Historic #Trade- Deal between #Russia and #China

By Elisabeth Hellenbroich

At the occasion of a historic visit which Russian President Putin made to Shanghai (China) in accompaniment of economic experts and ministers for talks with the President of the People’s Republic of China Xi Jinping – a gigantic deal was struck between the two countries. The deal is flanked by almost 50 bilateral trade agreements and the core of the agreement is a gas deal between Russia and China which was qualified by President Putin as an “epochal event” while the Chinese energy company CNPC called it a “milestone in the energy cooperation between Russia and China”. The 400 billion Dollar deal involves natural gas deliveries from Russia to China to begin 2018. Over a span of at least 30 years Russia is going to deliver 38 billion cubic meter of natural gas to China. The gas will come from gas fields in East Siberia and the construction work implied in the building of a new pipeline will be a major boost for the economic development of Eastern Siberia.

In an interview to foreign journalists Putin spoke about a “deepening cooperation which will focus in particular on regions in the Russia federation.” “I can note that this project’s implementation will see us create what will be with no exaggeration one of the biggest construction sites in the world in the next four years”, Putin said. On the Russian side alone he said this involves carrying out work at new fields on Russian territory, in particular in big fields such as the Eastern Siberian gas fields of Kovykta and Chayanda which have higher recoverable resources that will ensure gas supplies for 50 or so years. According to Putin Russia alone will invest 55 billion $ in this project and China 20 billion $.

The President stressed that what happens between China and Russia is “not just about developing gas production but also about the gas chemical industry, a helium plant, new companies, new infrastructure, thousands of new jobs – and this is not exaggerating- thousands of modern, high tech jobs and infrastructure development at the production sites and along the transport routes. The infrastructure will be used not only by the gas industry and gas transports, but also by the local authorities for other economic sectors in the regions concerned. Therefore this is a big event in the gas sector, not just in Russia but it would be no exaggeration to say it is a major event for the entire global energy sector and certainly for Asia.” It was further reported that Russia and China are also planning to increase the volume of direct payments in mutual trade in their national currencies in the future.

XVIII St Petersburg Economic Forum

The Russia /China deal underlines that Russia is more and more turning its attention toward the East. This became evident at the recent St Petersburg Economic Forum (22 -24 of May).
This year’s forum brought together 6000 businessmen from 150 international firms and 450 Russian companies. Despite the fact that seemingly under governmental pressure many CEO’s, in particular from Germany, cancelled in the last minute their attendance, contrary to for example a high level delegation from Italy and France, the St Petersburg Economic Forum gave a clear road map about Russia’s strategic direction and strategic priorities. In a panel “Sustaining confidence in a world undergoing transformation” Putin gave a speech in which he outlined the main concepts of his actual strategic thinking.

The President did not hide his deep disappointment about the strategic developments in the Ukraine and the sanctions which were imposed by the US and Europe against Russia, sanctions which as Putin said, had to some degree an effect. At the same time he emphasized that in a world which at present is undergoing geopolitical transformation the “unipolar model” has totally failed. He particularly singled out the key role which the US played in the Ukraine crisis and its responsibility for instigating a “coup” in Kiev and its role in imposing sanctions. Sanctions will have “a boomerang effect” since they will affect the economies of the US and the West and of those foreign investors who have invested more than 100 billion Dollars in Russia.

Putin spoke about the Eurasian Union- which will go into effect 2015 and added that there are good prospects for the EU to directly cooperate with this. “Europe is an important trade and economic partner of Russia and we call upon the EU to make everything to realize a partnership agreement with Russia in particular on energy and security.” While Germany and China remain the first strategic and economic partners of Russia, he also made clear that China is moving into the first rank in terms of strategic economic relations.

Putin did not hide the fact that a lot more must be done to upgrade Russia’s economy whose growth has reduced in the past year. He outlined an 8 point program in which aside upgraded investments in the field of infrastructure a lot of emphasis was given to the need of a new educational program for the training of the professional work force; he mentioned the creation of a “National Council” which will devote its attention to the improvement and upgrading of Labor competence. The need to upgrade investments in key areas – he mentioned Kaluga and Tatarstan as model regions for economic and labor efficiency- goes together with the need to expand infrastructure- the expansion of the Baikal Amur and Trans-Siberian railway, new car motorways and the need to substitute more imports with local production as well as encourage investors by offering them with the help of a “special national financial fund” low credits at favorable conditions.

Lessons of Ukraine

During the panel discussion Putin was asked by the moderator Geoff Cutmore from CNBC,
what he thought about the Ukraine and whether he would respect the election results May 25. He answered that “Russia will respect the outcome of the elections in Ukraine.” He however also made clear that in strict constitutional terms the president of Ukraine still is Yanukovych and that instead of a “coup” 21 of February what should have been implemented in the Ukraine was a referendum on the need to first change the constitution followed then by presidential elections. Putin clearly blamed the US for the violent events which occurred in the Ukraine underlining that the crisis developed in Ukraine when Yanukovych postponed the signing of an association treaty with the EU. “What then followed was a coup, which was supported by our American friends. The result is chaos and a true civil war.” While the Ukraine is of vital importance for Russia, the US has no vital interest, Putin said. However despite that the US and Europe have supported sanctions. He emphasized that the US has an obvious interest in waging economic war between Russia and Europe: “Our US friends want to get a competitive advantage in their relations with Europe!”

In reminding the audience that soon the anniversary celebrations of the first and second world war will take place, Putin reiterated several times that Russia is interested in “peace and calm” and “that a peaceful negotiation process is always the best road”, i.e. Russia has signaled that it is ready for dialogue and negotiations after the 25 May elections and that it will neither close the door for dialogue with the US (with whom they cooperate in Afghanistan, Syria and Iran) nor with Europe.