China, Russia bolster ties with gas, trade deals

Tue Oct 13, 2009 10:33am EDT

By Darya Korsunskaya and Chris Buckley

BEIJING (Reuters) – Russia and China bolstered their close but increasingly imbalanced relationship on Tuesday when Russian Prime Minister Vladimir Putin ushered through a tentative gas supply agreement and deals worth $3.5 billion.

Putin’s talks with Chinese Premier Wen Jiabao also covered the international hotspots on which the countries share many views, but with China’s economy steaming ahead while Russia has lagged during the global downturn, they focused on nurturing ties in trade and energy.

The centerpiece of the day was a preliminary agreement on Russian state-run gas giant Gazprom supplying China National Petroleum Corp (CNPC).

“China is a colossal market. The diversification of supplies is a very important direction for Gazprom,” Putin told reporters after his talks with Wen.

“Our cooperation is growing in many ways: mining, joint work on pipelines, oil supplies and in the future, possibly, gas.”

Gazprom Chief Executive Alexei Miller told reporters the deal could open the way to Russia, the world’s biggest natural gas producer, supplying 70 billion cubic meters per year to China from Siberia and the Russian Far East, including Sakhalin.

This could make China the biggest buyer of Russia’s natural gas, overtaking Germany, which imported around 37 bcm last year.

Russia’s senior energy official, Deputy Prime Minister Igor Sechin, said gas deliveries could begin in 2014 or 2015, and that pricing issues could be decided at the start of 2010.

But it has been more than three years since the two sides signed a preliminary gas deal, and the new pact has not resolved disagreements over pricing and conditions that have blocked concrete progress before.

“You have to ask yourself how sustainable some of these deals will be,” Bobo Lo, senior research fellow at the Center for European Reform in London, said before the gas deal.

“China, and Asia in general, are still a default fall-back for Russia, not its priority for energy deals.”

Russian and Chinese companies also signed deals worth $3.5 billion on Tuesday, the second day of Putin’s visit to Beijing, his deputy, Alexander Zhukov, told reporters there.

They included at least $1.7 billion of loans from Chinese banks to Russian banks, among them a $500 million loan from the Agricultural Bank of China to No. 2 Russian bank VTB.

Russian oil industry leader Rosneft and CNPC would build a refinery 100 km (60 miles) from Beijing and planned to open 300 to 500 gasoline filling stations in China, Sechin said.

EAGER FOR DEALS

Behind Russia’s eagerness for deals appear to be worries the financial crisis has left its economy shrinking, while China is confident its GDP will grow 8 percent this year, consolidating its status as the world’s third-biggest economy, said Lo.

“The global financial crisis has accentuated the disparity between China and Russia,” said Lo, a former Australian diplomat who specializes in Sino-Russian relations. “Really, Russia feels it’s been kicked into the long grass by the crisis.”

Russia, the world’s ninth-biggest economy, is struggling to regain its footing after GDP plunged to an expected 8 percent decline this year from 7 percent annual growth.

Beijing also has its reasons for courting Putin, who remains his country’s most powerful figure after leaving the presidency.

“Both China and Russia have very peaceful foreign policies. We are not fighting wars anywhere. We don’t have troops deployed overseas,” Putin said. “The joint position of Russia and China on some issues restrains some of our hot-headed colleagues.”

China sees Russia as a strategic counterweight to U.S. influence and believes Russian resources and markets will be important in decades to come, said Zhao Huasheng, an expert on the countries’ relations at Fudan University in Shanghai.

“The fall-off in trade reflects the overall global crisis … but both countries will be making special efforts to put economic relations back on a healthy track,” he said.

IF THE PRICE IS RIGHT

But behind the frequent vows of deals and undying friendship, ties between Russia and China have been unsettled by frustrations and latent mistrust, said Lo.

Beijing has been irritated by Russian customs policy after the closure of Moscow’s Cherkizovsky market, where Chinese traders sold goods allegedly smuggled into Russia. Chinese media reports have accused Russia of discrimination.

Last year, Putin and Wen oversaw the signing of a deal to build a new overland pipeline to ship Siberian oil to China and negotiated an oil-for-loan deal through which China secured Russian oil supply for the next 20 years and Russian companies borrowed $25 billion from China at low rates.

The oil pipeline deal came after long contention over prices and conditions, and that agreement and any similar ones on natural gas could still be vulnerable to friction, especially if energy prices rise as global growth resumes, said Lo.

“China might like to line up another natural gas deal with Russia, if the price is right, but it’s not banking on the gas being available,” said Zha Daojiong, an expert on Chinese energy diplomacy at Peking University said of prospective gas deals.

(Editing by Ken Wills and Alex Richardson)

[original]

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