The future of the Russian economy is uncertain with oil prices now below US$50 a barrel, the Ruble under heavy pressure, the possibility of further sanctions by the US and EU, and the still on-going crisis in Ukraine.
However, while all of these factors have isolated Russia from the western world, it has pushed the country into nurturing its partnership with China.
Both China and Russia are uneasy about the US Dollar’s long-held status of the world’s dominant trade and reserve currency. Actions such as fining BNP Paribas US$10 billion dollars for a transaction that was between two non-US parties have only helped to fuel anxiety and encourage change.
In addition to common economic goals, the Chinese and Russians also each have things that each other need. Russia’s vast oil reserves will be needed to help drive the Chinese economy forward in the future and feed its increasing demand for energy.
Late last year, China signed a deal to purchase over US$400 billion worth of energy from Russia over a period of 30 years.
For its part, Russia needs economic support from China – and perhaps now more than ever. China has the largest amount of foreign reserves in the world, standing at over US$3.9 trillion in September of 2014. With the Russian economy in tatters, it could use some of those funds.
Last December, Chinese Foreign Minister Wang Yi pledged to offer financial support to Russia, while acknowledging the volatility of the Ruble.
“Capital investors may be more interested in a volatile stock or foreign exchange market. But in terms of concrete cooperation between the two nations, we shall have a balanced mentality and push forward those co-operations”, said Wang.
China and Russia are also working to increase their bi-lateral trade, which hit a record high of US$59 billion during the first half of 2014 and is estimated to have surpassed US$100 billion during the year as a whole.
A double-taxation agreement (DTA) was signed between the two nations back in October of 2014, and the two countries collaborate on numerous multilateral trade agreements such as the New Silk Road Development, the BRICS Forum, and the Shanghai Co-Operation Organization.
While many think of the Russian economy as a “one-trick pony” that almost purely relies on the oil and gas industry, this is far from the truth. The energy industry only accounts for 16% of total GDP.
Some of Russia’s other major exports include diamonds, military weapons, automobiles and aerospace equipment – all things that China wants as the average citizen grows more prosperous, and the country looks to expand its military and space programs.
In summary, it is very clear that both China and Russia have much to offer each other. Regardless of long held mistrust, the two nations are naturally partners and the China-Russia partnership will be one to watch in the next several years and decades.