Publication: Eurasia Daily Monitor Volume: 3 Issue: 26

The Kremlin has boasted that Russia’s growing trade with China is a manifestation of Moscow’s “strategic” bilateral partnership with Beijing. Yet despite Russia’s stated reluctance to limit itself to the role of raw materials supplier for the Chinese economy, actual export and import trends in bilateral trade suggest otherwise. Moreover, structural imbalances are deepening, as Russian exports to China remain increasingly dominated by energy and commodities, while China sells more and more high-tech products in Russia.

“We intend to further develop the strategic partnership with China,” Russian President Vladimir Putin announced at his annual news conference in the Kremlin on January 31. Putin also said that the two countries had aimed at raising bilateral trade up to $20 billion three years ago, but Russia’s trade turnover with China exceeded $29 billion in 2005. “We are now planning to bring trade to $60 billion by 2010,” Putin said, describing the goal as “quite attainable.”

While hailing the growing trade with China, Putin made no mention of structural imbalances. But he said that Russia’s energy resources are well above current estimates. He described East Siberia as “a Klondike of energy resources,” adding, “there are enormous resources there, which will undoubtedly be in good demand” (RIA-Novosti, January 31). Therefore, Russia’s reliance on its East Siberian “Klondike” appears to remain Moscow’s strategy in economic relations with China.

Russia still sells more goods to China than it buys there. Russian exports accounted for $15.89 billion, while Chinese imports to Russia totaled $13.21 billion, according to official statistics. But Russia’s trade surplus was down to $2.68 billion from $3.03 billion in 2004 and Russia’s trade representative in Beijing, Sergei Tsyplakov, described this trend as a “major success” for China.

The value of trade between Russia and China has been rising recently. Last year, the trade turnover was up by 37.1% over 2004, according to Tsyplakov. About half of the increase, or some $4 billion, came from Russian oil exports, he said. Oil, oil products, coal, and electricity amounted to 40% of Russian exports to China last year, up from 34.5% in 2004 and 10% in 2001 (Interfax, January 19).

But the officials in Russia have few reasons to claim the growth of bilateral trade as their achievement. Tsyplakov conceded that bilateral trade turnover was up in 2005 mainly due to high global commodity prices. For example, in the first 11 months of 2005, oil deliveries to China totaled 11.5 millions tons, up 13.2% in terms of volume but 62% higher in terms of value.

Other Russian export items mirrored this trend. Russian oil products exports to China were down by 4% year-on-year in volume, but were up by 36.6% in value. Likewise, potash exports were up by 0.4% in volume, but 31% in value.

As Russian exports to China remain dependent on international commodity price movements, Russian officials are wary of a possible global commodity downturn. These numbers make analysts wonder how bilateral trade turnover could be increased to $60-80 billion by 2010, particularly in the event of lower global commodity prices, Tsyplakov said (Interfax, January 19).

In the meantime, Chinese exports to Russia are not as tied to commodity prices. The share of high-tech goods was up by nearly 60% in overall Chinese exports to Russia in 2005. Meanwhile, the share of Russian machinery sales in overall exports to China plunged from 4.8% in 2004 down to 2.2% in 2005.

Yet despite some worrying imbalances, Russian officials still boast about the growth in bilateral trade without any reservations. Cooperation with China will remain one of Russia’s priorities, former Russian ambassador to China and Federation Council member Igor Rogachyov said on February 1. He hailed growing the bilateral trade as unprecedented “in the history of Russian-Chinese relations” (Interfax, February 1).

Russian officials have pledged to diversify trade with China and insisted that Russia should not accept the role of feedstock supplier for the energy-hungry Chinese economy. Russia’s abundance of raw materials is an advantage, but in the long term Russia should not remain a mere supplier of raw materials for China’s booming economy, Russian ambassador to China Sergei Razov announced last September. However, official pronouncements are yet to entail any practical results, as no new incentives have been introduced recently to raise Russian high-tech exports to China.

In 2005, China became Russia’s second-largest trading partner after Germany, while Russia still remained China’s eighth largest trading partner. But bilateral trade volumes are still relatively insignificant in terms of global trade.