05.10.2016 Author: Sofia Pale

Russian Business Interests in China

243421312313Russian President, Vladimir Putin, was the key player at the G20 Summit that took place in September 2016 in China. This was due to not only political reasons: the Russian leader managed to garner extra popularity with international media outlets all because of an unexpected gift – a box of Russian ice cream, which Mr Putin personally presented to the President of the People’s Republic of China Xi Jinping. “Your ice cream tastes better because your cream is thicker,” announced the grateful host of the Summit. It is not a surprise that this situation will be beneficial to Russian ice cream producers, who will immediately take this opportunity and begin supplying their product to the Chinese market at an accelerated rate (currently, just a few tons are supplied every year, although the Russian product has carved out a niche).

This minor episode illustrates a smooth turnaround of the Russian market in the export of goods to the East. Despite a number of challenges related to business practices, language and cultural barriers, trade between Russia and its most important Eastern partner, China, is currently developing quite successfully.

Official data reports that in 2015, exports from Russia to China amounted to $33 billion, and Russia was ranked 16th in China’s top 20 trade partners. At the same time, China remains Russia’s main export partner.

Currently, about 30% of Russian exports to China are food products that are enjoying a growing demand. China primarily buys Russian fish and meat products. However, amidst the healthy nutrition trend of the Chinese, combined with the fact that China traditionally does not breed cows, the Russian dairy products are taking the first place. Common milk from the country, not soymilk, is considered in China to be one of the healthiest products for which enthusiasts of healthy lifestyles are willing to pay considerable amounts of money.

Apart from dairy products, in the 2015-2016 period, exports of the Russian chocolate, sunflower oil, beer and honey from Russia to China have sharply increased. High demand for these products is explained by the fact that the Russian products contain a lot more natural ingredients that their Chinese analogues.

According to the 2015 results, in addition to the growing popularity of Russian food products, another most lucrative export to China was amber. Amber products are of high demand in China, as they are a symbol of wealth, prosperity, and well-being. The Chinese are willing to pay real money for symbolisms. For example, the prices of Russian amber soared by 60% over the past year. At the same time, the number of buyers from China hasn’t diminished.

Energy carriers and raw commodities account for the remaining 70% of Russian exports to China. Russia supplies electric power, oil, gas, timber and natural resources (especially non-ferrous metals) to China. all leading Russian companies are represented at the Chinese raw materials market.

In 2016, Russia has become the largest oil exporter to China. Rosneft supplies 75% of black gold consumed by the PRC on the Chinese market. Meanwhile, the volume of oil supplies from Saudi Arabia to China has turned out to be 7 times lower. The victory in the competition with Saudi Arabia, which until recently had been the major oil supplier to China, caused the increase in Rosneft’s stock price by more than 30% over the first half of 2016.

Another major Russian company – Gazprom, is constructing the Power of Siberia gas pipeline to provide an unprecedented gas supply to China. The project, which shall be implemented by 2021, is expected to bring substantial profit to the Russian economy.

However, the trade partnership with China is not limited to only the export of Russian agricultural products and raw materials. Among other things, Russia is expanding its cooperation with the PRC in the field of the outer space development. Thus, following successful negotiations in summer of 2016 on intellectual property protection in space-rocket technologies, Russia is ready to supply RD-18 rocket engines, which have no analogues in the world. The USA is also buying up these engines for use in its Atlas 5 missile carriers. It should be noted that the Russian side is interested in involving its Chinese colleagues to the use of the recently constructed Vostochny Cosmodrome, which was successfully launched in April 2016, just 100 kilometres from the Chinese border.

After the G20 Summit in September 2016, a breakthrough in the cooperation between Russia and China in the financial sphere is expected. By the end of the year, the Russian Vnesekonombank (VEB – Foreign Trade Bank) will for the first time begin issuing bonds in yuan. This will be the first time that such loans are issued in the Chinese currency. In particular, under the Eastern Economic Forum that took place in September 2016, VEB signed an agreement with 10 Chinese commercial banks on acquiring a syndicated loan worth 10 billion yuan (about $1.5 billion). This transaction means that the Russian banking system has acquired one more foreign investor in one of the three reserve currencies. On October 1, 2016, the yuan will get 10.92% of the International Monetary Fund reserve currency, and shall be ranked the third most valuable currency after the dollar (41.73%) and the euro (30.93%).

Moreover, this year, about 20 Russian companies, including financial institutions, industrial enterprises, and government departments, will place bonds worth about $300 million on the Chinese stock market. This seems to not be a great deal so far, but this market segment has started to develop. Until 2015, foreign investors were not allowed on the Chinese bond market. However, the yuan bond market has been running for 11 years, with its profitability reaching about 20% a year just recently. Consequently, the entry of Russian business on the Chinese bond market presents very attractive prospects.

In conclusion, it should be noted that China is a vast, unexplored territory, which Russian businesses are willing to discover. The entrance of Russian companies onto Chinese markets marks the beginning of a new era in Russia-China relations. It is a well-known fact that economic cooperation also calls for political and cultural convergence. This means that the two giants – Russia and China, will both benefit immensely under conditions of peace and stability in the entire Asia-Pacific region.

Sofia Pale, PhD, Research Fellow of the Center for South-East Asia, Australia and Oceania of the Institute of Oriental Studies of the Russian Academy of Sciences, exclusively for the online magazine – “New Eastern Outlook.


×
Please select digest to download:
×