China and Russia: An Economic Component

The new Chinese economic situation determines the agendas of China's foreign cooperation, which involves all partners, not just Russia. Therefore, less Chinese-Russian economic and trade cooperation does not come as a surprise and should not be over-interpreted.

Against the background of the Ukrainian crisis, setting and implementing each Chinese-Russian cooperation agenda has been scrutinized under a microscope in the outside world. Putin’s recent visit to Beijing is no exception. Despite the positive relationship between the Chinese and Russian presidents, as evidenced by their eye contact and smiles in Tiananmen Square, the reliability of the comprehensive strategic partnership between China and Russia has once again aroused controversy. The Western media have noted that the Power of Siberia project won’t begin before the end of 2018, while the Altai pipeline project has been temporarily suspended, which was interpreted as growing uncertainty in Chinese-Russian relations. In sharp contrast, the second stage of Chinese-Russian joint naval exercises before Putin's visit has been seen as evidence of the de facto alliance between the two countries. Putting military issues aside for a while, in terms of economics, , many popular opinions on the state of Chinese-Russian economic cooperation are based on misunderstandings.

The Chinese economic downturn is a key factor that will influence the present and future economic and trade cooperation between China and Russia for quite a longtime, which includes a negative impact on the countries’ strategic energy partnership. Since the downturn means that China’s demand for primary energy, such as oil and gas, hydropower, coal and nuclear energy, will not be as high as that of the past decade, this possible structural change could directly affect the agenda of Chinese-Russian energy cooperation. Meanwhile, the continuous decline in international commodity prices, including energy, will lead to a reduction in Russia's profit expectations, thus affecting the cost-benefit ratio of various oil and gas pipelines Russia plans to build to China. Russia’s expectations for the Chinese market will also decrease. But for Russia, a country facing three crises - new Western sanctions, the international energy prices decline and an economic restructuring dilemma - energy cooperation with China is one of the few effective areas to resist risks.

It should be noted that the economic cooperation agenda between the two countries has never been a simple, natural evolution from full marketization; instead, it has always been characterized by strong government intervention, strategic guidance and top-level design. As long as the transfer of international power and the regional order restructuring continue to be in favor of closer Chinese-Russian relations, strengthening economic cooperation must be a priority for the two countries.

The developmental integration model has the following characteristics: First, economic cooperation is agreed on by a nation, and various forces (represented by state-owned or state-holding enterprises) are organized, launched and coordinated by the central and local governments. The government provides comprehensive support, such as policies or financial support. Second, the model reflects entirely or to a large extent the government's political intentions or willingness to cooperate, while the top leaders of the two countries play an important role in promoting joint efforts.

Third, cooperation projects involved fields often related to the national economy and people’s livelihood in the two countries, which is, as usual, strategically significant and influential.

Fourth, cooperation and coordination mechanisms are the main mechanism for holding meetings and consultations between the governments; the departments in charge are usually the core management departments of the two countries.

Fifth, the cooperation subject (enterprises - the management authority - the government) develop common stances toward foreign countries, among which coordinating interests between the central government and local governments also plays a key role in selecting projects.

Sixth, the main purpose of the cooperation is to improve the scale, level and quality of bilateral economic cooperation, thus strengthening bilateral relations overall. Despite the fact that the government-led framework of cooperation may not ensure the optimal allocation of resources under full marketization, it has gained a comparative advantage on risk prevention and overall control.

A case in point is energy cooperation. Plans to build gas pipelines toward the east and west haven’t been implemented as quickly as expected by the outside world. The primary reason for this is the economy: as Russia invests in building domestic pipelines, slower progress is no surprise due to the far higher costs than initially estimated. What’s more, since natural gas prices are related to international oil prices, the current downturn in the international market also led Russia to further reduce its originally envisaged profit margins. Therefore, the slower headway in gas cooperation is reasonable.

However, China and Russia have not fully suspended energy cooperation. On the contrary, as the documents signed between the two countries during Putin's visit show, the two sides have opened up new cooperation channels. On the one hand, a third gas pipeline from Sakhalin to China has been put on the agenda; on the other hand, as a strategic investor, Sinopec became a shareholder of Sibur, and signed an agreement to jointly develop two oil fields with Rosneft. Chemchina and Rosneft exchanged stock rights, while Novatek also sold 9.9% of shares in the Yamal LNG project to the Silk Road Fund, so that China’s total share increased to 29.9%.

Internally, the new Chinese economic situation determines the agendas of China's foreign economic cooperation, which involves all partners, not just Russia. Therefore, less Chinese-Russian economic and trade cooperation does not come as a surprise and should not be over-interpreted. As Mr Tsyplakov, the former Russian business representative in China and the current head of Sberbank’s representative office in China, stressed, "Despite the complexity of Chinese-Russian cooperation in general, and trade cooperation in particular, it is still strong, and bilateral economic and trade relations are far from disaster." Furthermore, the possible decrease in Chinese-Russian economic cooperation in scale does not present a challenge to the countries’ coordination and cooperation at the strategic level.

In any case, Putin's visit to Beijing shows that the Russian authorities attach great importance to the further development of Chinese-Russian relations, and the new cooperation agreements show that the two countries are committed to promoting the sustainable development of these relations among major powers, by setting new cooperation agendas. During the process, political will comes first, but the laws of the market will never be completely ignored, and maintaining adaptability will evidently be taken into account by decision-makers in both countries. Whatever the impact of the economic situation in both countries is, a new pattern of cooperation will surely emerge in the future as long as the agreements are continuously implemented, even if in small steps.
Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.