China, Russia sign strategic trade
deal By Robert M Cutler
MONTREAL - China and Russia have signed
commercial contracts worth a total of US$15
billion at a trade and investment forum in Moscow
during a visit by Chinese vice premier Li Keqiang,
who is expected to become premier early next year.
The bundle of contracts covered a series
of "transport, energy, communications,
high-technology and investment projects," Li
announced. He mentioned in particular the
possibility of joint design of a wide-body
long-distance passenger plane.
China's
ambassador to Russia, Li Hui, set the visit up
with press interviews referring repeatedly to a
"comprehensive strategic partnership of
coordination" between the two countries. Last year
marked the halfway point in the 20-year validity
of the bilateral Treaty of Good-Neighborliness,
Friendship and Cooperation
signed in 2001, which
posits a "strategic cooperative partnership" to be
developed between the two countries "from a
long-term view and in a comprehensive manner".
Ambassador Li asserted that his country
has become "Russia's top trade partner" with a
total trade turnover of $80 billion in 2011, up
42.7% from 2010. The numbers, based on an
unofficial Beijing estimate dating from last
autumn may not be an enormous exaggeration.
Bilateral trade of $57 billion in 2008 fell to $39
billion in 2009 in the wake of the global
financial crisis before rebounding to $59 billion
in 2010.
Official Russian estimates
earlier this year for 2011 put bilateral trade at
"over $60 billion" while an upper bound of $70
billion was the commonly accepted consensus.
However, calculations based on official statistics
appear to suggest a bilateral trade level of $79
billion in 2011.
Officials in China's
northeast border province of Heilongjiang reported
in February that just their own trade with Russia
increased 154% year-on-year to $19 billion last
year. This will increase still further as a
high-voltage direct-current converter station
opened in the province at the beginning of 2012 to
import electricity from Russia for local
industrial use.
Last year saw the start of
operations of the East Siberian-Pacific Ocean
(ESPO) oil pipeline, nominally planned to transit
300,000 barrels per day from Skovorodino, Russia,
to Daqing, China. This would have contributed a
significant proportion of any annual bilateral
increase.
One of the deals signed
reportedly involves a $1 billion agreement between
Oleg Deripaska's Basic Element with China's
state-owned North Industries Corporation (Norinco)
for construction of a rolling mill in Russia for
metal production for the purpose of increasing
Russian aluminum exports to China.
In
particular, Deripaska's Rusal would sell the metal
to a joint venture to be established between it
and Norinco called North United Aluminum.
Reports indicate that Rusal might also
purchase Norinco-manufactured equipment for a $1.5
billion aluminum smelter under construction at
Taishet in Eastern Siberia, where the Baikal-Amur
Mainline track branches off from the
Trans-Siberian Railway.
China's Xinhua
news agency quotes the head of China Investment
Corp (CIC), the country's sovereign wealth fund,
as suggesting that it will likely increase its
investment in Russia. The China-Russia Investment
Fund (CRIF), he said, would start operating before
the end of June with a capital of $1 billion.
This is a pittance for the CIC, which at
the end of 2010 had assets worth $410 billion.
However, the move would make good on a promise
made in October 2011, during Prime Minister
Vladimir Putin's last visit to China, to invest
such a sum in the Russia Direct Investment Fund
(RDIF).
The RDIF, originally intended to
co-finance international investment and decrease
Russia's dependence on energy exports (17% of
gross domestic product) for access to capital, was
conceived as a vehicle for implementing the
privatization program announced by former finance
minister Alexei Kudrin in 2009 as an element of
President Dmitry Medvedev's announced
modernization project.
The latter,
however, still awaits formal implementation. The
RDIF's head, Kiril Dmitriev, suggested in 2010
that Russia would contribute $10 billion to the
fund over the next five years out of what he hoped
to be a total of $60 billion.
It is not
clear that the desired goal of expanding beyond
raw materials will be made via the RDIF or the
CRIF. Song Hui, a researcher at Heilongjiang's
provincial Academy of Social Sciences, observed
that Russia and China, the world's major crude oil
supplier and consumer, "need each other to
maintain economic momentum," even if the bilateral
energy cooperation goes beyond the hydrocarbon
sector.
A senior China energy official
attending the trade forum in Moscow said China had
proposed "a completely new model for development
of cooperation" on the stalled talks for two gas
pipeline mega-projects from Siberia, according to
Reuters. According to the preliminary form of the
deal, Russia would sell 68 billion cubic meters
per year (bcm/y) of natural gas to China.
The sticking point emphasized in the press
is the price, as Russia's gas export monopoly
Gazprom refused to accommodate China's demands,
arguing that it could sell the same gas to Europe
for a higher profit; China cannot accept Russia's
offer without restructuring its domestic gas price
rates, thus eroding its competitive advantage in
manufacturing.
In point of fact, the two
sides have also differed over the order in which
to build the two pipelines. Russia has wanted
Chinese investment for the Eastern Siberian
pipeline first, while China has preferred to start
with the more accessible West Siberian gas.
Dr Robert M Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of
Technology and The University of Michigan, has
researched and taught at universities in the
United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian
Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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