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On Opportunities for Western Technology Imports Substitution Through Greater Cooperation with China

Vasily Kashin

As the crisis in Ukraine continues to unfold, Russia has entered a period of foreign-policy confrontation with the United States that may last for a very long time. Finding itself unable to prevent the unification of Crimea with Russia, and facing the threat of its international standing being undermined, Washington has resorted to a policy of pressure and gradual international isolation of Russia. That policy includes ending American science and technology cooperation with Russia, and leaning on other countries to follow suit. Even though the EU countries, Japan, and the new industrialized economies in Asia are still very interested in cooperating with Russia, their military-political dependence on the United States may force them to curtail their ties with the Russian Federation.

At this time it is impossible to say how long the American efforts to isolate Russia will continue, or how far the Americans are prepared to go in that regard. The already announced U.S. and EU sanctions have imposed restrictions on military and technical cooperation and dual-use technology exports to Russia. Judging from statements by Russian defense industry captains, Western suppliers have bolstered pre-existing informal restrictions on supplying some types of industrial equipment to Russia. For example, in early August the Ulan-Ude Aircraft Plant said it was having problems with receiving high-precision metal processing machinery it had previously ordered in Germany.

Papers by American foreign-policy exports suggest that in some areas Russian foreign-trade isolation may reach Iranian levels. Due to Russia’s deep integration into the international trade system and its close economic ties with the EU (for whom it is the third-biggest trading partner), the scenario of Russia’s total economic isolation is unlikely, though not impossible. Washington will therefore focus on those areas or cooperation and individual projects where economic ties can be cut off with the maximum damage for Russia, and with the least possible damage for the United States and its allies.

Unlike Russia’s multi-billion-dollar trade with the West in the energy sector and in exports of other minerals, Western exports of equipment and advanced technologies to Russia fit these criteria. The Russian defense industry may be the first to feel the impact, but it will eventually spread to civilian high-tech industries such as the civilian aerospace sector and the electronics industry. That is especially true since these Russian industries tend to be closely integrated with the defense sector; in fact, many of the Russian aerospace and electronics companies are part of defense industry corporations.

Unlike the previous period when the Washington pursued a policy of technological isolation of our country, at this time there are several relatively large global centers of advanced industry and technology that are not dependent on the United States. China is the largest such center; it is also the world’s second-largest economy, the largest exporter, and the largest industrial power. China cannot openly support Russia’s actions in Crimea because it does not want to set a precedent for Taiwan. Nevertheless, Beijing has repeatedly described the current start of Russian-Chinese relations as “the best ever”, rejecting the idea of sanctions against Russia, and avoiding any outright condemnation of Russia’s actions. Russia plays an important role in China’s long-term strategy of ensuring its own security and bolstering its role in the global arena. There are no major political differences between our two countries, and all territorial problems between them were completely resolved in the early 2000s. That creates a favorable climate for a steady development of Russian-Chinese economic relations. The existing legal framework between the two countries enables them to conduct bilateral trade in their own national currencies. As a result, mutual payments will not be affected by any Western sanctions.

The experience of Chinese arms trade with other countries indicates that China is ready and willing to transfer technology to its foreign partners, especially if the technology in question was acquired or borrowed by the Chinese from a third country. For example, in 2012 China’s AVIC aerospace corporation sold a license for the production of the Changhe Z-11 light helicopter to Argentina. The model is a Chinese copy of Eurocopter Ecureuil AS350.

Since the 1990s China has also transferred a large number of licenses for the latest high-precision air-launched weapons, rocket and artillery systems, anti-ship missiles, air defense systems, and anti-tank missiles to such partners as Iran, Pakistan, and Turkey. Such willingness by the Chinese to transfer sensitive technologies makes us optimistic about the potential for broader industrial cooperation.

At present there are several lingering stereotypes that dampen Russian companies’ interest in searching for Chinese partners in high-tech areas. In particular, China is thought to be lacking in terms of its own capability for innovation, and Chinese innovations are viewed as copies of foreign inventions. There is a perceived lack of respect for intellectual property rights on the part of the Chinese, and China’s technologies are still thought to be lagging behind the global leaders. These stereotypes are often justified with regard to the Chinese economy in general.

Nevertheless, the size of that economy is so huge, and the situation in its different industries and companies varies so much that there are numerous exceptions from these rules. China’s industrial output reached 2.9 trillion dollars in 2012, well ahead of the world’s second-largest industrial power, the United States (2.43 trillion).

China already has a large number of successful high-tech companies that pursue independent world-class innovation or build upon the latest Western technologies. Chinese scientists with long experience of working for the leading American universities are increasingly returning home. The leading Chinese technology schools, such as the Tsinghua University in Beijing, are becoming world-class research centers.

Even in those cases when China’s own potential for innovation is limited, the country has greater opportunities for access to Western technologies than Russia has ever had even during the periods of relatively warm relations with the West. Despite the 1989 American and European embargo on arms exports to China, the huge size of the Chinese market, the Chinese government’s leading role in industrial development, and a well-coordinated national industrial policy enable China to secure very significant technology transfers from its Western partners. One example of such transfers — which have taken place despite the growing global rivalry between China and the United States — is the gradual localization in China of the production of third-generation AP1000 nuclear energy reactors designed by Westinghouse Electric.

As the Western countries are still reeling from the impact of the economic crisis, the opportunities for China to gain access to Western technologies continue to improve. In addition, the Chinese Ministry of Security, Ministry of Industry and IT, and the General Staff of the People’s Liberation Army pursue a vast industrial spying program. In 2009-2010 the Chinese stole terabytes of information from the corporate networks of companies involved in the development of the fifth-generation F-35 fighter. In other words, China is well able to mine sensitive information from Western sources. Close integration between the country’s “civilian” high-tech industries and their Western partners, as well as Western companies’ dependence on the Chinese market give China very broad access to dual-use technologies. No amount of American controls can significantly hamper that access.

The long-term prospects for the development of Chinese technological and industrial capability also look positive. According to the U.S. National Science Foundation, in 2011 China came third after the United States and the EU in terms of the number of research publications. The country accounted for 11 per cent of the global number of published research articles that year. In 2013 that figure rose to 15 per cent.

We can already identify several sectors of the Chinese economy where Russian-Chinese cooperation can at least partially (or even fully, in some cases) protect the Russian defense industry and high-tech civilian sectors from the existing or future sanctions by the United States and its allies.

One obvious area is microelectronics. Both Russia and China are lagging well behind the United States and other leading countries in the production of electronic components. Nevertheless, thanks to large investments (the country announced new support measures for the microelectronics industry worth 5bn dollars in 2013 alone) China has achieved a greater capability than Russia in some individual areas. The country is still facing major difficulties in the design and manufacture of electronic components, and it continues to import some of these components from Russia. On the whole, however, the size of the Chinese electronics industry (the country has overtaken the United States as the leading producer of materials for semiconductors) and the advanced technological level of the leading Chinese companies suggests that this area of cooperation is very promising.

After many years of energetic efforts under the so-called Program 863 (the national plan of developing advanced technologies), China has become one of the global leaders in the area of supercomputers. The Tiange-2 supercomputer, which was built by the National University of Defense Technologies, is currently the most powerful in the world.

Another promising area is Chinese monitoring and reconnaissance systems, as well as targeting equipment for armor. China produces advanced commercial and military thermal imagers, and could replace Russia’s Western partners as a supplier of components for Russian-made infrared targeting systems. For example, China has launched production of thermal imaging sights for tanks using the assistance of France’s Sagem, and according to the latest reports, it now independently produces such systems for the latest modifications of its Type 99 and Type 96 tanks.

China would be a very useful partner in the development of unmanned aerial vehicles. The country launched UAV programs back in the 1990s, and has developed materials, payload systems, and engines that could be used by Russian manufacturers. In particular, Chinese produces make several types of compact radars for UAVs with a maximum payload of up to 100 kg. China has several aerospace composite material development centers controlled by the AVIC corporation and the Chinese Academy of Sciences. AVIC also controls FACC, a large Austrian maker of such materials, and Continental Motors, a U.S. maker of piston engines for aircraft. It has several piston engine production facilities in China as well.

China currently has a more advanced UAV industry than Russia. It has launched mass production of a reconnaissance and attack drone, the Yilong-1, that is similar in terms of its capability to America’s Predator. It is currently flight-testing prototypes of two low radar visibility UAVs (one of them an attack drone) and a strategic drone with capabilities similar to the Global Hawk. Studying Chinese designs and perhaps limited imports of Chinese UAV systems would help Russia’s own efforts in this area.

Although China remains a large importer of Western technological equipment, the gigantic scale of its machine tool industry and the great attention paid to its development have led to rapid improvements in the quality of Chinese machine tools. China is now the largest producer of machine tools in the world. Great attention is being paid there to the 3D printing technology and to the development and production of modern test benches and other equipment.

These are just a few of the most obvious examples of how Russian can use the potential of the Chinese industry to soften the impact of the technological blockade by the West. The subject requires careful study. In particular, it would be useful for the Russian Ministry of Industry and Trade and the Chinese Ministry of Industry and IT to set up a joint working group. The group should include representatives of the largest Russian industrial companies, and focus on studying the underutilized potential for cooperation between the two countries’ industries. It must be taken into account that China is also developing amid gradually deteriorating relations with the United States, and that it is also facing sanctions, including the 1989 U.S. and EU embargo on military and technical cooperation with China, as well as the U.S. government’s ban on space cooperation with the Chinese.

If Russia were to pursue rapid development of industrial cooperation with China without waiting for the United States and the EU to impose comprehensive sanctions against it, we would have an opportunity to secure more favorable terms for such cooperation, and to tie new cooperation projects with an increase in Chinese imports of Russian high-tech products.

At present some Russian government agencies and commercial companies are taking the initiative and searching for alternatives to Western industrial partners in China. In August Roskosmos and Reshetnev Information Satellite Systems held a joint workshop in Moscow with representatives of China’s CASIC aerospace concern. The event focused on exploring opportunities for large-scale substitution imports of Chinese electronic components for space hardware. Other defense industry companies, as well as some civilian industrial corporations, are also looking for new partners in China. These efforts will yield long-term results because the ties between the Russian and Chinese industries established at the time of the crisis in Ukraine will endure long after that crisis is over.

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