Russia and China push for economic alliance amidst scepticism
- Gtreview.com
- Sep 17, 2015
- 3 min read
Russia’s VTB Bank has signed a Rmb12bn (US$1.9bn) trade finance agreement with China Development Bank (CDB) to help clients fund bilateral import and export operations. Yet, the two countries’ apparent rapprochement is leaving analysts sceptical.
According to VTB, the agreement represents further expansion of the two banks’ partnership, aiming to increase national currency settlements between the two countries, as well as providing more options to finance bilateral trade. Still, the demand for financing does not seem to match the supply: Maxim Poletaev, first deputy CEO at Sberbank, told Bloomberg last week that credit lines amounting to Rmb9bn signed in May between Russia’s Sberbank and VTB and Chinese lenders are barely used because there is practically no demand in Russia for loans in the Chinese currency.
The VTB-CDB agreement was signed, along with a number of energy deals, during the visit of a Russian delegation headed by President Vladimir Putin to Beijing, a state visit that was supposed to show the strengthening of the relations between the two countries, following Xi Jinping’s Moscow visit in May.
Among those deals, China petrochemical corporation (Sinopec) and Russian gas processing and petrochemical company Sibur entered into a framework investment agreement whereby Sinopec would acquire a stake in Sibur. “Our continued partnership will help diversify and secure Sinopec’s long-term sourcing of petrochemical products. The partnership also represents the active implementation of China’s One Belt, One Road policy, and will help to strengthen the strategic relationship between China and Russia,” comments Wang Yupu, chairman of Sinopec. The establishment of a Russian-Chinese economic development alliance and co-operation as part of the Silk Road east-west trading route was in fact announced at the second Beijing International Economic Forum on September 4.
Gazprom’s CEO Alexey Miller also announced a memorandum of understanding on a pipeline for gas supplies from eastern Russia to China. According to him, this project would be the third in the framework of strategic co-operation between Gazprom and China National Petroleum Corporation in the next five years. Yet, the signing of a contract for supplies from west Siberia, which would have made China Gazprom’s largest customer, has been delayed until 2016.
Russia and China’s relations have tightened since western sanctions cut Russian access to European debt markets, but analysts remain unsure of China’s will and ability to provide adequate substitution. “Because of Russia’s own downturn, with its economy in recession, trade collapsed with the west but it has also fallen sharply with China – over a third with Europe, under a third with China. China has been moving up the ranks as creditor, but they do it on a case-by-case basis […] They are going to be very selective, they are not going to be a substitute for western debt markets,” Jan Randolph, director of IHS’ sovereign risk rating service, tells GTR.
“China can afford to pick and choose. They understand Russia’s predicament over Ukraine, over Europe, over western markets, and they can name their price much more so than they did before, so the bargaining power is much more in favour of the Chinese and the Chinese know it. Russia needs the money now, the investment now, China can afford to wait. The Chinese will get the best price they can – it makes sense for them to wait,” he adds. “It’s a bit of diversification. A lot will be promised, a lot less will be delivered.”
Source: Gtreview.com
By Sofia Lotto Persio
