China and the Russian Economic Union: Prospects Silk Road Economic belt - Analysis

China and the Russian Economic Union: Prospects Silk Road Economic belt - Analysis
2017-01-03 | author : giser

category : ISSUES

Early in 2015,During President Xi Jinping’s visit to Russia, he recognized the contributions of Russian advisors to China’s development, both during the early days of the People’s Republic of China, and later during China’s period of economic reform after 1978.11 This was significant as it highlighted China and Russia’s long history of friendship, and the hope that this friendship will continue to flourish in the future. In this historical context, the Sino-Soviet split may be seen as an unfortunate aberration in the broader trajectory of Chinese and Russian friendship. The current warmth between China and Russia dates from Mikhail Gorbachev’s efforts at rapprochement. Since the establishment of the Russian Federation in 1992, the friendship between China and Russia has deepened. Russia was the site of President Xi Jinping’s first state visit after assuming office in March 2013, and in the two years since then both Presidents Xi Jinping and Vladimir Putin have held over ten meetings.

This long-term friendship between China and Russia has been greatly facilitated by their shared outlook on international relations, in particular their suspicion of American assertions of unipolarity, and their common interest in creating a multipolar world order. While both nations have had their occasional disagreements, for example, when China chose to remain neutral with regard to Russia’s intervention in Georgia, their relationship has generally been characterized by cooperation.One good example is their ongoing cooperation under the framework of the BRICS bloc of high-growth emerging economies. Apart from their efforts to establish the BRICS New Development Bank, which is currently scheduled to be launched in late 2015, China, Russia, and their counterparts in the BRICS bloc are also launching a common reserve fund to serve as an alternative to emergency loans from the American-dominated International Monetary Fund. Apart from their cooperation on the BRICS initiatives, China and Russia are also cooperating on China’s “Belt and Road” development framework, including the AIIB financing initiative, of which both are serving as founding members.16 In the social field, both China and Russia have sought to encourage mutual understanding between their peoples through the establishment of Russian and Chinese cultural centres. China, for example, has opened over twenty Confucius Institutes and Confucius Classrooms in Russia.In terms of bilateral trade, China has become Russia’s largest trading partner. From 1994 to 2014 Sino-Russian bilateral trade dramatically increased from 7.7 billion to 95.3 billion USD.

The economic linkages between China and Russia are set to deepen with the cooperative projects established by President Xi’s visit. Due to Western sanctions over Russian intervention in Ukraine, Russia’s cooperation with China has become critical for its economic growth. On the eve of Russia’s massive 2015 Victory Day parade, Presidents Xi and Putin signed 32 bilateral agreements, including the construction of a high-speed rail line between Moscow and Kazan, and a road map for Sino-Russian cooperation in Central Asia that balances the Silk Road Economic Belt projects with those of the EEU. Under this road map, China will seek to connect its Silk Road Economic Belt with Russia’s initiative for a Trans-Eurasian Belt. In particular, President Putin’s plan for a trans-Eurasian railway will be connected with rail infrastructure development in the Silk Road Economic Belt. Cooperation makes sense as the improvements to infrastructure that will take place under the Silk Road Economic Belt will benefit Russian economic development in its Far East.

China and Russia will also increase their economic cooperation in a range of sectors including energy, infrastructure, and finance, and both countries will also seek to increase their bilateral investment. One of the new joint ventures in the energy sector is a project by China Three Gorges Corporation and RusHydro to build a 320-megawatt hydropower plant on Russia’s Bureya river. Also in the energy sector, China and Russia signed an agreement on the supply of Russian natural gas through the planned Western Route pipeline, which will provide China with 30 billion cubic meters of natural gas per year. In May 2014, China and Russia had signed an earlier deal on natural gas worth 400 billion USD. Under this deal, Russia will supply China, through its Eastern Route pipeline, 38 billion cubic meters of natural gas annually from 2018 for 30 years. In November 2014, China and Russia deepened their energy cooperation with a further similarly-sized deal on natural gas. These mega-deals with China will help Russia diversify its energy exports from the politically difficult European market.

Outside of the energy sector, the new cooperative projects between China and Russia include gold exploration as well as the joint development of a new heavy-duty transport helicopter to rival Boeing’s CH-47 Chinook helicopter. China will also increase its debt financing of Russian companies, allowing these companies access to financing they had previously lost because of Western sanctions against Russia. China Construction Bank (CCB) and the Russian Direct Investment Fund (RDIF) will jointly extend up to 25 billion USD in loans to Russian companies, with CCB being responsible for 85% of the financing. In addition, CITIC Merchant and RDIF will jointly establish a Russia-China Investment Bank which will give Russian companies greater access to Chinese financing. Western sanctions hence have ironically allowed Chinese banks to take over the market share that was previously occupied by Western lenders.

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