EDITOR: | August 26th, 2015

Slowdown of Chinese economy may pose threat to Russia

| August 26, 2015 | No Comments
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Alexander_NovakThe slowdown of the Chinese economy may pose a serious threat to Russia and may result the cancellation of some long-term investment projects in the country, which are implemented with the participation of Chinese investors.

Since the beginning of 2014 and the introduction of Western sanctions against Russia, the Russian government has started to consider China as the biggest trade partner for the country for the next several decades. This were reflected in the signing of a series of large-scale investment contracts, between the sides in recent months.

Among the biggest of them were the Power of Siberia, (a natural gas pipeline under construction in Eastern Siberia to transport Russian gas to China),  as well as US$270 billion deal on the supplies of 360 million tonnes of crude oil from Russia to China during the next 25 years.

Still, due to the beginning of the recession in China implementation of some of these projects may be suspended.

In the first half of the current year the growth of the Chinese GDP amounted to 7%. This is even lower last year’s figures, when the growth of the Chinese GDP was only 7.4%, compared to 2013, which became the weakest figure for China for the last 25 years.

The current negative trends in the Chinese economy are also reflected by the current results of the country’s industrial sector. In the first half of the current year the overall revenue of the Chinese industrial sector declined by 0.7%, compared with January-June 2014 and it is expected that the decline will continue in the second half of the current year.

At present China remains a major trade partner for Russia. This year the share of China in the Russian foreign trade amounted to 11.2%, compared to 8.7% in the case of Germany and 6.5% for Italy.

However it is expected that trade turnover between the two countries will significantly decline this year, as since the beginning of the current year Russian exports to China have already declined by 20%, compared to the first half of 2014.

The biggest decline is observed in the case of food, as well as Russian oil and gas exports to China. In the case of food, due to Western sanctions, the volume of Russian food exports to China last year significantly increased, compared to 2013, however it is planned that this year these figures may return to the level of 2008-2009 years.

In addition to food exports, the Russian government may probably revise its plans for the supplies of oil and gas to China this year.

According to earlier statements of Alexander Novak, Russia’s Minister of Energy, Russia had plans to reach new agreements with China, in regard to the exports of oil and gas already in September of the current year, however there is a possibility that, due to current economic slowdown in China, signing of new oil and gas contracts between the sides may be postponed.

Moreover, it is expected that China will be forced to reduce oil and gas purchases from Russia in the case of further stagnation of the Chinese GDP this year.

Unlike Russia, China does not consider Russia as one of its major trade partners. At present Russia still remains a minor trade partner for China, which share in the Chinese foreign trade is estimated at only 2%, which is equivalent to less than US$90 billion, compared to US$500 billion in the case of the US in 2014.

In the case of Russia itself, the ongoing devaluation of the national currency – ruble may be beneficial for exporters, and in particular oil and gas companies, however as prices for oil and gas, (Russia’s main export commodities), remain low, devaluation of the rouble will not compensate the losses of the Russian federal budget.

At the same time strengthening of economic cooperation with Russia may be beneficial to Chinese, as will provide an opportunity to receive cheap Russian oil and gas and to get a control over thousands of hectares of agricultural land in the Russian Far East and the Trans-Baikal region.


Eugene Gerden

Editor:

Eugene Gerden is an international free-lance writer, based in St. Petersburg, who specializes on writing in the field of mining, metals and rare earth metals. ... <Read more about Eugene Gerden>


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