This article is originally published at https://www.cnbc.com/2014/10/13/why-china-russia-ties-are-heating-up.html
China Premier Li Keqiang’s trip to Moscow is expected to net as many as 50 trade deals, as sanctions spur Russia to accelerate its growing ties with the mainland.
“From the Chinese point of view, it’s an opportune moment to strengthen its ties to Russia as Russia is under pressure to find major new markets outside Europe and the U.S.,” said Rajiv Biswas, chief economist for Asia-Pacific at IHS. He noted Russia was hit hard by capital flight earlier this year amid tensions with Ukraine and faces a recession and a difficult outlook next year as oil prices have declined.
While as an energy importer, the mainland is concerned with energy security, “China has quite diverse economic ties around the world. It’s not under the same pressure as Russia,” he said.
The U.S. and Europe imposed wide-ranging sanctions against Russia in the wake of its annexation of Crimea from Ukraine in March, with measures including a ban on cooperating on oil exploration in the Arctic as well as targeting politicians, financial institutions, defense technology companies and energy players.
China has been vocal in opposing the sanctions and Li’s three-day official visit, his first since taking office last year, has offered the mainland the chance to scoop up deals which can offset Russia’s inability to trade with the West.
But the deals likely won’t be on an entirely equal footing.
Russia imports more from China than any other country, but Russia is only China’s ninth largest trade partner, just under the U.K., noted Tony Nash, global vice president at Delta Economics.
In addition, Russia may find itself relegated to primarily a supplier for China’s factory floors. Indeed, it’s a pattern visible in China’s trade data for September, with imports unexpectedly rising 7 percent, driven by increasing shipments from commodity-intensive countries, including Russia, which are expected to be processed and re-exported later.
“The Chinese were delighted because it enabled them to get hold of many, many deals that might not have come their way,” Colin Chapman, president for New South Wales at the Australian Institute of International Affairs, told CNBC Tuesday, noting that many of the deals expected to be signed during Li’s visit are in the energy segment.
“If the Chinese are able to build and sell some of their technology –and while their technology is not quite as good as Western technology, they do have technology — to the Russians, then that starts building something,” Chapman said.
“Many of [the deals are] in energy, but also these deals involving building railways which the Chinese are very good at and the Russians not so very good at. The Russians are very keen to have railways, particularly across to Siberia and to the East coast,” he said.
Chapman believes the flurry of deals from Li’s visit mark a “real turning point” in China-Russia relations. “Effectively, [the sanctions] were driving Vladimir Putin into Chinese arms,” Chapman said.