Russia signs raft of deals with China

By bne IntelliNews October 14, 2014

bne -

 

Russia and China signed a raft of 40 agreements encompassing trade, energy, finance and technology, following a meeting between Russian prime minister Dmitry Medvedev and his Chinese counterpart,  Li Keqiang, on October 14  in Moscow. The agreements demonstrate how Russia is looking for other options, after sanctions imposed on Russia in response to Moscow's aggression in Ukraine restricted access to Western finance and technology.

Following the meeting, Medvedev said he envisaged Russia-China trade soon doubling to $200bn. “Relations are really on the rise,” Medvedev said following the meeting, as quoted by Interfax. “I think that level [of trade] is absolutely reachable.”  To financially underpin such a trade surge and move towards stronger use of domestic currencies in trade instead of the dollar, Russia and China agreed to a three-year yuan-rubel swap worth 150bn yuan (roughly $24.5bn), and Beijing state banks agreed to provide credit lines to Russian banks and companies to fund technology imports from China.

Kremlin-owned VTB and Vneshekonombank received yuan credit lines worth around $2bn each to fund imports from China.  Leading Russian mobile communications firm MegaFon secured a $500m loan from China Development Bank  for equipment from Chinese technology producer Huawei Technologies, its main supplier. Russia's largest bank, state-owned Sberbank, and Huawei also signed a technology agreement intended to replace reliance on Western technologies. 

“Until recently, Sberbank used high-tech equipment mostly from American and European companies,” said German Gref, Sberbank CEO. “We are continuing and developing our cooperation with them, while at the same time turning our attention to alternative producers and providers.”

The Kremlin is eyeing Chinese loans as a means for Russia to attract funding, after Western sanctions  largely cut off access to international capital markets. “This is a very real source of financing for our operations. It may be implemented in various forms: loans in yuan are absolutely possible, [and so are] connected lending, project financing, participation in major projects,” Russia's economy minister Aleksei Ulyukaev said on October 13, as quoted by RIA Novosti. “This is not a complete but a partial substitution," Ulyukaev said.

Moscow and Beijing also moved forward with some high profile energy and infrastructure projects, signing  an intergovernmental agreement on natural gas supplies, which now allows a landmark 30-year gas deal agreed in May, worth around $400bn, to enter into effect.

Russia's deputy energy minister Anatoly Yanovsky was quoted by media as saying that China had offered Gazprom a role in construction of gas pipelines to carry Russian gas on Chinese territory. In addition, Yanovsky said, consultations were proceeding on gas supplies to China via the 'western' route through Russia's Altai region, with volume of supplies initially set at 30bn cubic meters per year, and the possibility of expansion to 100 cubic meters, according to newswires.

Russia's oil giant Rosneft and China's CNPC also signed an agreement for construction of a liquefied natural gas plant on the island of Sakhalin, in the Russian Far East.

Another memorandum opened the doors to Chinese participation in a planned $25bn high-speed rail link between Moscow and Kazan, with the overarching aim of creating a Eurasian high-speed transport corridor between Moscow and Beijing. Chinese representatives said that Chinese companies could invest about $10bn.

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