Eastern Economic Integration Projects and the EU Periphery

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(Photo Credit: Sasha Maksymenko, Flickr Commons)

(Photo Credit: Sasha Maksymenko, Flickr Commons)

The turmoil in Ukraine is far from over. More than one year after Russia’s annexation of Crimea and the outbreak of hybrid war in the Donbas, European Union leaders are still trying to make sense of the crisis that has disrupted Europe’s post-World War II security order. The origins of the conflict in Ukraine are still poorly understood, and European leaders―who are currently faced with a testing refugee crisis―seem to be overlooking the complex origins and consequences of a series of events that threaten Ukraine’s statehood and that have unraveled the security situation in the Union’s wider southeastern periphery.

Attempts to foster economic integration in the space between Europe and China form the broader context for analyzing the crisis in Ukraine. The country fell victim to the collision of two competing integration projects that Russia and China have set up in the recent past: the Russian-led Eurasian Economic Union (EAEU) and China’s One Belt, One Road (OBOR) initiative.

Currently, both states are using these projects to reshape allegiances across the Eurasian mega-continent. Although Russian leaders traditionally see this geographic space as their country’s sphere of influence, in the last two decades, China has established prosperous economic relations with many of the post-Soviet states. Ukraine has emerged as an interesting partner for Chinese investors, mainly because of its proximity to the EU market.

In 2011, President Vladimir Putin summarized the objective of establishing a common economic space among Belarus, Kazakhstan, and the Russian Federation. Putin saw the opportunity to foster economic development in the post-Soviet space and connect Europe with the dynamic Asian-Pacific region. Russia was looking for new sources of economic growth in the wake of the financial and economic crises in the United States and EU.

The Treaty on the Eurasian Economic Union (EAEU) – which created an economic union allowing for the free movement of goods, services, capital, and labor and established coordinated economic policies among participants – was signed on May 29, 2014 and went into effect in 2015. The establishment of the EAEU aimed to avoid the prospect of disintegrating regimes in the post-Soviet space. Russia, Armenia, and Kyrgyzstan subsequently signed onto the EAEU in 2014. From Russia’s standpoint, the stability of the regimes in Central Asia is and will be particularly vital in a period of imminent succession and in the context of Afghanistan’s post-ISAF development.

During a visit to Kazakhstan on September 7, 2013, Chinese President Xi Jinping announced the OBOR initiative, driven by the need to secure trade routes and interlinkages between existing infrastructural and energy investments, as well as by the search for a response to domestic economic challenges. Overcapacity in China’s steel and construction sectors has become a serious problem in recent years, and large infrastructure projects abroad could help relieve the pain from these troubled industries. The leadership’s unease about the security situation along main sea-lanes forms another important driver for China’s strategy to develop and integrate a transcontinental overland route that follows the ancient Silk Road with a maritime route stretching from south China to the Mediterranean.

Geopolitical concerns along their country’s western border also drove Chinese leaders to conceptualize and formalize the OBOR initiative. The initiative builds on policies initially implemented to foster economic development in China’s northwestern Xinjiang Uighur Autonomous Region, which for decades has been a staging ground for ethnic and religious conflicts.

For more than a decade, economic policies to develop Xinjiang and stabilize its immediate neighborhood have mainly focused on energy cooperation with resource-rich Central Asian states. Chinese leaders view this approach as a feasible blueprint for the stabilization of the broader region. Hence from a geopolitical perspective, both the EAEU and the OBOR initiative envision Central Asia as vital. Economic development in this core region is needed to improve social stability and ensure the resilience of local regimes.

On his last visit to China in December 2013 – only weeks before he fled the country – former Ukrainian President Viktor Yanukovych secured investment deals worth several billion U.S. dollars. The most remarkable deal concerned a $10 billion project by a Chinese company to establish a deep-water port in Crimea. This port would be built in close proximity to the port of Sevastopol, where the Russian Black Sea Fleet is stationed.

In the Russian media, this development was debated vividly. Commentaries and reports discussed how Ukraine had “sold” Crimea and the notion that China was including the peninsula into its “sphere of influence” as part of an OBOR project that “bypasses” Russia. Together with the progressing development of the Greek port of Piraeus, the planned deep-water port on the Crimean peninsula could have become another hub for bringing Chinese exports to the Black Sea region and Russia.

Indeed, Russia’s Eurasian Customs Union and single economic space faced both institutional and economic competition by multi-billion-dollar Chinese investment deals and the impending conclusion of the EU Association Agreement with Ukraine. These developments threatened to profoundly transform the political economy of Russia’s relations with Ukraine. Thus, it is insufficient to discuss the conflict in Ukraine as an internal conflict that emerged between different ethno-linguistic constituencies or as a competition between Russia’s project to re-integrate the post-Soviet space and EU efforts to export European institutions and legislation. Because most analyses of the crisis in Ukraine fail to acknowledge China’s role, they also overlook the implications of the annexation of Crimea for the further interaction of China’s initiative and the Russian-led EAEU.

Under Xi Jinping, China’s foreign policy has become more confident, with the country now seeing itself as a re-emerging regional power. The OBOR initiative seeks to move the country’s foreign trade to continental lines of communication, as the emphasis of domestic economic development gradually shifts from coastal regions to the populous heartland. This shift stresses China’s continental posture. In addition, the use of the term “Silk Road” in the discourse of the initiative bears a strong historical and cultural connotation. It underlines the foremost role that China claims for itself in the context of this geo-economic project.

Russia’s more assertive foreign policy, however, stresses the notion that others should no longer ignore its position on salient issues of global governance. Its actions in Ukraine showed that in the post-Soviet space, outside actors have to acknowledge Russian interests. In the aftermath of the annexation of Crimea, diplomatic efforts have aimed to align the Chinese OBOR initiative with Russia’s Eurasian Economic Union. Russia joined the Asian Infrastructure Investment Bank that is to become a vehicle to finance the implementation of large-scale OBOR-projects.

The rapprochement between Russia and China culminated in a joint declaration (in Russian/Chinese) on the “linking up” of both projects that was signed in Moscow on May 8, 2015. Subsequently, many official statements have stressed the cooperation between the integration projects. Because the events and discourses prior to the joint declaration displayed a considerable divergence with respect to the ideological foundation and primary goals of the respective integration projects, their further implementation will most likely fluctuate between conflict and cooperation.

Following the crisis in Ukraine and the implementation of sanctions against Russia, many conceptualize the relations between the West and Russia as a “new Cold War.” But this notion is utterly misleading. With China’s involvement in the neighborhood that the EU and Russia share, a new constellation has evolved. This situation is marked by direct Chinese interference in the political economy of the post-Soviet space, increasingly assertive Russian and Chinese foreign policy approaches, and an ambivalent alignment of their integration projects. Oscillating between collision and collusion, these projects – together with weak and unstable institutions in the affected states – result in much more complexity and volatility than the Cold War dichotomy caused in the past.

An assessment of this new situation and the development of a policy approach for the EU and NATO must be based on two factors. First, it is vital to acknowledge that Russia and China are establishing a diverse set of multilateral institutions beyond the United Nations, where Western states can neither observe nor influence decision-making processes with respect to crucial geo-economic developments. Second, politicians and policymakers must take into account the willingness of Russia and China to reshape the international economic and security order – either in collusion with each other or as a result of conflicting interests.

As hybrid wars and a flurry of competition and cooperation between opaque autocratic integration projects destabilize the southeastern EU neighborhood, EU and NATO leaders have to come up with a comprehensive response to prevent turmoil from spreading further.

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Susann Handke is an international lawyer. She conducts research and publishes on issues of international economic governance, especially the governance of EU-Russia energy relations and China’s oil diplomacy. She is a research associate at the IIAS Centre for Regulation and Governance, Leiden, Netherlands. Frans Paul van der Putten is a senior research fellow at the Clingendael Institute in The Hague, Netherlands. He has a PhD in History from Leiden University. From 2001-2006 he worked as a researcher at Nyenrode Business University. Since 2007 he has been working at Clingendael, where he conducts research on international security issues and on China’s role as an emerging global power.

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