Publication: Eurasia Daily Monitor Volume: 5 Issue: 30

Last year Russia and China recorded an unprecedented increase in bilateral trade. In 2007, Russia’s trade with China reached $48.16 billion, up 44.3% over 2006, according to Russian statistics. This follows a recent trend, as in 2006 bilateral trade amounted to $33.4 billion, up 15% from the previous year, and more than $29 billion in 2005, up 37.1% over 2004.

Russian officials have conceded that bilateral commerce underwent a major transformation in 2007. Last year came as a “big leap” in terms of Chinese exports to Russia, which rose 80% to reach $28.46 billion, according to Russia’s trade representative in Beijing, Sergei Tsyplakov. Chinese exporters achieved a breakthrough well beyond all expectation by Russian and Chinese experts, he said. For example, Chinese machinery exports jumped 90% to hit $8.7 billion, said Tsyplakov (Interfax, January 25).

In contrast, Russian oil exports to China are declining. In 2007 oil deliveries to China, mainly by the state-run oil company Rosneft, totaled 14.5 million tons, down 9% in terms of volume, according to Tsyplakov. Official statistics indicated that Russia’s oil shipments to China by rail also went down. On January 28, Russian Railways said the company funneled 9 million tons of crude to China in 2007 or up 12.4% from 2006, while transit via Mongolia stopped. This year Russian Railways plans to deliver to China roughly the same amount of crude as last year (Interfax, January 28).

In the meantime, sources close to Rosneft announced that the China National Petroleum Corporation (CNPC) advocated faster exploration work in Siberia by the Vostok Energy joint venture company. Vostok Energy, in which Rosneft owns 51% and CNPC holds 49%, was created in 2006. In July 2007 the Russia-registered Vostok Energy won an auction and secured a license to develop the Western-Chonsk deposit in Irkutsk region, which has estimated reserves of 30 million tons of oil and 15 billion cubic meters of gas (Interfax, January 30).

Both sides have eyed China’s booming petrochemical market. In October 2007, Rosneft and CNPC set up a China-registered joint venture, Russo-Chinese Eastern Petrochemical Company, to build a new refinery with a capacity to process 10 million tons annually in Tianjin, China, by 2011. But Eastern Petrochemical has yet to make any practical moves toward realization of its ambitious goal.

However, Russian sources conceded that CNPC remained reluctant to raise the import price of crude oil supplied to China by Rosneft. According to the 2004 contract, CNPC made an advance payment of $6 billion to Rosneft for future supplies of 48.4 million tons of oil until 2010. Rosneft used the funds to acquire assets of the former oil giant Yukos. But in 2007 Rosneft became unhappy over the low contract oil price, while CNPC agreed to raise the price only by $0.675 per barrel (Interfax, January 30).

For the first time since the Soviet collapse in 1991, China recorded a healthy $8.76 billion surplus in its trade with Russia last year, according to Tsyplakov. In 2007, Russian exports amounted to $19.7 billion, an increase of 12% over 2006 (Interfax, January 25).

Moscow considers high growth rates for Russo-Chinese commerce to be an important indicator of the state of the bilateral partnership. In January 2006 Russian President Vladimir Putin announced plans to raise bilateral trade to $60-80 billion per year by 2010. On January 26, Russian ambassador to China Sergei Razov claimed the task was likely to be achieved ahead of Putin’s timetable (Interfax, January 26).

Meanwhile, Razov told a business forum in Beijing on January 26 that nearly two-thirds of Russia’s total exports to China included crude oil, oil products, and unprocessed timber. On the other hand, Russian sales of machinery to China amounted to $256 million or a mere 1.3% of the Russian total exports to China, he said (Interfax, January 26).

Also speaking at the forum in Beijing, Russian economist Sergei Glazyev suggested that the two countries should have considered creating a joint bank to provide long-term financing of bilateral trade. He also suggested using national currencies, rubles and Renminbi, instead of U.S. dollars in bilateral commerce. “That’s not because Russia and China do not have enough dollars, instead dollars are in surplus, lots more than needed,” he said (Interfax, January 26). However, Glazyev’s idea – apparently aimed at undermining U.S. global economic interests – appeared to remain his personal suggestion, as it was not backed by either Russian or Chinese officials.