Russia-China 2 Gas Deal at Shanghai
-DR. ABDUL RUFF
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Russian President Vladimir Putin is on a two-day state
visit to China May 20-21 with a major gas supply deal high on the agenda. It
was expected a deal could certainly be struck before Putin leaves China on
Wednesday. It is his first visit to China since President Xi Jinping took
office.
The state visit comes as China hosts a key summit of
Asian states in Shanghai that includes delegates from nearly 40 countries and
international organisations.Putin arrived in Shanghai on 20th May to attend the
4th Conference on Interaction and Confidence Building Measures in Asia (CICA)
Summit. The conference, chaired by Chinese President Xi Jinping, will run from
20 to 21 May, coinciding with a China-Russia joint naval exercise in the East
China Sea. UN Secretary-General Ban Ki-moon also participated.
Russia's third time president Vladimir Putin during his
visit has signed multi-billion dollar 30-year gas deal with China to supply
natural gas to China. The deal between Russia's Gazprom and China National
Petroleum Corp (CNPC) has been 10 years in the making. Putin described China as
a reliable friend and Russia's leading foreign trading partner. China is
Russia's largest single trading partner, with bilateral trade flows of $90bn
(£53bn) in 2013. The two neighbours aim to double the volume to $200bn in 10
years.
The agreement, signed at a summit in Shanghai, is very
significant as it is expected to deliver some 38 billion cubic meters of
natural gas a year eastward to China's burgeoning economy, starting around
2018.
Russia and China have also kicked off a joint military
exercise involving their navies.
Russia has been keen to find an alternative energy market
for its gas as it faces the possibility of European sanctions over the crisis
in Ukraine. No official price has been given but the Russo-China deal is
estimated to be worth over $400bn. Russia considers the deal a milestone
achievement in bilateral deals. Gazprom shares rose 2% on the news.
The main argument has been over price and China is
thought to have been driving a hard bargain. Over the last 10 years it has
found other gas suppliers. Turkmenistan is now China's largest foreign gas
supplier, and last year it started importing piped natural gas from Myanmar.
The perceived motive for the deal is that Russia needs a
second market for its gas, so it can face up to European sanctions. Given that
the "Power of Siberia" pipeline won't start pumping gas into Chinese
factories until 2018 at the earliest, its economic effect on the European
crisis will be limited. More important may be the investment that China will
make into Russia's power and transport infrastructure.
Another sticking point on the deal has been the
construction of pipelines into China. Currently there is one complete pipeline
that runs across Russia's Far East to the Chinese border, called "The
Power of Siberia". It was started in 2007; three years after Gazprom and
CNPC signed their initial agreement in 2004. But financing the $22-30bn cost of
sending it into China has been central to the latest discussions.
Bilateral agreements on natural gas will be an urgent
concern for Moscow and it is beneficial for Beijing's long-term economic
growth.
China's energy market is very valuable to Russia because
it is facing economic sanctions from the West.
The gas deal between Russia and China was signed early in
the morning at 4 am China time after some delay over price and the signing
gives some indication of the level of urgency over these talks. Putin appears
to have been determined not to leave with Shanghai without a deal - and he got
one. But the financial details are a "commercial secret", so we don't
know how much he had to give away to get it.
A long history of falling into and out of alliances with
Moscow has taught Beijing to keep a hard-nosed focus on its own national
interest. It knows Russia needs a friend in the East and it is extracting
maximum advantage. Certainly China needs the gas to help it cut its coal-fired
smog levels, and it wants to diversify supply. It had the luxury of time in
which to negotiate, something Putin was short of. The whole tenet of the deal
has a symbolic value - it says that the two countries are prepared to work with
one another. For instance there were other elements such as Chinese
participation in Russian transport infrastructure and power generation. Putin
may not have managed to sign the most advantageous of gas deals but the opening
of economic doors with China could well be the greater achievement.
The red strategy is similar in many ways to China's
investments in Africa where they drive a hard bargain over the price of raw
materials but then provide infrastructure for the economies they are doing
business with.
Putin's planned arrival in Shanghai has caused
"anxiety" in the West, prompting speculation that Beijing and Moscow
will be forming an alliance to confront the US and the EU. This 'imaginative
alliance'
does not suit the diplomatic strategy of China's new
leaders. Beijing will only be an active participant in international order and
it is a responsible and peaceful country.
Putin might have discussed the ongoing crisis in Ukraine
with Xi, but it won’t be the main focus of the meeting. Terming the
"alliance to confront the West" as "an outdated Cold War
mentality", Beijing called for stronger unity among Asian countries.
"All countries in Asia have realized the urgency and importance of
security co-operation. They are voicing out that Asian countries should
strengthen such co-operation and be in the lead to deal with regional
affairs," it says.
Media welcomed Russian President Vladimir Putin to
Shanghai, amid criticism of anti-China riots in Vietnam. It says the bilateral
exercise will "improve military strategic partnership" and will
"promote peace and stability in the region". Elsewhere, media
continue to criticize Vietnam for encouraging nationalism as China suspends
parts of its bilateral exchange program with Hanoi.
The speedy evacuation of the Chinese nationals shows the
real strength of China, and also the determination of the government to protect
its nationals based overseas. This step comes after anti-Chinese riots broke
out in Vietnam last week, causing the death of two Chinese nationals and
leaving dozens more injured. The protests have been triggered by China's
decision to move an oil rig into the disputed waters of the South China Sea.
China's decision to cancel parts of its exchange plans shows Beijing's firm
will to safeguard its sovereignty and protect Chinese nationals. Vietnam has
under-estimated China's determination and power in protecting its sovereign
rights.
Meanwhile, the Chinese navy states that the joint
exercise with Russia is "not targeting any third party".
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