2021

МОСКВА, 12 сентября 2021, Институт РУССТРАТ.

The article of Timofey Bordachev, program director of the Valdai International Discussion Club, following the results of the Eastern Economic Forum on the completion of Russia’s “turn to the East” attracted a lot of attention from the Russian expert community, who asked the question: has this “turn” really finished, and is the country making a mistake by “turning the wrong way”?

Officially, it is considered that the global Russian geopolitical manoeuvre is caused by the desire to find a new reliable long-term driver to accelerate the development of the Far East, since Russia clearly does not have enough internal reserves to solve the problem. This is partly correct, but only in a rather small, and far from the most important, part.

At first glance, yes, everything is correct. Whatever one may say, but all the most essential and important things for us were traditionally located “beyond the western border”. Back in 2012, out of the $864.7 billion of Russian foreign trade turnover, which formed 39.2% of the GDP of the Russian Federation, 85.4% of this amount was formed exclusively by trade “with far abroad”, four-fifths of which was confined only to Europe.

Here it is also important to note two points. Firstly, “it lasted a long time”. The West, because it was simply rich, was the leading trading partner not only of the USSR, but also of the pre-revolutionary Russian Empire. Hence, the usual “Western-centric” picture of world perception was formed. Secondly, any developed industrial economy is always critically dependent on foreign trade.

Experts of the International Organisation for European Economic Cooperation and Development (OECD), in their report “Value Added Trade (TIVA)”, cite the following figures. The value added created by exports in the total volume of national GDP in 2014 was: in the USA – 12%, in Japan-15%, in China – 16%, in France – 22%, in Britain – 24%, in Russia – 28%, in Germany – 32%, in the Czech Republic – 46%, in Luxembourg – 74%.

Why is there so little in the US? Because since the beginning of the 1990s, America has mainly exported not goods, but the dollar. All the others earned money by selling the results of their work. And this is completely normal. Moreover, to date, the situation has changed very slightly. Even being under tough Western sanctions in 2020, the foreign trade of the Russian Federation, which was reduced to 567.8 billion dollars, still formed 38.6% of the country’s GDP. And although the share of Europe in it has also decreased, it still remains at the level of almost 40%.

Is it possible to stop foreign trade? In theory, many opinions are offered, including advertising the philosophy of “Juche”, but in practice, we should not forget that out of the total volume of raw materials consumed by the Russian economy, imported supplies are closed: 40% molybdenum, 49.6% copper, 68.6% bauxite, 87.2% zirconium, 100% iodine.

As follows from the report of the Accounting Chamber of the Russian Federation, in the period 2018-2020, “more than a third of strategic types of mineral raw materials and more than 60% of scarce types of minerals were imported in significant volumes (taking into account the import of processing).”

As you know, “to buy something unnecessary, you first need to sell something unnecessary.” So, whether anyone likes it or not, Russia will always be forced to support active large-scale foreign trade activities.

And for this, we need partners. And they, in the overwhelming majority, have been in the West for many decades. That is precisely why the western part of Russia has always been economically, industrially and infrastructurally developed many times better than its eastern “half”. And this is a consequence of natural and objective processes, and not at all the result of insufficient attention of the authorities to the eastern regions of the state.

Why is there no such problem in Germany? Because at its widest point, the length of the FRG is just over 800 km, while in Russia, from Pskov to Anadyr “in a straight line” it is more than 6140. From the centre of Germany (take, for example, the city of Kassel) to any external border it is about 370 km, and we only have 637 from Moscow to the ports on the Baltic Sea, and it takes more than two weeks to go to the port of Vladivostok by train in general.

This is the objective reality, the boundary framework of which is at least stupid to ignore. How impossible it is to ignore the indisputable fact that the era of “Western orientation” for Russia is unconditionally ending.

There are exactly two reasons for this. First, there was a global crisis of the system of capitalism. Being based on constant economic expansion to include more and more “no-man’s-land” markets in circulation, by now it has faced a complete exhaustion of free space for further expansion.

The leading economic centres solve this problem by rejecting the general open global economy in favour of forming their own closed clusters, within which they intend to establish their own rules that are openly discriminatory for the rest of the outside world. A clear example of this is the story of the Energy Charter of Europe, attempts to block the construction of the Russian “Nord Stream 2” gas pipeline and the “carbon tax” on importers announced for the imminent introduction in the European Union.

The second reason follows from the first. In the process of privatisation of the common economy that has recently begun, the West has taken an aggressive anti-Russian position. More precisely, the process of “fighting for Europe” has begun, the space of which the United States frankly considers as the main direction of its political and economic expansion.

And Europe itself demonstrates the loss of geopolitical subjectivity, so there is little that it can use to oppose the “American initiative”. First and foremost, because of its own critical dependence on trade relations with the United States market.

This leads to a simple conclusion: the Western (both American and European) anti-Russian economic sanctions imposed since 2014 are forever. This is not because of Putin or the dominance of the security forces. Consequently, any attempts to preserve the key orientation of Russian foreign trade in the western direction are obviously doomed to failure, fraught with a critical threat to the economic, and therefore the entire national security of the Russian Federation.

This does not mean that the existing ties should be ruthlessly broken and the American expansion into Europe should stop resisting completely. Russia still has enough trump cards in this issue, including energy resources. However, in the long term, the Russian Federation needs to reorient the main volume of foreign economic relations to other areas. And there are not so many of them in the world.

If to look at the map, Eastern Europe, Central and Central Asia disappear. Russia has strategic prospects in Africa and, partly, in the Middle East and South America, but, firstly, they are still fairly conditional, and secondly, they are associated with an increased struggle “for a place in the sun” with the same USA and the EU. That is, the result will be given not at all soon.

Thus, the “turn to the East” is the only strategic step that corresponds to the specifics of the emerging global political and economic conditions. This is probably the idea of Russian Defence Minister Sergei Shoigu – to create the necessary infrastructure reserve for a turn to the East. Recall that the experts of the RUSSTRAT Institute have already analysed this project and supported it.

It follows that any criticism of the expediency of this step made by Russia is simply pointless. Only the main goals of the new strategy and the tactical details of its practical implementation can be discussed here.

Moreover, this should be done strictly from the rational positions of common sense, without mixing subjective hysteria. Some experts say that China will never become our eternal friend and ally. And so what? Any interstate relations have always been built and will always continue to be built on the pursuit of their own interests first of all. The degree of strength and duration of “friendship” between states depends on the ability of their ruling elites to maintain long-term stability of the balance of mutual need for each other that suits both sides.

As long as it persists, the countries will continue to be friends, recognising and taking into account mutual interests. And now it is between Russia and China. Firstly, because both countries have the same enemy – the United States (more broadly, the collective West). Secondly, because Moscow and Beijing are equally interested in forming a new system of the world order and international security – because, as practice shows, the old, “Western-centric” one ceases to function properly.

Thirdly, because the United States, in its desire to preserve the degrading world hegemony, poses a direct military threat to both countries. Moreover, in its reflection, Russia will continue to remain much more necessary for China for a long time than vice versa.

Fourthly, the Russian Federation and China are equally interested in moving, so to speak, the “centre of the world economy” from Europe and the United States to Asia. More precisely, to Southeast Asia. Even more precisely, to the Asia-Pacific region. However, if one wishes, although with a number of reservations, one can also agree with the new American concept of the Indo-Pacific region.

The main thing is that the new economic centre has just begun to form. Moreover, neither Russia nor China are able to consolidate their own dominance in it, acting only independently. But they can do it by joining forces.

Today it is completely premature to judge how our relations will develop “later”. At least because “later” is no earlier than 2060, or even 2080, before which one still needs to live. But at the same time, it is already clear that it is the economic development of the Asia-Pacific region that can give Russia the sufficiently extensive and capacious foreign markets that it needs, while practically not politically hostile.

In his article, the program director of the Valdai Club gives absolutely correct arguments. “The international military-political situation in Asia is characterised by a number of conflicts of basic and private interests of individual states. But Russia does not participate in these conflicts or has no interests in the contradictions that form their basis.”

For Russia, this opens up very extensive opportunities in peacekeeping activities and contributes to the parties finding mutually acceptable compromises under the Russian arbitration patronage.

Yes, there will be certain tensions with a similar desire of China, but, firstly, they are not fundamentally insoluble, and secondly, many local tensions are caused by the Chinese economic expansion into Asia. So Moscow may well turn out to be the missing link that the parties need for their mutually beneficial resolution.

And the prize in this, of course, difficult process is the emerging market in the Asia-Pacific region, which surpasses the entire collective West combined in its scale. Here it is appropriate to recall the strategic assessments that underlie the Chinese global project of forming a “zone of universal prosperity”in the Asia-Pacific region.

For two decades, China’s economic growth has been based on the formation of a domestic market, provided by the demand of the middle class created in the country, numbering about 150 million people today, as well as on the combined demand of Europe (about 250 million middle class) and the United States (about 120 million middle class). Although now, due to the general crisis of capitalism, these figures are noticeably decreasing, nevertheless, China still relies on the 300 million “Western” middle class.

So, the fairly rapid process of economic growth of the Asia-Pacific region, which has already begun today, promises the formation of a middle class of more than 500 million people there. And this is still a rather underestimated estimate, given that more than 70% of the 7.8 billion people of the total world population live in the region.

But even if we proceed from this alone, Russia will still get enough space for its foreign trade, allowing Western sanctions to be ignored, if not completely ignored, then to a large extent they can be safely ignored. Especially in light of the approaching “end of the era of global dominance of the US dollar”.

Whether all this is worth a global reorientation “from the West to the East” is clearly a purely rhetorical question. Whether this reorientation is final, too. For the simple reason that it is absolutely invariant.

Whether it will go easy – certainly not. Critics of the process (including the arguments of the above-mentioned article) point to money for good reason. More precisely, the fact that China lacks high enthusiasm to fund this Russian reorientation at its own expense.

However, it is incomprehensible that critics expect such a desire from the Chinese. Any country makes investments abroad solely for the sake of making a profit in the future. And it does not, in all other cases. Therefore, it is, first of all, our task to offer China such joint projects so that their implementation corresponds to both Russian and Chinese interests.

And such may well be found. For example, in the form of logistics development through the Northern Sea Route, because Chinese goods will remain in demand for a long time, at least in Europe. Again, by the end of 2020, compared to the year before, even taking into account the negative consequences of the pandemic, Russian exports to China amounted to $49 billion, which is five times more than in 2005, and more than Russian exports to Germany – the second most important Russian foreign trade partner.

So we have something to trade with each other and a foundation to use when pondering about joint projects that are sufficiently attractive for Chinese investment.

However, I would like to ask why critics believe that financial investments in the “turn to the East” should be completely Chinese only?

We didn’t have enough money for the development of Siberia and the Far East only because the lion’s share of it was spent on infrastructure construction in the western part of Russia. In the new geopolitical conditions, priorities are clearly changing. And investments in the development of our own infrastructure are always a good driver for the development of the national economy. Moreover, there is just “free money” in the banking system of the Russian Federation.

According to the Central Bank, in 2020, the total amount of funds raised by Russian banks from legal entities and individuals increased by 14.0% – to 57.4 trillion rubles (in 2019 – by 1.4%). The growth in the volume of funds raised was primarily due to the balances of funds on the current accounts of individuals and legal entities, which increased by 54.6%, and by 34.9% (in absolute terms by 4.0 trillion rubles and 3.4 trillion rubles), respectively.

To assess whether this is a lot or a little, it is worth looking at the reporting figures of the Federal Treasury, from which it follows that the total “expanded” (i.e., including 2.9 trillion emergency anti-crisis measures) state expenditures of Russia in 2020 amounted to 42.15 trillion rubles, 54% of which fell on federal budget expenditures.

Therefore, the question is not where to get the capital to accelerate the infrastructure development of the eastern part of Russia, but how to properly attract it into infrastructure projects and use this money effectively. Here it makes sense to form a specialised trust fund, then this is a topic for a separate discussion. The most important thing is that Chinese investments will certainly be pleasant and useful to us, but they are not the only key source of financial resources.

At this point, the question of the finality of the Russian “turn to the East” can be considered closed – it is vitally necessary.