VZCZCXRO5620
RR RUEHCN RUEHDBU RUEHGH RUEHLN RUEHPOD RUEHSK RUEHVC RUEHVK RUEHYG
DE RUEHMO #1912/01 2051213
ZNR UUUUU ZZH
R 241213Z JUL 09
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 4351
INFO RUEHXD/MOSCOW POLITICAL COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RHEHNSC/NSC WASHDC
RUEKJCS/SECDEF WASHDC
RUEHOO/CHINA POSTS COLLECTIVE

UNCLAS SECTION 01 OF 03 MOSCOW 001912 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: PREL PGOV ECIN EFIN EINV CH RS
 
SUBJECT: RUSSIA AND CHINA CONTINUE QUIET ENGAGEMENT 
 
¶1. (SBU)  In contrast to the high-profile visit of President Obama 
to Moscow two weeks ago and the attendant expectations for a "reset" 
U.S.-Russian bilateral relationship, Chinese President Hu Jintao's 
June 16-18 official visit was low key and almost routine.  Moscow 
and Beijing are continuing a quiet engagement of strategic 
partnership, one characterized by similar views on major regional 
issues such as North Korea and Afghanistan, as well as coordination 
of positions in international organizations.  While the two 
countries enjoy a healthy trade relationship, China clearly is the 
lead economy of the two with more investment power and a bigger 
appetite for consumption.  Moscow's resentment that the bilateral 
trade consists of Russia trading its raw material for finished 
Chinese goods and Beijing's frustration at the investment barriers 
in the Russian economy are potential sources of friction.  While 
Russian officials at the federal level uniformly downplay migration 
issues as a problem, regional officials and the public continue to 
exhibit occasionally a xenophobic fear that the much larger Chinese 
population across the border would one day overwhelm the smaller 
Russian population and exert control over Russian economy and 
society through its migrants. 
 
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China and Russia on Equal Political Footing 
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¶2. (SBU) That Russia and China were the two main driving forces 
behind the Shanghai Cooperation Organization (SCO) and continued to 
find significant value in their "strategic partnership" was driven 
home when, on the heels of the June 15-16 SCO summit and the first 
ever BRIC summit in Yeketerinburg, Chinese President Hu Jintao 
traveled to Moscow June 16-18 for an official visit.  There, he met 
with President Medvedev, Prime Minister Putin and the Speaker of the 
State Duma Boris Gryzlov to discuss a range of political and 
economic issues, including security and stability in Central Asia, 
SCO's role in tackling terrorism, and the drug trade originating 
from Afghanistan. Both MFA officials and the Russian media noted 
that following last year's demarcation of the Russian-Chinese 
border, which put an end to a long-standing dispute between the two 
neighbors, the slate of outstanding issues was completely clean and 
there was no longer any political obstacle standing in the way of a 
continued deepening of the bilateral relationship. 
 
¶3. (SBU) In particular, Moscow and Beijing demonstrated anew their 
similar outlook on a number of regional issues during Hu's two-day 
visit. Releasing a joint statement June 17 on a wide range of 
political, economic, domestic and international issues, Medvedev and 
Hu reaffirmed Russia and China's support of the UN Security 
Council's actions following North Korea's May 25 nuclear test and 
other provocations, and agreed that Iran's nuclear program should 
strictly have peaceful civilian energy ends.  While calling on 
Pyongyang to return to the Six Party Talks, the joint statement also 
warned the countries in the region to refrain from an arms race.  It 
reflected both Moscow and Beijing's unique positions as friends of 
Pyongyang, as well as their shared unease that a deterioration of 
the security situation in Northeast Asia would lead to either a 
rearmed Japan or a deepening of the U.S.-Japanese-South Korean 
alliances to the detriment of Russia and China's long term national 
interests. 
 
¶4.  (SBU) On Afghanistan, the Chinese embassy here told us that 
Beijing has been watching very closely the increasing cooperation 
between the U.S. and Russia, and hoped to use the terms of the just 
concluded lethal transit agreement as a guide for its own 
deliberations on the U.S. request to use Chinese territory and space 
for the transit of ISAF supplies. 
 
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Beijing Clearly Leads on Economic Issues 
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¶5. (SBU) MFA contacts pointed to the serious discussion of the 
global financial crisis, reform of the international financial 
institutions, and the role of BRIC during Hu's official visit as 
evidence of a healthy economic dialogue between two important 
economies.  Some of them also admit, however, that Moscow does not 
have the capacity as Beijing does to help turn the crisis situation 
around.  While Russia has offered loans and assistance to former 
Soviet republics and has indeed delivered on some of them (most 
notably to Kyrgyzstan, Armenia and Belarus), the scope of such 
assistance cannot compete with the USD 10 billion line of credit 
that Beijing announced it would offer for SCO development projects 
during the Yeketerinburg summit.  More notably, instead of the new 
SCO Presidency Uzbekistan, Beijing will host in October the SCO 
Prime Ministers' meeting, and Russian officials describe this 
upcoming meeting as the economic highlight of the year for the SCO, 
where China is expected to provide in more detail the terms of its 
USD 10 billion offer. 
 
MOSCOW 00001912  002 OF 003 
 
 
 
¶6. (SBU) On the bilateral front, Moscow and Beijing signed a series 
of agreements, including: two memorandums of understanding (MOU) on 
gas and coal cooperation, an MOU between the Russian Ministry of 
Economic Development and the Chinese Ministry of Commerce on the 
promotion of bilateral trade and exchange of technical goods and 
machinery, an agreement for a USD 700 million dollar credit from the 
Chinese Export-Import Bank to the Russian Development Bank (VEB), 
and an MOU between Russian investment and asset management company 
The Renova Group and China's state gold-prospecting corporation 
National Gold Group Corporation (CNGGC) to cooperate in gold and 
platinum exploration and mining in the Kamchatka Peninsula.  The two 
leaders also discussed electric and atomic energy cooperation, and 
the use of national currencies in energy trading.  Separately, 
Russian company Lukoil and its Chinese counterpart Sinopec signed a 
contract to supply three million tons of crude oil from the South 
Hylchuyu deposits in Nenets Autonomous Region to China. 
 
¶7. (SBU) MFA officials told us that Russia's growing energy 
cooperation with China is part of an effort to diversify its energy 
export markets, particularly in light of recent energy discords 
involving Europe and problematic transit issues with neighboring 
states.  In continuing to focus on energy deals as the only economic 
deliverables of substance, however, Moscow is perpetuating the 
qualitative imbalance in the Russian-Chinese bilateral trade, of 
which the GOR has long complained.  The lack of a manufacturing base 
is hampering the export of finished goods from Russia, experts tell 
us, and in the absence of meaningful plans to invest in its 
industrial infrastructure and encourage small and medium business 
development in favor of the large state-owned and oligarch companies 
with loose Kremlin ties, the typical Russian business only knows how 
to conclude deals to sell Russia's abundant natural resources. 
 
¶8. (SBU) Another notable issue in the economic relationship is the 
lack of mutual investment.  Though trade between Russia and China 
totaled USD 56 billion last year, the cumulative investment from 
China to Russia is only USD 1.7 billion, and from Russia to China a 
paltry USD 400 million.  While Russian and Chinese leaders discuss 
means to expand mutual investment, our Chinese embassy contacts 
complain to us that Russia still has many legal, administrative, and 
procedural barriers that hinder investment, particularly with regard 
to strategic sectors in which China has expressed interest in 
investing. 
 
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Russians and Chinese Play Down Migrant Problem 
--------------------------------------------- - 
 
¶9. (SBU) Officially, both Russian and Chinese officials played down 
migration as a problem between the two countries, even though it 
does occasionally feature in summit discussions, including during 
Hu's June visit.  Indeed, experts agree that the transient nature of 
the Chinese migrant workers and their overwhelming preference to 
return home after a four to five period of working in Russia make 
this issue a tempest in a teapot.  In the Russian Far East, scholars 
such as Viktor Larin of the Institute of History, Archaeology and 
Ethnology of the Peoples of the Far East believe the number of 
Chinese residents there is closer to the 30,000 to 40,000 range than 
the 100,000 number that is widely quoted in the press, accounting 
for only two percent of the RFE economy. 
¶9. (SBU) Unofficially, officials outside foreign policy circles and 
in the regions, as well as local trade unions and the public, 
continue to be wary of the possibility of a large influx of Chinese 
nationals into Russia, especially during the current economic 
downturn. Spotty statistics on the relatively low number of Chinese 
in Russia are no match against public apprehension that only 6.7 
million people, with the population steadily dwindling, live in the 
enormous Far East region, while at least 100 million Chinese inhabit 
lands directly adjacent to Russia on the other side of the border. 
China's voracious appetite for Russian raw materials and the 
presence of Chinese industrial and mining companies in the Far East, 
bringing with them seemingly large numbers of Chinese workers, add 
to the Russian public's unease and some officials' concern that the 
inflow of Chinese workers represented a "very dangerous trend." 
¶10. (SBU) There are recent signs that migration may become a more 
serious issue in Russian-Chinese relations after all.  Last month, 
as Russian authorities closed down Moscow's sprawling Cherkizovskiy 
market (septel) directly adjacent to the more famous Izmailovo 
market, purportedly a crackdown on trade, sanitation, and fire code 
violations, the Chinese government expressed concern over the 
welfare of Chinese citizens affected by the closure and an estimated 
USD 2 billion in merchandise that was seized.  As in most such 
cases, statistics regarding the migrants working at the market 
varied widely.  While groups such as the Federation of Migrants of 
Russia estimated that the market employed approximately 100,000 
workers, some 45,000 of them migrants, the Federal Migration Service 
states that only 3,000 migrants worked at Cherkizovskiy out of a 
 
MOSCOW 00001912  003 OF 003 
 
 
total of 14,000 workers.  Regardless of the numbers, the July 22 
arrival in Moscow of a Chinese delegation led by Deputy Commerce 
Minister Gao Hucheng to discuss with the Russian authorities ways to 
recover the seized merchandise and help the traders to relocate 
their shops is an indication of the seriousness with which the 
Chinese government is taking this issue. 
BEYRLE