Year Ahead: Russia, China and the U.S.

By MARTIN SIEFF and MARTIN WALKER  |  Jan. 6, 2002 at 1:47 PM
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WASHINGTON, Jan. 6 (UPI) -- Russia, as America's old rival for global power, and China as the most likely challenger to American dominance in the future, each begin the new year in unusual harmony with the United States.

China has signed up for the U.S.-dominated global economic system by joining the World Trade Organization, and Russia wants to be next in line. Washington, Moscow and Beijing all sing from U.S. President George W. Bush's new anti-terrorism hymnbook. Russia and America backed China's successful bid to host the 2008 Olympics, almost as important a symbol for Beijing's new global status as joining the WTO.

But that's where the common factors stop. The American economy is stalled. Russia is growing healthily after finally clambering from its lost decade of post-Communist adjustment. And China's phenomenal boom continues, at least according to the official statistics that boast another year of close to 8 percent growth in gross domestic product. The country's wealth is doubling every eight years.

Russian President Vladimir Putin celebrated exactly two years in office on New Year's Day by quietly achieving several crucial goals that Western pundits had confidently agreed were impossible. He finally pushed through legislation opening the way for a genuine free market in land sales. He has successfully re-established strong central control over the regions, ending a long slide toward disintegration that far preceded the collapse of the Soviet Union in 1991. And he has presided over a solid economic recovery based on high global oil prices -- but far from entirely dependent upon them.

Putin has re-established Russia as one of the world's great energy arbiters. His country today provides 10 percent of global oil exports, a figure only exceeded by Saudi Arabia. The 300 percent rise in global oil prices between 1998 and 2001 provided the basis, along with the August 1998 ruble devaluation, to re-establish Russian finances. Moreover, Russia's shifting oil policies reflect its wider strategic opportunities and dilemmas; Putin has strengthened ties with both East and West and so far has fluctuated between making any decisive commitment to either.

His government's decision at the end of last year to go along with the latest oil output reduction agreement of the Organization of Petroleum Exporting Countries reflected this ambiguity. In the short term, Russia's decision to cooperate with OPEC on cutting back production by 150,000 barrels a day to strengthen global oil prices was a move against the West and in support of Third World, predominantly Muslim nations, many of them radical.

But Russian oil output drops by about that amount during the winter months anyway, because so much of it is produced from remote Siberian sources literally inaccessible in winter months even with the most modern technology.

Putin therefore maintains the option of increasing oil supplies to the global energy market in the spring. That would fulfill the satisfying, mutually compatible goals of expanding market share and therefore long-term income at the expense of the Saudis while undermining them financially and therefore destabilizing them at the same time. And none of it would carry any risks of confrontation with the United States.

Currently, Putin's policy toward the United States appears poised on a knife-edge of either indecision or deliberate ambiguity, keeping all options open. On the one hand, he has won Bush's approval for Russia to become virtually the 20th member of NATO. That would transform the security situation in Europe and defuse Russian fear and resentment at the alliance's eastward expansion since 1997.

It also would outflank new NATO members -- and former Soviet satellites and Warsaw Pact members -- Poland, the Czech Republic and Hungary. They can hardly look to NATO as a protection against Russia when Russia may have a more powerful say in the alliance's innermost council chambers than they have themselves.

However, Putin was damaged by Bush's decision unilaterally to go ahead with pulling the United States out of the 1972 Anti-Ballistic Missile treaty to clear the way for development of an eventual multi-tiered ABM shield against missiles fired from so-called "rogue nations." So the Russian leader is still keeping his options open for playing a key role in an anti-American, balancing Eurasian coalition as well. He has dispatched Foreign Minister Igor Ivanov to Beijing to attend a coordinating meeting Monday of the Shanghai Cooperation Organization, also known as the Shanghai Pact.

That organization, established in Shanghai on June 15, includes the four Central Asian Islamic former Soviet republics of Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan along with Russia and China. The Beijing meeting has been presented and reported as being intended to discuss the fight against Islamic militancy in Central Asia. But the organization also had as its not-at-all concealed aim the rolling back of U.S. influence in Central Asia.

Aligning with China to squeeze U.S. influence out of Central Asia also makes sense if Putin continues on his systematic policy of smothering independent electronic mass media journalism and opinion at home.

Currently Russia's last truly independent television channel, TV6, owned by billionaire oligarch Boris Berezovsky, is fighting a last-ditch legal battle to stay open. A minority shareholder in the channel, the pension fund closely linked to Russia's biggest oil producing corporation Lukoil, successfully won a Moscow court ruling in November that TV6 should be shut down. On Dec. 29, the Federal Arbitration Court overturned that order and ordered the dispute to be re-examined. That ruling does not save TV6 but gives it at least a new breathing space.

Still, the direction of media policy under Putin is clear. The state is systematically snuffing out any possibility of independent radio or television commentary or expression through powerful private sector companies with close ties to the Kremlin. And so far, this drive has provoked little protest from the Russian public. A December opinion poll recorded 73 percent approval ratings for the president, the Interfax news agency reported.

Russia still has a long way to go. Its per capita gross domestic product remains a derisory $2,000 per head as opposed to $30,000 in the United States. But the trend is currently upward. A whopping 8.3 percent GDP growth rate was reported in 2000 and figures for 2001 are expected to show 5.5 percent growth on top of that. Per capita income growth in 2001 is expected to turn out to be even more, around 9.1 percent.

This optimism has filtered down to ordinary Russians. Stores in Moscow and other major cities have reported one of the biggest spending booms ever. Well-off middle class Russians are still stocking up on a colossal scale with consumer durables such as refrigerators, color televisions and modern furniture. And in contrast to the Boris Yeltsin era, domestic rather than foreign businesses are the beneficiaries of this surge in consumer demand.

But Russia's economic recovery is dwarfed by the progress of China. Last year was the year that China overtook Italy to become the world's sixth biggest economy. This year, it should overtake France. By 2005, it hopes to overtake Britain. And by 2010 -- if the growth continues -- Germany and Japan could both be trailing in China's economic wake.

Or it could all go horribly wrong. The real Chinese economy, with an estimated 100 million unemployed peasants looking for work in China's cities and a stagnant rural economy dreading the impact of cheap food imports through the WTO, looks far less healthy. And the global slowdown has hurt China's export-led growth strategy.

"China's export engine has stalled," wrote Morgan Stanley economist Andy Xie in a sobering recent analysis. "State investment now accounts for three-quarters of gross capital formation, having been pushed up for three years to spur the economy. Investment will not be able to accelerate fast enough in the next two quarters to offset export weakness."

China is grappling with three internal revolutions simultaneously. The first is the breakneck pace of economic change, fuelled by 16 years of GDP growth at rates of up to 10 percent a year. This has created a class of new rich, an even larger and growing middle class, and a new openness to the outside world with 25 million Chinese now linked to the Internet. These are the people, articulate and connected and with the self-confidence to defend their hard-won new status, whose prosperity is most at risk from an American slowdown.

The second revolution is the social dislocation that has come with the economic change. Growth has hugely benefited the coastal regions around Shanghai and Canton, but the vast inland countryside with the bulk of the population has not kept pace. The result has been some 100 million Chinese migrating to the cities in search of work -- just as the Beijing government is trying to slim down or close the vast and obsolete state-owned industries that have been shedding some 4 million jobs a year.

Inevitably, there have been outbursts, quickly suppressed, of labor unrest. Although there are reports of police baton charges and a sudden spate of 30 bombings in six cities in 10 days in December, few details leak out. One veteran labor activist, Zheng Shanguang, was sentenced to 10 years in prison for telling the U.S.-backed Voice of Free Asia radio about rural protests. An internal Chinese Communist party document, "On Several Serious Issues Facing Us," was leaked last year. It cited 230 incidents of mobs laying siege to party and government offices in 82 cities, with 5,500 party officials injured or even killed.

"Any factors that could jeopardize stability must be annihilated in the early stages," Chinese President Jiang Zemin declared in a nationally televised address.

These changes are about to speed up, as China joins the World Trade Organization, which requires China to open its markets and financial system to outside competition. The aging political leaders in Beijing have gritted their teeth and decided to go ahead with China's integration into the global economy, even though it means further weakening their grip on the economy.

They have little choice. Every year, 9 million Chinese are added to the work force. To find them jobs, under the calculations long used by Beijing planners, requires an annual GDP growth rate of at least 8 per cent -- a target that China has now missed for the past three years. Like men on a treadmill which runs a little faster every day, Beijing's leaders are trapped, committed to WTO membership as the only way to keep the economy growing, whatever the social and political implications.

So China's third revolution is the growing disconnect between the authoritarian political leadership which is trying to maintain an unfree society by embracing free markets and free trade, and the new generation of ambitious and Internet-linked people they rule.

There is a Chinese public opinion, and it has little to do with the innocent democratic yearnings of the Tienanmen Square demonstrators of 1989. It was on display in the angry crowds demonstrating outside the U.S. Embassy after the Chinese embassy in Belgrade was bombed by mistake during the Kosovo war, the furious anti-American demonstrations during the spy plane crisis, and by the public pressure for reunification with Taiwan. There is a new mood of nationalism surging in China (as it did in other fast-growing and authoritarian economies, like Germany before 1914), which already is a constraint upon Beijing's leaders who are trying to manage a complex foreign policy with Taiwan and the United States.

So the event to watch this year will be the 16th Party Congress in October, when the current leadership will start handing power to the coming "Fourth Generation" of 50-something leaders like vice premier Wen Jiabao and Vice President Hu Jintao. For moderate reformers and believers in economic growth like the current leader, Jiang, and Premier Zhu Rongji, the question is whether the fast re-arming and modernizing Chinese military will defer to the new generation.

That is why most observers expect Jiang to keep his hands on the reins of power as head of the Central Military Coalition. And despite China's support for the U.S.-led war on terrorism, some ominous military tensions are swirling. The presence of American troops near China's western frontiers in oil-rich Central Asia, along with the traditional U.S. military bases in Japan and South Korea and new U.S. weapons being delivered to Taiwan, may well look from Beijing's standpoint like encirclement.

The deeper concern for U.S. policy-makers is that they are now, after the Afghan war and the big Western investments in the oil-rich Caspian basin, deeply involved in that part of the world where Russian and Chinese interests meet. The heart of Eurasia, the hard land that spawned global conquerors like Genghis Khan and Tamerlane, is the dangerous neighborhood where the cultures of China, of Islam and Russia all meet -- and often clashed even before the great oil discoveries of the 1990s. And now the United States is involved as well.


(Martin Sieff is chief news analyst for United Press International and Martin Walker is the news service's chief international correspondent.)

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