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http://www.newsmax.com/archives/articles/2002/1/26/232016.shtml
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Peace at any cost is a Prelude to War!
Russia Suffers While Arming China
Dr. Alexandr Nemets and Dr. Thomas Torda
Thursday, Jan. 24, 2002
1. Is Russia Facing a New 'August 1998'?
Let's look at the following figures, provided by the Russian Central Bank and
some leading non-governmental economists.
Russia's imports are steadily increasing: They gained 17.8 percent in 2000
and another 18.5 percent in 2001.
Russian exports gained 24.6 percent in 2000, but lost 2.1 percent in 2001;
the decrease on an annual basis was 2.4 percent in the third quarter of 2001
and 15.6 percent in the fourth quarter.
Monthly export volume fell from $10 billion in October-December 2000 to
slightly over $8 billion in October-December 2001 – despite substantial
growth in shipments of oil and other raw materials abroad. Falling world oil
prices stymied the Kremlin.
As a result, the positive balance in Russia's foreign trade fell from $46.3
billion in 2000 to $34.2 billion in 2001. In the fourth quarter of 2001, this
positive balance fell to about $7 billion against approximately $16 billion
in the fourth quarter of 2001.
Despite a fall in currency inflows, the unofficial capital outflow was almost
the same in 2000 and 2001 – $22 billion compared to $21.1 billion. As a
result, the share of "earned capital" leaving Russia rose from about 45
percent in 2000 to 60 percent in 2001.
The dynamics of the Russian Central Bank hard currency reserves perfectly
reflect the export-import dynamics, complicated by hard currency outflows.
During 2000, these reserves rose from $12.5 billion to $28.9 billion; by late
September 2001 the reserves additionally expanded to $38.6 billion. By the
end of 2001, they had fallen to some $36.5 billion.
Without much doubt, the short-term growth of the Russian economy has ended.
GDP growth on an annual basis fell to almost zero in fourth quarter 2001.
This growth was based on high world market prices for oil and oil products,
natural gas, ferrous and non-ferrous metals and mineral fertilizers, which
collectively account for at least 80 percent of Russian exports.
After the Sept. 11 attacks and especially in fourth quarter 2001, prices for
these products fell dramatically, thus undercutting Russia's economic base.
Remarkably, total profits of Russian industrial enterprises rose by 90
percent in 2000, but fell by about 8 percent in 2001, including a 15 percent
fall in the fourth quarter.
Let's look at how the new situation is reflected in the daily life of Russian
citizens.
An increase in the total number of unemployed began in June 2001 and
accelerated by year's end. Total unemployment rose from 8.5 percent to about
9 percent. At the same time, total back wages due rose by about 10 percent.
The monthly inflation has surpassed 2 percent and is accompanied by "crawling
devaluation" of the ruble. According to Dr. Mikhail Delyagin, considered one
of Russia's leading economists, "these tendencies may make the current year,
2002, a pre-crisis one."
Indeed, all of these Russian economic problems are still growing in 2002, and
could – barring a miracle boosting world raw materials prices – lead to a
full-scale crisis by year's end.
Take into account the fact that Russia has $14 billion for foreign debt
principal and interest payments due in 2002 and $19 billion in 2003, and the
possibility of a new "August 1998" becomes real.
In December 2001-January 2002, Smolensk, Ulyanovsk, Yekaterinburg and some
other Russian cities as well as hundreds of towns had no money to pay for
natural gas and other fuel.
In these cities and towns, the temperature in apartments has fallen to
12-14°C (54-57°F) or less, and the length of school lessons has fallen from
45 minutes to 30 minutes, because the children are freezing. That's in
addition to chronic brownouts and blackouts in the power supply.
Even in mid-2001, tens of millions of people in Russia are teetering on the
brink of survival. This number is steadily growing and will continue to grow
during the rest of this year. And what will happen in 2003?
Between mid-1999 (when Russian President Vladimir Putin assumed power) and
the end of 2001, Russia's population – despite a narrow flow of immigrants
from former Soviet republics – fell by about 2.5 million to 144 million (the
same figure as in 1995).
This depopulation is now accelerating, due to worsening socioeconomic
conditions. In addition, epidemics of HIV/AIDS, tuberculosis and hepatitis
are taking several hundred thousand victims every month – not to mention the
horrific spread of alcoholism and drug abuse, which have half-destroyed
Russia's infrastructure.
And there is no money – real money, not rubles – to treat all these
maladies.
Russia very probably is facing a new financial-economic and sociopolitical
catastrophe. The Kremlin knows this perfectly well, and is growing desperate.
2. Arms Exports From Russia to China – By All Means Available
For their regime to survive, Russia's rulers need huge volumes of hard
currency from abroad. Raw materials have failed them, so the only remaining
reserve is the unlimited export of weapons and related technologies.
The authors predicted such a development several times – in articles
published by NewsMax in September-December 2001 (see below). Now the
worst-case possibilities are becoming a reality.
In 2001, Russia's arms exports officially rose 20 percent, to $4.4 billion,
including $3.68 billion provided by Rosoboronexport, the state-owned weapons
export monopoly, and $620 million jointly provided by six large defense
industry enterprises.
Russian weaponry went to 67 countries, but in quantitative terms at least 80
percent went to China, India and Iran.
According to reliable sources (Jane's Defence Weekly, Jan. 16, 2002, and the
Far Eastern Economic Review, Jan. 24, 2002), China accounted for between $2
billion and $2.2 billion out of the above $4.4 billion.
This included the following:
During 2001, the Sukhoi Corporation alone shipped 40 SU-series fighters,
including 30 Su-30MKK fighter/attack aircraft worth over $900 million, from
its Komsomolsk-na-Amure plant and 10 Su-27UBKs fighter-trainers worth over
$200 million from its Irkutsk plant.
In addition, Sukhoi delivered dozens of complete kits (up to 50) for licensed
assembly of Su-27SKs at the Shenyang Aviation Plant in China's northeastern
province of Liaoning; these kits may have cost as much as $300 million.
The PLA, by the authors' estimate, received from Russia between $100 million
and $200 million in military hardware for the PLA ground troops.
New supplies of air-defense weaponry – mostly long-range/high-altitude S-300
systems and mid-range/mid-altitude Tor-M1 systems – totaled between $200
million and $300 million.
Naval weapons of various kinds constituted the rest of Russia's arms exports
to China.
Russia's official exports constitute only a fraction of the real deliveries,
just as China's real defense outlays exceeded by 4.5 times – in the authors'
estimate – that nation's official defense expenditures in 2001.
(Beijing announced in March 2001 that its published defense budget was
jumping over 17 percent, to $17.2 billion. Many analysts, according to an
article in the Far Eastern Economic Review of Jan. 24, 2002, estimate real
Chinese defense spending in 2001 – including payments for foreign weapons and
technology – at over $60 billion, i.e., about four times the official
figure.)
3. Underground Kingdom
A Vladivostok Daily report from Sept. 14, 2001, is especially telling.
Customs agents of Russia's Maritime region reported seizing parts for a
Russian Sukhoi-27 fighter jet during an attempt to smuggle them into China on
Sept. 8.
The parts, a navigational unit and a generator valued together at $550,000,
were found sealed in two metal boxes under farm equipment parts inside a
truck in Ussuriysk, some 70 km from the Sino-Russian border.
The Customs sources said that agents regularly seize military parts en route
to China because the country has lots of Russian-made hardware, including
aircraft, tanks and naval ships. It is more expensive to buy parts for them
through official channels. (Emphasis added)
Just days ago, the authors published material on the Chinese semi-occupation
of the Maritime region and the flows – both legal and illegal – of raw
materials from this region to China's Heilongjiang province.
The same holds true for weaponry. Since spring 1999, when the Shenyang
Aircraft Plant (mentioned in Part 1) began Russian-licensed assembly of
SU-27SK fighters, large quantities of SU-27SK spare parts of all kinds from
defense enterprises all over Russia have continuously flowed into China.
These parts are used (a) to repair and upgrade earlier-purchased SU-27
fighters and (b) to accelerate the assembly of SU-27SKs in Shenyang. The
Chinese save both time and money.
The Maritime region, in effect under Chinese control or very close to it, has
become a prime route for illegal arms exports, which also include:
spare parts for Russian air-defense systems, tanks and armored vehicles,
artillery units, submarines and destroyers already purchased from Russia;
disassembled helicopters and other weapons "purchased" directly from the
Russian army and then assembled in China;
sensitive equipment, from Russian plants, for the most advanced arms
production in China.
>From time to time, the Maritime Customs triumphantly reports new seizures of
illegal arms or weapon-related technology. After all, these Customs officials
must demonstrate some activity.
What is reported, however, is no more than 10 percent of the total volume of
arms smuggled from Russia into China – apparently this percentage is
satisfactory for both parties.
The annual volume of such smuggling, through the Maritime region and other
channels, is measured in hundreds of millions – perhaps even billions – of
dollars. This is because hundreds of thousands of executives, scientists,
engineers and machinists at Russian defense plants and research institutes,
as well as Russian army officers, are struggling for survival.
4. Other Arms Items
The $2 billion-worth or more of arms acquired from Russia by China in 2001
doesn't include Russian shipments of equipment and technology – both via
legal (though secret) and illegal channels – in the following areas:
Manufacture of strategic nuclear submarines ("094 project" SSBNs) and nuclear
attack submarines ("093 project" SSNs) – with the unlimited assistance of the
Russians – in Huludao, a city in China's Liaoning Province;
Development and production of long-range land-attack cruise missiles (LACMs)
in Langfang (a southern suburb of Beijing) and in Xiangfan, Hubei Province;
Development and production of ICBMs and their nuclear warheads in Sichuan
Province;
Development and manufacture of space launch vehicles, satellites and missile
boosters for military purposes in Beijing, Shanghai, Xian and other Chinese
cities.
These are a few examples among many. In late October 2001, the Russian
newspaper Nezavisimaya gazeta published an article indicating that MinAtom
(Russia's Ministry of Atomic Industry) has in effect built a "money trap" in
Tianwang, China.
The Chinese, with Russian equipment and technology, are actively constructing
the Tianwang Nuclear Power Station in Lianyungang, in eastern Jiangsu
Province. About 100 MinAtom specialists are continuously present on-site.
By 2005, when construction of this 2,000-megawatt thermal nuclear power plant
is completed, MinAtom will rake in hundreds of millions of dollars.
Simultaneously, the article continues, MinAtom is stepping up construction
and upgrading of a large uranium enrichment plant in Hanzhong, in
northwestern Shaanxi Province. MinAtom supplied the Chinese with Russia's
unique (and possibly world-leading) gas-centrifuge isotope separation
technology.
The Chinese intend to buy more of this technology in Russia, and is also
interested in acquiring from Russia nuclear technology of all kinds – as was
stressed in China's negotiations with MinAtom.
Western firms and MinAtom are engaged in a fierce struggle for the Chinese
nuclear market, and MinAtom is holding its own: New Chinese orders are on the
way.
In short, in this fierce struggle for the Chinese nuclear market, both
civilian and military, MinAtom is providing Beijing with all of Russia's
nuclear technologies, including the most sensitive ones.
Under the present circumstances, the Kremlin is not averse to this policy.
The same holds true for Russia's producers of space vehicles, cruise
missiles, nuclear submarines, radio-frequency weapons, etc.
Russia Just Trying to Survive
Some Western experts claim that Moscow is trying to limit Chinese access to
Russian arsenals, because in 10 to 15 years these weapons could be used
against Russia itself. These experts are gravely mistaken: Moscow's efforts
are focused only on survival in 2002-2003.
According to available data, Russia's supply of arms and weapon-related
technology to China in 2002-2003 will expand dramatically. The recently
concluded (Jan. 3, 2002) agreements on the Chinese purchase of two more
Sovremennyy-class destroyers (bringing the total to four) and S-300 systems
for $400 million are just the tip of the iceberg.
According to a report in Japan's Sankei Shimbun newspaper, based on informed
sources in Beijing, China's official defense budget this year will again
increase by over 10 percent from the 2001 level (which rose 17 percent from
the 2000 level). This will be officially announced in March 2002, during the
annual session of the Chinese Parliament.
The authors will be very surprised if this increase is less than 15 percent,
and don't forget about zero inflation or even deflation in China. China's
real defense expenditures in 2002 – with all of the "black" items – will
also increase by 15 percent or more.
There is little doubt that this trend will continue in 2003-2005. With its
economy still growing at about an 8 percent annual rate, China will have no
problem paying for Russian military technology. It is America and its close
allies who will have the problems.
Dr. Alexandr V. Nemets is a consultant to the American Foreign Policy
Council. He is co-author of "Chinese-Russian Military Relations, Fate of
Taiwan and New Geopolitics."
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