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July 18, 2011

China Moves Into Russia's Zone - Former Soviet Union

by James Brooke

Roughly 20 years after the collapse of the Soviet Union, China rivals Russia as the largest investor and trading partner in many of the former Soviet republics.

Belarus is running out of cash.  As electricity bills go unpaid, the Kremlin turns off the power.  Russian state-controlled TV airs hostile reports, calling Belarus a dictatorship.

Moscow's strategy is clear: pressure Minsk into selling state companies to Russia on the cheap.  The prize is Belaruskali, a major world producer of potash.  If Russians buys Belaruskali, Russia will control half of the world's production of this fertilizer, crucial at a time of looming global food shortages.

But an unexpected player has stepped in, Minsk now is in talks to sell part of Belaruskali to state companies from China.

Scouring the world for raw materials, China increasingly is penetrating the former Soviet Union, a region long considered Moscow's private pool.

Russian political columnist Konstantin von Eggert says the Kremlin is careful not to speak out against Chinese economic intrusions into Belarus, once considered the model Soviet republic.

"The Russians are not very pleased with that, but at the same time they are keeping their mouths shut, because there is nothing they can do about that.  Russia is losing its pool in the former Soviet republics, in the post-Soviet space," he said.

Belarussian Ministry of Foreign Affairs Asia expert Leonid Batyanovsky says Minsk is not playing Russia against China.

"Developing relations with China does not mean developing them against somebody," said Batyanovsky.

Belarus gets little American or European investment, largely because investors feel uncertain about property rights in a country under one-man rule for 17 years.  But China last year extended a $1 billion credit line for a series of projects in Belarus.

"We are talking about the road reconstruction.  We are talking about the electrification of the railways. We are talking about the real estate projects in Minsk.  We are talking about creation of the Belarus-China industrial park," added Batyanovsky.

Belarus is just the latest new frontier for Chinese investment in the 14 former Soviet republics that once were economic colonies of Russia.  

Last month, China's president, Hu Jintao, visited Ukraine, a neighbor that Russians long called "Malaya Rossiya" or Little Russia.

In Kyiv, the Chinese leader and his Ukrainian counterpart, Viktor Yanukovych, oversaw the signing of $3.5 billion in business agreements.

Earlier in his trip, Hu visited Kazakhstan.

Only 20 years ago, Nursultan Nazarbayev, then the head of the Kazakhs Soviet Socialist Republic, was fighting to keep Kazakhstan in the Soviet Union.

But last month, Nazarbayev, now president of independent Kazakhstan joined China's president in signing a "strategic partnership" agreement.  

The two presidents promised to double two-way trade during the next four years and they signed accords for the latest multi-billion-dollar Chinese investment in Kazakhstan, this time for copper.  

Next door, in Turkmenistan, China recently extended a $4-billion credit to double gas exports east to China.

With massive amounts of oil and gas now flowing eastward, China is displacing Russia as the largest source of trade and investment for all five former Soviet republics of Central Asia.

The shift to China is so fast the Central Asian leaders worry about a backlash.  

Recently, a Kazakh court gave long prison terms to two geologists convicted of selling mineral secrets to a Chinese agent.

Separately, a Kazakh presidential advisor denounced as 'dirty lies' a report his government had signed a secret 99-year lease of one-million hectares of farmland to China.

But Von Eggert, the Russian analyst, does not predict Russia will capitalize on any anti-Chinese backlash.

"Russia does not have enough political, economic, or for that matter military power, to send off this Chinese incursion into what used to be 'the zone of privileged interests of Russia' as President Medvedev once called it.  It is yet another sign of Russia's post imperial decline," noted Von Eggert.

Meanwhile in Minsk, city planners are drawing up blueprints for Belarus' first "kitai gorod" or Chinatown.