General Introduction

The end of the Cold War in the early 1990s, and the subsequent collapse of the bipolar structure of the US and its allies versus the USSR and its satellites, left Central Asia in a vital position; geographically, politically and economically. Since it is in the oil and gas fields of the Caspian and Central Asian regions that three modern ‘great powers’ meet, if there is anywhere that could spark world instability, it is here.

Following the attacks on the World Trade Center on 11 September 2001 (henceforth known as ‘9/11’), the US entered the region in force, establishing military bases from which to pursue its ‘War on Terror’. After lying dormant during the 1990s Russia is now reasserting itself on the international scene, its coffers newly filled with oil revenues. And China, having joined the World Trade Organisation in 2001, is flexing its newly-discovered economic muscles in the region too.

Thus has arisen what has been coined the ‘New Great Game’ , geopolitical manoeuvring on a grand scale across the chessboard of Eurasia. No longer the cloak-and-dagger romance of Rudyard Kipling’s Kim, it is a game in which political skill and business acumen are equally valuable, a contest for rights in energy companies as much as for influence over the unruly peoples and corrupt rulers of the steppes.

In recent years, the match has not only intensified but its aims and goals have become more complex. As states pursue their quest for hegemony, allegiance, security and even survival, non-state actors from transnational corporations to Islamic groups vie for profit, contracts and local influence.

The ‘New Great Game’ is not restricted to Central Asia, of course; there are elements of the same struggles being played out in the Middle East and Africa too. But in Central Asia, where the nascent powers of Russia and China meet directly and national survival could turn on a winning strategy, is it best for them to join forces for mutual benefit or must they compete for the prize?

Research Question

After examining the interests of the PRC, Russia and the Central Asian hydrocarbon-producing states to ascertain why the ‘New Great Game’ is so important, we will go on to look at the potential rivalries between China and Russia.

It is also worth looking at ways in which the two may be forced into an uneasy alliance. The 1960s Sino-Soviet Split was partly motivated by ideology, but in today’s environment there is little place for anything but cold, hard economics. “From each according to his abilities,” Karl Marx once wrote, “to each according to his needs.” Which is the most likely outcome – conflict or co-operation?

Hypothesis

Though Russia and China are currently willing to cooperate over energy resources, the necessity of maintaining its rapid industrialisation could force China into ever-more radical measures to influence Central Asian hydrocarbon production and supply.

This may mean applying diplomatic and economic pressures on Russia; increasing the Chinese commercial presence in Central Asia; and perhaps the eventual evolution of a coercive policy to ensure that Central Asian states remain under the Chinese sphere of influence and not Russia’s aspiring regional hegemony.

Theory

In common with the other nascent powers, Brazil and India, China and Russia both share a belief in their entitlement to a greater role in the post-Cold War world. Each is challenging the legitimacy of the current US-led world order, and each seeks recognition of their authority.

To be a true great power, others must view you as such, and there is a logic that the best indicator of a country’s great power status is regional hegemony. By creating an image of the state as a representative of the region as a whole or by managing the area’s crises and influencing its economy, a growing power can thus promote itself in the eyes of other states. Its neighbours, fearing domination and desiring security, will ‘bandwagon’ with their preferred local leader and thus a regional nexus is born. The master state benefits from the service of the lesser ones, while they in turn gain protection and economic advantages.

These days, however, to be a great power does not simply mean possessing the greatest military capability. The rationality of economic liberalisation and rapid growth, as seen in both China and to an extent in Russia, brings with it a devaluation of the neo-realistic ideas that could lead to the ultimate irrationality of armed conflict. In the current world order, ‘soft power’ is of equal importance to sheer military might.

The goals of both Russia and China are not merely supremacy but economic growth and continued industrialisation in order both to close the production gap with the West and to satisfy their own restless populations. To bring about the development that they need to maintain stability, each needs fuel to drive it and money to pay for it. Crucial, therefore, to our understanding of the so-called ‘New Great Game’ is the role of non-state actors such as transnational energy corporations, since it is they that provide the fuel and the money. Simplistic conceptions of the balance of power as the sole driving factor are redundant.

To achieve their goals of continued profitability, commercial actors need an environment conducive to business: not necessarily a free market, but something that at least resembles one. Thus the powers themselves may be forced to co-operate in order to avoid a conflictual situation that could damage business interests. On the other hand, commercial actors might seek instead to push their rivals out by whatever means necessary, including calling on leverage from their political masters. What matters most is economic success.

Rather than separately considering state and non-state actors in the region, it may therefore be best to look at state-society or even state-business complexes. The case in point is the dominance of massive transnational conglomerates that are at least partly and often wholly state-owned and controlled. Russian energy giants Gazprom, Rosneft and Transneft, in which the state is the majority shareholder, are far from independent of Moscow: and China National Petroleum Corporation (CNPC), China Petroleum and Chemical Corporation (Sinopec) and China National Offshore Oil Corporation (CNOOC) fulfil the same functions for the PRC. Whatever the lip-service paid to free-market principles in China, the loyalties of the Chinese corporate sector lie first with the state.

Moreover, the same is true in the Central Asian states themselves: it is the authoritarian governments there that tend to control access to their resource riches, but lacking technological, industrial and economic strength, outside help is required for them to fully exploit them. Thus the battle is one where cross-border commercial activity, run by boardrooms in Shanghai, St Petersburg and New York is just as important as power projection and political manoeuvrings from Beijing, Moscow and Washington.

In the new great game of Central Asia, it is thus almost impossible to distinguish the ‘state’ from the ‘corporation’ as units of analysis. The interests of the company (profit) and the interests of the state (growth and industrialisation) become fused in the pursuit of the same effective goals.

Analysing each state-business player in turn

The position of both Russia and China in the world system continues to shift as their economic development continues. As they industrialise and catch up with the economies of Europe and North America, so in turn grows their influence over their neighbours. For example, having exceeded its own production capacity in 1993 China is already the world’s second biggest energy consumer, whereas Russia is the second largest oil exporter and the leading natural gas supplier. But both face the same essential problem: now that industrialisation is proceeding, the ruling parties have to keep it going or face the wrath of the people.

Central Asia, on the other hand, remains caught in the middle. But similarly, the struggle to succeed as independent and industrialised nation states has meant that the post-Soviet republics have often turned to the simplest means available to them: exploitation of their natural resources.

Russia: the bear emerging from hibernation

Russian foreign policy is a slave to domestic needs. According to S. Neil MacFarlane, Moscow seeks “not so much to make its mark as to limit the degree to which larger systemic (power-political and ideational) processes obstruct the pursuit of its more limited objectives.” In other words, Russia is “not so much emerging as trying to stop the bleeding”.

The reasons are found in the collapse of the USSR back in 1991, and even beyond. Look back to the beginning of the 20th century and one sees the Tzars’ failed attempts at modernisation brought into relief by the humiliating defeat at Japanese hands in 1905. Revolution followed, and in 1917 the Bolsheviks seized power. With many of the elite fleeing the country or falling victim to Stalin’s purges, progress towards a modern industrialised society was hampered again and again. Despite early successes in the economically futile ‘Space Race’, the system proved itself incapable of mobilising the technological accomplishment to compete with the West.

The Cold War arms race and a lack of technological competitiveness effectively crippled the Soviet economy and hindered its ability to maintain its superpower role. It simply could not catch up. After the disintegration of the Soviet Union, then, Russia’s economy halved in size, picking up only when energy prices rose. Privatisation of the vital state industrial base was disastrous, with a few privileged party apparatchiks gaining control over the oil and gas utilities. However, they did at least invite Foreign Direct Investment (FDI) and the modernising influences that come with it.

Loss of the internal law and order required to build a successful economy was another constraint. The criminal economy in Russia is notoriously prominent. Moreover, debacles such as the conflict in Chechnya diminished Russia’s role on the international stage: witness, for example, the relative impotence of Russia during the 1999 Kosovo crisis. As Russia declined during the 1990s, the system was barely able to meet the material aspirations of its citizens, many of whom live in conditions just as bleak as the poor in China.

When Vladimir Putin took power in 2000, his primary aim was to get the country back on its feet and into a position from which it could begin building a recovery and thus a return to its previous eminence in foreign relations. His technique is twofold: impose order through semi-authoritarian rule; and exploit Russia’s reserves of oil and gas.

To prevent the social and economic systems from falling back to the brink they reached during the 1990s, Putin is keeping his political and economic power firmly centralised. A case in point is the Yukos affair, whereby the threatening strength and independence of erstwhile oligarch Mikhail Khordokovsky was broken by state intervention. Moscow engineered an effective re-nationalisation of Yukos’s assets , solving the problem of Khordokovsky’s challenge to the government while gaining shares for state-controlled utilities Gazprom and Rosneft.

Since Putin took office, Russia has enjoyed growth of around 6% per annum and the average income per capita has risen from about $2,000 to $2,600. However, around 25% of the population still lives on about $2 per day. And 80% of Russia’s exports remain in the fields of its mineral and agricultural commodities.

Diversification into high-tech industry leaves much to be desired: the tax system needs reform and the rights of free enterprise and property required for business to flourish are still restricted. There are few signs of Russia moving towards the technological-based renaissance enjoyed by Japan and the ‘Asian Tigers’ during the 1970s and 80s, or even the manufacturing boom of contemporary China. The economic base remains firmly entrenched in resources – oil and gas – both of which provide enormous tax revenues. The only way that Russia can finance its mission to catch up with Western industrialisation and restore its position in the world is through energy sales.

Gazprom now controls around 16% of the world's gas reserves and 60% of Russia's, and is the world's third-biggest firm by stock market value. No-one can deny it now has significant political clout. But this is not to say that the company is as all-powerful today as, say, the KGB was in the 1960s. The Economist, for example, suggests that its weakness is its mutual interdependence. Despite its apparent strength, Gazprom is little more than a “spider in a bath” – as afraid of its customers as they are of it. Relying on Europe as the main source of revenues, it and its fellows need to diversify into other markets in case its Western neighbours should turn to other sources (Africa or South America, for example). Inevitably, then, the Russian state-business complex is looking east, to Asia.

China: the dragon uncoils

Understanding China is not something that can be achieved by examining it as a simple entity with behaviour that mirrors identically that of other states. It is not just another billiard ball. For a start, China’s current ‘rise’ is extraordinarily rapid – averaging over 9% growth per year.

Some might say that this is a ‘miracle’, but the real explanation is simple: China has abandoned the ideologically-driven and incompetent policies of the past and embraced its own form of market liberalisation – ‘Capitalism with Chinese characteristics’, we can call it – while harnessing the massive and previously under-used labour force of its 1.3 billion people.

Yet the CCP’s primary concern is preserving its own power. It cannot allow China to derail from the track of its stunning development; such a catastrophe would not only dislodge the party but it could throw the country into disorder. And there is currently no viable alternative to the Party itself. Its challenge is to maintain the domestic status quo and continue to provide effective governance in a time of immense change. The interests of the CCP thus become the interests of the PRC.

But, ironically, growing economic prosperity is driving the very issues that threaten to destabilise the PRC: nationalism and disparity. There are elements within the country that would like to see China increase its prestige and influence in the world beyond where it lies today: there are others desperately marginalized by the unevenness of China’s boom.

Maintaining industrialisation and economic prosperity is the only way to satisfy both the nationalists and the marginalized ‘farmers’ while preserving the CCP’s legitimacy. The CCP can keep a lid on these volatile elements via the iron fist of authoritarian control. It is not well-equipped to deal with change, however, and is still prone to mismanagement of crises which diminish its image on the world stage. The bungling and cover-ups over SARS are a prime example. It is something of a delicate balance to keep ‘face’ with the people and yet to maintain the appearance of a ‘responsible stakeholder’ to foreign powers. A way in which it is attempting to face up to the new realities is by opening the ranks of the Party to business, a transformation of the CCP that inevitably makes the links between business and government even closer.

Thus China is a perfect example of how the state system, the social forces of the national population and the production processes embodied in the commercial sector are intertwined. Each is fixed to the other: and like the bonds between atomic particles, the glue that holds them together is energy.

Central Asia: between a rock and a hard place

Caught between the two powers are the Central Asian republics – Kazakhstan, Kyrgyzstan, Turkmenistan, Tajikistan and Uzbekistan (sometimes known colloquially as ‘the ‘Stans’). Though each has followed a distinct path since independence in 1991, and has its own different make-up of politics, economics, loyalties and resources it is possible to make a few generalisations on their progress.

Shaking off the authority of the Soviet Union was not a stimulus for liberalisation in the region but quite the opposite. Each state owes its original political institutions and economy to the USSR, and in its absence the drive for development meant turning back to authoritarianism. Central Asian leaders tend to be autocratic, the absurd and surreal figure of Turkmenistan’s President Niyazov, a man who nurtures a Mao-like personality cult, being the worst.

The republics face further problems. Tajikistan is recovering from war, and civil society is brutally repressed in Uzbekistan, notably at the Andijan massacre in May 2005. Only Kazakhstan and Kyrgyzstan have adopted a semblance of democratic rule, though even after the ‘Tulip Revolution’ the Kyrgyz population is disappointed with the progress made so far. The black economy is also strong, since the state tends to hamper the entrepreneurship necessary for diversification.

With the path to self-determination a rocky one, these countries place great importance on asserting their national identities. This means promoting a break with the past – the past being represented by Russia. Islam is another force. Though it is not nearly as potent as it is in the Middle East, there are numbers of underemployed young men who may be susceptible to its call though the ‘War on Terror’ has given governmental crackdowns on Islamic opposition movements added legitimacy.

Ultimately, however, the key to breaking out of the peripheral zone of the world economy, long-term development and industrialisation, has to be FDI and export income. Just like Russia itself, the immediate answer (certainly for Kazakhstan, and to an extent for Turkmenistan and Uzbekistan too) lies in sales of their rich oil and gas resources, the main source of the governments’ tax revenues (especially when market prices are high ).

However, the major constraint upon the republics at present is that their access to world markets is mainly through old pipeline networks that lead to Russia. The Central Asian republics do benefit from the presence of Soviet-built infrastructure: not only oil and gas pipelines but roads and railways too. But on the other hand it leads to trade dependence on their former master. This gives Moscow and its energy companies huge amounts of leverage over Central Asian resources and thus the economy and society as a whole.

In summary, the ‘Stans appear to be following the model of industrialisation and building the economy through a strong state, which in turn hampers the development of democracy, civil society and true economic and social development. The regimes are reinforced by the social tensions brought about by of nationalism and nascent political Islam, plus the restricted production processes brought about by dependence on natural resources, which in turn is nothing without Russian infrastructure. The ‘Stans cannot be blamed for wishing to break out of this bind, and looking for ways to bypass Russia makes great commercial sense.

Sino-Russian relations and Central Asia

China and Russia have had an uneasy relationship over the years: witness the infamous Sino-Soviet split during the 1960s, a reaction by the USSR to Mao’s dubious wisdom in initiating experimental industrialisation via the calamitous Great Leap Forward, not to mention the instability engendered by the Cultural Revolution. When the USSR pulled its engineers out of China’s fledgling oil industry, the PRC was left facing severe energy shortages. Beijing would not like to see a repeat.

But in the scenario we are faced with today the players are interconnected and interdependent, with the driving factor being the simple economic equation of supply and demand. China drives demand, while Russia and Central Asia can provide the supply. Who controls that supply, however, is another matter.

China’s oil and gas demand

China’s very stability depends on its continued economic growth, and this growth needs fuel. The demand for energy is massive, amounting to around 40 billion kilowatt hours every year. Although much of it comes from coal, which can be mined locally, an increasing proportion of China’s energy needs are oil and gas. The International Energy Agency predicts that by 2030, net oil imports will reach 10m barrels per day, representing over 8% of world demand.

But with the rapidly depleting Daqing oilfield providing energy for “a quarter of humanity”, can China, let alone Asia as a whole, cope? Even with massive imports, there remains the menace of ‘demand-induced scarcity’, a shortage in the system brought on by the enormous pressures mass industrialisation is placing upon the global energy supply. It is a condition also brought on by population growth (despite the one-child policy, China’s 1.3bn people won’t just go away); the rising per capita income that rampant economic development is bringing; and the change that industrialisation itself involves, for example exploding motorcar ownership or the fuel requirements of the air and rail industries in moving goods and people.

Since this (not to mention the ‘supply-induced scarcity’ of a world oil production system at close to its peak capacity ) is inevitable, it is in the PRC’s interests to avoid as best it can the structural scarcity that limited access to the supply chain would bring. The unstable and fractious Middle East currently supplies around 37-57% of China’s oil, according to BP and the International Energy Agency. Natural gas will also be essential. While today it constitutes only 3% of China’s energy consumption, by 2010 this could rise to 8%.

But to China’s chagrin, the US Navy controls access to Gulf sea-lanes such as the Straits of Hormuz (even though China is building a strategic port facility in Gwadar, Pakistan, to cover it too ). OPEC has been known to manipulate the oil supply and Beijing is therefore ensuring it has good relations with the organisation and its members, in particular Saudi Arabia. Nevertheless, with 45% of China’s crude supply passing through the Malacca Straits, it makes complete sense to try to reduce dependence on this one geographical chokepoint.

Furthermore, in the absence of the allegiances owed to it in the good old days of the Warsaw Pact, Russia now wields energy as a weapon – it is both a strategic asset and a strategic instrument. Moscow’s tactics were brought home to the Ukraine at the new year when, in the depths of one of the worst winters in recent memory, the country’s gas supply was turned off. Though this was supposedly a purely commercial dispute between Gazprom and its customers, the European countries also affected (plus the US) could not help but note the political ramifications. The humbling and humiliation of Yukos, once a major partner to Chinese firms, was another warning (its place has been taken by Rosneft and Lukoil).

For these reasons, China cannot chance becoming dependent on Russian any more than Middle Eastern energy. Russia already provides a significant chunk of China’s oil (10.7% ) and due to its geographical location and infrastructure is the most obvious and capable supplier. But to rely upon it would expose the PRC to unacceptable risk. It will have no desire to be ‘cut off’ like a defaulting customer should it object to Russian prices or other demands.

The strategic petroleum reserve China is building may not be enough to stave off the risk of a ‘shock’ to the world oil market, a shock that could jeopardise the PRC’s development and thus its very integrity. Though it does obtain a large proportion of its oil from other sources such as Africa and the Asia-Pacific region, China is still stuck in something of an ‘oil trap’ that it would like to break out of by diversifying its energy supplies further afield.

China’s policy in Central Asia

The best option to mitigate the dangers of dependence must therefore be to secure access to Central Asia. The Caspian area is far more easily reached than the Gulf region and the Soviet-era pipeline network already traverses the Eurasian continental mass. Chinese companies are therefore investing billions in new infrastructure.

Some observers believe that China’s ultimate goal in Central Asia is still to broker some kind of regional hegemony: it is certainly creating a ‘sphere of relationships’ via both commercial and political ties. It is certainly pleased that after the fall of the USSR, the Central Asian states returned to authoritarianism and resisted Western urges to democratise: this makes them easier to manipulate. There is also a certain sense of unity between China and the ‘Stans in their resistance to Western political influences.

But Central Asia has always been something of a headache for Beijing’s mandarins and party officials alike: over the last two millennia it has rarely had a grip over the region. One of the antagonists has been Russia: for example in 1933, the USSR backed Uyghur nationalism in Xinjiang. The PRC thus has reasons to remain nervous of its neighbour.

China needs the complicity of the former Soviet republics in quashing the Uyghur threat, which might be aided and abetted by local Islamist elements. Being the only ethnic group in Central Asia not to gain their own nation state in the 1990s, the movement is perceived as one of the greatest menaces to PRC integrity, especially when one considers that Muslim Xinjiang contains not only oilfields but is the main route for pipelines to the prosperous east coast. Kazakhstan, Tajikistan and Kyrgyzstan have all pledged their support for the Chinese crackdown, even though this is not necessarily popular with their own people.

But despite this friendliness over security issues, China does not wish to become over dependent on its energy suppliers. Nor do countries such as Kazakhstan and Kyrgyzstan wish to restrict themselves to the Chinese market. Therefore, in order to maximise its supply from Central Asia, the PRC is putting measures in place to tie its neighbours into trading relationships.

“Eschewing the Western logic of trusting market forces,” one of these tactics is the acquisition of equity stakes in producing companies. For example, CNPC now owns 60% of Kazakh firm Aktobemunaigaz, even though the pipeline leading from it is not yet complete. Agreements have also been signed with Uzbek and Turkmen producers, the latter in the face of bitter wrangling with Gazprom. Where Russia fumbles, therefore, Chinese commercial interests strikes. According to Erica S. Downs, the amount of China’s ‘equity oil’ flow is currently around 15% and analysts advocate raising this to 30% of the total supply.

There are innumerable further examples of China gaining a foothold in Central Asia. China’s other deals with Kazakhstan include the Aktubinsk and Uzan oilfields and the building of two pipelines. One under consideration will connect Tehran with Neka and aid Kazakh-Iranian oil swaps. But by far the most significant is the enormously expensive 1,200km Atrayu-Dashanzi pipeline that connects Kazakhstan to Xinjiang. The pipeline apparently began operations in late April, and will pump 10 million tonnes of Kazakh and Russian oil to the Dashanzi refinery.

Even though Chinese companies are willing to pay a premium for oil and gas equity shares, Kazakhstan, for its part, is not overly enthusiastic. There is local resentment of the Chinese influence and the government would like to retain at least a 51% controlling share in its indigenous energy companies, as evinced by its manoeuvring in the Petrokaz affair. But at least it reduces its dependence upon Russia, which is the destination for most of the oil from Tengiz, the country’s second-largest oilfield; CNPC-controlled Aktubinsk is the third largest. The newly discovered and enormous Kashgan field is the last remaining prize.

Aside from hydrocarbon deals, Chinese investments in Central Asia have made significant improvements to the transport infrastructure and the PRC remains the biggest trader in the region. Furthermore, it enhances this special relationship through arms sales. At present, this is mainly in the shape of small arms (some of which, ironically, end up in the hands of Islamist groups) but the promise of more advanced systems in the future is another way to reinforce Chinese influence and diminish Russian. China’s policy is thus comprehensive, linking economic, commercial and political dimensions.

Russia’s interests and policy in Central Asia

President Vladimir Putin has presided over a more proactive policy towards Central Asia than did his predecessor, Boris Yeltsin. This is in part due to the aftermath of 9/11, which saw tentative Russian support for the American ‘War on Terror’. However, as US military bases and corporate headquarters mushroomed around the region, the Kremlin began to think again.

It is thus now looking for renewed political and economic and military domination over Central Asia, not just to further its own interests, but to counter the risk of the US becoming another rival regional hegemon. However, whether Putin is able to put together a strategy for the region that integrates all Russia’s security and energy interests remains in doubt. A ‘dynamic of rivalry’ is evolving with the US, but on the other hand a US withdrawal could lead to unrest in Central Asia that could threaten Russian security.

Roy Allison summarises Russia’s interests in Central Asia as the following: stability; rights of transit; a common economic space; the preservation of Russian military power; and the international recognition of Russia’s commanding role in the region. This can be achieved by measures such as military co-operation and partnerships with Central Asian states. Security concerns and mutual suspicions may lead them to bandwagon with Russia rather than with each other in a kind of ‘hegemon-sponsored regionalism’, though of course they have the option to look to China too.

Alongside its own defence, however, perhaps the most important interest in Moscow’s eyes is the control and security of export routes. Like their Chinese counterparts companies such as Lukoil are making massive investments in the region. For example: a $1bn agreement with Uzbekistan in June 2004 to develop the Kandym gas field; another $1.2bn investment from Gazprom for the Ustgart field; and a $1.5bn deal with Turkmenistan to supply Turkmen and Kyrgyz gas to Europe.

In addition to promoting Russian companies such as Gazprom and Transneft, both of which act more or less as arms of the state, Moscow blocks projects not in its interests. It resists the independence of Central Asian producers, fearing that rivals – such as Chinese state-owned firms – will swallow them up. When it comes to selling oil and gas to China, Central Asian energy companies might become competitors to Russian firms, and Russia would like to keep them in check.

But it has a problem to manage. Despite possessing some of the largest fields in the world, its own reserves are depleting. In an address to MEPs and EU officials in May 2006, Eric Berglöf, chief economist at the European Bank for Reconstruction and Development, stated that Gazprom was struggling to maintain its output. According to Berglöf, 70% of its production came from fields where the gas was running out. The Russian energy sector needs a $700bn (£375bn) investment over the next 20 years. Both the International Energy Agency and the US Energy Information Agency predict too that Russia’s oil production is uncertain: new fields are simply not being discovered, and weak oil prices could signal a serious predicament for the industry.

Whether this is correct or not, Russia’s need to ensure it has an influence over its former vassals in Central Asia is not just down to power politics; it is about the simple economics of supply and demand.

Conflict or co-operation?

Both Russia and China are clearly significant regional powers with a number of interests to promote and protect, especially those that relate to energy resources. How might they come into conflict with each other?

Aside from their rivalry over Central Asian hydrocarbon resources, there is a number of other minor niggles between the two countries. Russia is upset about the encroachment of Chinese traders into Siberia. The PRC’s tensions with Tokyo make sales of Russian energy awkward, especially if pipeline routes to the Sea of Japan cross China. Legislation has been introduced to restrict the number of Chinese traders in Russian markets and CNOOC was blocked from buying some of the remains of bankrupted energy giant Yukos. A Chinese bid for 75% of Slavneft was also blocked. Perhaps the only way that Russia can exert its power over China is through defending its commercial interests against Chinese encroachment like this, hardly the actions of an aspiring hegemon.

But there are also crucial ways in which China and Russia are mutually interdependent. Though China spends about $5bn annually on Russian arms systems, its trade surplus remains much larger. In Newsweek magazine, the director of Moscow’s Carnegie Fund, Dmitry Trenin, notes the swing of political relations this brings: “Russia is shifting from being a junior partner of the United States to a junior partner of China,” he says. The only way that Russia can tip the balance back in its favour is through energy sales. Russia’s Unified Energy Systems, for example is planning to build four hydropower stations on Siberian rivers to supply power to its eastern neighbour.

Energy aside, a problem both Russia and China share in Central Asia is the American military presence. After 9/11, Russia showed its weakness by accepting the establishment of US bases in the region: it may also have lacked the political leverage to persuade Central Asian governments to oppose this.

The ‘War on Terror’ and the Bush Doctrine of pre-emptive intervention are viewed by elements in Moscow and Beijing as a US attempt to dominate Central Asia and a threat that needs to be countered. While both China and Russia know that the US is there only as long as necessary, and they themselves are in the region for good, with American troops in place for the foreseeable future at least the Eurasian powers have been drawn together again. The only way in which they can counter the influence of the US military is by acting as one.

The most important regional grouping involving our subjects, China, Russia and Central Asia, is undoubtedly the Shanghai Cooperation Organisation (SCO). Its immediate benefit for all concerned is to keep an eye on Islamic groups that could threaten the pipelines vital to all parties, not to mention the governments of Central Asia and the territorial integrity of both Russia and China. The SCO also gives the ‘Stans the opportunity to bring Russia and China together in one framework, offsetting each others’ influence in a kind of mutually beneficial balancing mechanism.

However, whether the organisation could ever really be effective in real-life remains to be seen. Ever suspicious, the members are reluctant to share crucial intelligence and in any case Central Asian states receive enough military assistance from the US to keep them satisfied. The real role of the SCO may therefore be for Russia and China to keep an eye on each other, not just security threats in Central Asia. It is about competition as much as cooperation. However, at the moment China has the upper hand. Promoting the SCO as the key to regional security means undermining Russian claims to be Central Asia’s sole protector, and that can only be good for China. The organisation is still going strong, and plans for joint counter-terrorism exercises in 2007 were recently announced.

Therefore, it appears that at the moment China is in the better position, both in the commercial and the security spheres. It does not really need to openly confront Russia at present, and this suits its usual foreign policy doctrine: conservative, pragmatic, pro-status quo and reactive. Beijing doesn’t want to upset the apple cart. Its voting record on the UN Security Council is a good example of this caution: even in situations where is disapproves of US policy (such as the Iraq War) it often abstains rather than risk a quarrel.

While remaining essentially realist in its foreign policy thinking, China also knows that without access to global markets, FDI and Western technology this industrial boom will die on its feet. Similarly, it does not yet have quite enough influence over Central Asia to dominate its energy supplies. And frankly, even with the Kashagan oil field, the amount of resources in Central Asia is not enough to justify anything more robust than the commercial attrition the Chinese energy companies already have underway. Some analysts also point out that these overrated resources are on the opposite end of the continent to the east coast cities – Shanghai, Shenzhen, Guangzhou, Fuzhou – that need them most.

Deng Xiao Ping’s policy of ‘keeping a low profile’ and holding the status quo still guides the thinking in Beijing. Since China is already in a position of relatively ascendancy over Russia, it has no need to push the issue any further. And it seems to be working. Could it be that all the Chinese commercial pressure over Central Asia is partly to force Russia’s hand into granting ever-greater concessions? On 21 March 2006, Vladimir Putin finally inked a controversial agreement with Hu Jintao over an $11.5 billion pipeline from Siberia – the location of Russia’s last remaining big fields – to Daqing in China, rather than Nakhodna (a route more favourable to Japan). The deal could bring China 1.6 million barrels per day of oil. CNPC should pay $400 million or so, giving it a huge share in the partnership. Place this alongside China’s other oil interests and it has sufficient diversification: it’s not bad for Russia, either.

Conclusions

In Central Asia there are just as many interests that the powers have in common as goals that force them apart. For example, all three powers in the region, the US, Russia and China want to suppress Islamic militancy. The latter pair, however, would like to see the US military depart and take its influence with it. Then again, bearing in mind our theory that state and commercial interests are fused in the pursuit of money and energy to fuel industrialisation, oil and gas become a different matter.

China has several complex and interlinked ambitions. Dominance over Central Asia would bring it two major benefits: a direct and relatively secure (though not a cheap) source of energy; and additional security for its Western borders. It is willing to accept a US presence in Central Asia for the time being since it weakens Russia and helps contain Islamic groups, but on the other hand it curtails Chinese interests in bringing the governments and their energy reserves under a Russian umbrella. Moscow simply does not have the resources to compete. Lacking the massive industrial base of the post-Mao PRC, the surplus finance available to Beijing just isn’t there. But the PRC does not aim to ‘dominate’ Central Asia in the manner predicted by neo-realism: rather, by investing and providing security, it hopes to promote stability in Central Asia and influence the supply of energy.

By contrast, Russian foreign policy is a ‘holding game’, orientated towards damage limitation rather than imposing hegemony. Moscow must also maintain the status quo and build itself up before attempting to reasserting itself as a major power.

Let us not forget, however, how empires are actually built – not just by armies and gunboats but by trade and agreements. This is how the Dutch and British empires began, not through military conquest but through the state-influenced Dutch and British East India companies. Are Gazprom and Sinopec travelling down a similar road? Then again, the dynamic between state and business is completely different in this case. The oil giants are more or less state-controlled and state-influenced, whereas the East India companies were state-licensed monopolies, which asked for state assistance only when their projects grew too large.

The outcome is thus hard to predict. In the long run, both China and Russia would both like to see themselves take on a role as a regional power. And in a sense, the intense commercial competition between them for influence over Central Asian hydrocarbons is a kind of battle, just a battle where the guns are not drawn. On the other hand, are Russia and China even playing the same game? While Russia’s industrialising and development is dependent on sales of primary resources, China’s is based on manufacturing. Thus the two are on different economic levels. Moscow probably cannot afford to lose Chinese business.

Unless Russia finds a way to catch up with China’s progress over the last decades, it could find itself reduced to a major ally within China’s sphere of influence rather than as a strategic rival. And then the only task left for China to complete its ascendancy will be to subdue America.