Energizing China-Russia ties

Strengthened cooperation is helping China to acquire the resources it needs while Russia is obtaining capital, technology and market access

Bilateral trade between China and Russia made a historic breakthrough from 2014 to 2020, given the West's sanctions on Russia and the trade conflict between China and the United States. In 2018, the two countries' bilateral trade volume hit the $100 billion mark for the first time. In 2020, it remained above $100 billion despite the impacts of the COVID-19 pandemic.

China and Russia have enhanced their cooperation in security, economy and global affairs, and reaped benefits from their closer economic ties. Russia has managed to overcome the economic difficulties caused by the Western sanctions by relying on capital and technologies acquired from China and access to the Chinese market, thus averting an overall deterioration of its international environment. China on its part has benefited from energy supplies and agricultural products imported from Russia.

During the Sino-US trade conflict, as a countermeasure to US tariffs, China targeted US farm products such as soybean. This offered an opportunity for Russian agricultural products to enter the Chinese market. From 2014 to 2020, the value of agricultural products Russia exported to China soared from $1.1 billion to $4.1 billion, with an annual growth rate of 39 percent. In a few years, China has grown into a major export destination for Russian soybean and meat.

In terms of their trade balance, during the period from 2014 to 2020, China's trade surplus with Russia turned into a trade deficit. From 2014 to 2017, China's trade surplus dropped from $12 billion to $1.7 billion, and from 2018 to 2020, its deficit grew from $3.8 billion to $6.6 billion.

Energy is the pillar of Russia's economy. However, the US sanctions severely limited the capacity of the Russian energy sector to acquire capital and technology from the West and slashed its energy exports. Therefore, Russia turned to China to obtain capital, technologies and an export market, and it reaped substantial profits through the energy cooperation with China. At a time when the global supply of oil and natural gas is greater than the demand, the access to China's huge market has greatly relieved Russia from the pressure of US sanctions.

First, Russia's oil and natural gas exports to China surged from 33 million metric tons in 2014 to 84 million tons in 2020. The newly-launched "Power of Siberia" pipeline and the Yamal liquefied natural gas project have greatly boosted Russia's natural gas exports to China. With the China-Russia eastern-route natural gas pipeline put into operation, Russia has secured a stable and vast export market for its natural gas and LNG. On July 19,2018, the first LNG tanker from Yamal arrived in China's Nantong port via the Arctic passage, marking a milestone for Russia's LNG exports.

Second, Russia has received from China much-needed finance for its energy sector to overcome financial difficulties and realize strategic adjustment. Since 2003, investment, loans and funds from China have become a major source of financing for Russia's energy projects.

In 2003, Russia borrowed more than $6 billion from China to acquire the core assets of the oil company Yukos in its effort to renationalize the oil sector. In 2009, China provided $25 billion as loans to the Russian oil giant Rosneft and oil pipeline operator Transneft to help the two major state-owned companies weather the financial crisis, and build the East Siberia-Pacific Ocean oil pipeline, an infrastructure project of strategic significance.

According to data from China Global Investment Tracker, China's investment in the Russian energy sector totaled $20.93 billion during the period from 2014 to 2019. The Yamal LNG project that China participated in has greatly boosted Russia's efforts to tap the global LNG market. Moreover, China National Petroleum Corporation has bought 10 percent of the shares of Russia's Arctic LNG 2 project, and Sinopec invested $248 million to buy 40 percent of the Amur natural gas chemical project.

Third, because of the embargo on advanced energy technologies and equipment imposed by the US and Europe, Russia faced a dilemma between suspending part of its oil and gas exploitation projects or seeking alternative sources of imports. Although China lags behind Western countries in oil prospection and exploration technologies and equipment, it still has an edge over Russia.

The international energy industrial chain consists of four components: resources, capital, technology and the market. China has advantages in all the four aspects. Through the Sino-Russian cooperation in energy over recent years, China has acquired the energy resources it needs while Russia has obtained capital, technology and market access.

Undoubtedly, it is important for China to maintain a stable, healthy and sustainable relationship with Russia, which provides a solid foundation for the high-quality socioeconomic development of both countries. China should take protecting and expanding its national interests as the starting point and ultimate goal in developing the Sino-Russian relationship, push for more balanced bilateral economic ties, and create a more stable regional and international environment.

The author is deputy director of the Institute of International Studies at Fudan University. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.