Publication: Eurasia Daily Monitor Volume: 2 Issue: 207

Russian Prime Minister Mikhail Fradkov visited Beijing November 3-4 to discuss trade and investment ties with China. But despite repeated promises, Moscow made no legally binding commitment to build an oil pipeline to China. Instead, Fradkov only said that consultations “continue” and that Russian and Chinese companies are working hard to find solutions suitable for both sides. Chinese Prime Minister Wen Jiabao tried to take a more optimistic tone, saying, “Both sides are eager to sign an agreement on the Russian-Chinese pipeline as soon as possible” (RIA-Novosti, Xinhua, November 3).

Russia and China issued a joint statement that described energy cooperation as “significantly important” and supported plans to build an oil pipeline from Russia to China. The two sides also agreed to secure a steady oil supply to China by rail, pledging an annual supply of 15 million tons in 2006. Both countries pledged to develop gas cooperation and boost efforts to implement gas transmission projects from Eastern Siberia and the Far East to China. The two countries also reiterated plans to cooperate in the peaceful use of nuclear energy as well as exploration of the moon and deep space (RIA-Novosti, Xinhua, November 4).

Fradkov said Russia will try its best to “honor its commitments,” noting that Russia exported 5.8 million tons of oil to China by rail in 2004 and the figure for 2005 is expected to reach 8 million tons (RIA-Novosti, November 3).

Despite Chinese official optimism, Russian Deputy Prime Minister Alexander Zhukov quashed hopes of a quick agreement: “China is proposing that this project be done as an intergovernmental agreement, but we do not think there is any need to do so.” Details of the project should be negotiated between Russian and Chinese companies instead, Zhukov argued (Interfax-China, November 1).

To counter Moscow’s reluctance to make pipeline pledges in writing, Zhukov signed a protocol with his Chinese counterpart Wu Yi on November 3. The protocol implies that the Russian state-run oil company Rosneft and China’s National Petroleum Corporation (CNPC) should do feasibility studies on the proposed pipeline.

Zhukov also told journalists that the Russian natural gas monopoly Gazprom and the CNPC had signed a strategic cooperation agreement envisioning future natural gas deliveries from Russia to China from a single gas supply system in Siberia (RIA-Novosti, November 1).

Zhukov hailed the steady growth of bilateral trade, reaching $17.7 billion in the first eight months of 2005 (Interfax-China, November 1), but revealed a wariness regarding bilateral trade imbalances. The deputy prime minister complained that Russia mainly exports commodities to China. In January-August 2005, oil, timber, metals, fertilizers, sea products, and ore comprised nearly 90% of Russia’s total exports to China (Interfax-China, November 1). Therefore, “Russia and China need to diversify the structure of bilateral trade,” Zhukov said at a meeting with Chinese entrepreneurs. “To further increase the volume of our economic-trade ties, we need to develop production cooperation, investment, and joint technology projects” (RIA-Novosti, November 2).

Zhukov also said Russia would welcome Chinese investments in special economic zones, industrial parks, forest management, agriculture, and infrastructure projects, including a Moscow-St. Petersburg high-speed railway. Russia is ready to negotiate with China on Beijing’s participation in a program to develop oil and gas fields in Eastern Siberia and the Far East, Zhukov said (Interfax-China, November 1). Boris Titov, co-head of the Russo-Chinese Business Council said that more than 150 potential joint projects worth $9.5 billion have been studied (Vremya novostei, November 3).

Both sides pledged to prioritize hi-tech industries. Chinese Deputy Prime Minister Wu Yi emphasized the need to boost cooperation in nuclear power and space research (Xinhua, November 2), while Zhukov said, “One of the priority areas of cooperation is China’s program to explore the moon” (Interfax-China, November 1). Fradkov added, “We are ready to build here all of the nuclear power stations and thermal ones as well” (RIA-Novosti, November 3). However, Fradkov did not address a pre-existing price dispute over future electricity supplies to China (Interfax, RIA-Novosti, November 3).

Moscow and Beijing have long eyed bilateral energy-infrastructure projects. In the mid-1990s, Russia and China discussed a project to build a $1.5 billion 2,600-kilometer-long power transmission line from Irkutsk region in Siberia to China. While the two sides never agreed on prices and China abandoned the project in 1999, the issue may be revisited when the Bureiskaya power plant comes fully online in 2008, generating far more electricity than Russia’s Far East can consume.

Russia is to supply 500 million kilowatt-hours (kWh) of electricity to China this year and 800 million kWh in 2006. Electricity supplies to China reached 300 million kWh in 2004. Russia’s Unified Energy Systems has indicated tentative plans to export 15-18 billion kWh to China in 2008 and up to 30 billion kWh eventually. However, price is still a sticking point. Russia reportedly suggests 2 rubles ($0.07) per kWh, while China believes the price should be one-third of that rate.

Although energy has been understood to dominate the bilateral economic agenda, Russian officials have insisted that Moscow not become China’s raw materials supplier (see EDM, September 29).

As Fradkov made the rounds in Beijing, the Russian media revealed their skepticism over official pledges to diversify Russian exports. In particular, they noted that official statements contradict long-term trends. While exports of machinery amounted to a quarter of Russia’s total exports to China in 1998, the figure dropped to 2.8% this year (Nezavisimaya gazeta, November 3).