Социально-экономическое и политическое развитие современной Азии

1.6.6 The United Nations Security Council

Russia managed to promote its influence worldwide that is unproportioned to its inherent power for several reasons: constant seat and the right for veto in the United Nations Security Council. China authorized Russian doings in Ukraine and Syria by synchronizing its Security Council votes with Russia with respect to all significant international issues which deterred the West from initiating resolutions that might affect Russian and Chinese Interests. The main areas of support between Russia and China are Syria, North Korea, Iran and Balkans, two States consider the notion of liability of protection and humanitarian intervention in different ways comparing to the West (ibid). During the last ten years, Russia and China put their vetoes on resolutions that would imply sanctions and punishment on the regime of Bashar-al-Assad when the civil war started. Nevertheless, China acted in a way more cautious when it came to vote on issues in Ukraine, as a result, China preferred to refrain from voting rather than refusing the condemnation of the General Assembly as regards the annexation of Crimea. With respect to other urgent matters, both Russia and China followed and supported each other, which demonstrates a joint obligation to refuse an international order that is dominated by the West.

Conclusion

To sum up the main points of this chapter, Russia's turn to China was accelerated because of worsening of the relations between Russia and the Western bloc, namely the European Union and the United States of America. The deterioration that is associated with Russia's actions in Ukraine. However, taking into account that sanctions imposed by the West speeded up Russia's pivot to Asia, officially, the turn to Asia was announced in 2013 by Russian president Vladimir Putin. The main goals of Russia's turning to Asia were to diversify the directions of Russia's economy and develop Russia's Far East region. Initially, Moscow planned to create a balance in the relation between key Asian players in face of China, Japan and India. As a result, in the very first stage in the process of turning to Asia, Russia proved to show very little progress, only imbalanced relations with China were growing. However, the triple wave of Western sanctions led to collapse of oil prices, ruble stability and diplomatic isolation, made a ground for Russia-China relations. Economic factors played a key role in that shift. Nevertheless, Ukrainian factor in Sino-Russian relations is likely to have a vast influence on the future prospective of two countries in a different way. With regard to Sino-Russian relations after the events in Ukraine, Russia intended strongly to put an emphasis in the following directions:

· to fasten the process of closing deals that would eventually lead to maximization of oil and gas flows to China mainly through the East Siberian-Pacific Ocean (ESPO) pipeline;

· removal of former barriers that limited Chinese investments in Russia. Encouragement of various projects with regard to Trans-Siberian and Baikal-Amur railways. Investments in Russia's Far East;

· increasing importance on BRICS being an alternative to G-7 group;

· turning back to Sinocentric approach in East Asia;

· increasing cooperation with regard to Central Asian countries in order to combat extremism, separatism and terrorism, at the same time trying to reduce Chinese economic influence over the region;

· substitution to Western capital and technological markets.

As to Chinese side, Beijing will put an emphasis on controlling the situation with Ukraine applying or projecting it to its own foreign interests. Moreover, it is quite important for China to balance relations between Russia and West in order not to get into trouble by playing double game with confronting sides. This would actually mean;

· remain neutral with regard to events in Ukraine, taking restrictive position concerning the diplomatic or political solutions;

· use to its advantage current situation and instability on energy markets, thus, pushing Russia to close deals on Chinese conditions. Moreover, taking into account China's growing power, Beijing will use Russia's weakened position to secure itself with oil supplies for many years ahead;

· using advantage of Russia's confrontation with West, China will try to fasten the process of ban removal for supplying advance military facilities such as SU-35 and Lada submarines which prior to 2014 were banned to supply to China;

· China will bespeak Russia's position with respect to Senkaku Islands, South China Sea and Korean matter;

· China will be trying to enhance Russia's admittance concerning China's growing concerns and interests regarding Central Asian issues;

· Cheering Moscow's position to coordinate common Arctic development (ibid).

The objectives set for both sides looked enthusiastic and quite feasible at first glance. However, it was very dependent on the depth, width and duration of the Ukraine crisis. Nobody expected this crisis to be so long, neither Russia nor China. However, despite the Russia's ambitions to cover all possible gaps from its confrontation with the West, not all goals were implemented. We will cover the main successful areas of cooperation;

· Completion of Power of Siberia pipeline project;

· Increase of Russia's oil exports to China since 2014 on, thus, becoming one of the top exporter of crude oil from China's list;

· Completion of military equipment sales with regard to Su-35 and Lada submarines;

· Russia's admitting Sinocentric touch towards Asia in general;

· Accord on coordination and common policy towards ussies in Syria, Iran and Ukraine;

· Omitting strategic distrust between Russia and China, adopting a win-win strategy with respect to national interests.

As to trade between Russia and China in general, graphs 2, 3, 4 and 5 indicate that goods and commodities exported from Russia to China are natural resources and raw materials, while China imports value-added products. This shows that Russia is getting the status of resource hub for rapidly growing China, this kind of trade might be described as neo-colonial approach. Moreover, according to Valdai analytical report, there is practically no information about other fields of cooperation rather than natural resources and raw materials, and there are no efforts undertaken to promote other Russian commodities in China. Such kind of trade imbalance cannot but worry Russia. China is not interested in other commodities or goods that Russia produces, the focal point of China is natural resources. Nevertheless, it should be noted that China as a country is not an exception, the same type of trade is carried out with other countries. Taking into account that China is a border State with Russia, the capacity of trade and potential are not implemented even today. According to table 1, the figures indicate that the biggest part of Chinese investments in Russia is going to energy and raw materials sectors, moreover, majority of that companies do export semi-finished or finished products back to China.



2. RESEARCH METHODOLOGY

2.1 Research method

The research will first focus on primary research method which is the analysis of Sino-Russian relations before and after the Ukraine crisis, this will include the historical analysis of Sino-Russian relations, interstate agreements between Russia and China, analytical notes and author's opinions of contemporary experts and think tanks on Sino-Russian relations, examination of Russia's concept of “pivot to Asia” with an eye to create a conceptual modelling of the research. Based on the understanding, in order to determine and investigate the expectations of the Russian Federation from People's Republic of China in the process of “Russia's pivot to Asia” and subsequent exploration on how the perception of the policy of the People's Republic of China in relation to the Russian Federation changed in Russia between 2014 and 2016 the set of qualitative research methods will be used.

In particular, the author of the present paper has adopted descriptive research design as the main research method. According to Fox & Bayat (2007), the purpose of descriptive research is to shed the light on actual issues or problems with the help of data collection that will provide clear description of the situation with particular stress on details of a certain case or phenomenon. Moreover, in order to follow the suit of descriptive research method, the following objectives will be implemented;

· Examination of a contemporary phenomenon, of particular interest to the researcher in the given timeframe;

· To present a holistic investigation, offering a collection of detailed data and profound analysis of the issue.

We will be describing the changes in perception of Chinese foreign policy towards Moscow between 2014 and 2016.

However, in addition, the author of this paper will be using comparative research method in order to contrast the expectations of Russia from China in the process of turning to Asia. It is important to understand what exactly Russia expected from China in the period after the imposition of Western sanctions and to what extent these expectations were justified.

All in all, it can be said that descriptive and comparative research methods are appropriate to present rich and detailed information on the researched issues with respect to economic and political context. With regard to the purpose of the given study, descriptive and comparative research designs are considered to be the most relevant for the empirical research.

2.2 Data collection instruments

It can be said that descriptive and comparative research methods demand to collect and put in order a lot of information, including data, statistics and documents in order to improve the comprehension of a particular situation or case. In order to procure a structured and detailed evidence of presented data, researchers resort to mixed data collection instruments. Taking into account that descriptive research method usually implies qualitative field methods, the elements of quantitative data collection instruments will be applied such as statistics and numeric data with a sequential description of the matter. With respect to the goal of this thesis, the main data collection sources are as follows:

· Analytical notes of think tanks;

· Author's opinion with respect to the researched issue;

· Interstate agreements between Russia and China;

· Contracts of private companies between Russia and China;

· Interviews and speeches of political leaders;

· Statistical data from respected sources such as Central Bank of the Russian Federation, World Bank and European Commission.

· Websites of the leading providers of financial information and analytics for professional participants such as Bloomberg and Thomson Reuters.



2.3 Research procedure

First of all, the author of this paper has undertaken the manual analysis based on careful reading of relevant texts with regard to Sino-Russian relations before and after the Ukraine crisis, it was done with the purpose to closely study the concept of Russia's “pivot to Asia”, namely what guided and motivated Russia to turn to Asia.

After the concept of Russia's turning to East was carefully studied, with the help of trade reports published by the European commission, the market share of trade between Russia and China was investigated, however, we contrasted the trade between Russia and the European Union in order to bear in mind what market share Russia expected to cover when turning to China.

Next, economic sanctions of the European Union and the United States against Russia were examined, for the most part the sanctions were mainly imposed on three sectors:

Prohibition on providing equipment for oil industry;

Prohibition of financial assistance to oil and gas companies;

Prohibition of issuance credits for banks banks.

As a result, Russia became critically dependent on advanced technology with respect to drilling, capital markets and energy markets.

Taking into account Russia's dependence on European capital, energy and technological markets, a detailed analysis of Russia's expectations from China in the process of turning to East. Then, the author will put an emphasis on which projects were implemented and which ones not.

Farther, the author of this thesis will shed some light on how the perception of the policy of the People's Republic of China in relation to the Russian Federation changed in Russia between 2014 and 2016.

Finally, the results obtained will be discussed and then the author will draw relevant conclusions



3. EMPIRICAL PART OF THE STUDY

3.1 Results of empirical study of Russia's Turn to the East: Russian Expectations and Perception of Chinese Policy Towards Moscow Since the Ukraine Crisis

Since the imposition of Western sanctions in 2014 in response to Russia's capture of Crimea and the following destabilization in Eastern Ukraine, Russia speeded up its turn to the East, especially to similar-minded China in order to compensate the access to Western energy, capital and advanced technology markets. In the process of Russia's “pivot to China”, the economic output proved to fall short of Russia's expectations and hopes assigned in the very beginning. We will proceed with explaining why Russia turned out to be so dependent on Western energy, capital and technology markets, the implications and effects that Russian economy experienced and we will keep on explaining how Russia intended to overcome economic difficulties, namely its expectations form China in the process of “pivot to Asia” and how the perception of Chinese policy in Russia changed throughout a period from 2014 to 2016.

3.1.1 Energy sector

Speaking about Russia's economy, for most part it is commodity driven where energy sector accounts for 25% of GDP. Energy sector comprises nearly 70% of Russia's export.

With respect to energy sector, the main products that are being exported are oil and natural gas that embrace more than 50% of the federal budget tax revenues (ibid). This data clearly indicates that Russia is substantially reliant on energy sector with regard to revenue gaining, which makes integration of government and business unavoidable. As a result, we may assume that permanence and stability in energy sector is important for national development and prosperity, Russia is looking for further exploration and expansion, particularly in oil and gas production. According to statistics, the biggest trading partner of Russia in relation to energy consumption is the European Union that comprised nearly 54% of Russia's total exports on an annual basis, whereas the US covered only 3% in 2014 (ibid). However, despite the fact that the share of the US in Russia's energy sectors is very low, companies such as ExxonMobil, Chevron, Schlumberger and Halliburton managed to establish great presence in Russia's energy sector, including ExxonMobil's contribution of more than $50 billion of investments coming from US energy companies on an annual basis. Moreover, Russia's leading energy companies in face of Gazprom and Rosneft become heavily reliant on American advanced technology and financial aid in order to sustain and expand projects that deal with oil and gas.

In 2012, ExxonMobil and Rosneft agreed upon sharing technology and expertise by signing a joint agreement, which meant to form a joint venture in order to conduct an exploration of oil and gas in Kara and Black seas. Next year ExxonMobil and Rosneft broadened their relations by declaring a common plan to “conquer Arctic for oil and gas”, moreover, both companies made arrangements to start collective projects on enhancement of oil stockpiles and funds in Western Siberia's shale basins, where Rosneft accounted for 51% stake and ExxonMobile 49% stake. Simultaneously the number of bilateral talks devoted to the expansion of bilateral trade were held between Russia and the US.

Next, such companies as Halliburton and Schlumberger have also proved to be considerable participants in Russia's energy sector by providing necessary equipment and technology for oil and gas exploration. As a result, Russia's share in sales of Halliburton accounted for 5%, while share of Schlumberger was 6%.

As a consequence, taking everything mentioned above into account, Russia's mainstay concerning the energy exports and deep reliance on advanced technology made it vulnerable to Western sanctions. The fall of oil prices was reinforced by the imposition of sanctions too. Executive orders were meant to prevent Russia from continuing the development and exploration of shale reserves, Arctic and deep water. In the issue, companies such as Gazprom and Rosneft were considered as targets to be included in Executive order.

The list of sanctions imposed with regard to equipment and technologies for oil and gas industry is as follows:

· Deep water drillings;

· Offshore Arctic drilling;

· Shale oil exploration and production equipment.

Jeff Barnett claims that a great deal of advanced technology that is being used in energy sector comes directly from the US, comprising 90% of total equipment and technology used in Russia, including refinery. This technology turned out to be of vital importance not only to continue exploration but keeping existing projects going. However, the sanctions imposed made American companies to pull out of the projects they were involved in, as a result, Russia could not continue exploring Arctic oil on its own. Russia had to either develop and create its own equipment or find it somewhere else. As a consequence, under effects of Western sanctions, the profit of Rosneft comprised only 1 billion rubles in the third quarter, while company earned 173 billion in the second quarter, which indicates to significant losses. Moreover, Rosneft was forced to pay out a $40 billion debt that was accelerated because of sanction imposed, taking into account that the access to Western capital was prohibited to Russian companies, it was extremely difficult to repay the debt. Gazprom was also forced to abandon South Stream Project which was meant to be run through Bulgaria in order to provide gas for Europe. Gazprom simply could not get sufficient funding for project as 80% of Gazprom's credits are stored in the us Banks, while the other 20% are funded from European banks.

In accordance with main US and EU economic sanctions, the following list of bans on oil and gas companies is provided:

· Gazprom;

· Gazprom Neft;

· Lukoil;

· Rosneft;

· Sakhatrans;

· SGM Pipeline Construction;

· Stroitransgaz;

· Surgutneftegaz;

· Transneft;

· Transoil.

One of the greatest implications of sanctions is that energy sector in Russia is vastly interrelated with the country's economy. There is direct correlation with regard to oil prices, fluctuation of ruble and instability of political and economic vector that eventually exposed Russia's critical dependence on energy exports. With introduction of Western sanctions, Russia had to seek for quick alternatives in order to keep energy sector and economy going, and the choice fell on China. It is worth mentioning that prior to the events in Ukraine, namely 2000-2014, when the oil prices were exponentially growing, it was not plain whether Sino-Russian relations resemble to “Axis of convenience” or whether two countries develop the potential of cooperation as China and Russia shared common outlook and interests already at that time. Ukraine crisis and subsequent waves of sanctions gave an opportunity to maximize whatever potential in the interrelation between Russia and China, especially in the field of energy. However, there were a lot of projects initiated since the introduction of Western sanctions, which might be regarded as Russia's endeavor to find quick alternatives for Western energy market. The following table clearly presents expectations of Russia from china in the field of energy.

Table 3. Cooperation between China and Russia in oil and gas sector

Company /parnership	Project/outline	Expectations	Current/progress Status
Rosneft	Vankor oil field in eastern Siberia	In 2014, CNPC signed framework agreement to buy 10% stake.	Talks stalled over the estimated price of $1.2 billion to $1.4 billion.
Rosneft	Taas Yuriakh oil project in Eastern Siberia	In 2013, CNPC signed memorandum to get a 49% stake.	BP holds 20%: Skyland petroleum may buy up to 29% stake. The stake could be valued at up to $1.9 billion so far, the deal has gone nowhere.
Rosneft	Oil supplies to Sinopec	Under memorandum, Sinopec was expected to get 10 million tons per year from 2014 under prepayment.	Supplies did not start. Yearly sales were seen at $8.5 billion
Rosneft	East Siberia-Pacific Ocean spur pipeline expansion	Capacity was expected to reach 20 million tons by 2015 from 15 million tons.	Spur expected to pump 16 million tons in 2015 as China failed to expand its part of pipeline.
Rosneft	Tianjin refinery in China, annual capacity 16 million tons	Rosneft holds 49% of stake. CNPC has 51%. First expected in 2015 with capacity of 13 million tons per year.	In May 2014, Rosneft and CNPC agreed to launch refinery in late 2019. Joint investments were planned at $5 billion.
Rosneft	Offshore deposits in the Pechora and Barents Seas; onshore deposits in Irkutsk, Krasnoyarsk, and Nenetsk regions	Rosneft, CNPC discussed cooperation in 2013.	No Update.
Gazprom	Gas supplies to China of 68 bcm per year, via two routes: Eastern (38 bcm) and Western (30 bcm)	First supplies were expected in 2011.	Eastern route, Power of Siberia, expected to start supplies at the end of 2018, start of 2019. Western route, Altai (Power of Siberia-2), still pending firm contract. Eastern route project costs estimated at $55 billion, while Altai costs at up to $20 billion.
Novatek	Yamal LNG, full capacity 16.5 million tons per annum, total investments $27 billion	Chinese banks were expected to provide up to $20 billion by year-end 2014.	Novatek-led Yamal LNG expected to clinch deal to get over $13 billion from Chinese investors by mid-2015, but Chinese-led financing package has been delayed several months.

As we can see only three major projects, which are Gazprom: Power of Siberia, Novatek: Yamal LNG and Rosneft: Vankor, managed to be brought till a logical conclusion or at least hold the status of negotiation, while the rest five projects simply were stopped or failed to fulfill certain requirements with regard to agreement conditions. Moreover, only one project, which is Rosneft: Vankor (did not even get Chinese investments) started after the Ukraine crisis, the other two discussed Chinese involvement long before the events in 2014. Thus, we may assume that there was no active engagement of Chinese side in Russia's energy sector since the events in Ukraine took place as Moscow was expected. However, Power of Siberia contract was quickened because of crisis, but it was a very long process of negotiations between two sides.

3.1.1 Financial sector

Financial and energy sectors proved to be deeply intertwined, pulling out investments from energy sector immediately affected financial institutions and economy in general because of Russia being isolated from the access to Western capital markets. In 2016, GDP fell by 9%, while in 2015 there was a decrease of 4%, the downturn continued due to high borrowing costs in conjunction with doubtful growth opportunities that kept on obscuring the Russian economy. From 2014 on, Russian government took a lot of efforts to improve and fix economic situation, including implementation of fiscal policy that was aimed at reduction of government spending in different areas and withdrawals from Reserve Funds, which eventually led to the increase of government debt (ibid). In addition, strong consolidation between energy sector and politics stroked to Russian economy even harder.

One of the first prominent Russian banks that was targeted because of Putin's closest allies keeping assets there was Bank Rossiya, the bank was reported to have $11 billion of Putin's inner circle. As a result, after the imposition of sanctions, more than $640 million of assets belonging to Russian companies and individuals were frozen in the US banks, where biggest part was from Bank Rossiya and accounted for $572 million. Next banks that are considered to be Russia's top lenders are Gazprombank, VTB Bank and Sberbank. Sberbank, that keeps approximately 30% of total Russia's assets reported to have lost 20% of net profit in 2014. Next, Gazprom bank also inform to lose $260 million of net profit in the first quarter of 2015, reporting that the bank was literally forced to buy dollars and pay out the debt. Finally, the biggest lender in Russia in face of VTB, announced that bank lost $13 million only in 2014, while the executive board predicted to incur losses throughout the next year. Moreover, CEO of VTB Bank, reported that the main reason why bank suffered losses was because of inability to access free market and borrow money, as a consequence, the bank was forced to turn the vector in other direction. Taking into account that all top Russian banks are deeply intertwined with leading oil companies such as Rosneft, hence the dollar is of vital importance for top three banks.

The full list of Western sanctions with regard to financial ban on banks is as follows:

· Bank of Moscow;

· Gazprombank;

· InvestCapital Bank;

· Rosselkhozbank;

· Sberbank;

· SMP Bank

· Vneshekonombank;

· VTB Bank.

The reason why economic sanctions caused such a great damage to Russian economy is because of strong integration of banking and energy sectors. Before the sanctions were introduced, Russian banks were free to access and take money from Western capital markets and further to redistribute them among Russian companies. However, being included into the list of sanctions, bot bank and energy companies could not afford taking money freely, moreover, they were urged to pay the debt as soon as possible. For instance, Rosneft had a debt that accounted for $60 billion and was forced to pay $20 billion already in 2015 with a ruble decreasing steadily. This situation made Russia to use its foreign exchange reserves. In a year time starting from 2014, foreign exchange reserves fell from $480 billion to $350 billion, in addition, in 2015 Russia reported to have $670 billion debt issued in foreign currency, where $120 billion were supposed to be paid off in 2015. In addition, there was $100 billion pulled out from Russian economy by the US investors. Finally, rating company Standard & Poor's provided Russia a non-investment grade, which as associated with great political risk and serious economic problems.

Financial and energy sectors proved to be deeply intertwined, dramatic profit losses for Russian banking system and problems with long-term Western loans showed that financial system was damaged in a way harder than energy sector. Moreover, taking into account that a great deal of Russia's investments is in dollars, disability to enter Western capital markets caused serious harm to Russian economy. Next, being isolated from Western capital markets, Russia could not turn to international organization such as World Bank and IMF as America is prevailing power and contributor of these organizations. That means that World Bank and IMF would not go contra sanctions imposed in order to help Russia. As a result, Russia started to use domestic financial resources to diminish dollar dependence. As a whole, the dominance of the dollar on global financial arena, made Russia unable to access not only Western capital markets but Asian as well. Pursuant to the National Bureau of Economic Research, a large amount of loans denominated in dollars are coming particularly from European banks. It should be noted that banking system of Russia is strongly dependent on dollar because all the transactions with regard to oil and gas are generated in dollars.

As a result, the economic consequences made Russia to turn its “pivot” to Asia, making closer ties with its geographical neighbor because of Russia's disability to enter Western capital market. For now, Russia continues to recover its economy and China became very prominent player in Russia's economic development since the Western sanctions were imposed. Despite the China's neutral position with respect to Crimea, China prevented Russia from being fully isolated and to some extent gave the international legitimacy concerning the annexation of Crimea. As a consequence, on account for amplified cooperation in the realm of politics and economy, both countries managed to influence international affairs.

One of the most prominent and successful enhancement in cooperation in the financial field with regard to Russia and China is the announcement that two States will be using Yuan for transactions. In 2014, the Central Bank of Russia and People's Bank of China managed to sign an agreement concerning the currency swap that is worth 150 billion Yuan and 815 billion rubles, that agreement intended to promote international trade and contribute to settlement in national currencies. Both sides agree that trading in national currencies would prevent from currency conversion and exchange risks.

Moreover, for the first time since 2013 Russia started to issue bonds that are denominated in Yuan and that marked Russia's return to the bond market (ibid). The bonds were mainly issued by Gazprombank that was of primary target of the Western sanctions. As a result, China became Russia's largest investor providing Russia necessary for the first time financial injection instead of Western investors that have pulled their money out of the projects because of the sanctions imposed.

However, it turned out to be in a way harder to replace New York and London with Shanghai. Many external organizations are still incapable freely issue or list their stocks in Shanghai. Nevertheless, China promised Russia to provide some preferences for Russian companies once the stock exchange is fully open to foreign investors, that would mean that State-owned banks would rather invest in Russian companies than in Western. Honk Kong exchange has been open for foreign companies for a long time, including IPO if Rusal in 2010. Because of this IPO, many Chinese investors lost a lot of money and are not willing to invest in Russian companies anymore, they become very skeptical about investments in Russian companies. Taking into account pressure by the US Treasury, Honk Kong banks eventually refused to open up accounts for companies and individuals from Russia.

With regard to banks, China was cautious as well, choosing not to endanger its relationship with the United States. As a result, four biggest Chinese banks made a decision to follow Western sanctions in spite of the fact that China officially criticizes them. The option between rising their presence in highly risked Russian market that is falling because of economic recession, or to consolidate the position in tremendous and solid markets of the United States and European Union, Chinese banks went for the latter. It is a rare occasion when Chinese loans are accessible to Russian businesses, mostly Chinese banks provide only syndicated loans acting in concert with some other foreign players. In general, liquidity is provided only to supreme borrowers like Gazprom and Novolipetsk Steel, not being objects for European sanctions and do not experience any challenges in receiving Western credits. Furthermore, several Chinese banks that do have large US assets in possession demanded Russian clients to take money out from their accounts, or their money will be frozen. The biggest loan that was given to a Russian company is worth $2 billion for 5 years - the biggest credit that Gazprom has ever taken from a single bank. However, the main financial institutions that were eager to sign agreements with Russian counterparts were three so-called “political” development banks in the face of China Development Bank (CDB), Export-Import (Exlm) Bank of China and the Silk Road Fund (SRF). All these banks do not actively take part in international financial system which allows them to take greater risks for considerable price. However, Russians threw some light on the credit terms from CDB and Exlm Banks as a clear-cut robbery and added that it is in a way cheaper and convenient to dodge sanctions and find a loan in the European Union. It was a big disappointment for the Russian side, nevertheless, the situation started to recover in the autumn of 2015, when Rosneft was provided a huge backing from an unknown source, (most likely from CNPC). Rosneft received $15 billion which eventually stabilized company's financial health. The last but not the least, the funding was eventually received with substantial delays, proving that Chinese support is available but only in the process of lengthy negotiations.

Taking everything mentioned above into account, we may consider that China cannot replace Western capital markets as Russia was expected and hoped, especially for the short term when Russia extremely needed financial injections. Russia's distancing from Western capital markets gave a possibility to China to strike contracts and agreements on its terms and conditions. Next, Russia can establish stable financial relations with China only based on medium and long terms.

3.1.3 Technology

In response to annexation of Crimea, Western countries exercised bans on procuring the following technologies and equipment: deep water drilling, offshore Arctic drilling and shale oil and gas exploration equipment. As a result, Russia felt hopeful to compensate these technological casualties by simply buying them from China. It turned out to be that Chinese technological engagement was very confined because many Chinese companies simply did not have in possession the required technologies that Russia needed, besides provisions of rigs for offshore drilling. However, in 2015 Rosneft announced that China Oilfield Services Limited (COSL) will be participating in the drilling of two offshore exploration wells projects in concert with Norwegian oil company Statoil in the Sea of Okhotsk in 2016. As a result, between 2014 and 2016 there was no significant projects launched as Russia was expected.

However, it should be mentioned that in 2017, Russia reported to start a joint project with China in the Arctic. After 2014, Gazprom could not continue exploration and drilling procedures on its own and was forced to freeze the project. Nevertheless, in 2016, Gazprom declared a tender for Arctic drilling in Kara and Barents Seas, prior to that, Gazprom repeatedly announced it will to resume the projects, but no country was brave enough to break the sanctions. As a consequence, the tender won the drilling rig of Chinese origin, which is Nanhai-8 (ibid). This projects will become one of the first between Russia and China in the Arctic area. This kind of project might establish a solid ground for future prospective and collaboration in the field of energy between Russian and Chinese sides.

3.2 How the perception of the policy of the People's Republic of China in relation to the Russian Federation changed in Russia between 2014 and 2016.

When the Ukraine crisis started, nobody has expected a durable encounter between Russia and the West. As Western sanctions were introduced, the Russian government started to think over possible scenarios that might damage Russian economy. It became clear that Russia is dependent on Western markets concerning technology, capital and hydrocarbons. Russian government came to a conclusion that in order to confront Western sanctions, Russia needs strong companion that is not a supporter of sanctions, and a perfect candidate that could potentially meet Russian hopes and expectations was China. It was a setup and motives that guided the ambitions of Russian government in their turn to China. It was planned not only to improve political ties between Russia and China but to adjust Russian economy to specifics of the East. The hopes and expectations were assigned that China may or will become a top importer of Siberian natural resources, Honk Kong and Shanghai could be able to replace London and New York with respect to capital funding of Russian companies and that Chinese investors would rush buying Russian assets and improving infrastructure. After two years of Russia's pivot to China, Russian leadership realized that China will not justify Russian hopes, namely that Beijing will not provide a shield from Western sanctions. Moreover, there will be no robust geopolitical leverage against Western bloc. As a result, Russia started to perceive rapprochement with China in a different way. Moscow reconsidered certain issues that hindered collaboration with Beijing for many years before the Ukraine crisis took place (ibid). As a consequence, it was decided to remove three main hurdles. First of all, Moscow removed an informal ban on advanced military selling to China. Second, a prohibition on Beijing's involvement in infrastructure and extraction of natural resources was reconsidered. Lastly, Moscow and Beijing managed to solve certain disputes over Central Asian issues which prior to this were considered as restricted opportunities for cooperation.

In comparison with prior methods of communication with Beijing, Moscow has removed a lot of formal barriers that would facilitate Chinese investments in Russia. Moreover, during the Krasnoyarsk Economic Forum, Arkadiy Dvorkovich declared that Chinese companies will be welcomed to participate in energy realm, where access prior to 2014 was strictly limited. Moscow has developed its own mechanism for communicating with China, the intergovernmental commission was formed, including Dmitri Rogozin, Wang Yang and Arkadiy Dvorkovich, Zhang Gaoli. The commission is meant to negotiate large-scale intergovernmental projects and establish strong ties in a less formal environment. Russia perceived that Western sanctions would bring Russian and Chinese elite closer and that it would stimulate and spur bilateral relations.

It should be noted that perception of China was changing not only among political elite but among simple population. There was a patriotic campaign launched in China in 1990, it was meant to induce a feeling of glorious past and revival of strong China. A nation-building narrative became very important when Xi Jinping came to power, it was a part of promoting his concept of Chinese Dream. Resembling national novel happened to become very important for Russia, especially after taking Crimea. It can be said that both countries have been investing a lot in promoting and commemorating important historical events. In Russia, we can still witness that the victory in the second World War is a moral basis for people's identity. The same can be said about Chinese identity, Communist Party of China do not forget to put a particular stress on its role in the war against Japan which resulted in heavy human losses, moreover, the resistance that Communist Party of China has shown in the war again Japan is the central pillar that comprises legitimacy of party's being in power. Both leaders pay a tribute on a yearly basis by visiting Victory Day parade and a Parade over the victory of Japan, which was launched in 2015 by Xi Jinping (ibid).

During 2014 and 2015, both countries put a lot of efforts to bring two nations together through the means of careful control of State propaganda and media. Starting from 2006 in Russia, with respect to State-run televisions, there was an informal ban on saying negative things about China. The same can be said about Chinese side, the propaganda department of Communist Party of China displays to editors of state-controlled television channels to bear in mind what they are to show or tell about Russia and especially get away with criticizing president Vladimir Putin personally (ibid).

According to the polls carried out by the independent Levada Center, such propaganda policy has brought positive result, especially in Russia. According to graph 1, Russia's favorable attitude towards China rocketed in 2014 and comprised 77% , while 15% of participants responded negatively. As we can see, the figures nearly doubled in comparison with 1995, where only 48% of respondents viewed China in a positive way contrasted to 21% of negative perception. It should be highlighted that only 57% of people interviewed considered China in a positive light, while 32% of people interviewed gave a negative mark concerning the attitude towards China. However, from 2014 to 2016 the digits fluctuated from 77% to 80% with respect to positive evaluation towards Sino-Russia relations with relatively small changes in negative attitude towards Russia that swayed from 8% to 11%.



Graph 6. Russian's attitude towards China from 1995 to 2016

Source: Левада-центр, восприятие Россиян других стран, Китай, 2016

The result in changes towards China is considerable. This might be well explained by the influence of mass media over the Russian population, moreover, aftermath the Ukraine crisis, the anger towards West sparked significantly. However, some Western experts do claim that average Russians do have negative feelings towards China but the research conducted by Levada Center is hard to contravene. Nevertheless, speaking about political elite, being prudent and attentive towards China is a part of their job, but the way of thinking of population went through considerable changes as a consequence of the Ukraine crisis.

One of the crucial factors that spurs relations between Russia and China is personal affection and friendship of two country leaders, Vladimir Putin and Xi Jinping. Finally, the ability and flexibility of Russia to react and perceive Beijing's policy towards Moscow may bring a lot of positive implications in the future. However, despite the fact that in 2014 and 2015 not all projects were implemented and taking into account that China does not do business according to proper European standards, Moscow managed to achieve some success and lay the robust foundation for the future prospective, as China is growing superpower that will require natural resources, military equipment and access to new market. Russia's opening for China and provision of necessary equipment together with resources, in reverse, Moscow may require from China to become economic and financial safeguard from the West.

3.3 Research results and discussions

To some extent Chinese engagement and involvement in financing showed up in the after-effect of the Ukraine crisis. It was noted that the amount of high-level meetings and negotiations increased with respect to discussions of great energy projects such as Power of Siberia, which is regarded as one of the biggest energy deals in the world. With reference to Chinese financial assistance, it was not as large as it might seem at first sight, initially Russia assigned greater hopes and expectations. (see graph 7)

Graph 7. Credits issued to Russian companies from China from 2007 to 2015

We can clearly see that Russian companies started to borrow very actively from China in 2014 and 2015, however, this trend set off in 2012, well before the events in Ukraine. Moreover, there was another precedent when Russia turned to China on the issue of borrowing in 2008-2009, a time when financial crisis reached Russia. As the graph indicates, we may conclude that Russia speaks to Chinese counterpart when liquidity becomes in short supply. As to Russia's expectations of China's buying Russian assets and providing FDI also fell short. (see graph 8)

Graph 8. The flow of Foreign Direct Investments from China to Russia from 2008 to 2016

We can see that the FDI from China to Russia reached its peak in the end of 2013 and the beginning of 2014 with the following fluctuations in 2015 and 2016. There was no stable and steady flow of FDI as it was planned, however, the activity of China with respect to FDI increased in comparison with pre crisis line. Taking everything mentioned above into account, the financial contributions of China to Russia are not as huge as they sometimes appear.

The same might be said about Russian energy market, where China is very cautious and is not in a hurry with implementing bilateral projects. According to graph 4, there was a positive trend of Russia's oil exports to China starting from 2009 to 2014 when exports hit its peak and reached a mark of $28bn. However, starting from 2014 there was a significant fall in exports of oil from Russia to China. The logical reason for that issue might be explained with sharp decrease in energy products that neither Russia nor China control.

Speaking about natural gas, first exports of gas to China started in 2009, hitting its peak in 2012 that amounted nearly $4 bn. However, natural gas exports hit the bottom line again in 2013 and the exports restored the next year and continued to grow up to 2015.

Graph 9. Russia's revenue from exporting oil and gas to China from 2000 to 2015, million USD

However, there might be additional factors that might have influenced Sino-Russian relations in the field of energy: both countries are known to have controlling side in all projects they lead, as a result that led to serious hardships in closing the deals. Another important point is that Russia managed to successfully overcome difficulties with regard to energy sector when the prices fell dramatically: it actually meant that while the revenue from oil and gas dropped, the costs of that exports fell subsequently, giving Russia a chance to recover and reject financial help from China that would eventually lead to a greater dependence from Chinese side. As a result, Russian energy conglomerates evaded to be as dependent on Chinese help as was initially expected.

To sum up the main points of this chapter, turnover of energy, investment, lending and technology before and after Crimea do not indicate at considerable participation of China in keeping Russia's economy going or even growing. As to technology, China simply cannot substitute sanctioned installations and equipment simply because they do not have it in possession, the first signs of cooperation with regard to advanced drilling technology started only in late 2017 when Chinese company won a tender for Arctic drilling. This might be well explained by the drop of Russian ruble, unpredictability of Russian politics, low income from oil and gas selling, western sanctions and current economic crisis that take place in Russia.



CONCLUSIONS

The aim of this research is to determine and investigate the expectations of the Russian Federation from People's Republic of China in the process of “Russia's pivot to Asia”. It is important to understand what exactly Russia expected from China in the period after the imposition of Western sanctions and to what extent these expectations were justified. Moreover, it is worth to shed some light on how the perception of the policy of the People's Republic of China in relation to the Russian Federation changed in Russia between 2014 and 2016. In particular, this research addressed the following hypothesis: Russia's ambitions of greater involvement with China have failed to meet its expectations because of ruble volatility, sanctions, political instability and the economic crisis in Russia.

In order to attain above mentioned aim and validate the hypothesis, a theoretical framework was developed on Sino-Russian relations before and after Crimea (Gabuev, 2015,2016, Stent, 2016), analytical notes and authors' opinions (Karpov, 2015, 2016, Overland and Kubayeva 2018, Rechetnikova 2017), statistical data (The Central Bank of the Russian Federation, World Bank, Reuters, Bloomberg) and interstate agreements between Russia and China. Examination of Russia's concept of “pivot to Asia” has been studied with an eye to create conceptual modelling of the research. As a consequence, notably, the author of the present paper has adopted descriptive research design as the main research method. In addition, the comparative research method was used. The data collection instruments included contracts of private companies between Russia and China, interviews and speeches of political leaders, websites of the leading providers of financial information and analytics for professional participants, interstate agreements between Russia and China and statistical data from respected sources such as European Commission, World Bank and the Central Bank of the Russian Federation

The following conclusions have been drawn:

· There was no active involvement of China in Russian energy sector since the Ukraine crisis as Moscow was expected. Only three major projects (Power of Siberia, Yamal LNG, Vankor) out of eight were realized or hold the status of negotiations, while the rest failed to meet contract conditions. Only one project, which is - Rosneft: Vankor was initiated straight after the events in Ukraine, whereas, the other two were being discussed long before the Ukriane crisis.

· China could not replace Western capital markets in a full scale as Russia planned, especially for the short term when Russia was forced to pay the debts out to the West. Moreover, private Chinese banks remained loyal to Western sanctions and forced Russian individuals and companies to withdraw money from their accounts. However, Russia and China managed to sign a-three-year currency swap contract worth 150 billion Renminbi for three years. Next, Shanghai exchange promised favorable conditions for Russian companies when it is open for foreign companies. Finally, the credits are available only for top borrowers such as Gazprom and Rosneft.

· The choice between increasing their presence in high-risk Russian market that is falling because of economic recession, or to consolidate the position in tremendous and stable markets of the United States and European Union, Chinese banks went for the latter.

· Chinese engagement with respect to advanced drilling equipment was very confined. Initially, Russia assigned hopes to replace progressive arctic, offshore and exploratory equipment with the help of China, it turned out to be that China did not have such an advanced technology to help the Russia out. The very first tender with regard to arctic drilling was announced in the end of 2017 when a Chinese company won the first tender.

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