Aug 03, 2012 11:47 AM

The Bear and the Panda Waltz


Putin visited China in June 2012 as the new Russian president

China and Russia should be natural economic partners. Russia has vast natural resources, including some of the world's largest deposits of oil, natural gas, coal, iron ore, gold and diamonds. Its little-populated areas bordering China contain large untapped hydroelectric resources that could provide the electricity China craves.

A quick train shipment across the Russian border should have a clear advantage over shipments of coal or iron ore from Australia or Brazil, which take weeks by ship. With Asian economies now consuming about half of globally produced aluminum and coal, around 60 percent of iron ore, and 40 percent of copper, nickel and zinc, according to Russian estimates, ramping up trade seems like a no-brainer.

Russia and China pledged to double trade from US$ 83 billion last year to US$ 200 billion in 2020 at a summit between President Hu Jintao and Russian President Vladimir Putin in June. Yet  Sino-U.S. trade already exceeds US$ 500 billion.

How to accelerate Asian trade and investment in Russia was on the minds of many Russians at the annual St. Petersburg International  Economic Forum at the end of June. St. Petersburg was built by Peter the Great in 1705 as a new capital to open Russia to the outside world. But where Peter looked west, Putin looks east. Putin, who in May was sworn into his third term in office, has set a target of US$ 100 billion in annual trade with China by 2015. In April, Vice Premier Li Keqiang signed 27 agreements totaling US$ 15 billion during a visit to Russia.

Oleg Deripaska, one of Russia's most prominent businessmen and probably the most influential voice in the business community calling for closer economic ties with China, thinks trade and investment can grow much faster. Deripaska's EN+ Group has set up a joint venture with China Yangtze Power to build up to 10 gigawatts of new hydropower plants in Siberia with a view to exporting electricity to China, much as Quebec does to New York and New England across the U.S.-Canada border. In June, Rusal signed a preliminary agreement for up to US$ 850 million in financing from the China Export-Import Bank for an aluminum-related factory in Siberia.

Russia's challenge is clear: most Russian resources are in the eastern two-thirds of the country –Siberia and the Far East are home to 70 percent of the country's natural resources. But most Russians live in the west – more than 80 percent are in the European part. Siberia and the Far East together are 36 percent bigger in size than China, yet the 38 million people who live there don't even equal the combined populations of Beijing and Shanghai.

Although Russian policy-makers know Chinese investment and labor could help tap these resources, many worry that China might end up with too much influence – or perhaps, in a worst-case scenario, even make a grab for Russian territory.

You've accessed an article available only to subscribers
Share this article
Open WeChat and scan the QR code