Tuesday, November 25, 2014

China’s Victory in Ukraine

MOSCOW – For a generation, relations between the United States and Russia were essentially about history. Since the Cold War’s end, Russia had become increasingly peripheral to the US and much of the rest of the world, its international importance and power seemingly consigned to the past. That era has now ended.

To be sure, the current conflict between the US and Russia over Ukraine is a mismatch, given the disparity in power between the two sides. Russia is not, and cannot even pretend to be, a contender for world domination. Unlike the Soviet Union, it is not driven by some universal ideology, does not lead a bloc of states ruled by the same ideology, and has few formal allies (all of which are small). Yet the US-Russia conflict matters to the rest of the world.

It obviously matters most to Ukraine, part of which has become a battlefield. The future of Europe’s largest country – its shape, political order, and foreign relations – depends very much on how the US-Russian struggle plays out.

It may well be that Ukraine becomes internally united, genuinely democratic, and firmly tied to European and Atlantic institutions; that it is generously helped by these institutions and prospers as a result; and that it evolves into an example for Russians across the border to follow. It may also be that at the end of the day, several Ukraines emerge, heading in different directions.

Ukraine’s fate, in turn, matters to other countries in Eastern Europe, particularly Moldova and Georgia. Both, like Ukraine, have signed association agreements with the European Union; and both will have to walk a fine line to avoid becoming battleground states between Russia and the West. Similarly, Russia’s nominal partners in its Eurasian Union project – Armenia, Belarus, Kazakhstan, and Kyrgyzstan – will need to balance carefully between Russia, their nominal “strategic” ally, and the US, which holds the keys to the international political and economic system.

What happens to Ukraine matters to Western and Central Europe, too. Even though an enduring military standoff along NATO’s eastern border with Russia would pale in comparison to the Cold War confrontation with the Warsaw Pact, Europe’s military security can no longer be taken for granted.

And as security worries on the continent rise, EU-Russia trade will fall. As a result of US pressure, the EU will eventually buy less gas and oil from Russia, and the Russians will buy fewer manufactured goods from their neighbors. Distrust between Russia and Europe will become pervasive. The idea of a common space from Lisbon to Vladivostok will be buried. Instead, the EU and the US will be aligned even more closely, both within a reinvigorated NATO and by means of the Trans-Atlantic Trade and Investment Partnership.

Japan has a stake as well: its decision to join the US-led sanctions against Russia means foregoing plans to build a solid relationship with the Kremlin to balance China in Asia. The US-Japan alliance will be reaffirmed, as will Japan’s position in that alliance. In a somewhat similar way, South Korea will need to bow before US demands to limit its trade with Russia, potentially eliciting a less cooperative Kremlin stance on the divided Korean Peninsula.

As a result, the US-Russia conflict will probably lead to a strengthening of America’s position vis-à-vis its European and Asian allies, and a much less friendly environment for Russia anywhere in Eurasia. Even Russia’s nominal allies will have to look over their shoulder to the US, and its forays into Latin America and enclaves of influence in the Middle East will be of little importance.

There is only one exception to this pattern of heightened US influence: China. The sharp reduction of Russia’s economic ties with the advanced countries leaves China as the only major economy outside of the US-led sanctions regime. This increases China’s significance to Russia, promising to enable the Chinese to gain wider access to Russian energy, other natural resources, and military technology.

China will study US strategy toward Russia and draw its own conclusions. But China has no interest in Russia succumbing to US pressure, breaking apart, or becoming a global power. Its interests are in keeping Russia as its stable strategic hinterland and a natural-resource base.

Chinese support for Russia to stand up to the US would be a novelty in world affairs. Many do not view it as a realistic scenario; Russia, after all, would find an alliance with China too heavy to bear, and, whatever their ideology or whoever their leaders, Russians remain European.

That may be true. Yet it is also true that one of the most revered Russian heroes from medieval history, Prince St. Alexander Nevsky, successfully fought Western invaders while remaining loyal to the Mongol khans.

There is no question that Russia will pay a price for its actions in Ukraine. The question for the US and its allies is whether exacting that price will come with a price of its own.

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    1. CommentedFred Eidlin

      A key assumption underlying Trenin's prognosis may be mistaken. His argument rests on the assumption that hostility towards Russia will solidify, if not intensify over the long run. In fact, just the opposite may happen.

      Although the U.S. has succeeded in unifying the western alliance in the short run, in the long run this "success" may, in the long run, lead to greater disunity than existed before the crisis. If sanctions do not lead to demonstrable success, if they damage European economies, without tangible benefit, quite an opposite development may ensue.

      Businesses, governments, and other players may end up viewing such policies as mistaken, and resenting the consequences. Differences may emerge that will aggravate already existing tendencies towards disunity within the alliance. Failure in Ukraine may end up as another nail in the coffin of the New World Order that emerged from the collapse of the Soviet Union.

      U.S. policy will certainly be vindicated if, as Trenin puts it, Ukraine becomes "internally united, genuinely democratic, and firmly tied to European and Atlantic institutions; [if] it is generously helped by these institutions and prospers as a result; and [if] it evolves into an example for Russians across the border to follow." While such an outcome is logically possible, it is difficult to see how this can actually come about.

      There are too many reasons why U.S./E.U policy in Ukraine is likely to fail, and why Ukraine is likely to be added to the list of unsuccessful U.S. ventures into the affairs of other countries.

      The U.S. and E.U. do not have the means to be generous with Ukraine. Even if they did, the crisis playing out in Ukraine goes beyond the means of the West to be of significant assistance.

      If the West fails to realize the results Trenin mentions, disappointment will result. "NATO is looking for a reason for its existence in tense relations with Russia." http://russian.rt.com/article/43840 What if Moscow fails to provide a reason for NATO's existence by not taking the bait?

      As after the 2008 war in South Ossetia and Georgia, Moscow's response to western hostility has been restrained and measured. Its emphasis has been on getting back to business as usual. If Russia can avoid playing the role of enemy, the sanctions and hostile rhetoric may fall flat.

      Little augers well for western efforts to succeed. The current financial bailout package for Ukraine was put together with great difficulty, and is not sufficient to meet the country's minimum needs. It is not clear how Ukraine will secure the rest of the funds necessary to avoid financial and economic collapse. The largest component of the aid package comes from IMF loans, bringing harsh austerity measures. Experience with IMF programs in other crisis-plagued countries suggests that austerity may increase the risks of social unrest and political instability.

      It is difficult to see how Ukraine can achieve internal unity. Disunity has been a permanent source of political strife and paralysis since Ukrainian independence. The current crisis is likely to aggravate such problems, which threaten the integrity of the state.

      The current confrontation with Russia has helped forge impressive national unity. Yet, it is unclear how solid and long-lasting it will be, and how much of the population it embraces. It is unclear how the public mood will change as the euphoria and high expections of the Euromaidan are disappointed. Moreover, the public is far more polarized than it has ever been, and willingness to compromise appears lower than ever.

      Regional differences have plagued Ukraine from the outset. The Euromaidan catapulted one part of the country into power, disenfranchising the rest of it. The Ukrainian Army may defeat the rebels in the east, yet it remains unclear how the Government can win their loyalty of these regions to the new.

      As for Russia's relations with other countries, much depends on how the crisis plays out. European and Japanese motivations to maintain good political and economic relations with Russia are strong. If nothing worsens relations further, such motivations are likely eventually to have their effects. Moreover, it is already clear that, regardless of Europe and the U.S., there are many important countries that will not go along with the project of isolating Russia.

    2. CommentedStefan Siewert

      Russia had the best era in its history full of drama and turmoil, a Golden age of prosperity and stability. Growth rates from 1998 – 2008 were 7 per cent. Measured in constant (2009) roubles, data indicate that the economy-wide average wage tripled from about 6,700 roubles per month in 2000 to over 19,000 in 2008 (Rosstat). Because of the appreciation of the rouble, real income per capita in current US dollars increased tenfold. GDP per capita narrowed to the upper half of the OECD. Total GDP set off from a dismal 271 billion USD in 1998 to 2 trillion USD in 2012 (IMF). The benefits of growth trickled down to all parts of Russian society. This performance shaped self-confidence of the population and legitimacy of the elites.

      A more detailed narrative tells a controversial story about these impressive figures. Ian Morris calls it the “paradox of development, “ and Mark Elvin the “high-level equilibrium trap”: When a country thinks it is in a golden age, it stops focusing on progress.

      Russia is still within a century-long wave-like development pattern of oscillation between external-induced shock therapy and inward turning, leaving a legacy of ambivalence towards modernity. The beginnings of the particular eras are personalized with their rulers: Peter and Catharina the Great, Alexander II of Russia and Lenin. The socialist revolution was nurtured from the gap between West’s advancement and Russia’s limited industrialization within a huge territory. A trade-off between the need of market and civil-society institutions versus economic growth allowed super power status, an arms race and an ideological confrontation with the rest of the world. After 70 years, the modernization impulse was exhausted and the Soviet Union has imploded beyond repair.

      Jelzin started in 1991 a new cycle with a trial-and-error phase of ambitious market-oriented and democratic reforms. The objective was to set up the missing institutions and capacities, necessary to modernize the country and compete in global markets. The societal cost of these demanding institutional innovations were high: loss of national identify, demographic collapse, hardships of economic restructuring and social misery. The Russian default of 1998 demonstrated the extent to which the entire social edifice was overstretched by the challenges of modernity.

      Putin’s reign of 1999 started as a turning point towards consolidation within this cycle. Unfortunately, relief came also by a parallel global commodity boom. Due to the outstanding cost-benefit profile, incentives favoured the integration of the inherited resource-intensive economy into world markets. As a pathway to a dual economy, any activity other than exporting commodities was not profitable or perceived as not profitable. Russia developed some high-value activities outside the country. London- named Londongrad by the oligarchs’ -became a centre for serving Russia’s needs in IPOs, business dispute settling and financial engineering with the value of transactions reaching 100 billion USD a year. It is estimated that the oil and gas rent reached about 30 per cent of Russia’s GDP. Many companies took debts abroad, larger than their market capitalization.

      The governing elite, increasingly consisting of former KGB and military with their particular worldviews, exploited the results of the fortuitous set of circumstances and vindicated blind eyes to corruption and increasing dependency on hydrocarbon extractions. Russia’s economic modernization was limited to islands consisting of export pipelines, retail and consumption, and stayed ossified und inefficient, with disappointing investments in human capital and a deteriorating physical infrastructure.

      With the fast-economy growing fast, incentives for following on Jelzin’s risky and demanding path of structural, institutional and social reforms were lost. After “low hanging fruit” of basic economic reform and prudent macroeconomic policies were picked up, the reform process slowed down in the face of popular indifference, bureaucratic inertia, and political resistance and manoeuvring. Missing institutional constrains similar to those in Australia or Norway, the Dutch disease and the resource curse worked their way. After 2000 structural reforms stopped by and large. While becoming richer, the country missed the chance to exploit windfalls to move up the global value chain.

      Growth slowed down before the financial crisis of 2008 as an indication that Russia’s business model exhausted itself again. (When this happened in the 1970-ies, the Soviet Union started to export commodities, delaying change for many years.) The leadership did what it could to encourage change without addressing the underlying systemic problems of the post-Soviet state-let style of development. The list of failed initiatives to generate momentum from Russia’s newly-won soft and hard power is frustratingly long: the German-Russian partnership for modernization in 2008, the use of state-owned Gasprom as an instrument of foreign policy, the new-built town of Skolkovo as the Russian respond to the Silicon Valley, the Eurasian Union as a challenger to European Union for global influence, the Collective Security Treaty Organization as a counterweight to NATO, an attempt to copy the US government that made huge investments in the development of nanotechnology in the 1990s, a state program to enter the global aviation market, and other unsuccessful attempts to approach the technological frontier besides defence and aerospace. Billions were spent, but the declared results not achieved.

      Sadly, as a downside of a “managed democracy”, Russia does not have an institutional landscape as in advanced Western democracies for a smooth replacement of the governing elite. The protests in December 2012 by urban middle-class dweller were brought under control, but proved the possibility of a regime change from the bottom. In order to strengthen legitimacy, Russia’s “securocratic” regime moved to the right and switched public attention beyond economic growth. In a kind of delayed reaction to the collapse of the Soviet Union in 1991 and skilfully exploiting the fragile national identity after the traumatic loss of superpower status, Putin promoted the vision of neo-Soviet authoritarian empire. From now on, the regime relied increasingly on nationalism, positioned Russia as a moral superior defender of conservative values and, recently, started a populist media campaign against Ukraine’s Euromaidan.

      In the wake of Crimea’s annexation, President Putin gained approval ratings of up to 86 per cent. At the same time, the economic results of Putin’s statecraft went into the negative: “Putin’s seizure of Crimea has weakened the Russian economy, led to China getting a bargain gas deal, revived NATO, spurred Europe to start ending its addiction to Russian gas and begun a debate across Europe about increasing defence spending”.

      Russia follows its own logic of historic development. As many times before, the country is on the eve of a new development cycle. The current national political equilibrium in support of Putin’s time in power is not stable at all. We are on the eve of the end of Putin’s era. A window of opportunities will open, where the cooperation with the West for identifying new opportunities will be appreciated. The success and deepness of these upcoming reforms will define Russia’s development trajectory for a decade and more. Latest in five years, Russia will be a very different country.

    3. CommentedJean-Louis Piel

      Most of this Trenin's article is brilliant .
      Except the end.
      He doesn't apply to China the same framework that he uses for USA or European Union or Japan.

      China is bound to EU and to US. During more than 2,200 years the indirect or direct bound between the West and China has existed. China has never had to use Russia to be connected to the West . The Silk Road has never been through Russia which exists as empire only since the XVIIIth century. The Silk Road has existed through Central Asian countries and Iran.
      China is investing in Europe .
      The management of this mad dog Russia will be taken care between China, EU, USA and Turkey.
      This Russia could disappear as many empires or states have disappeared during the last centuries .
      The Mongol one has left almost nothing compare to the Roman Empire , etc.
      Russia is too small to survive in this new environment of 7,5 billions human beings when they are only 110 millions ethnic Russians leaving in a backward country with no advances technology creativities , with no allies.

    4. Commentedhari naidu

      Let’s visualize a contrarian viewpoint which ultimately re-confirms the original EU-Russia compact which Putin dislodged after Ukraine’s Orange Revolution and its decision to forge EU association.

      .Currently (summer break) talks are underway to make Merkel lead an organized political mission to Moscow to dissuade Putin from committing economic/financial Hara-Kiri (suicide).

      .There is no q’ Berlin is culturally closer to Moscow - going all the way back to Catherine The Great (a Prussian Princess).

      .Per capita GDP of Russia is twice or more PRCs; economics will ultimately triumph because of social stake of Oligarchs – meaning Putin may not (finally) survive in the Kremlin on current path.

      .China has avoided public statements on Crimea and Ukraine because of CPCs domestic policy constraints; Xi is expounding ways and means to educate Abe’s Japan to acknowledge its war crimes – also seeking aid to ameliorate South China Sea territorial dispute.

      .*China’s victory in Ukraine* would imply failure of Putin’s current policy; i.e. emergence of Ukraine as a sovereign entity; and resurgence of EU-PRC economic convergence led by Merkel/Xi.

      In other words, there is a limit to which Russian national interest can be bargained to safe Putin’s face now.
      US is not the critical player; Berlin is.

    5. CommentedPaul Daley

      Good article, though Trenin passes over Russia's relations in the Middle East, particularly with Iran and Syria, without much comment. It might also have been helpful to note that both the EU and China may be inclined to convert Russia into a strategic hinterland, if they can manage it. Putin is struggling now essentially to stave off that fate.

    6. Commentedj. von Hettlingen

      Mr. Trenin sees "China's victory" in the Ukraine conflict. It's true that a "US-Russian struggle" has re-emerged, as relations between Russia and the US are reaching their nadir recently. Due to the "disparity in power between the sides". Russia can't compete with the US for "world domination", as it did during the Cold War. In 1959 driven by "universal ideology" Russia and China squabbled over which should lead the world communist movement in communist parties across Asia and Africa. Relationship went sour ever since and it only began to warm up under Boris Yeltsin.
      Mr. Trenin says, "since the Cold War’s end, Russia had become increasingly peripheral to the US and much of the rest of the world". Not to China! There was a long period of frigidity throughout the Cold War between Beijing and Moscow. Yet it was Stalin, who encouraged and financed Mao Zedong's revolution, recognising the People's Republic in October 1949. In 2009, the two countries celebrated 60 years of diplomatic relations, after a decade of rapprochement.
      Over the past two decades closer trade and military ties have been forged as well as agreement on many issues signed. In 2004 Russia settled a long-running border dispute with China, handing over Tarabarov island in the Amur river, and half of another large island, Bolshoy Ussuriysky. Closer relations mean Chinese leaders are loth to criticse Putin in public. The signing of the 30-year gas deal last May – worth about $400bn make the two countries more inclined to support each other.
      Mr. Trenin says, "Russia, after all, would find an alliance with China too heavy to bear, and, whatever their ideology or whoever their leaders, Russians remain European". True, of its 142 million inhabitants, only 6/7 million of Russians live in their vast Far East. Politicians in Moscow harbour a deep-rooted fear that China might one day grab back Russia's far east region near Kamchatka, which is the size of Europe and rich in mineral resources, trees, coal and fish. In 1969 the two had fought a brief war in Russia's far east over the disputed Damansky island (Zhenbao), close to Khabarovsk.
      Although the Chinese public is pro-Russia and Xi Jinping himself has a good relationship with Putin, Russia see China solely as an important strategic counterweight to the US, with whom both Beijing and Moscow are in conflict over a range of issues. The relationship between China and Russia is no longer one of equals. China's ambition to become a world superpower is likely to place increasing strain on the Sino-Russian relationship, as Russia fears its influence may diminish, a fate the Kremlin is unlikely to accept. The Chinese know that it is they, and not Putin's Russia, who are destined to become the world's newest superpower. In this respect China may not allow a strategic accommodation with Moscow to disrupt Beijing's more important partnership with Washington. After all Washington is still the world's only indispensable partner in international relations.

    7. CommentedTim Almazov

      Wouldn't it also be within the interest of the EU to maintain the US-Russian standoff, so as to grow independent from American influence. Also, in the long run it would make more sense to keep buying oil and gas from Russia. Considering its necessity for raw materials, it's better for the EU to do business with someone it has better leverage against (that is assuming the prices of oil and gas from Russia and US are more or less the same).

    8. CommentedMitchell Polman

      "As a result of US pressure, the EU will eventually buy less gas and oil from Russia" -- the EU is buying less gas and oil from Russia because the nations of the EU are tired of their energy supply being held hostage to Russia's political whims. Russia is an unreliable supplier. The nations of the EU are sovereign and make their own decisions.