Posts Tagged ‘China’

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Russia is no longer a strategic partner – European Parliament

June 11, 2015

Yesterday the European Parliament passed another resolution relating to Russia.  One of the headline grabbing paragraphs in this latest text stated:

“Russia, because of its actions in Crimea and in Eastern Ukraine, can no longer be treated as, or considered, a ‘strategic partner’.

Russia now openly positions itself and acts as a challenger of the international democratic community and its law-based order, not least by seeking to redraw by force borders within Europe.”

Quite so.  Seemingly ethics and political/democratic values are not quite dead upon the sacrificial alter of economic interests.

Whilst, the full adopted text has yet to appear upon the European Parliament website, it is not going to differ greatly from the text found here of a relevant plenary sitting held in May 2015.  Have a read, for in years to come it may be quite relevant.

As is usually the case, nobody will be surprised to read a similar Duma generated resolution stating that the European Parliament can no longer be treated as, or considered, a “strategic partner” – The old “reciprocity rules” dictate such a response is likely.

The effect of this resolution on The Kremlin and its thinking, however, is likely to be little to none in the immediate.  It holds the same general contempt for the European Parliament as it does for the Russian Duma.  The only EU institution The Kremlin may have adequate respect for is the European Council, and that is because it is made up of the 28 national leaders who decide on any meaningful collective EU foreign policy – and even then, it would greatly prefer to ignore that institution where ever possible and deal bilaterally with the 28 national leaders.

However, looking a little further into the future, any EU recognition and subsequent agreements with the Eurasian Union would require a favourable European Parliament if ratification of legal instruments is required.

Whilst it may be quite some time before the EU gets anywhere near officially recognising the Eurasian Union through meaningful interaction – though should China do so and start signing and ratifying meaningful deals then perhaps that time line may quicken – it would be difficult for the European Parliament, having disowned Russia as a “strategic partner” for all the reasons listed in the above link, to then begin ratifying legal instruments of a strategic nature – unless all the remedies proscribed in the above link have been implemented.  Don’t hold your breath!

Thus, this resolution is quite meaningless to The Kremlin in the immediate term – long term however, it may become somewhat problematic.

If we are to ponder whether China will recognise the Eurasian Union and sign/ratify meaningful legal instruments, the question has to be why not?  Any dramatic expanding of Chinese economic weight throughout the Eurasian Union space – a weight that will dwarf that of the Eurasian Union members – will in turn get free security via the CSTO for its investment in that geographical/geopolitical region should any local unrest put such investment at risk.

Entirely sensible from a Chinese point of view, but Russian dependence upon China is as distasteful to The Kremlin as dependence upon the EU.  A counterweight would be desirable.

Therefore potential “issues” may lay in wait following today’s European Parliament resolution, despite any scoffing at its impotency today.

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Laws 2898, 2899 & Odious Debt and Moral Hazard

May 20, 2015

Yesterday saw the Rada pass Bill 2898 “On peculiarities of transactions with the state or guaranteed by the state debt and the local debt”, and Bill 2899 which allowed for the subsequent amendments to the State budget.

Very well – and it can perhaps be seen as cocking the gun that is being held to the head of the private – not State – creditors of Ukraine.  The full case for the laws was laid out here, having first made the case for “Odious Debt”, and subsequently dismissed (perhaps too readily) any attempt to invoke it with creditors, in Prime Minister Yatsenyuk’s address to the Rada prior to the vote for the respective Bills.

“Odious Debt” to be understood as the citizens of a dictatorship being obliged/forced to repay a debt incurred by a dictator for personal and nefarious purposes.  In this case the tens of billions of US Dollars that the Yanukovych regime is said to have stolen from the Ukrainian coffers during 4 years of manic kleptocracy, via the State/State guaranteed borrowing of external loans subsequently disappearing into the mist during its tenure.

Ukraine it seems would prefer to repay everybody everything possible as swiftly as it can – that “swiftly” not being possible to do without some changes to loan agreements.

Ukraine, it appears from Mr Yatsenyuk’s statement, will honour its international debts to peer States – it is the private purchasers of Ukrainian debt that are requested to show some flexibility.  Other options were to default on the private debts, or having passed this law, suspend payments where necessary.  Passing the law, of course, does not mean it will be employed by Ukraine simply because it can.  It exists to be employed if Ukraine must.

However, there is the issue of “moral hazard” undertaken by any private lender/investor.  Simply put, moral hazard is a risk that the borrower might engage in activities that are undesirable from the lender’s point of view because they make him less likely to pay back a loan.  It occurs when the borrower knows that someone else will pay for the mistake he makes – or theft on an extraordinary scale in this case.  This in turn gives him the incentive to act in a riskier way.

Thus we have the IMF, EU, Japan, China and USA (amongst others) making loans and loan guarantees to the current government, which may have, prior to this law being passed, been forced to be used to repay the private creditors of the Yanukovych regime, whose money was quite likely to have been simply stolen – whether or not those private creditors knew it or not.

Should the taxpayers of these nations rightly supporting Ukraine in its seemingly genuine attempts to reform its fiscal and economic systems, have looked on forlornly as that money was otherwise forced to be used to negate the moral hazard undertaken by private companies and individuals this law targets?  One suspects that “western” taxpayers have had their fill of bailing out banks and private investors over the past few years without seeing their money loaned to Ukraine and then watching it do the same thing instead of what it was intended to do.

To be blunt, Ukraine should repay its debts.  All of its debts.  Even the odious debts of the Yanukovych regime.  Every single kopek of its debts, to every single lender.  However, it would have entirely lost its moral compass if it allowed itself to be forced to repay private company’s “punts” with the previous regime with the taxpayers money of the US, or Japan, or the EU, or others that has been offered to assist with internal reform.

As a dysfunctional or unmanaged default would not have helped Ukraine, nor perhaps its current, recent lenders, this law is perhaps the best option that was available to it, which is rather unfortunate if you happen to be a private lender holding large amounts of Ukrainian debt – but then that’s the risk you take when seeking high rewards.

We shall now see, having passed this law, whether a deal will be struck between Ukraine and its private debt holders or not – and whether this law will subsequently employed.

 

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And what of China in Ukraine?

February 25, 2015

Little has been written here about China and its activities in Ukraine for some time.  That is in part due to China doing what it does in its usual quiet and unassuming way – despite the Chinese Consulate in Odessa being by far the largest and best presented of the almost 30 consulates situated in the city.

Over the past few years, aside from China and Ukraine agreeing to conduct bilateral trade in national currencies (up to 30%) annually, China has been steadily investing in Ukraine.  Apart from R&D, space, weapons, fertilizer and chemical production, not to mention and raw materials, Eximbank has also invested $10 billion in Ukrainian agriculture, setting up a permanent working group to identify suitable projects in Ukraine.  An on-going theme since 2011.

China, it appears, is now about to assist Ukraine in breaking its dependency on Russian gas too.

The Ukrainian delegation that has just returned from China has managed to secure a $3.6 billion line of credit from the China Development Bank via the Chinese Ministry of Commerce specifically to do just that.

Upon his return from China, Volodymyr Demchyshyn, Minister of Fuel and Energy of Ukraine  stated “Our delegation has just returned from China, where we had a meeting with the representatives of the Chinese Ministry of Commerce and China Development Bank. The representatives of both organizations confirmed the readiness to open a credit line for our projects.

The projects identified being the modernization of thermal power stations, heating networks and, perhaps, for the construction of coal gasification plant in Odessa.  Whether the proposed coal gasification plant in Odessa will be built the European standards, and whether it will run on coal from the occupied territories of Ukraine, that of Ukraine, that of Chinese owned Ukrainian assets, or perhaps Polish coal, remains to be seen.  Questions for another day.

Whatever the case, there will be no Kremlin reaction to the Beijing decision, unlike the reaction to the Polish announcement to resume gas supplies to Ukraine of 23rd February, which met with the immediate Kremlin response of banning Polish cheese products that very day.

Simply put, The Kremlin is in no way capable of threatening or coercing China to change its decision – despite any assistance to help Ukraine escape from its Russian gas dependency obviously being seen as irksome/somewhat hostile by The Kremlin.  In any Kremlin-China relationship, now or in the future, it is not going to be a marriage of equals.  All the numbers are on the side of the Chinese, as both sides know.

The question, however, is why China has decided to finance and facilitate a further step toward Ukrainian energy independence from Russia?  Ukraine, to be blunt, would have accepted $3.6 billion across an entire range of commodity and/or infrastructure development.  There is a clear political dimension to this Chinese decision over and above “business” and monetary ROCE.  Why invest in/finance a sector that will knowingly irritate The Kremlin more than almost any other?

It is also clear that the Europeans have now got the message regarding such heavy reliance on Russian gas as well.  It seems almost certain that a reduction in – although there is no desire to remove – Russian gas from the energy mix and supply chain will occur over the next decade.  One of the side effects of Kremlin actions in Crimea and eastern Ukraine has been to cause the Europeans to focus upon, and speed up, the planning to reduce dependency upon a Kremlin that clearly sees the EU as a regional adversary.  That adversarial relationship now being realised in numerous European capitals, with thoughts of meaningful partnership duly being shelved under current Kremlin management.  A transactional relationship, with the lacking of goodwill to be anything more, will prevail for many years to come within some major European nations.

All in all, a net gains, directly or indirectly, for China in Ukraine continue to quietly accrue – as does Chinese strength vis a vis Moscow.  Is China, aware of the newly found European momentum to reduce Russian gas imports, viewing the investment in Ukrainian energy independence as mechanism to help force The Kremlin into a very asymmetric relationship with China?

The net winner of the current mess within the European continent will be China – (and quite probably Iran, but that’s another story).

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A little more on gas – before moving on

October 4, 2014

In yesterday’s entry, the issue of gas supply was briefly touched upon.  Today, another quick glance before moving on from what will remain a topic of commentary for many for months, with increasing intensity as the cold winter months approach and The Kremlin in all probability in no rush to close any deal until it believes it is in the best possible negotiating position – namely Ukraine is literally freezing.

Recent weeks have seen Hungary cave completely to Kremlin pressure and stop its reverse flow to Ukraine, Poland suffer “unexpected” shortfalls in delivery and Slovakia up to 50% decreases as of two days ago.  In short all nations with pipelines capable of reversing the flow of gas from Russia to the EU and back to Ukraine have not received what they expected to receive, thus having something of an impact upon the contractual deliveries to Ukraine anticipated via the EU nations.

No surprise to anybody that such a tactic is being employed by The Kremlin – nor is it a surprise Hungary caved in, or that Poland remained defiant.  That Slovakia bemoaned Russian action as political and then went to the European gas Spot Market, and completed a deal with Eon for supply via Austria, rather than caving to The Kremlin, no doubt upset somebody in Moscow.  Bravo Prime Minister Fico and Slovakia.

Today, Romania reported a 13% decrease in expect volumes from Gazprom too.  Something dismissed by Energy Minister Razvan Nicolescu – “Romania had grown accustomed to such behavior Gazprom.”

However, whilst the tactics of Gazprom are clearly Kremlin led to force itself upon Ukraine, they are hardly tactics that will encourage support within the EU Member States to scupper the 3rd Energy Package to which The Kremlin has very strong objections, enable South Stream, nor provide any reason to question the need to diversify away from Russian gas.

Just as annexing Crimea and invading eastern Ukraine have done nothing other than harden opinions unfavourably toward Russia, realpolitiking with gas supply is not going to lessen the European mood when it comes to diversification.  All in all, in the medium and long term, a counterproductive policy on all fronts.

So what?  There is the Power of Siberia pipeline between Russia and China that will be operative very soon yes?

Aside from any argument over whether this pipeline even breaks even for Russia given the strong Chinese negotiating position when agreeing the price, the pipeline as yet, does not exist.  There is also the need to consider any Russian quotes on infrastructure/construction costs will be grossly underestimated, as they always are.

Despite any nonsense coming from Gazprom or The Kremlin stating otherwise, it seems 2020 will be the earliest any gas deliveries will reach China via this pipeline – although expect to be sacked from Gazprom for saying so.

Has China even begun to construct its end of the pipeline or any associated pumping stations?

Whilst 6 years from a project moving from upstream to downstream may not be too shabby, 6 years is a long time economically for Gazprom and Russia should the Europeans now make a meaningful move to diversify.  Particularly so when the Russian budget for 2015 – likely to be signed of by President Putin today – sees an $18 billion cut in social programmes (and a 20% rise in military complex spending).  All of this notwithstanding the western technical and economic sanctions currently in place.

It is in this interesting position, we move on from the gas story until any real developments occur – don’t hold your breath.  If only the hot air generated by rhetoric between parties over the next few months before any deal is struck – or not – could be used for heating.

The next development may not be a gas deal between Russia and Ukraine, but the dismemberment of Naftogaz Ukraine by the Ukrainian authorities when a new RADA sits – in line with the European 3rd Energy Package, which will irk The Kremlin even more.

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Where will the “fascist compass” point next?

May 23, 2014

The first round of the Ukrainian presidential elections occur in 3 days time.

It seems unlikely that the first round will produce a winner with 50% +1 to negate the need for a second round of voting on 15th June.

Without doubt Petro Poroshenko will reach the second round.  His run-off competitor likely to be Yulia Tymoshenko, or somewhat less likely, Sergey Tigipko.

There is an irony given certain statements, that the likely run-off between Mr Poroshenko and Ms Tymoshenko means that both candidates are from the south and east of Ukraine – Mr Poroshenko was born in Odessa and Ms Tymoshenko in Dnepropetrovsk.  A Ukrainian president from central or western Ukraine there will not be.

This, however, is not the point of this entry.

More to the point is that Dmitry Yarosh of Pravy Sector and Oleh Tyahnybok of Svoboda – the swivel-eyed, far right, neo-nazi fascists claimed to be running amok and leading the nation astray en masse by certain quarters via unwavering and repeated propaganda – are likely to garner a truly minuscule 1 – 2% of the national vote.

Therein ends any hope of plausibly continuing the facade that Ukrainians are now a nation of rabid fascists who willfully appoint and/or accept fascists as leaders.  It is going to be a choice between oligarchs and not fascists for president.

However the fascist line is now clearly cemented into the psyche of many within certain audiences subjected to mind-numbing propaganda.  It cannot simply be undone at a moments notice.  It must therefore be redirected.

Fortunately for The Kremlin, May is not only a month for the first round of the Ukrainian presidential elections, but it is also the month for the European Parliament elections too – European parliamentary elections are today in fact.

Within these elections, the far right parties (Front National – France, Jobbik – Hungary etc) are expected to do far better than ever before, although clearly not well enough to overcome a grand coalition of pro-European parties that would seem an inevitable result of the elections.

Thus despite most far right parties in Europe being more “Putin friendly” than other more centralist groups, and will be provide many a delicious quote for the propaganda machine to Kremlin glee in the future once elected – not to mention more nefarious subversive opportunities – the voting will also provide The Kremlin with a plausible reframing of the Ukrainian situation, moving the fascists from Ukraine to the EU – and by extension NATO – via a nuanced shift in Russian MSM propaganda and rhetoric.

Ukraine can then slowly – or swiftly – be recast as something of a confused victim of a fascist EU/NATO rather than a hotbed of fascism as it currently painted and which its election results will refute.

Naturally such a propaganda shift would be far easier for the Russian public to swallow if a wider reaching regional security consensus could be orated as necessary – even if only on paper rather than in anything that results in real cooperation.  China’s President Xi Jinping has just provided such a statement.

From this The Kremlin can – should it wish – create such a pivot and refocus on the electoral polling in an increasingly “fascist”/far right Europe, and less so on the electoral polling of a clear and unequivocal fascist rebuttal that will occur at the Ukrainian polls.

The polling numbers from both elections in 3 days time will at least support that narrative and provide the opportunity to quietly open communication with whichever oligarch takes the Ukrainian presidency.

Over the next 6 weeks we will be able to see if such a nuanced propaganda shift begins to occur.

As I have written recently, The Kremlin requires different tactics with regard Ukraine should it desire broader results than currently achieved in only two eastern Oblasts.  Perhaps they will begin to manifest themselves via a direction shift on the “fascist compass” – after all if The Kremlin can’t convince Ukraine to don its yoke once more, insuring Ukrainian public opinion sees the EU as increasingly fascist will dampen any desire to fully head into that fold.

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Time for a change of tactics?

May 20, 2014

The Kremlin has decided –  (When? How many?)  – to draw back its troops at Rostov, Belgorod & Bryansk on the Ukrainian border.

It seems likely that the current gas pricing dispute will be settled between the two nations before 1st June.  The price being somewhere between the $268.50 Ukraine wants to pay and the $485 Russia demands it pays per the 2009 agreement struck between Mr Putin and Ms Tymoshenko.

As my entry yesterday stated, the leaders of People’s Republic of Donetsk have been totally underwhelmed by the enthusiasm of the people for their vision.  As bemoaned by Igor Strelkov, Donetsk separatists cannot raise 1000 fighting men – this from 4.2 million people in the Donetsk Oblast.  That tells its own tale – even if it is a tale that fails to make headlines in either the West or Russia.

That the secession seeking leaderships have such small genuine support and seemingly little hope of annexation by Russia as they have requested – combined with the Russian military presence on the border being ordered back to their respective bases making military intervention much less likely – the question is how long before these “People’s Republics” leaderships, together with their few genuine supporters, disappear into the mist?

Mid-June after any second round of voting in the presidential elections on 15th?  Perhaps before?  Sometime after disrupting the first round on 25th May?

After disrupting the elections sufficiently for The Kremlin to continually question the legitimacy of the results, and with seemingly little intention of annexing Luhansk and The Donbas, what use does the Kremlin have for “People’s Republics” in the immediate future?

Perhaps time to bury some stockpiles of weaponry and munitions and put those proven reliable souls involved to “sleeper” status pending activation again?  Further infiltrate the institutions of local governance and order in the meantime?

Some of those involved will no doubt morph from well armed petty criminals into well armed organised criminals – if they have not already.

Some will disarm should an amnesty occur and return to their previous lives unlikely to ever take up such a cause again.

Clearly without more than tacit Kremlin support the “People’s Republic” structures will not last long overtly – but covertly those structures can be reorganised and/or reactivated in the future if necessary.

Federalisation as The Kremlin wants it defined in Ukraine seems unlikely to occur.

If removing direct social and military threats from the list of immediate problems facing any new Ukrainian president –  temporarily, a return to the tactics of economic pressure, political subterfuge and perhaps more rigorously Kremlin sponsored uncivil  civil society actors?

A less overt but nevertheless continuous coercive front against Ukraine is sure to continue.  Goals have not been achieved.

Yet I still see nothing but tactics.  Strategy for achieving Kremlin goals in Ukraine remains absent.

Perhaps all will become somewhat clearer tomorrow after Mr Putin’s trip to China.

A massive energy deal that will provide for further rampant corruption as well as economic stimulus at home?  The confirmation of large military industrial complex contracts?  The complete abandonment of the US$ in Sino-Russian trade?  Renewed political energy within the SCO?

Russia would certainly be the junior partner in any strategic marriage with China going forward whether The Kremlin would like to think of itself as an equal or not.

A deliberate “second tiering” of Ukraine and the EU awaits?  The repercussions of that?

 

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“Putin” things back together again eventually – or not

March 9, 2014

I ended yesterday’s entry with the paragraph “However, should the result go in favour of joining the Russian Federation, the question is then whether Russia would agree despite the political capital employed in engineering the current situation. A precedent exists whereby after numerous shenanigans in South Ossetia, when it subsequently asked to join the Russian Federation, the request was politely declined.”

This, it has to be said, depending upon the decision of Mr Putin, would affect everything I am about to write.

Only Mr Putin knows what he intends to do – or if he is still weighing up outcomes, only he will make a decision as to what he will do within an ever shrinking time frame.

He may decide to blow international law and outcomes into orbit and annex Crimea, or he may politely refuse the Crimean request to join the Russian Federation, offering some form of protection or quasi-status unrecognised by anybody else, to hang like the sword of Damocles over the heads of any government in Kyiv indefinitely with the inference he can antagonise the situation at a whim once more, this time with clear intent to accept any Russian Federation application.

Taking the latter option of course regains some of the currently lost leverage within Kyiv.  It may seemingly leave the Russian Black Sea Fleet more vulnerable than that of annexing Crimea, but for Kyiv to insist it leaves in the absence of any development plan for the region would bring economic havoc to a Crimean economy that already depends on handouts from Kyiv – which is currently, and for the foreseeable future, broke and dependent upon handouts itself.  Whether liked or not, the Russian Black Sea Fleet is a significant part of the Crimean economy.

There are of course economic levers to pull as well as far as Ukraine is concerned.

So where to begin with reconstruction – or perhaps a first real attempt at constructing modern Ukraine from the Soviet legacy should Mr Putin ultimately decide to leave Ukrainian territorial integrity alone?

The stakeholders are obviously the 46 million Ukrainians first and foremost.  Thereafter are their neighbours and trading partners – Russia, the EU, Turkey the most prominent – though China has invested $billions and billions for the long term in Ukraine and is also therefore in need of note.

Also ticking is the clock.  An angry public, whether it be western looking, eastern looking or adamantly neutral in its desires for the Ukrainian future currently remains very angry.  The only way to calm them is to deliver results swiftly – and results that deliver on common desires.

Back at the end of February, immediately after Viktor Yanukovych took to his heels, I was questioning the priorities of the interim government and the effects of less than inclusive acts.  The interim government is still anything other than one of “national unity”, being little more than a Ms Tymoshenko vassal.

Not only is its legitimacy questioned by Russia, it is also questioned by many Ukrainians – Russian leaning or not.  The more it becomes clear it is a vassal for Ms Tymoshenko, the less legitimacy it has.

Thus the clear priority must be presidential elections – which are now set for 25th May.  Thereafter it would be a very wise move to seriously consider RADA elections – with entirely transparent candidate lists after a genuine purge of party ranks from all parties of the most corrupt within.

Thus a domestically and internationally recognised legitimate president and legitimate government make relations far easier for all – and with dialogue, tensions should ease.

Neither the Ukrainian voting constituency, the EU, Russia, Turkey, China or others are going to object to the above.

Thereafter, those who win cannot afford to head off on an expedition likely to alienate those who didn’t back them.  There are enough issues to deal with that will have universal support within Ukraine and amongst its neighbours to start on some very solid middle ground.

We have President Putin calling Ukraine more corrupt even than Russia – and he is probably right – and stating he understood why people protested at Maidan.  We have Herman Von Rompuy stating that the people of Ukraine who protested and died for an end to corruption, democracy and rule of law need those demands realised.  I have never met a Ukrainian who didn’t want an end to the rampant corruption that infects Ukraine like a cancer.  We have global business and international lenders calling for an end to corruption.

Corruption, corruption, corruption……….

For Ukraine to effectively tackle corruption it will need external help and input – both Russian, Turkish, European and Chinese – as well as guidance and assistance from international institutions such as OSCE, the Venice Commission, the UN etc – and a good deal of resolution from the Ukrainian public not to wilt under the pressure of the odious and unclean state institutions.

All of this requires dialogue and also addresses an issue of concern common to all parties – both internal and external, whilst staying well clear of more divisive and emotive issues that really are not a priority to anybody but the political class in their posturing.

That is not to say the emotive and divisive issues should forever be put on the back burner – they have to be dealt with eventually – but they are not where the inclusive and tolerant dialogue is to be found when attempting to restore reasonable relations with all interested parties.

As there is always a need for a place to start, it would seem it might as well be corruption – on the presumption that the reality Russia is currently putting on Crimean ground is not going to become a permanent feature.  If it is to become so, then this entry will have been a wasted 10 minutes of my life.

After all, Mr Putin may have decided that a request for the Russian Black Sea Fleet to vacate early was simply a matter of time, and with no interim leader or subsequently successful presidential candidate unlikely to refuse to sign the deals with the EU – sooner rather than later – Crimea (and securing the Russian Black Sea Fleet base) is the price Ukraine will pay for heading west – the result of which is unchartered waters for all – except the Russian Black Sea Fleet.

strategy

The next few weeks will identify Mr Putin’s real strategy – in the meantime, with “the west” have no strategy whatsoever, it is left to fumble around with the tactics of mitigation.

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