Publication: Eurasia Daily Monitor Volume: 3 Issue: 174

The Kremlin has repeatedly pledged to boost Russia’s economic ties with China. Recent statistics indicate that bilateral trade is rising, but at a rate slower than previously expected.

In the first eight months of 2006, bilateral trade between Russia and China was up 20% year-on-year, Russian Economic Development and Trade Minister German Gref said during a meeting with Chinese officials in St. Petersburg on September 19 (Interfax, RIA-Novosti, Sept ember 19).

This level indicated that bilateral trade has slowed in recent months, because in the first quarter of this year the trade turnover was up 53% over last year. In 2005 bilateral trade reached $29.1 billion (up 37.5%), including $15.9 billion in Russian exports and $13.2 billion in Chinese exports.

In the past three years, bilateral trade tripled to nearly $30 billion, Gref said. By 2010, trade between Russia and China is to reach the $60-80 billion range, he added. Gref also suggested improving the channels to exchange economic information between Russia and China. Since the beginning of this year, the discrepancy between Russian and Chinese trade statistics reached $4 billion, he said.

Russian officials said that the quality of bilateral trade should be improved as well. For example, Gref complained about the remaining trade imbalances between the two countries. He argued that raw materials amount to some 70% of Russian exports to China. Consequently, Russia hopes to boost machinery exports to China (Interfax, September 19). However, Gref disclosed no specific measures aimed at achieving Moscow’s stated goal of tackling imbalances in bilateral trade.

In the meantime, Gref announced that Russian Prime Minister Mikhail Fradkov will travel to Beijing to sign a number of economic agreements in November. Among other deals, Russia and China plan to sign a blueprint on bilateral economic coopera tion for 2006-2010, as well as an agreement on investment protection (Interfax, RIA-Novosti, September 19).

In November, Russia and China also plan to discuss ways to remove trade barriers, notably in agricultural products. Since the mid-1990s Russia has limited meat imports from China, while China in turn restricts grain and poultry imports from Russia.

The bilateral economic agenda also includes one controversial issue. On September 19, Gref told Chinese officials that Russia is interested in forming forestry joint ventures in the Far East and Siberia. “We are interested in the efficient joint use of forestry resources” in partnership with Chinese investors, he said (Regnum, September 19). Specifically, Gref backs a plan to lease huge acreages of Siberian forests to Chinese companies, an idea that attracted strong criticism in Russia earlier this year.

Russian oil supplies to China have long been seen as a key element of bilateral trade ties. And similar to overall trade turnover between the two countries, Russian crude exports were up this year, but still below earlier expectations.

Russian crude oil exports to China by rail this year are expected to be significantly lower than previously estimated, according to Alexei Vorotilkin, CEO of the East Siberian Railway. Oil supplies to China are to amount to 11 million tons, or 4 million tons below earlier plans, he said (Interfax, September 19).

Moscow has long promised to boost oil exports to China by rail and pledged to raise these oil exports up to 15 million tons in 2006. In 2005, Russia supplied 7.6 million tons of oil to China by rail or up 34% year-on-year, according to Russia’s state-owned Russian Railways Company, RZD.

In the first eight months of 2006, Russian crude shipments to China by rail reached some 6.7 million tons, up from 5.1 million tons in January-August last year, according to the East Siberian Railway, a subsidiary of RZD.

Nearly 5.5 million tons of oil crossed the border at Zaba ykalsk-Manzhouli, while the remaining 1.2 million tons was funneled through Naushki at the Russian-Mongolian border, according to the East Siberian Railway. Supplies by Rosneft through Zabaykalsk were up, while shipments by Yukos via Naushki were down.

In 2007, Rosneft still plans to supply 9 million tons of oil to China by rail, the East Siberian Railway’s Vorotilkin announced. Meanwhile, Yukos has so far refrained from pledging any oil for exports to China, he said.

Russian railway officials insist that they could provide a viable alternative to planned oil pipelines to China. Vorotilkin said it was technically feasible to eventually boost rail shipments to China to 20-30 million tons a year (Interfa x, September 19). However, rail freight remains expensive, affecting the economic viability of Russian crude oil exports to China by rail.