A number of structural factors – both economic and geopolitical – appear to be pushing Russia and China closer together. However, Beijing will keep balancing between Moscow and Washington.

Clay figures showing U.S. President Barack Obama, Chinese President Xi Jinping and Russian President Vladimir Putin amongst other state leaders expected to attend the G20 summit. Photo: AP

Russia and the U.S. are undergoing perhaps their greatest crisis since the end of the Cold War, unable to reach agreement over important matters in foreign policy. The U.S. and Russian governments have been working on their ideological differences while trying to find common ground in global governance, but the attempts failed each time there was a litmus test for the relationship.

The crises in Ukraine and Syria and disagreement over the optimal strategy to combat the Islamic State of Iraq and the Greater Syria (ISIS) in the Middle East are the primary stumbling blocks between the two states, but these issues are just the tip of the iceberg of misunderstanding.

The escalation of the U.S.-Russian bilateral relationship in the post-Cold War era first happened after the five-day war between Russia and Georgia in 2008. Afterwards, the Obama administration tried to implement the "reset" policy. While looking quite promising at first, it did not succeed, and both countries ended up on dangerous footing following the new crisis in Ukraine.

Even in the aftermath of the dissolution of the Soviet Union, U.S.-Russia relations can be characterized by a zero sum mentality, in which both countries continue to expect the worst from each other. Russian foreign policy in Ukraine was followed by U.S.-led economic sanctions, which compelled Russia to shift towards the East, making China its major prospective ally, both economically and militarily.

However, the partnership with the Chinese did not go exactly as the Russian officials planned. While Russia announced its “pivot to the East” as a foreign policy and trade strategy after the imposition of the Western sanctions regime, China was much more discreet in its negotiation with Russia and in its formulation of a suitable foreign policy.

China has always been relevant in the global economy, but it became especially attractive for investment and trade after its modernization policies. Prior to its reforms, which took place 37 years ago, China maintained an inefficient and centrally-controlled economy.

Since the reforms, China has been one of the fastest growing economies in the world. Being the largest populated country and an enormous economic power, China has become the most desired partner in trade and a geopolitical ally for both the U.S. and Russia.

Starting in the 1990s, the United States focused on developing trade with China, which has great commercial ties with the U.S. It is currently the second largest U.S. trading partner and its biggest source of imports. China is also the largest foreign holder of U.S. Treasury securities, which helps to keep U.S. interest rates low. Despite growing commercial and economic ties between the U.S.  and China, China follows the top-down approach, in which agreements are reached by top-level officials rather than by private sector executives. This can be seen as part of China’s incomplete transition to a free market economy.

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America was increasing its foreign investment and volume of trade, as well as targeting promotion of transparency and democratic values, with the hopes of gaining a powerful ally in the region. The opening of the Chinese political system was seen by America’s governing elites as inevitable.

However, the political ideology in China did not change, and the Chinese regime has become even less tolerant of other political regimes and political dissent than before. While U.S.–China economic ties have expanded over the past three decades, the political strategy of China's President Xi Jinping to rebalance the U.S. influence in Central Asia and its areas of interest were drawing China politically closer to Russia.

In 2014, Xi announced that China and Russia had entered a new stage of foreign relations with each other. The Chinese president was supportive of energy and trade cooperation with Russia, but Chinese officials still abstained from making any policy moves against the U.S. and the West. Chinese and Russians share common views on sovereignty, governance and domestic policy; but their relationship is far from becoming an anti-American tandem.

Thus far, one of the main features of Chinese foreign policy was a careful balancing of opportunities and threats, based primarily on economic interests. Right now China is facing structural domestic problems and its growth is slowing down, but its energy dependency makes it extremely interested in Russian natural resources.

Russia’s cut-off from Western capital and reliance on natural resources has left Russia with China as the only direction of a new trade strategy. China, on its behalf, gained a powerful bargaining position in gas and oil deals, some of which have been negotiated for years.

After over 20 years of negotiations, the China-Russia gas deal has become a matter not just of business, but also of diplomatic importance between the two neighboring giants. In fact, negotiations over natural gas pipelines between China and Russia have lasted more than two decades. The three largest Chinese energy corporations – Sinopec, CNOOC and CNPC - found grounds for cooperation with Russian energy companies.

Economic cooperation between the two states is supposed to go further. One of the goals established by the Russian government is to start moving away from the U.S. dollar in monetary operations: Settlements in yuan between the two states have increased by nine-fold since the beginning of 2014.

Another project that Russia and China have been working on is the New Development Bank, which is supposed to become an independent financial institution as a result of the BRICS cooperation. Both Russia and China find common ground in their discontent over the U.S. involvement in their neighborhoods and the regions of their foreign policy interests.

These common resentments can be summed up as the fear of the promotion of Western thinking, especially as it relates to U.S. democracy. Moreover, the threat of “color revolutions,” as mentioned by the Russian government, is one of the possible threats for the current regime.

Unlike China, Russia does not have the U.S. and Europe as an option for further economic and political cooperation, and the Russian economy keeps getting weaker while the Chinese are increasing their economic clout and strengthening the yuan.

While the large territory in the eastern part of Russia has been colonized from China in the 19th century, it is still poorly populated; at the same time, though, it is rich in resources. This makes that part of Russia one of special interest for China. If in the short run, energy deals between the two states have relative gains for both actors, the long-term implications of the rise of China might have the most unpredictable consequences for the Russian government.

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The upcoming changes in the U.S. presidency will be a primary determinant for the direction of U.S. foreign policy towards both countries, but it is unlikely that it will result in China getting much closer to either Russia or the U.S. Most likely, China will continue balancing between the two countries, while trying to solve its rising domestic problems.

In the fall of 2017, China will face the 19th Party Congress, after which five out of the seven members of the Politburo Standing Committee are scheduled to be replaced. President Xi and Premier Li Keqiang are likely to serve their second and final terms until 2022. While the leading body of the government stays the same, it is unclear whether or not Xi will be able to find support among the new members of the Committee and keep the same track of foreign and domestic policy.

The opinion of the author may not necessarily reflect the position of Russia Direct or its staff.