“Lenders of Last Resort”: Sino-Russian Rivalry in Belarus?

“Lenders of Last Resort”: Sino-Russian Rivalry in Belarus?

As 2011 draws to a close, the Lukashenka regime has averted economic and political collapse.  To be sure, the economy is still in a fragile state: the ruble has suffered three major devaluations since May; inflation has soared to 90 percent; external debt is at over half of GDP; and growth continues to slow. But all this may not matter much because Belarus now has two “lenders of last resort” – Russia and China.

The agreements that Belarus signed with Russia last week resemble those signed with China in late September. Moscow and Beijing have carved out prized assets for their state champions in return for bailout loans. Both involve top-down agreements worth billions of dollars and lack Western-style conditionality.

While the recent deals have salvaged Belarus’s economy, they could pit Chinese against Russian interests. Could Belarus become an object of Sino-Russian rivalry? The evidence so far cuts both ways. 

Sino-Russian Relations: Consensus and Conflict

One could argue that China and Russia are not rivals at all. Their bilateral trade has grown by some 20 percent a year over the past decade, with no big trade deficit on either side. Trade was boosted by a $25 bn oil treaty in 2009. Just like Belarus, Russia, is playing into China’s outward investment strategy. For example, the Baltic Pearl River project near St. Petersburg has attracted $1.3 bn in FDI from Chinese firms. 

China and Russia also share a political legacy: both seek to enhance their roles in the global economy through “neo-mercantilist” strategies, while controlling strategic sectors of the economy and public life at home. As balancers in the post-Cold War order, both frequently act to counter EU and US interests. Just last week, they used UN Security Council seats to water down a resolution on Iran’s nuclear program.  

However, the positive facets of Sino-Russian ties only go so far. A report released by the Center for European Reform last week illustrates how rapidly China has entered the post-Soviet “backyard” in search of oil and gas resources, particularly in Turkmenistan and Kazakhstan. Russia is concerned that this energy hunt may lead China to lay claim to parts of Siberia in future.

The two states are beginning to see less eye-to-eye in diplomacy as well. China has been wary of US-Russian rapprochement on nuclear warheads and missile defense and reluctant to welcome India and Iran into the SCO. Russia, for its part, is far more interested in promoting regional economic integration through its own Eurasian Economic Union than the SCO. In this context, it is concerned that Chinese traders might make use of its nascent customs union with Kazakhstan and Belarus to evade tariff barriers.

Belarus as a Source of Tension

In October, President Lukashenka published an article in the Russian media to voice his support for the Eurasian Economic Union. This followed an earlier article by Prime Minister Vladimir Putin advocating a new supranational integration unit in the CIS area. Lukashenka was clearly laying the groundwork for his Moscow visit last week. But he may also have aimed to dispel apprehensions about China’s growing role in Belarus.

After China inked several deals in Minsk in late September, Putin stated publicly, via his spokesman, that Russia does not enjoy such far-reaching agreements with Belarus in spite of the customs union. An op-ed in Kommersant claimed that Russian officials agree “off the record” that China “could spoil Moscow’s game”. This echoed reactions to China’s last major visit to Belarus in March 2010, when Gazeta.ru claimed that Lukashenka was “demonstrating his independence from Russia by taking money from China.”

Notably, the state-run news agency Xinhua and the Party-owned People’s Daily in China took note of Moscow’s alarm, republishing translations of the Kommersant article and Putin’s statements. The media noted that China was simply trumping Russia’s efforts in Belarus by offering support on more generous, less predatory terms.

As might be expected, the recent deals between Minsk and Moscow received widespread and negative press in the Chinese media, which branded Russia’s promotion of the Eurasian Economic Union as an attempt to reestablish Soviet-era influence over neighboring states.

Even beyond rhetoric, there is some case to be made that Belarus is becoming the object of geostrategic rivalry. China’s rapid forays into Belarus, first of all, seem to make little economic sense, since the country is landlocked, with few natural resources and a small consumer market. China accounted for less than five percent of Belarus’s total trade last year, while Russia accounted for over half. On the other hand, from a geostrategic vantage point, China may indeed be looking to support a state located close to a rival power, as it has done with Pakistan and Sri Lanka around India.

However, as I have argued elsewhere, China’s motives in Belarus are better understood in the context of Beijing’s “Go Global” strategy. The machinery producer Sinomach (CMEC), the main Chinese company investing in Belarus, signed $22 bn worth of overseas deals last year, spanning Ukraine, Russia, Iran, and other states in the region. Several Chinese contractors now rank among the top ten in the world, and are eager to expand their activity into Eastern Europe.

Rather than geostrategic rivalry, Belarus is more likely to serve as an example from a game theory textbook. If China and Russia seek to outcompete one another for Belarusian assets, they may both lose out. The optimal outcome is for both to settle on a little less to avoid the risk of getting nothing at all.

With 180 enterprises listed for privatization over the next few years, there are plenty of spoils to divide. China is more interested in machinery and infrastructure, while Russia is more interested in oil and gas. There are few areas, most notably power generation and the chemical industry, where the two sides might clash.

Even if push comes to shove, it is likely that the Chinese would back away. Statistics indicate that, as Chinese overseas investment matures, it is increasingly searching out safer, less politically charged markets.

Iacob Koch-Weser, contributing writer

(This is the third article of a three-part series. Previous posts are "China Helps an Ailing Autocracy" and "Chinese FDI in Belarus: Investing in a Backwater")