China, Russia and 23 others:
Challenging the global system

Despite the divergence of interests between Russia and China, the leaders of both countries share a deep commitment to changing the world order: reining in American power and shifting the center of economic and political gravity from the Atlantic to the Asian region. The Shanghai Cooperation Organisation (SCO) has de facto become the umbrella under which this project is being discussed and developed.

Although one can hardly doubt that China and Russia play a dominant role in the organization, participation may appeal to countries that feel mistreated by the West but are unwilling to become Chinese or Russian satellites. Turkey and India are two examples. However, sharing dissatisfaction with the West and a desire to maintain business relations with China and Russia does not ensure that the members form a homogenous group. In fact, far from it.

The military agenda

Until now, the organization has mainly operated to fight terrorism, sharing information relevant to the countries’ internal security and little else. Attempts to coordinate policies in the areas of energy and banking have not met with much success, and it is apparent that the relatively modest usefulness of this group is at odds with the high-level attendance of its meetings. The next annual SCO summit of the heads of state is taking place on July 3-4 in Kazakhstan’s capital, Astana.

The military agenda will probably boil down to promoting cooperation in military and dual technologies and selling military equipment to some member states.

 

Regardless of the official agenda, key items on the table concern military and economic cooperation. The range of options is limited, as are possible outcomes.

Some SCO countries are involved in areas affected by military turbulence unrelated to the war in Ukraine. Although it is apparent that no member of the group wants to be involved in Russia’s aggression by operating alongside it on the ground or in the air, the role of some states in the conflict is not negligible. For example, China and Iran supply Moscow with military and dual-use equipment, while Belarus is hosting Russian troops, advisors and weaponry.

At the same time, Turkey has been delivering drones to Ukraine, has approved Sweden’s accession to NATO (which significantly worsens Russia’s strategic position in the Baltic Sea region) and, implementing Western sanctions, has restricted trade and financial operations with Russia. Other members – for example, Kazakhstan – are happy to act as intermediaries and gain financially by allowing Western companies and Russia to circumvent the sanctions.

The Ukraine theater is not the only one. A severe China-U.S. confrontation is building up around Taiwan. Although China will do its best to assure neighbors that its anticipated attempt to invade Taiwan is a “domestic matter” with no impact on the rest of the region, some SCO members will be very uneasy about the situation and the group’s cohesiveness will suffer.

The military agenda will probably boil down to two issues: promoting cooperation in military and dual technologies among the members and selling military equipment to some member states. Neither of these issues will show up in the minutes of the July meeting. Yet, summits are not for making decisions; their purpose is to ratify or publicize previously agreed-upon accords and pave the way for future treaties. We will see about the outcome, of course, but some skepticism is justified as the Shanghai organization does not provide the appropriate playing field for these initiatives.

Economic cooperation

The group features only one technological superpower – China. India could become a distant but unlikely follower by the end of the decade. Russia’s role is that of a buyer or possibly imitator rather than that of a significant developer. India’s high technology industry is booming, but one can guess that New Delhi is less than willing to put its future in Chinese hands. China, too, will refrain from weakening its dominant position by sharing its know-how with India – or Russia. In other words, the highest stakes are actually between Russia and China, the principal buyer and the leading seller, and this game will play out in bilateral meetings at various levels, but not at an SCO summit.

Trading within blocs

Economic cooperation probably holds more promise. Protectionism is on the rise, world trade is suffering and the outlook for the near future – especially for China – is not bright. In general, it pays to be part of a traditional trading bloc such as the North American Free Trade Agreement (NAFTA), the Association of Southeast Asian Nations (ASEAN) or the European Union.

Being on your own is risky, especially for developing countries with comparative advantages in merchandise. In other words, globalization enhances efficiency but also makes countries vulnerable to disruptions. These tend to be more frequent when domestic and international turmoil intensifies. Low growth and questionable centralized industrial strategies encourage populist protectionism to shield local industries at a time when geopolitical tensions stoke aggressive trade policies.

Further intensifying trade with China could be problematic for many SCO partners as it would lead them to become still more dependent on Beijing in critical industrial areas.

 

Within this context, the creation of a vast free-trade area could lead to significant benefits for all participants. The Shanghai group could well focus on this agenda to promote growth in member countries and give renewed meaning to its existence.

Contradictory interests

However, nothing of the kind emerged from the preparatory Astana meeting in May, and no new initiative seems to be underway. That is not without good cause. Except for China and India, member countries export raw materials and low-tech manufactured goods while generally importing advanced equipment and end-use consumption goods. At present, their natural partners are China and the West. Further intensifying trade with China could be problematic for many as it would lead the partners to become still more dependent on Beijing in critical industrial areas.

Many SCO members find it desirable to deepen trade relations with the West – especially if this would ease its traditional, protectionist and patronizing attitude toward developing countries. However, a scenario featuring tighter commercial ties would not materialize within this organization’s framework. On the one hand, China would insist that its partners reduce commercial interaction outside the group, On the other hand, Western authorities would fear that more open trade with a China-backed free trade zone would make sanctions more porous whenever East-West relations take a turn for the worse.

This report was originally published here: https://www.gisreportsonline.com/r/china-russia-challenge-global-system/