Monday, 28 January, 2008

Russia Looks to China for Partnership

After many years of lukewarm relations, Russia and China are finally strengthening their economic ties, especially in the energy sphere. About two weeks ago it was announced that Russia would double its electric power deliveries to China. On Monday, China's Premier Wen Jiabao said that Russia will considerably boost oil exports by rail to its neighbor

In 2005, Russia will deliver 500 million kWt/hrs of electric energy to China, the deputy chairman of Russia's power grid monopoly Unified Energy System, Leonid Drachevsky, said. A relevant cooperation agreement was signed in Beijing by the head of the Federal Grid Company Andrei Rappoport and head of the State Grid Corporation of China. In 2004, Russia delivered to China 300 million kWt/hrs, while in 2006 this figure is set to grow to 800 million kWt/hrs. The UES official also said that the Russian power monopoly may attract Chinese investments into the development and renovation of the country's power assets. "I see no reason why Chinese capital cannot take part in the Russian energy system," Drachevsky said.

Speaking to reporters on Monday, the Chinese Prime Minister said that oil exports by rail from Russia, the world's second largest oil exporter to China, the world's second largest oil consumer, would rise to 10 million tons in 2005 and 15 million tons in 2006. Over the last year, China's total crude imports from Russia soared by 105% to 10.77 million tons. The oil export drive to China will be led by the state-owned Rosneft Oil Company which will supply 4 million tons this year and 8.9 million tons annually for the next five years. Another 4 million tons will come from oil major Lukoil.

"We have reached important consensus on energy cooperation," Wen Jiabao said. "Energy cooperation between China and Russia is of equal and mutual benefit". The two countries also would strengthen cooperation in oil and natural gas exploration and development, he said. Wen said he would further discuss energy cooperation with his Russian counterpart in the second half of this year. "This is the best period in the history of Russian-Chinese relations," the Chinese Premier stressed.

Russia and China have a lot to offer each other as long as both sides have a clear understanding of what one wants from the other. China has strategic needs in the sphere of energy consumption while Russia has the means to satisfy China's demand for oil and electricity. China also needs markets for the goods that it's rapidly growing economy produces. It wasn't for anything that Wen Jiabao said that by 2010 the volume of bilateral trade between China and Russia should reach $60-80 billion, up from the current $20 billion. And what is it that China has that may be interesting and useful to Russia? China can offer Russia a strategic political partnership - the idea of which scares the U.S. and European politicians. But political partnership is something that one has to be very careful about. China is a very pragmatic partner ready to change its position at any moment as the situation demands. Therefore, while a "Russia-China" political block would be a powerful new player on the international scene, Russia and its authorities should concentrate for now on the economic relations. What China has is the spare funds to invest in the Russian economy and the willingness to do this. What the Russian authorities need to do is to work out the conditions for investment that would satisfy both sides. China needs to feel that it's investing money wisely and will be able to reap the fruits of its investment. Russia needs to feel that it's not selling control over any of its precious natural resources to some "foreigners". The experience of other countries with a wealth of natural resources shows that such an investment scheme which satisfies both sides is possible. Now it is up to the Russian authorities to do this quickly enough before China changes its mind and finds other places for investment.


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