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T h i s s p e c i a l a d v e r t i s i n g s u p p l e m e n t i s p r o d u c e d a n d s p o n s o r e d b y R o s s i y s k a y a G a z e t a ( R u s s i a ) a n d d i d n o t i n v o l v e t h e r e p o r t i n g o r e d i t i n g s t a f f o f t h e I n t e r n a t i o n a l N e w Yo r k T i m e s .

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RUSSIA’S UNEASY RELATIONSHIP WITH CHINA

EXPERT

The Asia-Pacifi c Economic Co-operation (APEC) summit, which brought together the leaders of 21 economies in the

region, ended in Beijing with no clear breakthroughs. The main announce-ment under China’s chairmanship of APEC was the removal of trade bar-riers, particularly starting the pro-cess of establishing a free-trade area inside APEC.

This project is Beijing’s alterna-tive to the trade association that the United States has been lobbying for over the past two years: the Trans-Pacifi c Partnership (T.P.P.) Through negotiations among the 12 largest economies of the region (including the U.S., Japan, Australia and major members of the Association of South-east Asian Nations), the agreement seeks to substantially liberalize trade and remove both tariff and non-tariff barriers.

Washington is sure that the high competitiveness of U.S. products will outweigh the competition risks to its economy from opening up these markets. Yet for China, with its state protectionism for sensitive industries that provide growth and employment (the ones key to political stability), the terms of the T.P.P. are unaccept-able. Moreover, Beijing suspects the U.S. of wanting to create a trading bloc in Asia without China, in order to exclude it from the integration processes. China initially tried to re-sist the T.P.P. by promoting an alter-native project: the Regional Com-prehensive Economic Partnership (R.C.E.P.). In a tit-for-tat move, the talks on R.C.E.P. left out the U.S., which has, however, recently pro-gressed in developing the T.P.P.

CONTINUED ON PAGE 4

ALEXANDER

GABUEV

DEAL TO BRING RUSSIA AND CHINA CLOSERNew agreement allowing trade in national currencies could pose a challenge to the current global fi nancial system

Russia and China are planning a tran-sition to making trade settlements in rubles and yuan, according to a state-ment Russian President Vladimir Putin made at the recent Asia-Pacifi c Eco-nomic Cooperation (APEC) summit in Beijing. The move is intended to re-duce the U.S. dollar’s infl uence on the global energy market.

“In the long-term, of course, settle-ments in rubles and yuan are very promising,” said Putin. “This will mean, if we transition to such a large-scale operation, that the infl uence of the dol-lar, say, in global energy, will objec-tively decline.”

Shortly after Putin made the an-nouncement, Russia’s largest bank — state retail banking giant Sberbank — began fi nancing letters of credit in Chinese yuan and performed the fi rst transactions in yuan with one of Rus-sia’s largest companies.

Mutual benefitsThe decision is just the latest move in increased cooperation between Rus-sia and China. While Russia has long talked about the possibility of a pivot toward Asia, the country’s increasing isolation from Western countries has proved an important catalyst in the process. Analysts say that both Russia and China will profi t from closer ties, and the currency agreement is one in-dication.

“It is a mutually benefi cial idea for Russia and China to transition to mak-ing settlements in their national cur-rencies during trade, and it is positive

in terms of cooperation in the BRICS framework,” said Dmitry Bedenkov, head of the analytical division at the investment company Russ-Invest. “First of all, it increases the diversifi cation of currencies used by the two coun-tries during settlements, which, given the high turbulence on the global fi -nancial market, could become anoth-er element of diversifi cation.”

Bedenkov added that this kind of currency diversifi cation is especially important for Russia because of the fi nancial sanctions currently imposed against it by the European Union and the United States which is preventing Russian banks from borrowing money to refi nance their debt.

Alexander Dorofeev, general direc-tor of the consulting company Arkaim, said the plan to gradually transition to settlements in national currencies was entirely realistic. “This has already been under way for several years be-cause there are serious forces in the global fi nancial elite that are interest-ed in it,” Dorofeev said.

U.S. positionYet Dorofeev added that the United States had a vested interest in pre-venting this transition, as it wants to preserve the dollar’s status as the pri-mary global currency and the unit for

international business transactions.“How this confrontation goes will

depend on the speed of the transition, but the U.S.’s ability to lobby for pay-ments in dollars everywhere is on the decline,” said Dorofeev. According to him, Putin is the only world leader re-ally promoting trades in national cur-rencies, despite the fact that this pro-cess is already under way.

The ruble-yuan pair has been trad-ed on the Moscow and Shanghai stock exchanges since December 2010. China has restrictions in place, however, on foreign exchange operations for Rus-sian companies in yuan. In September, Russian Deputy Finance Minister Alex-ei Moiseev indicated that Russia was interested in expanding the level of cooperation, saying that Russia and China could start paying for half of their trade in yuan and rubles if China were to lift those restrictions.

Large Russian companies have been working actively with the Chinese cur-rency for some time. Vladimir Potanin, C.E.O. and co-owner of the world’s largest nickel producer, Norilsk Nick-el, heads one of these. “So far, we have converted some of our free funds into Asian currencies, for example, the Hong Kong dollar and yuan,” Potanin told RBTH in an interview in September.

According to Russ-Invest’s Bedenkov,

trade between Russia and China is not yet enough for Russia to ignore the de-mands of its European partners. Rus-sian-Chinese trade totaled $89 billion in 2013 and $43 billion in the fi rst half of 2014. At the same time, trade with the European Union reached $413 bil-lion in 2013 — roughly half of Russia’s total trade. “It’s worth noting that trade is increasing. Russian exports to China accounted for 10 percent of the former’s total trade in the fi rst half of 2014 and reached $19 billion,” said Bedenkov.

The APEC factorThe recent APEC summit may end up being a turning point in Russia-China cooperation.

“The APEC summit turned out to be more meaningful for Russia than the declarative nature of the G20 sum-mit in Brisbane,” said Bedenkov. “Fu-ture prospects for Russian-Chinese co-operation in various spheres were discussed. Among other things, Russia and China fl eshed out the idea of cre-ating funds in regional fi nancial insti-tutions that would lend to the region-al economy and finance strategic projects.”

The centerpiece of this idea is the creation of the Asian Infrastructural Investment Bank and a fund to fi nance infrastructure development for the

Great Silk Road Economic Belt. These institutions, if created, could challenge the current global fi nancial system, ac-cording to Alexander Dorofeev. “One of the intrigues of the summit is wheth-er or not we’ll see changes to the rules of how the International Monetary Fund works,” he said.

Alexei Kozlov, chief analyst at in-vestment company UFS, agrees that the recent summits underscore the de-veloping relationship between Russia and China.

“The APEC and G20 summits con-fi rmed that there is a cooling trend in Russia-West relations and a drawing together of Russia and China,” said Ko-zlov, noting that Putin and Chinese President Xi Jinping have already met fi ve times this year.

Roman Andreeshchev, a professor at the Russian Presidential Academy of National Economy and Public Admin-istration, shares Kozlov’s perspective.

“Europe and the U.S. have already been trying to bring China to their side for quite some time, and China has not yet issued its judgment. The U.S. and China have very strong economic ties, and China’s behavior essentially dem-onstrates a lack of support for the West-ern position and an endorsement of how Russia is acting in the global arena,” Andreeshchev said.

Pivoting toward Asia?For the moment, however, Russia’s much-hyped turn toward Asia is really only an increased interest in its relationship with China. Ac-cording to Andreeshchev, Russia lacks strong ties with any other Asian coun-try.

“The problem is that the transport costs are too high for deliveries. In this case, Russia is once again tied to one main partner on the Asian mar-ket,” he said. According to Andreesh-chev, the fact that the Russian Far East is perceived as the outskirts of the country hinders the development of ties with Asia.

In order to solve that problem, Rus-sia has plans to establish an entire network of territories for priority de-velopment in the Far East, offering concessionary tax conditions and sim-plifi ed administrative procedures.

Companies that plan to locate there will be oriented toward non-commod-ity exports, particularly for the Asia-Pacifi c region.

“The government should also drive a policy that will help manufacture competitive products on those terri-tories,” said Andreeshchev.

Alexei Lossan is the editor responsible for business and economic content at Russia Beyond the Headlines. He is also a lecturer in business journalism at Moscow State University.

■ALEXEI LOSSAN

The concept of Rus-sia’s pivot toward Asia, launched with the 2012 APEC summit in Vladi-vostok, had foundered until Russia’s geopo-litical relationship with the West broke down. In the past six months, however, deals between Russia and Asian coun-tries, particularly China, have taken off. Russian President Vladimir Putin and Chinese Xi Jinping (pictured) have already met five times this year. What might an alliance between Russia and Chi-na mean for the world? And what does the ordi-nary Russian think about Moscow’s focus on Bei-jing? Read more in this month’s RBTH.

02

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SANCTIONS PUSH RUSSIA TOWARD ECONOMIC COOPERATION WITH CHINAEconomic uncertainty and political fallout with the West over Ukraine have forced Russian officials to take action following years of rhetoric about reach-ing out to China. This year the ruble has fallen to record post-Soviet lows, global prices for crude oil have dipped precipitously and Western sanctions on Russia’s oil industry have posed a challenge to the future expansion of crude output.

So far, much of the negotiations be-tween Moscow and Beijing have fo-cused on energy and currency.

Barrels, rubles and yuanRussian President Vladimir Putin said this month that in seeking to expand trade with China, the two countries would attempt to shift away from using the dollar to cover energy transactions.

“We’re moving away from the dik-tat of the market that denominates all the commercial oil fl ows in U.S. dol-lars,” Putin said in an interview with Russian state news agency TASS. “We’re boosting as much as possible the use of national currencies — both the ruble and the yuan.”

During a trip to Beijing in Novem-ber, Putin expanded an agreement reached earlier this year to sell Rus-

sian natural gas to China. The two sides had made a breakthrough in May, sign-ing a deal — worth $400 billion at the time — for Russia to supply China with natural gas for 30 years, following a decade of deadlocked negotiations. The new memorandum foresees a second pipeline route. Yet skeptics point out that the new deal is nonbinding, and that price negotiations may yet com-plicate reaching a fi nal agreement.

Meanwhile, Russian crude oil major Rosneft has invited the China Nation-al Petroleum Corporation to take a stake in the mammoth Siberian oil de-posit, Vankor. At the same time, West-ern majors such as ExxonMobil and Shell are being forced to abandon oil projects they’d been developing along-side Russian partners because of U.S. and European sanctions.

During a meeting in October between Russian Prime Minister Dmitri Med-vedev and Chinese Premier Li Kequi-ang, the two sides signed a raft of 38 separate agreements covering energy, fi nance and technology, which Med-vedev said would help double bilat-eral trade over the next fi ve years to $200 billion.

Among the accords was an agree-ment on yuan-ruble currency swaps

between the two countries’ central banks worth 150 billion yuan ($25.5 billion).

“The bilateral national currency swap agreement entered into by the Bank of Russia and the People’s Bank of China will foster bilateral econom-ic relations by expanding opportuni-ties for trade fi nancing and direct in-vestment, as well as facilitate the use of the Russian ruble and the Chinese yuan in international trade and invest-ment activities,” the Russian Central

Bank said in a statement. The U.S. and Europe have imposed sanctions on Russian companies in fi nance, en-ergy and military equipment, after Washington and Brussels accused Mos-cow of providing military assistance to separatist rebels in Ukraine. Rus-sia, in response, has banned certain U.S. and E.U. food exports from Rus-sian markets for one year.

■AJAY KAMALAKARAN

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■LEONID KHOMERIKI

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POLLS SHOW RUSSIANS WARMING TO ASIA

SECOND PIPELINE TO PROVIDE ADDITIONAL RUSSIAN GAS TO CHINA VIA A WESTERN ROUTE

When Russia hosted the 2012 Asia-Pacifi c Economic Cooperation (APEC) summit in Vladivostok, the idea was to boost the integration of the Russian Far East with the economic power-houses of northern Asia. Although they maintain a distinctly Russian/Soviet heritage, the major cities of the Rus-sian Far East are geographically much closer to Beijing, Tokyo and Seoul than they are to Moscow.

While Russia’s “pivot” toward Asia is greeted enthusiastically nationwide, residents of its Far Eastern region tend to be more cautious and, in some cases, wary of their neighbors, particularly China.

Recent research has shown, howev-er, that in the light of recent global developments, a growing number of Russians have a positive view of China. According to a September poll con-ducted in 130 cities and 42 regions across Russia by the All-Russia Cen-ter for Public Opinion, (VTsIOM) 51 percent of Russians see China as Rus-sia’s main geopolitical ally, up from 23 percent in 2008.

“As someone living just 32 kilome-ters [nearly 20 miles] away from China, I am not sure what to make of these polls,” said Ekaterina Leontieva, a res-ident of Khabarovsk. “We always be-lieved that the Chinese were looking to takeover these parts of Russia and I don’t think they are really happy with what they were given when a border settlement was made.” In 2004, Vlad-imir Putin agreed to hand over Tarabarov Island and half of the Bol-shoi Ussuriski Island on the Amur

Gazprom’s chief executive officer, Alex-ei Miller, and the China National Pe-troleum Corporation’s chairman, Zhou Jiping, have signed a framework agree-ment on the supply of natural gas from Russia to China via a western route.

The document, which the two par-ties signed at the Asia-Pacifi c Econom-ic Cooperation (APEC) summit in Bei-jing Nov. 8-10, envisages an annual supply of 30 billion cubic meters of Rus-sian gas from western Siberian depos-its to China through the Altai gas pipe-line for a period of 30 years. According to Gazprom C.E.O. Alexei Miller, this supply contract using the western route will be signed by the end of 2015.

The agreement is in addition to the 30-year, $400 billion contract Moscow and Beijing signed last summer to pro-

been well-integrated into society. Yuta-ka Miyanishi, the owner of Furusato, the oldest, most popular Japanese res-taurant in Sakhalin, was named “hon-orary citizen of Yuzhno-Sakhalinsk.”

“Japan is our closest neighbor, and since it is an ancient civilization, there is a lot we can learn from them,” said Viktor Kournikov, who worked with the Japanese television channel NHK on several projects.

The southern half of Sakhalin, which was under Japanese rule from 1905 to 1945, is dotted with monuments from the days it was known as Karafuto.

The island, which is connected by a ferry service from Hokkaido, welcomes many Japanese tourists.

Russia and Japan are still techni-cally in a state of war, since they never signed a World War II peace treaty, but that has not stood in the way of cul-tural interaction.

“Japanese is the most popular for-eign language here after English,” said Tamara Chikova, a professor at Sakha-lin State University. “It is quite fash-ionable to learn the language, and there are many exchange programs and scholarships available in the country.”

According to a poll taken by the An-alytical Levada Center in 2013, 67 per-cent of Russians said they viewed Japan mostly positively.

Professor Chikova says in Sakhalin the numbers fl uctuate when discus-sion of the territorial dispute between the countries comes up. Japan insists on Russia returning the southern Kuril Islands as a precondition for a World War II peace treaty.

In 2004, when Russian Foreign Min-ister Sergei Lavrov offered two of the islands to Japan, there were protests from Cossacks and local citizens groups. This offer came after China and Russia settled their boundary dispute, but was rejected by Japan, where the so-called Northern Territories issue is emotive.

Chikova says that Japan’s siding with the West over the crisis in Ukraine has been noticed in Sakhalin, but there is no strong anti-Japanese sentiment.

“You have to understand that there is greater respect for Japan than China among the people, but that has to do with the fact that the Japanese are richer and have a much higher stan-dard of living than the Chinese,” she added.

It is possible that both pipeline projects supplying gas to China may turn out to be economically disadvantageous for Russia.

vide Russian gas to China via the Power of Siberia pipeline from the Chayan-da and Kovyktinsky deposits. Pipeline construction began on Sept. 1, and gas is scheduled to begin fl owing between 2018 and 2020.

The document touches upon condi-tions such as the volume and terms of delivery, the level of “take and pay” [the buyer’s obligation to pay a certain penalty in the event that consumption volumes are less than specifi ed in the

contract] and the transfer point loca-tion for the gas. The two sides, how-ever, still have to sign a sales contract and an intergovernmental agreement.

The contract value, and consequent-ly the gas price, have not been deter-mined. Said analyst Grigory Birg of Investcafe, “It is clear that the price will be lower than that of the deliver-ies made through the eastern route [the Power of Siberia gas pipeline, whose price per cubic meter is not known, though is estimated at $350], since the investments in infrastructure (trans-portation and extraction) are signifi -cantly less.”

According to Platon Maguta, gen-eral director at the Maguta Fund, the economically rational gas price for China is currently about $380-400 per

statement. These negotiations laid the framework for the current agreement.

The route is not without challenges, however. Gazprom still has to mod-ernize the existing gas transportation infrastructure and construct a gas pipe-line to the Chinese border, which will pass through quite complicated ter-rain. Investments in the Altai gas pipe-line are estimated to be between $11 billion and $14 billion.

Losses for Europe?Russia may freeze some expensive proj-ects related to constructing gas pipe-lines and gas liquefaction that are ori-ented toward Western consumers, since there may not be enough resources to simultaneously realize several large projects. The troubled South Stream project to transport Russian natural gas to Europe via the Black Sea may be one of the fi rst.

According to the Russian Energy Ministry, however, for the time being there are no discussions on abandon-ing the South Stream project, and Rus-sia will remain a reliable supplier of gas to Europe.

Gas as big politicsSome analysts put the sudden accel-eration in gas cooperation between Russia and China down to political, rather than economic factors.

“By all appearances, Russia is ac-tively working with China, and Asia in general, precisely in the context of

the western sanctions and the cre-ation of alternative distribution chan-nels for its energy resources,” said Anna Bodrova, senior analyst at the Alpari Group. “Logically speaking, all these negotiations should have been completed a few years ago, so that now it would already be possible to start intelligence work and construc-tion.”

Yet Mikhail Krutikhin, a partner at Rusenergy, says that both projects sup-plying gas to China may turn out to be economically disadvantageous for Russia. First, he points out, the west-ern route pipeline will take 5,000 miles (8,047 kilometers) to reach China’s ec-onomically developed regions. For Western Siberian gas to be competi-tive in terms of transportation costs, the length of the route must not ex-ceed 3,100 miles.

Therefore, it may happen that China will receive the gas at a price that is advantageous only for Beijing. More-over, it is important to note that Rus-sia is still negotiating over gas sup-plies to Europe, where the market continues to grow. In 2013, Russia sup-plied 138 billion cubic meters of gas to Europe. The expected volumes of supplies through the eastern and west-ern routes to China are only half as much: an annual 68 billion cubic me-ters until 2020.

1,000 cubic meters. This is infl uenced by the fact that the supplies will most-ly come from harder-to-access depos-its in the extreme north of Russia.

Full speed aheadLately Gazprom has been accelerat-ing the pace of collaboration with its Chinese partners. The construction of the Power of Siberia, which will be the world’s largest pipeline when fi n-ished, is being carried out at full speed, but the development of the Altai pipe-line may overtake it. According to Gaz-prom C.E.O. Miller, the western route may be launched sooner than the east-ern one due to the already available pipelines and infrastructure. The west-ern Siberian oilfields are the main source of supplies for Europe, so there is plenty of pre-existing infrastruc-ture.

A spokesman for the Russian Ener-gy Ministry noted, “The western cor-ridor is united by a single gas trans-portation system and by the main deposits in Western Siberia, that is, the resource base already exists.”

The Energy Ministry also pointed out that discussions over the use of the western route to China are not new. “Negotiations on the western route through Altai have been going on since 2010, but then emphasis was given to the ‘eastern’ route, since the main con-sumers are located in eastern China and the demand is greater there,” the Energy Ministry press office said in a

Amur would be a step up for the poor-er Chinese than staying in their coun-try.”

Cultural fascination trumps territorial dispute with JapanLooking at Japan, it wasn’t until the early in the previous decade that Japan even recognized the southern half of Sakhalin Island as a part of Russia. The fall of communism brought sev-eral Japanese entrepreneurs to the is-land, and Japanese food became pop-ular there long before it became trendy in Moscow. Japanese citizens have also

Residents of the Russian Far East are still wary of China, but becoming more positive.

River to China as a fi nal settlement of the Sino-Russian border dispute. “They claimed so much land in the Far East was theirs, including Vladivostok,” said Leontieva. “I won’t be surprised if there were such claims in the future.”

The Chinese demographic invasion theory is still popular in the Russian Far East, although officials rarely talk about it given the growing ties between Moscow and Beijing. About 38 million people live in the Chinese province of Heilongjiang, which is on the other side of Amur. The Russian Far East has a combined population of around 6 million. Chinese immigrants domi-nated the markets of Khabarovsk until a 2007 law banned foreign citizens from working in outdoor markets. The city administration now uses Chinese labor, while much of the reconstruc-tion work in wake of last year’s fl ood was done by Chinese guest workers.

“I’d be happy to hire Chinese work-ers, if it wasn’t so difficult with the bureaucracy of visas and work per-mits,” said Pavel Gnetov, who runs a car workshop in Khabarovsk. “They’re hard working and don’t drink, and have no connections and distractions here.”

Anna Goncharova, a China special-ist who lived in Beijing for three years, puts such attitudes in the Russian Far East into perspective. “People in Cen-tral Russia see images of modern Shanghai and elegant Beijing. In Khabarovsk, what most of us have seen are poor areas in northeastern China,” she said.

“Life on the Russian side of the

Recent research has shown that in light of recent developments, a growing number of Russians have a positive view of China — 51 percent now see it as Russia’s main ally, up from 23 percent in 2008.

The new proposal is in addition to last summer’s landmark deal between Moscow and Beijing

Brunei’s Sultan Hassanal Bolkiah, Russian President Vladimir Putin, Chinese Presi-

dent Xi Jinping, his wife Peng Liyuan and U.S. President Barack Obama in Beijing.

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RUSSIA-IRAN DEAL IS ABOUT MORE THAN NUCLEAR POWER

IVAN

TSVETKOV

GEVORG

MIRZAYAN

ANDREI

RETINGER

EXPERT

ANALYST

EXPERT

CHINA BENEFITS FROM THE U.S.-RUSSIA CONFLICT

TENSION BETWEEN THE U.S. AND CHINA GIVES RUSSIA AN OPENING IN THE PACIFIC

The future of the global political system has become less important than the more immediate fear of losing political control.

In Russia, the consequences of normalization in U.S.-Chinese relations have various intepretations, depending on the expert.

The advantage of the “new model” of U.S.-Chinese relations is that it transforms the bilateral relationship into a state of “mature rivalry.”

The deal gives Russia a place from which to grow its presence in the Iranian market once sanctions on Tehran are lifted.

In early November, Russia and Iran reached a new agreement for the development of Iran’s nuclear power industry. The two sides

signed a series of documents provid-ing for the construction of eight nu-clear power units along with a spe-cifi c contract for the construction of two power units at the already oper-ating Bushehr nuclear power plant. Overall, this is one of the biggest deals to be signed on the world nuclear mar-ket in recent years.

The value of the whole package of projects is estimated to be worth tens of billions of dollars, given that the price of building one nuclear power unit on the world market varies be-tween $5 billion and $7 billion.

The arrangement will not only gen-erate massive profi ts for Russian state nuclear energy corporation Rosatom,

but will also strengthen Russia’s po-sition in the Middle East.

According to preliminary estimates, thanks to the deals, Iran may even-tually produce a minimum of 10 giga-watts of energy from nuclear power. This estimate includes power gener-ated by the fi rst power unit at Bush-ehr. As a reference, Russia currently generates 25 gigawatts of energy from nuclear power.

With the agreement, Moscow and Tehran have sent a clear signal to the international community that despite a difficult political climate, the two countries are moving their relation-ship forward. The construction of these new nuclear power generation capacities could make Iran an export-er of electricity to the countries of the Persian Gulf, where there is an ever-increasing demand.

The entire project for the construc-tion of new nuclear power units in Iran, including equipment and fuel supplies, will be carried out under the supervision of the International Atomic Energy Agency (I.A.E.A.) and will fully comply with the regime of

nonproliferation of nuclear materi-als, as was the case with the construc-tion of the first power unit at the Bushehr plant.

Russia has much to gain from the new agreement in both the short and long term. The agreement provides work for Russia’s nuclear machine factories and engineers, who will have to supply all the equipment for the power plants throughout the con-struction period. In addition, the nine power units, including Bushehr-1, will also be buying Russian nuclear fuel for the foreseeable future. The provi-sion of fuel alone will mean a con-stant infl ow of revenue into Russia for many years. The profi t from the sales of fuel is also estimated to be tens of billions of dollars.

More importantly, the deal, like the agreement to fi nish the construction of Bushehr in the fi rst place after it was abandoned by Germany, gives Russia a place from which to grow its presence in the Iranian market once sanctions on Tehran are lifted.

Iran has been under some form of sanctions since its 1979 revolution,

and additional sanctions were imposed in 2006 after the country refused to curtail its nuclear enrichment pro-gram. Today, sanctions are in place against Iran’s oil and petrochemical industries, banking and insurance ser-vices, shipping and some online ser-vices such as Web hosting.

of the Iranian economy, businesspeo-ple from all over the world are fl ock-ing to Tehran. The nuclear agreement gives Moscow a boost. This is espe-cially important since once the coun-try is open for business, Russia will face stiff competition from China, Japan and Europe in providing goods and services.

Iran, for its part, will also reap mul-tiple benefi ts. The country is diversi-fying its energy policy. Expanding the percentage of domestic energy pro-vided by nuclear power will free up oil and gas to sell on the world mar-ket. Additionally, the project will pro-vide Iran with thousands of jobs for years to come. The plants will require large teams of construction workers along with specialized architects and engineers. Another plus — the Irani-an scientists and engineers who will build and work at the power plants will learn from the experience of their Russian colleagues.

Russia has another reason for mak-ing friends with Iran. Iran has the world’s second-largest oil reserves. Russia has only the seventh-largest.

Moscow is concerned that once Teh-ran is again free to sell its energy re-sources on the world markets, the two countries will be competing for con-tracts in Europe, China and India. By dealing with Iran now, Russia hopes that any future sale price of oil and gas will be agreed upon with Moscow in advance.

The arrangement creates a mutual interdependence between Russia and Iran economically and geopolitically at a time when both countries need more friends in the international com-munity. Russia wants to show the rest of the world that it is capable of work-ing with partners on a project of glob-al interest; Iran wants to prove yet again that its nuclear enrichment proj-ect is a peaceful one. If restrictions against Iran are indeed lifted this fall, the Russian side could be hopeful that economic sanctions against it could be lifted as well.

Andrei Retinger is an independent expert who has written about the Russian nuclear industry for more than 10 years.

The process by which great na-tions are born and die, global empires are transformed into mediocre states and obscure up-

starts turn into rulers of the world re-mains a mystery, despite all the best efforts of academics and politicians to crack it.

Today China is at the center of the debate over this process, just as the United States was 100 years ago. At the turn of the 20th century, the Unit-ed States was still waiting for its fi n-est hour. It had already made a re-markable economic leap, but had not yet received international political rec-ognition. There are many similarities in the historical development trajec-tories of the United States and China at their moments of transformation into world hegemonies. The founding father of China’s economic miracle, Deng Xiaoping, instructed his succes-sors to be modest in their dealings with the outside world and wait for the right moment to come into their own. Similar recommendations some 200 years earlier were left by U.S. founding father George Washington in his political will.

The United States began to shed its isolationism only after it had overtak-en all its international economic ri-vals, which occurred under Theodore

During the course of the recent Asia-Pacifi c Economic Coop-eration (APEC) summit in Bei-jing, the U.S. and China signed

agreements in the military sphere that will help both countries reduce the risk of a military confrontation in East Asia.

The agreements establish a frame-work for cooperation in the event that either side takes any large-scale mili-tary action, requiring the parties to in-form each other in advance of any such steps. The document also sets out a code of conduct to be followed if U.S. or Chinese military, air or naval units come into contact with each other.

The countries signed the agreement

Roosevelt in the 1900s. China’s cur-rent leader, Xi Jinping, has much in common with Roosevelt. China’s “Big Stick policy” in the South China Sea, tough rhetoric, ambitious statements — all these indicate China’s desire to speed up the process of spending its economic capital on foreign policy.

For the U.S., the event that removed all obstacles on its path to establish-ing its international political infl uence was World War I.

A glance at today’s headlines prompts the conclusion that China does not have to wait long before it rises to the top of the global pedestal. The confrontation between Russia and the West is a true godsend for China. Just as the self-destruction of the Euro-centric world a century ago prepared the ground for building a new U.S.-centric system, the weakening of the U.S. in its standoff with Putin’s Rus-sia in the 21st century will result in its being replaced by China as the lead-ing global power.

It is sad to admit that in both cases, the role of the key spoiler — the coun-try that ruined the balance of the glob-al system — belongs to Russia.

In the opinion of many Americans, modern Russia does not present a se-rious force to be reckoned with inter-nationally and can claim only the sta-

tus of a regional power. They may be absolutely right as far as Russia’s pos-itive capabilities are concerned, but its negative potential is immeasurably higher. Yet this is manifested not so much in military pressure on its East European neighbors or threats to turn the United States into “radioactive ash.” The real Russian threat lies in Moscow’s ability to destroy the U.S.-centric world order by starting to play the China card in the hope of hurting the United States and compensating for losses resulting from Western sanc-tions.

The argument in favor of Russia forming an anti-American bloc with China and other countries, which is often repeated by Moscow’s politicians, is that a new international system will not be based on hegemony or bipo-larity, but rather on equal partnership

between the growing economies of Eurasia and Latin America, which form a counterbalance to the U.S. and challenge the dollar’s global domina-tion. This utopia may have some pro-paganda value, but the problem is that even the masterminds of Russian for-eign policy do not believe in it.

It is absolutely obvious that the slug-gish progress in Russian-Chinese eco-nomic relations prior to 2014 and its substitution with grandiloquent, but

ineffective, declarations and memo-randums of understanding had only one reason: President Vladimir Putin did not want to let China onto his ter-ritory. Now, however, in 2014, this re-sistance is no longer possible.

Putin has decided that the threat of China’s economic and demographic domination of Russia is less serious than the threat of the United States provoking a “color revolution” in Rus-sia. Suddenly, the future of the glob-al political system has become less im-portant than the more immediate fear of losing political control. Putin was faced with the dilemma of losing power under the Americans or retaining it under the Chinese. It could hardly be a surprise that he opted for the latter.

A similar strategic choice is being presented to the United States. The recent series of East Asian summits

has clearly shown that China will not miss this opportunity to fi sh in these troubled waters, so the United States must now decide which is more im-portant to it: To punish the aggressor Putin, losing its world hegemony in the process, or to fi nd a way of resolv-ing the confl ict with Russia, thus halt-ing the process of China’s transfor-mation into a political and military superpower.

Unfortunately for the United States leadership, the choice is not as obvi-ous as it was for Putin. It does not have such a telling illustration of its political future as the Russian lead-ers got on Feb. 22, 2014, when Ukrai-nian President Viktor Yanukovych was deposed and fl ed the country.

Ivan Tsvetkov is an associate profes-sor at St. Petersburg State University.

because recently there has been an in-crease in incidents (in particular, Chi-na’s inclusion of the East China Sea territory in its air defense zone) that are capable of placing Beijing and Washington on the verge of a confl ict that would be a disadvantage for both sides.

‘a new model of relations,’ in which issues of military security and ‘the tech-nologies’ for preventing confl ict are crucial,” said Sergei Trush, an expert with the Institute for U.S. and Cana-da Studies at the Russian Academy of Sciences. “The agreements signed at the APEC summit can be considered one of the fi rst results of this process.”

The signifi cance of this “new model” should not be exaggerated, however, since it will not force China to reject the pursuit of its own policies in the region. “Both elites have an under-standing of the ‘negotiating red line’ and the key security criteria, and they will follow them,” said Trush.

Yet according to Dmitry Suslov, dep-uty director of European and Inter-national Studies at the Higher School of Economics, the advantage of the “new model” is that it transforms the bilateral relationship into a state of “mature rivalry.” The countries under-stand that they are rivals and oppo-nents in the military sphere, yet they are trying to make this rivalry and com-

petition manageable, to prevent an es-calation, which neither side needs, says Suslov, “Something similar occurred in Soviet-American relations when in the ‘60s the countries were negotiat-ing how to control the armament pro-cess.”

This model does have a weakness, however. Pacifi c Rim countries may misunderstand the model and inter-pret it as a victory for the isolationist perspective in the U.S. “In the U.S. there are various opinions on how to react to the territorial conflicts between China and its neighbors,” Trush said. “A part of the American political-ac-ademic elite believes that Washington should not intervene in the confl icts directly. In his opinion, this elite in-stead believes that the U.S. should have multilateral negotiations with China with the participation of the Associa-tion of Southeast Asian Nations (ASEAN). “Such a position obviously creates great concern for American al-lies in the region, fi rst and foremost Japan,” he said.

In Russia, the consequences of nor-malization in U.S.-Chinese relations have various interpretations, depend-ing on the expert.

“If you look at the situation from the viewpoint of a zero-sum game, then it is clear that a reduction in the con-frontation between Beijing and Wash-ington limits Moscow’s potential, de-priving it of space for maneuvering,” said Trush. “Yet, if we look at it from the perspective of geo-economy and the resulting reduction of confronta-tion for the entire region, then Mos-cow certainly wins. Moscow gains a more positive context for fi nding its niche in the Pacifi c Rim economy, es-

event of a sharp deterioration in U.S.-Chinese relations, “Russia will be obliged to support China, which means that it would become China’s younger partner and the attempts to establish strategic relations with other eastern and southeastern Asian nations would collapse, since many of those countries are U.S. allies and partners and in the event of an American-Chinese escala-tion would back Washington.”

On the other hand, Russia does not need Asia to be dominated by either the U.S. or China. In the fi rst scenar-io, the U.S. would have an opportuni-ty to pressure Russia not only from the west, but also from the east. And if East Asia fell under Chinese con-trol, then Moscow would either have to work only with China or through China.

“Russia is extremely interested in specifi cally the multilateral participa-tion of Pacific Rim countries in its plans, in the creation of a so-called “organization of interests,” rather than orienting toward a single monopolis-tic investor,” said Sergei Trush. That is why Russia needs the system that will evolve within the framework of “the new model” — preserving the U.S.-Chi-nese confl ict, but sluggishly.

Gevorg Mirzayan is a political com-mentator for the Russian weekly ana-lytical magazine Expert.

pecially as far as attracting investment for modernizing its Far East.”

Furthermore, Moscow is interested not only in the reduction of tension between the U.S. and China, but also in a de-escalation of the situation in the East China and South China Seas to an acceptable level.

In Dmitry Suslov’s opinion, in the

Some political analysts think that the current agreements are the begin-ning of the genuine construction of a new format of American-Chinese in-teractivity. “The administrations of Xi Jinping and Barack Obama, especial-ly after their important meeting in Cal-ifornia in June 2013, are searching for

KONSTANTIN MALER

Many observers, however, believe that the country will soon be allowed back into the global economic com-munity. The U.S. and the E.U. lifted some sanctions against Iranian oil in January after Iran stopped enriching uranium past 5 percent, and are ex-pected to lift more restrictions before the end of 2014.

In anticipation of the re-opening

04

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Against this backdrop, Beijing sought to use the APEC summit as a launch pad for the free-trade agreement, which is less ambitious in terms of tariff reductions but larger in scope, involving all 21 APEC economies.

Summit attendees say, however, that Washington managed to drop a fl y in China’s ointment. The communiqué adopted by foreign and trade minis-ters, and approved by APEC leaders, reported the start of negotiations to create a free-trade area, but with no specifi c time frame — to Beijing’s con-sternation. True, Washington was un-able to announce the creation of the Trans-Pacifi c Partnership at the sum-mit in Beijing. U.S. Trade Represen-tative Michael Forman admitted that the signing of an agreement would have to wait “a few more weeks or months.”

Russia was officially involved in the launch of the free-trade area negotia-tions, but has yet to conduct a detailed analysis, according to Russian officials. Going into the summit, Moscow was lukewarm about both the T.P.P. and the R.C.E.P.

“It is not possible to create a trad-ing bloc in Asia without China or the United States, so both projects are non-

CONTINUED FROM PAGE 1

December

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Year in Review

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Policy Guidebook

2013-2014

This new report will ana-lyze the main events in Rus-sia-U.S. relations over the past year and offer a look ahead to 2015. Today, bilat-eral contacts in most areas and at all levels are either frozen, suspended or stag-nant at best. This memo re-views how that happened, and asks what choices lie ahead. As we enter a new year, what lessons should be learned and what steps can be taken to avoid further confrontation? Get the view from Moscow.

Look back at the past year in Russian foreign policy with this in-depth e-book guide. Written by the most prominent international and Russian experts, this guide-book compiles five Russia Direct reports and highlights some of the major trends discussed by Russian policy-makers over the past year, providing insights on the Kremlin’s thinking that are unavailable anywhere else.Available now at the Apple iBooks store and on Ama-zon Kindle.

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starters. Why waste time?” said one se-nior official. The dynamics suggest that Russia is more likely to opt for the Chinese plan. The U.S.-backed T.P.P. is seen as a hostile project, within which Russia cannot fulfi ll the obli-gations to tariff and non-tariff liber-alization.

A similar tussle unfolded between the U.S. and China on a more specifi c matter: the promotion of infrastruc-ture projects in the Asia-Pacifi c Re-gion. In October, China announced the establishment of the Asian Infrastruc-ture Investment Bank (A.I.I.B.), which is being groomed as an alternative to the World Bank and the Asian Devel-opment Bank, both dominated by the United States and its allies. Yet by no means did all countries that were ini-tially enthusiastic about the project become cofounders — because of po-litical pressure from Washington.

“Barack Obama phoned Australian Prime Minister Tony Abbott, and his national security adviser, Susan Rice, called various officials to demand that Australia refrain from participation. And we acquiesced, which was a mis-take,” said a member of the Australian team.

On the eve of the APEC summit, Chinese President Xi Jinping an-nounced the creation of a $40 billion

fund to fi nance infrastructure devel-opment projects for the proposed Great Silk Road Economic Belt. This alter-native project, which Xi announced a year ago during a visit to Kazakhstan, provides for investments in transport infrastructure. Some of the projects involved will link China’s center and northwest (where many companies are moving production from China’s east-ern provinces because of the differ-ence in wages) to the markets of Eu-rope via Central Asia and Russia. Another portion of the funds will be invested in port and rail infrastruc-ture in southeast Asia.

Neither the A.I.I.B. nor the Great Silk Road project was initially to Mos-cow’s liking. The A.I.I.B. aroused sus-picion, as does any China-dominated fund, while the Great Silk Road proj-ect was seen as a threat to plans to raise the capacity of the Trans-Sibe-rian and Baikal-Amur railways. How-ever, sanctions are causing Russia to rethink its position. Moscow is now seeking sources of external fi nancing for its own infrastructure projects, and is therefore interested in the A.I.I.B.. These same considerations lay behind Moscow’s support for the BRICS (Bra-zil, Russia, India, China and South Af-rica) development bank.

Beijing is trying to allay Moscow’s

fears regarding the Great Silk Road project. At the September summit of the Shanghai Cooperation Organiza-tion (S.C.O.), Xi proposed to Russian President Vladimir Putin that the Trans-Siberian and Baikal-Amur rail-ways be included within China’s me-ga-project.

The slow progress in multilateral projects was offset by an abundance of bilateral agreements. Even the U.S. and China concluded an agreement on liberalizing trade in high-technol-ogy goods after 18 months of wran-gling. Russia and China signed the biggest package of bilateral agree-ments, including a framework agree-ment on the Altai gas pipeline as well as credit agreements between Rus-sian and Chinese state-owned banks.

Russia was unfazed by the multi-lateral nature of the discourse. While the key APEC leaders traveled on to the East Asia Summit in Myanmar, President Putin went to Vladivostok. It was the fourth successive time that Russia’s leader has not attended the summit, even though Moscow has sought to upgrade its observer status at this high-profi le forum since 2005.

Alexander Gabuev is deputy editor-in-chief of the weekly analytical mag-azine Kommersant-Vlast.

BUDDHISM IN RUSSIA: TEN FACTSBuddhism is one of Russia’s fi ve traditional religions, but the fate of the faith’s adherents has changed through the years. Find out more about the fascinating history of Buddhism in Russia.

The history of the followers of Bud-dha in Russia is a tumultuous one. Bud-dhists extolled the Russian tsars and presidents, served as doctors in the royal court and endured repression and the destruction of their culture under the communists. Many Buddhists were sent to camps and endured mandato-ry therapy. They continued to be per-secuted until the 1980s. Here are 10 facts about Buddhism in Russia.

What type of Buddhism is found in Russia?Tibetan Buddhism is practiced in Rus-sia. It is found mainly in three regions: Buryatia, Kalmykia and Tuva. Bud-dhism fi rst came to Russia in the 17th century, when the western Mongolian nomadic Oirat tribes, who were then known as the Kalmuks, arrived at the lower reaches of the Volga, and in the mid-17th century during the conquest of Transbaikalia, the area east of Lake Baikal where the eastern Mongolian tribes, the Buryats, lived.

In about 1616, en route to the Volga, the Oirats built their fi rst fi xed mon-astery, Darkhan-Dorzhan-kit (mean-ing Seven Chambers), in the vicinity of the modern-day city of Semipala-tinsk in Kazakhstan.

When was Buddhism recognized?Two hundred and fi fty years ago, the empress Catherine II (the Great) al-lowed Buddhists to choose their own leader — Pandito Khambo Lama. Until then, all Buddhists in Russia had obeyed the Mongolian or Tibetan hi-erarchies.

As a token of gratitude, in 1766 the Buddhists recognized Catherine as the earthly incarnation of the White Tara (a Buddhist goddess). Buddhists lived peacefully under the reign of Cathe-rine and indeed under all the Russian monarchs. The current leader of the Russian Buddhists is the 24th Pandi-to Khambo Lama.

Nicholas II had a Buddhist physician.One item mentioned in connection with the infl uence of Buddhists in tsarist Russia is that Peter Badmayev, who was originally from Buryatia, treated Nicholas II.

While Badmayev was not a Buddhist, he came from a Buddhist family, and his elder brother was Alexander Bad-mayev, a doctor of Tibetan medicine whose skills so impressed Alexander II that the tsar allowed him to prac-tice in St. Petersburg.

In Petersburg, where he moved fol-lowing in his brother’s footsteps, Peter converted to Orthodoxy after he be-came Alexander III’s godson, and trained as an Orientalist and doctor.

He served for many years in the Asia department of the Ministry of Foreign Affairs.

How did Buddhists affect the formation of Russia’s territory?During his diplomatic career, Peter Badmayev tried to convince the Rus-sian tsars to incorporate Tibet, Mon-golia and China into Russia. Nicholas II called the plans fantastical, but they were partly fulfi lled.

After the fall of the Chinese mon-

archy in 1911, Russia annexed Tuva — the third Buddhist region in Rus-sia after Buryatia and Kalmykia. The annexation was not violent insofar as it was supported by the republic’s cler-gy. Interestingly, to this day, Taiwan claims this territory, considering itself to be the successor to Qing China.

The 13th Dalai Lama may have wanted to hide in Russia.According to one version of events, the 13th Dalai Lama blessed the construc-tion of a temple in St. Petersburg (the

temple was built in 1915), presuming that he would be able to take refuge there if British forces invaded Tibet.

However, revolution then broke out in Russia, followed by the Civil War.

What was the St. Petersburg temple used for during the 20th century?The temple in St. Petersburg has now been returned to the Buddhist com-munity, but over the course of the 20th century, the building was used for nu-merous purposes. During the Cold War,

it held equipment that created inter-ference in Western radio programs that were broadcast in the Soviet Union. In 1962 the temple was given to the Zoological Institute of the Russian Academy of Sciences.

The building did not come under government protection until 1970. The Dalai Lama nonetheless visited this temple, but it was the 14th Dalai Lama, not the 13th, who arrived on a gray September day in 1987. Eyewitnesses to the Dalai Lama’s visit recount that on that day, a rainbow unexpectedly appeared over the Hotel Leningrad, where he was staying.

A Buddhist government existed briefly in Siberia.Buddhists tried to take advantage of the revolution and form their own gov-ernment. On Feb. 25, 1919, a “pan-Mon-golian” conference opened in the east-ern Siberian city of Chita, proposing the creation of the Great Mongolian Buddhist government, which would unite Outer and Inner Mongolia, Bury-atia, Tuva and part of Manchuria. It might have succeeded, but the com-munists were more organized, and the Buddhist government did not last more than a year.

What taxes did Buddhists pay?In the 1920s and 1930s, the commu-nists destroyed practically all Buddhist monasteries and exiled or executed nearly all representatives of the Bud-dhist clergy.

One method of battling the religion was taxes. In Kalmykia, the faithful were required to pay the following: a unifi ed agricultural tax, a class tax, an income and property monetary tax, an equalization fee, a local duty, a civil tax, a per-capita monetary tax, a mil-itary tax, a one-time tax, a progressive tax, local taxes for construction, cat-tle and means of transport, a specifi c housing tax, and duties for the medi-cal examination of cattle.

The Bolsheviks destroyed the Buddhists’ cultural legacy.Block-printed boards — of which there were up to 100,000 in the Aginsky tem-ple alone — were the most valuable objects of the Buddhist cultural lega-cy that were pitilessly destroyed. Many of the boards had no religious content, but rather were dictionaries, grammar books, narrative and poetic works, and essays on history, medicine, astronomy and philosophy. Equally valuable were manuscripts — some of which were unique copies that did not exist even in Tibet — and thangka works of Bud-dhist representational art.

When did the repression of Russian Buddhists end?After Khrushchev’s Thaw, in the 1960s, nonethnic followers of the dharma started appearing in Moscow, Lenin-grad and other major Soviet cities. They were mainly an intelligentsia that need-ed to keep their spiritual quests secret or risk losing jobs and perhaps even freedom. The KGB’s monitoring of Buddhists was fi nally lifted in the late 1980s.1. Novices at the Chadansky Temple, 1934. 2. The destruction of the Khurzhitae-

vsky Datsan during the antireligious campaign, 1937. 3. Two Buddhists in Ury-

ankhansky Krai, today part of the Russian Republic of Tuva, 1934.

■GLEB FEDOROV

RBTH

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