Will Russia Expand China Trade

     Russia has repeatedly pledged to expand its trade with China, as the Kremlin appeared to view these commercial ties as an important indicator of what was officially described as the bilateral strategic partnership.
Although bilateral trade was adversely affected by the global economic downturn, Moscow also achieved a sizable surplus in its trade with China in 2009.
     Last year, bilateral trade between Russia and China declined: reaching $38.8 billion, or some 32 percent down year-on-year, according to Russian and Chinese statistics.
     Chinese exports to Russia, which totaled $17.5 billion or 47 percent down year-on-year, according to Russia’s trade representative in Beijing Sergei Tsyplakov.      Russian exports to China amounted to $21.3 billion or 11 percent down year-on-year, he explained. Russia also recorded a healthy $3.8 billion surplus in its trade with China, Tsyplakov noted.
     Tsyplakov said that from September 2009, Russian exports to China began increasing. Notably, in the fourth quarter of 2009 Russian exports were 21.1 percent up year-on-year and the figure was 53.6 percent up year-on-year last December, he said. Increased Russian exports to China, including crude oil, metals and metal ore, came to indicate signs of recovery in bilateral trade, Tsyplakov argued.
     High growth rates in Sino-Russian commerce were seen by Moscow as an important indicator of the state of bilateral partnership. In 2006, bilateral trade amounted to $33.4 billion or some 15 percent up on the previous year. Russia’s trade turnover with China exceeded $29 billion in 2005, up by 37.1 percent year-on-year.
     In January 2006, the then Russian President Vladimir Putin announced plans to raise bilateral trade to between $60 to 80 billion annually by 2010. Initially, both countries appeared to rapidly progress towards achieving that goal. In 2007, Russia’s trade with China reached $48.16 billion or 44.3 percent up year-on-year.
     In 2008, the level of bilateral trade reached $56.8 billion or 18 percent up year-on-year. As a result, China emerged as Russia’s third largest foreign trade partner, while Russia became China’s eighth largest trade partner. However, in the second half of 2008, trade between Russia and China apparently began to slow down against the background of the global economic downturn. Not surprisingly, last year bilateral commerce fell below $40 billion or well below the level of 2007.
     Russian officials conceded that bilateral trade is unlikely to recover this year. In 2010, Russia’s trade with China is not expected to exceed $46 billion, Tsyplakov said. The pre-crisis trade turnover of $56 billion may be reached in 2011 or 2012, he argued. Russia achieved a sizable surplus in its trade with China mainly caused by falling machinery exports from the country due to weak demand in Russia. In contrast, Russian energy exports to China were rising.
     From January to October 2009, oil deliveries to China totaled 13 million tons, according to Tsyplakov.      Consequently, Russia became China’s fourth largest oil supplier. In 2009, Russian oil supplies amounted to 7.8 percent of China’s total oil imports, up from 6.5 percent in 2008. In March 2009, Russia resumed its electricity exports to China following a prolonged hiatus. This occurred in the context of the long-standing saga of Russian power supplies to China.
     Moscow and Beijing have long discussed electricity trade. In the mid-1990’s, they discussed a joint project to build a 2,600-kilometer power transmission line from the Irkutsk region in Siberia to China at a cost of $1.5 billion. However, both sides never agreed on pricing and later abandoned the project. In November 2006,      Moscow and Beijing reached a deal to raise annual exports of electricity from Russia to China to 3.6-4.3 billion kwh/year in 2008 to 2010, and 18 billion kwh in 2010 to 2015, and eventually up to 60 billion kwh. However, three years ago Moscow’s plan to boost its electricity exports was dealt a major blow. From February 1, 2007, China refused to import Russian electricity, thus leaving Russian hydropower plants without a market to sell their surplus electricity.
     However, both sides managed to resolve their differences, and in 2009 Russian suppliers exported about 900 million kwh to China. Russian energy companies now reportedly aim to export 60 billion kwh by 2020.
Russian and Chinese trade statistics typically do not include armament sales figures.
      However, Russian arms supplies to China were apparently also in decline. Russia's state-run arms export company Rosoboronexport, the country’s predominant weapons exporter, conceded that its arms exports to China were falling. On January 28, Rosoboronexport's head Anatoly Isaikin said that China’s share in Russian arms exports fell by 18 percent. China has been cutting its arms imports and instead focusing on military technology transfers and the development of domestic arms production, he said. In the early 2000’s, Russia earned up to 40 percent of its arms exports revenue from sales to China.
     Therefore, trade in industrial commodities between Russia and China apparently declined due to the adverse effects of the global economic downturn. Meanwhile, Russia has continued to increase its energy supplies to China.
Gordon Feller

FT021210