“No Limits” Limits of the Putin and Xi Friendship
Putin Attends the Belt & Road Initiative Forum:
Dear Subscribers,
“Barbershop Whispers….Russia” begins with “My Takeaways”on the main topic followed by the main topic discussion. The last two sections of “Barbershop Whispers…Russia” will be follow-ups from previous publications and emerging events.
In the previous issue, I discussed the price cap on Russian oil products enacted by the west – its success within the scope of its original goals, and the consequences, such as the development of a sophisticated ecosystem independent of western support services, e.g. insurance underwriters, cargo fleets, etc. to circumvent sanctions.
This week, I will discuss the limits of Putin’s “no limits” friendship with Dear Friend Xi as demonstrated at the 10th anniversary Belt & Road Initiative (BRI) hosted by Xi in Beijing.
My Takeaways:
RESULTS: Putin returned to Moscow empty handed. He was hoping to make progress on the Power of Siberia 2 natural gas pipeline project to north China and there was no progress.
SYMBOLISM: Xi provided Putin with the pomp and circumstance expected for any head of state.
LIMITS: There are limits to the friendship. Xi is positioning himself and China as a world leader able to negotiate disputes and lead the global economy. Russia represents a source of raw materials for China, not an equal partner in trade or leadership. This is evidenced by the absence of any material investment deals and material support for Putin’s war.
Background
At Chairman Xi’s invitation, President Putin attended the 10th anniversary BRI forum held in Beijing.
BRI is at the heart of Xi’s foreign policy strategy to create a global infrastructure that supports Chinese trade and diplomatic relations as the world’s second-largest economy. To date, BRI has 156 participating countries, including Russia, and has deployed $1.1T in debt and equity funding for infrastructure development around the world. The participating countries represent 70% and 50% of the world’s population and GDP, respectively.
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The inaugural BRI was announced by Xi in Astana, Kazakhstan, in 2013, originally as the "Silk Road Economic Belt". Since then, the program has evolved from re-establishing ancient and traditional overland silk road trade routes to building a global network of trade land and maritime routes. It is the largest global infrastructure development project taken on by any single country in history.
A key investment goal of BRI is the six trade corridors, of which Russia plays a role in two:
New Eurasian Land Bridge (NELB)
China-Mongolia-Russia Economic Corridor (CMREC)
China-Central Asia-West Asia Economic Corridor (CCWAEC)
China-Indochina Peninsula Economic Corridor (CICPEC)
Bangladesh-China-India-Myanmar Economic Corridor (BCIMEC)
China-Pakistan Economic Corridor (CPEC)
Key goals of BRI are developing and securing trade corridors and access to energy and minerals sources for the Chinese economy.
Limits to “No Limits” Friendship
Putin Promotes Russian Investments:
Russia’s direct participation in BRI is modest; its impact in Russia’s near abroad as discussed in the 23 Sep issue of BWR, is more important politically and economically. Russia and China have a tacit understanding as it relates to Central Asia – Russia oversees security issues and China focuses on economic development.
![Chinese Investments 2003 - 2023 Chinese Investments 2003 - 2023](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F7a2db7ea-4ce6-440c-97b7-332c423e8397.heic)
Chinese investment into Russia to date has been $61B, of which $33B was directed toward the energy sector followed by chemicals and metals, representing $5B and $7B, respectively. In Central Asia and the Caucasus, BRI and other Chinese investments have been approximately $50B, also primarily invested in energy and chemicals. Compared to the $1.0T China has deployed under the BRI and other investment programs, investment in Russia and Central Asia has been relatively small.
Prior to the second invasion of Ukraine, BRI was a low priority for Moscow: Beijing’s priority has been transport infrastructure connections to China, with two of the six transport corridors crossing through Russia – NELB and CMREC. Because the export infrastructure for its most important market, energy sales to Europe, was already in place, BRI held limited appeal to Russia. However, with isolation from Western markets and technology as a result of post-2022 sanctions, Russia needs to quickly create a new energy distribution infrastructure that will satisfy Eastern markets (BWR publication).
Putin’s visit to Beijing last week for the BRI 10th anniversary forum follows Prime Minister Mishustin’s March visit, in which Mishustin reportedly signed 80 joint investment projects worth $165B at the Russia-China Business Forum. Last week, Putin arrived at the BRI Forum with senior directors of Sberbank, Gazprom, and Rosneft, intending expand trade and with China, which has grown to $200B in 2023, and investments.
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Given Russia’s shift to the east for its export energy markets, the Power of Siberia-2 (PoS-2) was a priority for Putin for his meeting with Xi. PoS-2 faces many challenges, starting with the economic feasibility of the project. The pipeline is intended to satisfy natural gas demand in northern China, delivering 50 billion cubic meters per year (bcm/yr), comparable to the capacity of the Nord Stream 2 pipeline and coming on top of the 38 bcm/yr supplied by the Power of Siberia 1 pipeline. However, Beijing seems in no hurry to sign off on the project. This maybe driven by alternative energy sources available in the north of China — renewables in particular — that raise questions about the long-term economics of the pipeline. It would take five to six years before shipments begin along PoS-2, and the pipeline would transit Mongolia, which means adding transit fees to the costs. And, as with the original Power of Siberia (PoS-1), China is unlikely to finance the project, which may cost twice as much as the $400M spent on PoS-1.
Unfortunately for Putin, final agreement on PoS-2 has so far remained elusive.
Xi Promotes Friendship
This was the third BRI forum held in Beijing since its launch, and it was attended by only three European leaders – Putin, Hungarian Prime Minister Viktor Orban, and Serbian President Aleksandar Vucic. Past forums saw up to eleven European presidents and prime ministers.
For Putin, it was a rare international trip since the International Criminal Court indictment against him for war crimes and an opportunity to speak with other leaders. Putin was given the red carpet, treated with extra care, and provided a one-on-one meeting with Xi. In photos and public appearances, Putin was always at the right side of Xi, and he addressed the forum immediately after Xi’s welcome speech. Putin and Xi’s messages emphasized tight cooperation with relationship between the two countries and their leaders.
Follow-ups & Quick Bites:
Follow-Ups:
Russian Oil Price Cap Sanctions
In last week’s issue of BWR, one of four takeaways was Russia’s growing immunity to sanctions thanks to the creation of an ecosystem independent from western services providers, thereby diminishing the value of the price cap over time. In an energy forum discussion this past week, Andriy Kobolyev, the former head of Ukraine’s national gas company, Naftogaz, suggested taxing Russian oil instead of continuing with the price cap. Kobolyev said:
“The EU is winning the energy war with Russia, but the war is not over yet….European governments have a very efficient instrument in the form of its anti-trust institutions. This is not a sanction but can apply financial consequences like taxes on Russian oil and gas. If there is Russian oil and gas in the mix then you can tax it and reduce its appeal.”
While the price cap has been effective in the first several months since it has been implemented, it is quickly becoming irrelevant as Russia adapts.
Quick Bites
Russia Conducts Nuclear Counterattack Simulation
Russia conducted a nuclear deterrent forces training exercise this past week. The exercises included a nuclear submarine and Tu-95 bomber aircraft.
Defense Minister Shoigu reported to Putin that the exercise practiced.
“launching a massive nuclear strike with strategic offensive forces in response to an enemy’s nuclear attack.”
Vol 1, No 17 - BWR 29.10.2023
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