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China, Russia Bolster Ties With $3.5 Billion In Deals


Russian Prime Minister Vladimir Putin upon his arrival in Beijing

Russian Prime Minister Vladimir Putin upon his arrival in Beijing

BEIJING (Reuters) -- Russia and China looked to steady their close but increasingly imbalanced relationship when visiting Russian Prime Minister Vladimir Putin ushered through trade deals said to be worth $3.5 billion.

Putin's talks in Beijing with Chinese Premier Wen Jiabao are also likely to cover the international hotspots on which both governments share many views, especially concerning North Korea's nuclear weapons program and its latest missile tests.

But with China's economy steaming ahead while Russia has lagged during the global downturn, the two big neighbors appear focused on shoring up trade, energy, and political ties.

Russian and Chinese companies signed deals worth $3.5 billion on October 13, the second day of Putin's visit to Beijing, his deputy, Alexander Zhukov, told reporters there.

The Kremlin last week said the two sides would sign commercial deals worth $5.5 billion during Putin's visit.

"This is the revised number, the final figure," Zhukov said of the $3.5 billion figure, without explaining the discrepancy. "There will be no more commercial deals signed during the visit."

The deals included a $500 million loan from the Agricultural Bank of China to Russia's second biggest lender VTB.

Chinese and Russian news reports have said Putin and Wen may also unveil an agreement on securing Russian natural gas, but it was not clear whether the pact would bring any concrete progress on a deal that has been mired for more than three years amid disagreements over pricing.

When asked by reporters about the possibility of any gas deals being signed, Deputy Prime Minister Igor Sechin said: "[Gazprom Chief Executive Aleksei] Miller is here. He doesn't just travel around for the sake of it. Make your conclusions.

"We have plenty of gas, [we] will give as much as they need."

Behind Russia's eagerness for deals appear to be worries that the global financial crisis has left it struggling with a shrinking economy and trade while China is confident its GDP will grow 8 percent this year, consolidating its status as the world's third-biggest economy, said Bobo Lo, a senior research fellow at the Centre for European Reform in London.

"The global financial crisis has accentuated the disparity between China and Russia," said Lo, a former Australian diplomat who specializes on Sino-Russian relations. "Really, Russia feels its been kicked into the long grass by the crisis."

Russia, the world's ninth-biggest economy, is struggling to regain its footing after a downturn saw GDP plunge from 7 percent annual growth to an expected 8 percent collapse this year.

Beijing also has its reasons for courting Putin, who remains his country's most powerful figure after leaving the presidency.

China sees Russia as a valuable strategic counterweight to U.S. influence, and believes Russian energy, resources and markets will remain important in coming decades, said Zhao Huasheng, an expert on the two countries' relations at Fudan University in Shanghai.

"The fall-off in trade reflects the overall global crisis...but both countries will be making special efforts to put economic relations back on a healthy track," he said. "This is also the 60th anniversary of diplomatic ties, so both sides want to stress the importance and positiveness of relations."

'If The Price Is Right'


But behind the frequent vows of deals and undying friendship, ties between Russia and China have been unsettled by frustrations and latent mistrust, said Lo.

Beijing has been irritated by Russian customs policy after the closure of Moscow's Cherkizovsky market where Chinese traders sold goods allegedly smuggled into Russia. Chinese media reports have accused Russia of discrimination.

Last year, Putin and Wen oversaw the signing of a deal to build a new overland pipeline to ship Siberian oil to China and negotiated an oil-for-loan deal through which China secured Russian oil supply for the next 20 years and Russian companies borrowed $25 billion from China at low rates.

Russia's Gazprom said in 2006 that the Russian gas export monopoly would build two pipelines to China but the projects have been delayed due to disagreements over gas pricing.

"China might like to line up another natural gas deal with Russia, if the price is right, but it's not banking on the gas being available," said Zha Daojiong, an expert on Chinese energy diplomacy at Peking University.

A gas pipeline connecting China to gas-rich Turkmenistan in Central Asia is due to be finished by the end of the year, and in June Turkmenistan announced China had agreed to lend it $3 billion to develop its largest gas field.

"Turkmenistan will keep us busy for a while," said Zha. "It's hard to imagine Russia coming up with a similar mega-project."

The Russian oil pipeline deal came after long contention over prices and conditions, and that agreement and any similar ones on natural gas could still be vulnerable to friction, especially if energy prices rise as global growth resumes, said Lo.

"You have to ask yourself how sustainable some of these deals will be," he said. "China, and Asia in general, are still a default fall-back for Russia, not its priority for energy deals."
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