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Russia's long Asia history makes Xi, Medvedev cosy on energy, defense, trade

Dmitry Medvedev, Prime Minister of Russia, steps downstairs from the Ilyushin Il-96 aircraft at Zhengzhou Xinzheng International Airport on December 14, 2015 in Zhengzhou, Henan Province of China.
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Dmitry Medvedev, Prime Minister of Russia, steps downstairs from the Ilyushin Il-96 aircraft at Zhengzhou Xinzheng International Airport on December 14, 2015 in Zhengzhou, Henan Province of China.

The Russian Prime Minister's official visit to China marks twenty years of regular annual bilateral summits, and 16 years of similar meetings within the Shanghai Cooperation Organization (SCO). Three-quarters of Dmitry Medvedev's huge country are in Asia, home to 22 percent of its population.

When he was ransacking and burning Moscow in his murderous fury two hundred years ago, Napoleon, according to the French historian Max Gallo, was intent on chasing the Russian Emperor Alexander I and most of the country's folk out of Europe into Asia.

That's where Napoleon lost his empire. Russians not only won what they call the Patriotic War of 1812, but they also began setting up, toward the end of the 19th Century, their Far East maritime port they ambitiously named Vladivostok – which literally means the Ruler of the East.

This is to show that, contrary to the political folklore, Russians have not been chased back to Asia by Western sanctions over the Ukrainian civil war; their strengthening ties with Asia are simply meant to reinforce a strategically and geographically more balanced policy enunciated at the beginning of this century, well before China and the rest of Asia became a fashionable must-do political, economic and military pivot.

Working on a guanxi

As the 40-year negotiations on territorial issues along their 2,700-mile border were drawing to a close, Moscow and Beijing decided to establish an economic and security framework for their closer ties by setting up the SCO in 2001, with a number of smaller Central Asian countries.

The SCO members (China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan) just finished their annual summit meeting in the central China's Zhengzhou City, where trade, investment, finance, transportation and cultural exchanges were discussed. And, in a sign of times, acute problems of terrorism were at the top of the agenda.

The conferees noted progress in accession talks with India and Pakistan, and the Iranian membership application, dating back to 2008, was also under active consideration.

The SCO forum offers an Asian multilateral platform for China and Russia to reinforce their strategic ties at the time when their economies are undergoing fundamental structural changes.

These changes are partly reflected in their current bilateral trade flows. So far this year, the Sino-Russian trade and investment transactions are down by about 30 percent and 20 percent, respectively, from the same period of 2014. Russians are attributing these declining nominal trade values to the crashing energy prices, while noting that their exports to China now have rising shares of farm products, as well as products of metals, chemical and textile industries.

Russians are apparently promoting their higher value-added products in China, where sophisticated arms sales loom large. The governor of Khabarovsk was recently quoted as saying that there is so much "China business to keep Sukhoi warplanes manufacturer working overtime for the next ten years."

Laughing all the way to the bank

Energy, of course, remains Russia's main export item to China. Mr. Medvedev seems happy with "tens of billions of dollars" coming into Russia from that business. With nearly a million barrels of oil per day flowing to China, Russia has edged out the Saudis as China's largest energy supplier.

In a recent interview with Russian media, Mr. Medvedev was also talking about a huge expansion of energy and other businesses following a number of already signed investment contracts with China. He was probably alluding to 58 large investment projects agreed last June in Saint Petersburg during the meeting of the Sino-Russian government investment commission.

The two countries now seem determined to take their economic and political cooperation to an entirely new level by combining the China-sponsored Belt and Road Initiative with development projects under way in the Eurasian Economic Union (EEU) consisting of Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan.

Gigantic transportation and other infrastructure projects are at the heart of this agreement concluded between the Russian and Chinese presidents during the BRICS-SCO summit in Ufa, Russia, last July.

Russia also wants to strengthen the trading relationship with the Association of South-East Asian Nations (ASEAN). Moscow already has close and long-standing economic and political ties with some ASEAN member countries, such as Vietnam, and it is now in the process of broadening and upgrading its relationship with Cambodia.

Japan and South Korea also offer increasing trade and investment possibilities for Russia.

Japan, unfortunately, will probably have to wait a while for that. Ambitious plans have been suspended by Tokyo's sanctions against Russia. Japan is now desperately trying to come back into the game – mostly because it wants back four islands the Soviets took as spoils of WWII – but I am not sure how much a miffed Moscow is ready to play ball. I believe that Russia and China want to play this one together.

South Korea is in a much better position to boost its Russian business because Seoul refused to follow the West's sanctions route, and – Japan beware – Koreans have almost everything in terms of products and technology that Tokyo can offer.

China, however, will remain the centerpiece of Russia's Asian – and global - policy. Mr. Medvedev reiterated in his media appearances to Russian and Chinese audiences that the two countries saw eye-to-eye on key issues of their national interests, and that the ties of "confident and strategic partnership have reached an exceptionally high level."

He also said that "there are no areas of their bilateral relationship that are not covered by intensive dialog and cooperation."

We can do whatever we want with these two countries' assurances that they are not creating hostile and exclusionary trade and military blocs and that, as the Chinese tirelessly put it, they want a "win-win cooperation" with all well-intentioned comers.

For my part, I am reminded of a German magazine Spiegel running a big headline - "Smiling from a distance" - to describe China President Xi Jinping's "business only, win-win" attitude as Germany worked hard to pick apart the Sino-Russian entente during his visit to Berlin in March 2014.

You can think now of President Xi laughing all the way to the bank, while, according to the Austrian economic research institute (WIFO), the Germany's "person of the year" takes a 30 billion-euro hit and loses half a million jobs on Russian sanctions.

Correction: The article has been updated to reflect that Russia supplies nearly a million barrels of oil per day to China.