Forget Visa and MasterCard. After the two American credit system payment companies froze accounts without notice in March, Russia has been looking for an alternative in China UnionPay.
China UnionPay plans to have 2 million cards in Russia in the next three years.
Instead of seeing the small Visa and MasterCard logo on credits cards, ATMs, and retail outlets, Russians will start to see the three words “China. Union. Pay.”
China UnionPay first emerged in 2002 on the domestic Chinese market as an alternative to Visa and MasterCard, but quickly expanded internationally, and now is already number one in terms of quantity of cards in the world.
Russia’s biggest banks – VTB- Gazprombank, Promsvyazbank, Alfa Bank, MTS, and Rosbank- are already making technical preparations, running tests on Union Bank cards.
“VTB24 already serves China UnionPay cards in its ATM network and now the bank is in negotiations with this payment system to start acquiring retail merchants,” VTB24’s press office said in a statement.
Most banks just began their relationship with China by offering clients corresponding services- none of the bankers imagined that they would be issuing Chinese credit cards.
In March, both Visa and MasterCard blocked the accounts of cardholders at BankRossiya and SMF Bank, both which were sanctioned by the US over Russia’s involvement in Crimea.
Russian financiers who used to keep their assets in dollars and euros were shocked by the event, and moved their capital back to Russia out of fear one day all their assets would be blocked by politicians in Washington DC.
“Visa and MasterCard have 100 percent trust, but right now, there is no trust in the system, and many, even our clients, have shifted their transactions from American dollar and Euro to Yuan. They are eager to receive this card- we already have a big list of people waiting to get this card instead of MasterCard and Visa,” Denis Fonov, Deputy Chairman at LightBank, a small Moscow-based bank, told RT.
LightBank was working with UnionPay long before it knew the cards would be coming to the Russian market – and ordered 10,000 cards pre-emptively as a side service for clients.
As a result of the freeze, Visa and MasterCard will now have to pay a security deposit to Russia’s Central Bank, which is estimated to be billions for each company. Similarly, once UnionPay begins operating in Russia, it will also put down a security deposit with Russia’s Central Bank, about $3-4 billion, Fonov said.
$5.3 trillion in payments
There are already 20,000 cards in circulation in Russia, and a second order of 100,000 cards is planned for September. In Russia many banks accept UnionPay cards, but not merchants, that’s the next step.
By the beginning of 2014, the payment system had already issued 4.2 billion cards, mostly in China.
In terms of total world trade turnover, China UnionPay is the leader in debt cards, with over $5.3 trillion in payments, or about 47 percent of the market share, whereas Visa has 40.6 percent, and MasterCard only 12.2 percent, according to the Nilson Report.
In overall transactions, Visa is still the leader with $4.6 trillion, and China UnionPay comes in second with $2.5 trillion in transactions in the first half of last year.
UnionPay already successfully operates in Australia and Canada, with their deposits tied to both the local currency and the yuan. In total, UnionPay operates in 142 countries.
China’s UnionPay will be a temporary solution for Russia to detach from the West while it prepares to launch its own payment system, which officially isn’t slated to begin operating for another 16 months, and according to sources in the industry, it could even be 2-3 years out.
The Ukrainian Civil War took a violent and headline-grabbing international turn for the worst on 17 July following the downing of Flight MH17. Although it appears more and more likely that it was the Ukrainian Army that shot it down and not the anti-Kiev Resistance, pro-Western media has been aggressively pushing the narrative that Russia, specifically President Putin, was involved and has been suppressing evidence to the contrary. It has even gone as far as to infer that “Russian-backed separatists” carried out a “terrorist attack”, further upping the propaganda ante. The reason behind this massive information war is that the US wants to “isolate Russia” and expand NATO into Ukraine, something which it has largely been unable to successfully do up until this point. In fact, it appears as though the US is now readying to play its trump card – granting Ukraine major non-NATO ally status and declaring Russia as a “state sponsor of terrorism”, both of which would in turn advance NATO interests and threateningly force the EU to choose whether its destiny lies with the Atlantic or the Continent.
“Operation: Isolation” before Flight MH17
Prior to the downing of MH17, US-led sanctions against Russia were unsuccessful in isolating Moscow. The EU refused to enact any meaningful sanctions that would endanger its $330 billion yearly trade with Russia, thereby mitigating the US’ economic bullying efforts. In fact, the verbal threat of sanctions was actually beneficial for Russia since it motivated the country to look outside the West for future economic prospects. An historic gas deal with China was signed in May that was worth nearly half a trillion dollars, and in the same month, the Eurasian Economic Union was officially formed. Then, right before 17 July, Putin attended the BRICS conference in Brazil where he met with leaders representing nearly half of the world’s population, and they committed to creating the alternative BRICS Development Bank. Clearly, Russia wasn’t going to be isolated by the West.
All while this was happening, the US kept trying to find a backdoor way for incorporating Kiev’s armed forces into NATO, and it found it through its local lackey, Poland. A plan was concocted by Ukraine to create a joint brigade between it, Lithuania, and Poland, with Poland being the key NATO partner involved (Lithuania on its own is almost insignificant in international and military affairs of any kind). The importance here is that Kiev has been institutionalizing the relationship it has with its new strategic partner, Poland, also inviting its former overlord and mercenary-in-arms into the east to assist with “creating new jobs” (read: plundering) in Donbass. What is happening here is that even if the West was unsuccessful in isolating Russia, it could at the very least move as much of its influence eastward to the Russian frontier as it can in order to enact maximum pressure on Moscow.
The “Terrorist” Label and Shadow NATO
Almost immediately after it happened, the MH17 catastrophe was seized upon by Western political opportunists as valuable capital for their geostrategic game. As was mentioned in the first paragraph, pro-Western media outlets immediately laid the blame squarely at Putin’s feet, and this wasn’t coincidental. The objective in doing so has been to generate enough anti-Russian sentiment in Europe so as to justify mutually disadvantageous sanctions (more so for the socially and politically fractured EU, many of whose members are still in recession, than for the economically resolute Russia). The EU, and especially Germany, will only “shoot itself in the kneecaps” as either an emotional or forced response, as to do so under any normal circumstances would be absolutely unreasonable.
Thus, the “terrorist” label entered the discourse.
It has now become popular for Western opinion makers to repeat the Kiev slur that the anti-coup Resistance are “terrorists”, emphasizing that they are “Russian-backed” and “supported by Putin”. It doesn’t matter that none of this is true – what is important is that it is repeated as loudly and as often as can be. The result is to acclimate the public into believing that Russia under Putin is a pariah state, much as Newsweek magazine tried to convince their audience with its last hate piece. Poroshenko has taken things even further, likening MH17 to Lockerbie and 9/11 and trying to get Donetsk and Lugansk’s governments on the international terrorist list.
It is only a short leap of “logic” to see the connection between Russia and Putin as terrorist sponsors and the US’ designation of state-sponsor-of-terrorism status onto the country. Such a step would lead to immediate US sanctions and intense pressure on the EU to cut off its major non-energy trade contacts with Russia and fiendishly move towards diversifying away from Russian gas (to say nothing of killing the South Stream project). The US will only take this extreme step if it is sure that it has more influence over Europe than Russia does and that Europe can be convinced to sacrifice its economic well-being for ideological and political reasons (which is not that far-off of a possibility for such an indoctrinated leadership).
Just as before the tragedy, it must be noted that the US is still pursuing the goal of shadow NATO integration with Ukraine parallel to isolating Russia. It is reported that it may be on the cusp of granting Ukraine major non-NATO ally status and even providing pinpoint precision intelligence for attacking anti-Kiev SAM sites. This could rapidly creep into something much more, per the Libya model, especially since US military advisors will be on the ground. Thus, in one fell swoop, by evoking the “terrorist” label, the US can ‘kill two birds with one stone’ – guilt/force the EU into “isolating Russia” (thereby isolating and harming itself as well) and swallow Ukraine into Shadow NATO.
The US has plainly demonstrated that it is salivating for a Cold War redux with Russia, and once more, Europe is caught in the middle. It is completely contrary to any of its interests for it to participate in this needless and aggressive geopolitical struggle, but as the EU seems wont to do nowadays, it may easily get sucked into it out of misguided ideological and political reasons dictated by the US. In fact, it may have little choice: the US could unilaterally declare Russia as a state sponsor of terrorism and then force the EU, whose largest export market is the US and with whom it is negotiating the Trans-Atlantic Trade and Investment Partnership (which European political elite naively believe will benefit them), into acquiescing to its military occupier’s demands. This wouldn’t “isolate” Russia, which has already made a strong push into the non-Western world since April, as much as it would isolate the EU, but ironically, this may even work in Washington’s favor by crippling its friendly economic rival and keeping it under its thumb for at least another decade.
Moreover, Russia as a “state sponsor of terrorism” would create a clear dividing line between the West and Russia and could give a renewed hybrid purpose to NATO. Whereas in the Cold War it was an anti-Russian organization and then in the “Global War on Terror” it nominally became an anti-terrorist organization, it may soon carry the new hybrid mission of containing a “terrorist-supporting” Russia. This would also provide enhanced justification to European populations for the deployment of even more US and NATO personnel in Eastern Europe, as well as deeper and faster Shadow NATO integration for Ukraine, Georgia, and Moldova, thereby laying the framework for a Western battering ram into Russia’s Near Abroad. All of this would rightfully alarm Russia, which would then defensively ramp up its multivector cooperation with ‘The Rest’ and BRICS. This would be especially so for its prized strategic partner and fellow Western target, China, potentially creating an eventual de-facto alliance between the two giants out of shared security concerns and transforming the Eurasian strategic landscape.
Mérida – Venezuela participated in the gathering of the BRICS emerging powers and Latin American regional blocs in Brazil this week, where new agreements were hailed as beginning the creation of a new global financial architecture.
Several multilateral meetings were held in the city of Fortaleza, including the 6th BRICS (Brazil, Russia, India, China and South Africa) Summit, and meetings between China and the Union of South American Nations (UNASUR) and the Community of Latin American and Caribbean States (CELAC).
During the BRICS summit, the five emerging economies created a new development bank and a multilateral reserve fund, each of which will potentially hold US $100 billion of pooled capital. The reserve fund will be used to support members of the bloc against adverse economic conditions or external impacts.
The creation of the new institutions is partly motivated by dissatisfaction with the terms of the financial hegemony exercised by the U.S. and its European allies through the IMF and World Bank.
“The strength of our project has positive potential: we want the global [financial] system to be fairer and more equal,” said Brazilian president Dilma Roussef to media.
On Wednesday and Thursday China met with the UNASUR and CELAC blocs in order to explore strategies through which the Asian power could deepen its involvement in Latin America.
In the meeting with UNASUR countries it was discussed how BRICS and UNASUR could create more ties. After the meeting, Venezuelan president Nicolas Maduro reported that it had been proposed that the new BRICS Development Bank and UNASUR’s Bank of the South adopt a common strategy in the regional and global economies.
“The [new] financial institutions have the same objectives: the construction of a new financial architecture that benefits economic development in conditions of equity for our countries; where speculative financial capital is ended, where the looting of our economies is ended, and productive investment which creates employment and wealth is promoted,” he said to Telesur on Wednesday.
The Venezuelan president also argued that closer relations between BRICS and Latin America represented a “win win alliance” and “the birth of the multi-polar world”.
“In the past we were dominated powers, and now we are emerging countries and blocs,” he said.
The BRICS bloc has become a key trading partner for Venezuela. Commerce with the bloc increased by 72% from 2006 – 2013.
Meanwhile, agreements reached on Thursday between China and the CELAC bloc, which brings together all countries in the Americas apart from the U.S. and Canada, included the establishment of a $1 billion investment fund for infrastructure projects in Latin America, and a Chinese offer of scholarships for 6,000 Latin American students.
Other funds potentially worth $15 billion to support Latin American development were also discussed.
Latin America has become an important source of Chinese investment and exports, while South American powers have increasingly turned to China as a source of financing, technology transfer, and destination to export primary materials.
A top level delegation led by Chinese President Xi Jinping is currently touring the continent to further deepen China’s economic involvement in Latin America, with visits including Brazil, Argentina, and Venezuela, where Xi Jinping arrives today.
Venezuela also held several bilateral meetings in Fortaleza, including with China and Colombia.
The South American OPEC nation agreed to import a further 1,500 Chinese-made Yutong buses for the expansion of its public transport system. A Yutong factory is being built in Venezuela to begin domestic production of the vehicles, which will open next year.
The Venezuelan and Chinese central banks also reached an agreement to share information on statistical methodologies, monetary policy, and funding mechanisms. Both parties called the accord a “breakthrough” for enhancing economic ties.
Since 2001 the two countries have constructed what has been labeled as a “strategic alliance”. A high level bilateral session initiates in Caracas today with the arrival of Chinese president Xi Jinping.
Fortaleza, Brazil – After some tough rounds of negotiations, BRICS nations (Brazil, Russia, India, China and South Africa) have created not only a new $100 billion Development Bank, but also a $100 billion foreign currency reserves pool.
The announcement was made after a plenary meet of the five BRICS heads of state in Fortaleza on Tuesday.
Shanghai finally won the bid to host the Bank while India will get the presidency of the Bank for the first six years. The Bank will have a rotating chair. The Bank will also have a regional office in Johannesburg, South Africa. All the five countries will have equal shareholding in the BRICS Bank.
The five Finance Ministers will constitute the Bank’s board which will be chaired by Brazil.
The Bank will initially be involved in infrastructure projects in the BRICS nations.
The authorized, dedicated and paid in capital will amount to $100 billion, $50 billion and $10 billion respectively.
The idea of the BRICS Bank was proposed by India during the 2012 Summit in New Delhi.
BRICS have long alleged that the IMF and World Bank impose belt-tightening policies in exchange for loans while giving them little say in deciding terms. Total trade between the countries is $6.14 trillion, or nearly 17 percent of the world’s total. The last decade saw the BRICS combined GDP grow more than 300 per cent, while that of the developed word grew 60 per cent.
Apart from the new development Bank, the group of five leading emerging economies also created a Contingency Reserve Arrangement on Tuesday.
BRICS central banks will keep their reserves in gold and foreign currencies.
China will fund $41 billion, Brazil, India and Russia $18 billion each and South Africa with $5 billion. The funds will be provided according to a multiple. China’s multiple is 0.5, which means that if needed, the country will get half of $41 billion. The multiple is 2 for South Africa and 1 for the rest.
BRICS Finance ministers or central banks’ governors will form a governing body to manage the CRA while it will be presided over by the BRICS President.
The BRICS CRA will not be open to outsiders.
Meanwhile, at the Summit in Fortaleza, Russian President Vladimir Putin said BRICS must form an energy alliance.
“We propose the establishment of the Energy Association of BRICS. Under this ‘umbrella’, a Fuel Reserve Bank and BRICS Energy Policy Institute could be set up,” Putin said on Tuesday.
South Korea’s senior presidential secretary said on Wednesday that visiting Chinese President Xi Jinping and South Korean President Park Geun-hye will exchange notes on detailed measures towards denuclearization of the Korean Peninsula during their upcoming summit talks.
Ju Chul-ki, senior foreign affairs and security advisor to Park, told a press briefing on Wednesday that the two leaders will discuss the Trust-Building Process on the Korean Peninsula, a key policy measure of the Park government.
China and South Korea will release a joint cooperation document paper and ink deals in trade, finance, environment and consular affairs during the Chinese President’s state visit.
Xi will make a two-day state visit to Seoul to hold a summit with Park Thursday and meet with National Assembly Speaker Chung Ui-hwa and Prime Minister Chung Hong-won Friday.
“The two sides will also exchange views on maintaining peace and stability on the Korean Peninsula,” Chinese Vice Foreign Minister Liu Zhenmin told a press briefing in Beijing on Tuesday.
The upcoming China-South Korea summit talks will aim to empower efforts to solve the Peninsula nuclear issue and deter possible provocations from North Korea, Park’s advisor said.
Xi and Park are also expected to discuss the recent move by the Japanese government to end its post-war pacifist outlook.
The Japanese cabinet, headed by Prime Minister Shinzo Abe, decided Tuesday to reinterpret its 67-year-old pacifist constitution to allow itself to exercise collective self-defense right.
The revision paved the way for Japanese forces to fight abroad in defense of “countries with close ties.”
Japan also provoked South Korea on June 20 by unveiling the results of its review on the Kono Statement, which acknowledged and apologized for its wartime sex slavery.
The results said Seoul intervened in the wording of the 1993 apology, indicating it was the consequence of closed-door political dealings.
South Korean President Park Geun-hye criticized Japan for attempting to undermine the credibility of its 1993 apology over wartime sexual enslavement of women during World War II, describing the move as an “act that betrayed trust between the nations”, says a Yonhap report.
Xi and Park are also expected to push for speeding up negotiations for the bilateral free trade pact and setting up a market to directly exchange currencies of the two countries.
China is moving forward with a plan to create its own version of the World Bank, which will rival institutions that are under the sway of the US and the West. The bank will start with $100 billion in capital.
The Asian Infrastructure Investment Bank (AIIB) will extend China’s financial reach and compete not only with the World Bank, but also with the Asian Development Bank, which is heavily dominated by Japan. The $100 billion in capital is double that originally proposed, the Financial Times (FT) reported.
A member of the World Bank, China has less voting power than countries like the US, Japan, and the UK. It is in the ‘Category II’ voting bloc, giving it less of a voice. In the Asian Development Bank, China only holds a 5.5 percent share, compared to America’s 15.7 percent share and Japan’s 15.6 share.
At the International Monetary Fund, China pays a 4 percent quota, whereas the US pays nearly 18 percent, and therefore has more influence within the organization and where loans go.
“China feels it can’t get anything done in the World Bank or the IMF so it wants to set up its own World Bank that it can control itself,” the FT quoted a source close to discussions as saying.
To date, 22 countries have expressed interest in the project, including oil-rich Middle Eastern nations, the US, India, Europe, and even Japan, the FT reported.
“There is a lot of interest from across Asia but China is going to go ahead with this even if nobody else joins it,” the FT source said.
Funding for the Asian Infrastructure Investment Bank will mostly be sourced from the People’s Republic of China and be used to pay for infrastructure projects.
The bank’s first project will be a reincarnation of the ancient Silk Road, the vast network of trade routes between China and its regional neighbors. Another proposed project is a railway from Beijing to Baghdad.
The idea for the bank was first floated in October 2013, when China unveiled plans to create the bank. Then it was initially to be funded with $50 billion in capital.
Separately, the BRICS nations plan to have a $100 billion development bank ready by 2015.
Funds will be reserved for emerging market members who are often bypassed by institutions like the IMF and World Bank.
Bank preparations will likely be finalized at the 6th annual BRICS summit on July 14-16, when the five world leaders convene in Brazil.
China, the world’s largest energy consumer, has started receiving natural gas transported through the newly constructed Line C of the crucial China-Central Asia gas pipeline network on Sunday, state media reported.
Gas transported through Line C, which is now operational, successfully reached the Horgos Port in China’s Xinjiang province on Sunday.
Line C is over 1,800 kilometers long and runs parallel to lines A and B, with the pipeline network showing Beijing’s growing clout in Central Asia as it seeks resources for the Chinese economy.
China imports about 20 bcm of gas from Turkmenistan, about half of its total gas imports, and the two countries signed an agreement last year to ramp up gas exports to 65 bcm by 2020.
Central Asia is seeking new export routes for the fuel as transport routes to Europe via Russia are now in question following the EU sanctions on Moscow over Ukraine.
China’s first large international pipeline for imported natural gas, the China-Central Asia line starts at the Turkmenistan-Uzbekistan border before passing through central Uzbekistan and southern Kazakhstan before entering China.
From Horgos in Xinjiang, the pipeline then connects with China’s West-East pipelines, to deliver natural gas across the country.
Trade between China and Central Asia has increased from about $500 million in 1992 to $26 billion in 2009, according to official Chinese figures.
The Central Asia-China gas pipeline runs all the way from China’s east coast cities to Galkynysh field, a distance of 6000 miles as it sources energy from major energy producers Turkmenistan, Kazakhstan and Uzbekistan.
China’s energy giant CNPC also plans to integrate Afghanistan into this energy network.
TBP and Agencies
China’s Foreign Ministry Spokeswoman Hua Chunying
China has dismissed the recent allegation by the US that the Chinese military has been involved in hacking a US security firm, describing Washington’s approach on the issue as unconstructive.
A private US cyber security firm accused a unit of China’s military on Monday of hacking attempts to access information on US satellite and aerospace programs, Xinhua reported.
China’s Foreign Ministry Spokeswoman Hua Chunying rejected the allegation at a press briefing on Tuesday.
“I have noticed the report you mentioned, its wording and style looks familiar, citing the names of the hackers and their claims of their military identity,” she said, responding to a question about US reports alleging Chinese hacking attempts. “Have you ever seen thieves bearing a name tag saying ‘thieves?’” she said.
Washington had issued an indictment against five Chinese military officers on charges of cyber theft earlier on May 19.
The Chinese Foreign Ministry spokeswoman further challenged the integrity of the US allegations against her country, referring to the massive American espionage efforts across the globe as part of its PRISM program under the US National Security Agency (NSA).
The program, which was revealed by former NSA contract employee Edward Snowden in 2013, showed that the US was spying on the phone and email communications of top world leaders, including those of Washington’s allied countries as well as China.
“The US is a hacking empire,” Hua said. “It is not constructive for the US to attack others instead of repenting and correcting its own mistakes.”
The Chinese official further pointed out that cyber attacks are a global challenge – transnational and anonymous in nature – requiring cooperation among all countries to be countered.
China and Russia have jointly submitted an updated draft international treaty on banning the deployment of weapons in outer space to a UN-sponsored disarmament conference.
The US and Israel have repeatedly voted against UN resolutions on the prevention of an arms race in outer space.
The updated draft Treaty on the Prevention of the Placement of Weapons in Outer Space, the Threat or Use of Force Against Outer Space Objects, was presented at a plenary session of the Conference on Disarmament, the world’s sole multilateral forum for disarmament negotiations.
The new draft treaty prepared by Russia and China is a revised version of the one the two allies had presented earlier, including definition and scope of the treaty, organizations as well as mechanisms to solve disputes, said Wu Haitao, China’s ambassador extraordinary and plenipotentiary for disarmament affairs.
The Treaty on Prevention of the Placement of Weapons in Outer Space and of the Threat or Use of Force Against Outer Space Objects (PPWT) was first proposed by China and Russia in February 2008 as an international legally binding treaty that would outlaw the weaponization of space.
Wu said this new draft treaty is aimed at advancing the Conference on Disarmament toward negotiations for signing an international legal document.
Space assets like satellites are at increasing threat of being disabled from hostile countries as risk of cyber-warfare grows.
Beijing has warned of the growing risks of the weaponization of outer space with the rapid development of space technology, which the Chinese Ambassador said will “hinder the peaceful use of outer space, break global strategic balance and stability and hamper nuclear disarmament”.
The existing legislation on outer space cannot prevent the use or the threat of force against outer space assets, Wu said.
Telecommunications, GPS navigation systems, power etc could be easily switched off with the disabling of satellites in the backdrop of a militarized outer space.
China has stressed during the UN conference on the urgent need to sign a new international legal document to prevent the weaponization of outer space.
China and Russia are willing to include suggestions and ideas from other parties and continue to improve the draft treat in order to lay a foundation for the start of practical negotiations at the Conference on Disarmament, Wu said.
No more Fitch, Moody’s, or Standard & Poor’s for Russia and China, as they have agreed to establish a rating agency on joint projects, and later, international services, Russian Finance Minister Anton Siluanov said Tuesday.
“The establishment of an independent rating system is being discussed. Many countries would like to have more objectivity in the assessment of rating agencies,” Siluanov said.
“There will be a Russian-Chinese rating agency, which will use the same tools and criteria for assessing countries and regional investments that existing rating agencies use,” the minister said.
The UK government has agreed to establish a yuan-clearing bank in London that would “act as a signal for London’s growing yuan activities”.
Mark Boleat, policy chairman for the City of London Corp said consultations were ongoing for a long time with the People’s Bank of China, Bank of England and many banks in London, and the PBOC has now decided to appoint the clearing bank.
“We assume it’s going to be a Chinese bank, because that’s the way the PBOC does things,” Boleat said in an interview to a Chinese daily in London.
China and the UK had signed an agreement last year to establish a reciprocal 3-year sterling/renminbi (RMB, or Chinese yuan) currency swap line.
UK Chancellor of the Exchequer George Osborne had said earlier this year that a clearing bank was the next logical step to take in building trade ties with China.
“It would be an important further milestone both in the development of the renminbi as a currency of the world’s economic future, but also of London and the U.K. as the western center for renminbi trading,” said Osborne.
China has also signed an agreement with Germany to work on appointing a clearing bank in Frankfurt.
Meanwhile, the UK administration would also allow Chinese banks to open new branches in the country soon.
Previously, Chinese banks, as well as many other international banks, were only allowed to set up subsidiaries, which are subject to the strict capital requirements that apply to Britain’s local banks, hence the lending and financing capacity is proportional to the balance sheet of the subsidiary.
The response of much western commentary to the Russia China agreements has been scepticism that they can ever burgeon into an outright partnership because of the supposedly long history of mutual suspicion and hostility between the two countries. The Economist for example refers to the two countries as “frenemies”.
To see whether these claims are actually justified I thought it might be useful to give a short if rather summary account of the history of the relationship between the two countries.
Official contacts between China and Russia began with border clashes in the 1680s which however were settled in 1689 by the Treaty of Nerchinsk, which delineated what was then the common border. At this time Beijing had no political or diplomatic links with any other European state save the Vatican, which was informally represented in Beijing by the Jesuit mission. The Treaty of Nerchinsk was the first formal treaty between China and any European power.
The Treaty of Nerchinsk was basically a pragmatic border arrangement. It was eventually succeeded by the Treaty of Kyakhta of 1727, negotiated on the initiative of the Kangxi Emperor and of Peter the Great, who launched the expedition that negotiated it shortly before before his death.
The Treaty of Kyakhta provided for a further delineation of the common border. It also authorised a small but thriving border trade. Most importantly, it also allowed for the establishment of what was in effect a Russian diplomatic presence in Beijing in the form of an ecclesiastical settlement there. Russia thereby became only the second European state after the Vatican to achieve a presence in Beijing. It did so moreover more than a century before any of the other European powers.
Russia was of course the only European power at this time to share a common border with China (a situation to which it has now reverted since the return to China of Hong Kong). It is also notable that the Treaty of Kyakhta happened on the initiative of Peter the Great. Peter the Great’s decision to launch the expedition that ultimately led to the Treaty of Kyakhta shows that even this supposedly most “westernising” of tsars had to take into account Russia’s reality as a Eurasian state.
For the rest of the Eighteenth Century and the first half of the Nineteenth Century relations between the Russian and Chinese courts remained friendly though hardly close. St. Petersburg was the only European capital during this period to host occasional visits by the Chinese Emperor’s representatives. During the British Macartney mission to Beijing of 1793 the senior Manchu official tasked with negotiating with Macartney had obtained his diplomatic experience in St. Petersburg. As a result of these contacts at the time of the Anglo French expedition to Beijing in 1860 Ignatiev, the Russian diplomat who acted as mediator between the Anglo French expedition and the Chinese court, could call on the services of skilled professional interpreters and was in possession of accurate maps of Beijing whilst the British and the French had access to neither. Russian diplomatic contacts with the court in Beijing during this period do not seem to have been afflicted with the protocol difficulties that so complicated China’s relations with the other European powers and which contributed to the failure of the Macartney mission. This serves as an indicator of the pragmatism with which these contacts were conducted.
This period of distant but generally friendly relations ended with the crisis of 1857 to 1860 when Russia used the Chinese court’s preoccupation with the Taiping rebellion and China’s difficult relations with the western Europeans culminating in the Anglo French expedition of 1860 to secure the annexation of the Amur region. The Chinese continue to see the third Convention of Beijing of 1860 which secured the Amur territory for Russia as an “unequal treaty”. They have however accepted its consequences and formally recognised the border (which was properly speaking part of Manchu rather than Chinese territory). At the time it must have been resented. However it is probably fair to say that Russia would have been seen in China as a marginally less dangerous aggressor during this period than the western powers Britain and France (especially Britain) if only because China’s relations with these two countries were much more important.
As the Nineteenth Century wore on relations between Russia and China seem to have improved, with Russia, undoubtedly for self-interested reasons, playing an important role in the Three Intervention that forced Japan to moderate its demands on China following China’s defeat in the Sino Japanese war of 1895. Russian policy of supporting China and the authority of the Chinese court against the Japanese however fell by the wayside when Russia forced the Chinese court in 1897 to grant Russia a lease of the Chinese naval base of Port Arthur. This was much resented in China and damaged Russia’s image there.
Russia also became drawn into the suppression of the anti-foreign 1900 Boxer Rising, an event which destabilised the Manchu dynasty and which led to a short lived Russian occupation of Manchuria to suppress the Boxers there. This is not the place to discuss the diplomacy or the reasons for the conflict which followed, which is known as the Russo-Japanese war of 1904 to 1905. Suffice to say that the ground war was fought entirely on Chinese territory and ended in stalemate (though with the balance starting to shift in favour of the Russians), that I know of, no good English account of the war or of the events that preceded it, that the war was precipitated entirely by a straightforward act of Japanese aggression and that the popular view that the war was preceded and/or provoked by Russian economic and political penetration of Korea or plans to annex Manchuria are now known to have no basis in fact.
A radical improvement in Russian-Chinese relations took place following the October 1917 revolution caused by the decision of the new Bolshevik government to renounce the extra territorial privileges Russia had obtained in China as a result of the unequal treaties. The USSR became the strongest supporter during this period of Sun Ya-tsen’s Chinese nationalist republican movement and of the Guomindang government in Nanjing that Sun Ya-tsen eventually set up. Sun Ya-tsen for his part was a staunch friend and supporter of the USSR. Though many are aware of the very close relationship between the USSR and China in the 1950s few in my experience know of the equally strong and arguably more genuine friendship between their two governments in the 1920s.
In the two decades that followed the USSR became China’s strongest international supporter in its war against Japanese aggression, a war which has defined modern China and of which the outside world knows lamentably little. During this period the USSR had to balance its support for China’s official Guomindang led government that was supposedly leading the struggle against the Japanese with its support for the Chinese Communist Party (originally the leftwing of the Guomindang movement) with which the Guomindang was often in armed conflict. The USSR also had to balance its support for China with its need to avoid a war in the east with Japan at a time when it was being threatened in the west by Nazi Germany and its allies. The skill with which the government of the USSR performed this difficult feat has gone almost wholly unrecognised.
Following the defeat of Japan in 1945 the USSR’s military support was (as is now known) crucial though obviously not decisive to the Chinese Communist Party’s victory in the civil war against the Guomindang, which led to the establishment in 1949 of the People’s Republic. A decade of extremely close political, military and economic relations followed during which the two countries were formally allies. As is now known this relationship in reality was always strained and eventually broke down in part because of mutual personal antagonism between the countries’ two leaders, Khrushchev and Mao Zedong, but mainly because of Chinese anger at the USSR’s failure to support a war to recover Taiwan and above all because of China’s refusal as the world’s most populous country and oldest civilisation to accept a subordinate position to the USSR in the international Communist movement. The rupture was made formal by Khrushchev’s decision in 1960 to withdraw from China the Soviet advisers and economic assistance that had been sent there. Supporters of sanctions may care to note that on the two occasions Russia has used sanctions (against Yugoslavia in 1948 and against China in 1960) they backfired spectacularly on Russia resulting in entirely negative consequences for Russia.
The Sino-Soviet rupture of 1960 resulted in a decade and a half of very strained relations. An attempt to restore relations to normal following Khrushchev’s fall in 1964 was wrecked, possibly intentionally, by the Soviet defence minister Marshal Malinovsky who encouraged members of the Chinese leadership to overthrow Mao Zedong through a coup similar to the one that had overthrown Khrushchev. Relations with the USSR during this period also increasingly became hostage to Chinese internal politics with Mao and his supporters during the period of political terror known as the Cultural Revolution routinely accusing their opponents of being Soviet agents. This period of difficult relations eventually culminated in serious border clashes in 1969, an event that panicked the leadership of both countries and which led each of them to explore alignments against each other with the Americans.
This period of very tense relations basically ended in 1976 with the death of Mao Zedong who shortly before his death is supposed to have issued an injunction to the Chinese Communist party instructing it to restore relations with the USSR. Once the post Mao succession disputes were resolved with the victory of Deng Xiaoping a process of outright rapprochement began the start of which was formally signaled in the USSR by Leonid Brezhnev in a speech in Tashkent in 1982 which he made shortly before his death. By 1989 the process of rapprochement was complete allowing Gorbachev to visit Beijing in the spring of that year when however his visit was overshadowed by the Tiananmen disturbances.
Since then there has been a steady strengthening of relations. Gorbachev refused to involve the USSR in the sanctions the western powers imposed on China following the Tiananmen disturbances. Yeltsin, despite the strong pro-western orientation of his government, remained a firm advocate of good relations with China and worked to build on the breakthrough achieved in the 1980s. In 1997, in a speech in Hong Kong, Jiang Zemin already spoke of Russia as China’s key strategic ally. In 1998 the two countries acted for the first time openly in concert on the Security Council to oppose the US bombing of Iraq (“Operation Desert Fox”). Subsequently both countries strongly opposed the US led attacks on Yugoslavia in 1999 and on Iraq in 2003.
Since then their cooperation in political, economic and security matters has intensified. Whilst their relations have had their moments of difficulty (eg. over Russian complaints of illicit Chinese copying of weapon systems) and the development of their economic relations has lagged well behind that of their political relations (inevitable given the disastrous state of the Russian economy in the 1990s) it is difficult to see on what basis they can be considered “frenemies”.
The reality is that Russia and China have for obvious reasons of history, culture and above all geography faced through most of their history in different directions: China towards Asia (where it is the supreme east Asian civilisation) and Russia towards Europe. That should not however disguise the fact that their interaction has been very prolonged (since the 1680s), – longer in fact than that of China with any of the major western powers – and generally peaceful and mostly friendly. Periods of outright hostility have been short lived and rare. Despite sharing the world’s longest border all-out war between the two countries has never happened. On the two occasions (in the 1680s and 1960s) when it briefly appeared that it might, both drew back and eventually sought and achieved a compromise. For China Russia’s presence on its northern border has in fact been an unqualified benefit, stabilising and securing the border from which the greatest threats to China’s independence and security have traditionally come.
Western perceptions of the China Russia relationship are in my opinion far too heavily influenced by the very brief period of the Sino Soviet conflict of the 1960s and 1970s. Across the 300 or so years of the history of their mutual interaction the 15 or so years of this conflict represent very much the anomaly not the rule. Given this conflict’s idiosyncratic origins in ideological and status issues that are (to put it mildly) extremely unlikely to recur again, to treat this conflict as representing the norm in China’s and Russia’s relations with each other seems to me frankly farfetched. The past is never a safe guide to the future. However on the basis of the actual history of their relations, to argue that China’s and Russia’s strategic partnership is bound to fail because of their supposed long history of suspicion and conflict towards each other is to argue from prejudice rather than fact.