China and Russia — two of the world’s biggest and most powerful neighboring states — have been able to put aside past political discrepancies in an effort to solidify a more ideal economic future. Both countries have signed a preliminary natural gas agreement, which shows China’s willingness to form better relations politically and economically with the rest of the world. For more on this, see the following article from Money Morning.
A preliminary gas agreement between China and Russia is the latest indicator that the Red Dragon continues to diversify trade partners outside of the United States, and signals willingness between the neighboring countries to shelve any political differences for mutually beneficial deals.
The deal between the Russia’s Gazprom OAO (OTC ADR: OGZPY) and China National Petroleum Corp. (CNPC) – both state-owned companies – would give China roughly 2.4 trillion cubic feet of liquefied natural gas (LNG) per year. While neither side would give price estimates, Russia would get some much-needed loans similar to the $25 billion oil-for-loans deal it inked with China last spring, The Associated Press reported.
“This is yet more evidence that China will continue to form trading relationships that are financially, politically and structurally independent from the West,” said Keith Fitz-Gerald, investment director at Money Morning.
While the deal offers China a compelling bargain for a valuable resource, it also gives Russia a new outlet for LNG exports as demand in Europe erodes amid the worst recession since the Great Depression.
“China is a colossal market. The diversification of supplies is a very important direction for Gazprom,” Russian Prime Minister Vladimir Putin told reporters after talks with Chinese Prime Minister Wen Jiabo.
Putin, who was in Beijing to witness the signing of the agreement, said Russian-Chinese cooperation was one of the most important elements to ensure global stability.
“Our consolidated view on certain issues, our ability to coordinate our stance on key international developments often help calm the situation and play a stabilizing role,” Putin told a group of Chinese reporters. “A shared stance of Russia and China on certain issues helps restrain some of our more hotheaded colleagues.”
While Putin didn’t name names, Russia and China in the past have spoken against perceived U.S. global dominance.
Worries that Russia’s weakening economy will shrink by as much as 8% this year are fueling its appetite for deals like this, Bobo Lo, senior research fellow at the Centre for European Reform, told Reuters. Meanwhile, China expects its gross domestic product (GDP) to gain 8%.
“The global financial crisis has accentuated the disparity between China and Russia,” said Lo. “Really, Russia feels it’s been kicked into the long grass by the crisis.”
The news followed reports on Monday that China was in talks with two African nations – Ghana and Guinea – regarding possible prospecting and mining activities there. Chinese oil companies are already planning at least $16 billion to acquire African energy assets.
Meanwhile, trade relations between the United States and Mainland China have recently come under strain. U.S. President Barack Obama signed an order last month that imposed an additional 35% tariff on imported Chinese tires, prompting China to retaliate against U.S. exports of poultry and auto products. And earlier this week, the U.S. Commerce Department launched an investigation into seamless steel pipe imports from China to determine whether the steel pipes are being sold below cost or are being subsidized by the Chinese government.
This article has been republished from Money Morning. You can also view this article at Money Morning, an investment news and analysis site.