Russian-Chinese relations: on right track

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MOSCOW. (German Gref, Russian Economic Development Minister) -Considering the Russian-Chinese trade and economic relations in recent years, I am satisfied to note their consistency.

Last year, Russia was China's 8th biggest trade partner after the United States, Japan, South Korea, Germany, Hong Kong, Singapore and Malaysia. Trade turnover between our countries exceeded $29 billion in 2005. Preliminary results for the first six months of this year - $15.135 billion - suggest that bilateral trade will exceed $30 billion by the yearend. At the same time, there has been a certain decline in Russian exports in the trade balance. This trend cannot but alarm us.

I must add that the quality of exports leaves much to be desired. In 2005, the amount of Russian machines and equipment supplied to China fell almost by half, which means that their share in the structure of our exports decreased as well. These changes are especially visible against growing supplies of this category of goods from China. Even Russian President Vladimir Putin noticed this trend in bilateral trade when he said that although we were happy about the success of our Chinese friends, it was important to take active joint efforts to promote Russian machines and equipment on the Chinese market, especially those that had obvious advantages. This first of all applies to the equipment for nuclear and conventional energy sector, as well as mining equipment, he said.

As a minister responsible for the country's trade policy, I can add that the increasing share of commodities in our exports to China is a potential threat to stability in our trade relations.

Only six commodities - crude oil, round timber, petrochemicals, fish and seafood, potassium fertilizers and iron ore - account for two thirds of the entire exports' cost. This trend will sustain this year as well. The share of commodities and primarily processed products continued to rise in the first six months, accounting for more than 90% of Russian exports (against 88.7% in 2005 and 84.2% in 2004).

There are objective reasons for this. China is second after the U.S. for oil import and consumption. The growing economy of our great eastern neighbor needs more and more energy, oil, gas and coal. This year, oil supply to China has reached 8.347 million tons (up 41.9% against the previous year), putting Russia in the fourth place in the country's aggregate imports, preceded only by Angola (18.22%), Saudi Arabia (16.25%) and Iran (11.39%). Our share as of early July was 11.39%. By the yearned, if the current pace is sustained, Russia can become the third largest supplier of liquid hydrocarbons to China.

The situation with timber is similar. Round timber supplies reached 12.41 million cu m in the first six months of 2006 (up 18.1%). Supply of mineral fertilizers amounted to 2.49 million tons (up 25.8%). Exports of non-ferrous metals, ores, fish and seafood also posted significant growth.

Regional and border trade accounts for almost one third of overall Russian-Chinese trade, which grew by 44% to $10.28 billion in 2004-2006. The trade structure is gradually expanding, going beyond Russian timber and Chinese consumer goods. Today's most important items include ferrous metals, pulp, chemicals, etc.

China's industrially developed central, coastal and even southern provinces are becoming increasing involved in border and regional trade between our countries. Their aggregate trade balance in regional trade remains high (64.7%). In Russia, interest in regional trade with China is also growing: even regions in central European Russia have joined in, to a great benefit.

An important factor in trade and economic relations between Russia and China is our investment cooperation. It is now becoming one of the most promising forms of economic cooperation between states.

China's interest in investment in Russia is clearly growing. In 2005, it endorsed 82 new investment projects in Russia, compared with 52 in 2004. The total number of investment projects involving China has reached 657. The aggregate amount of invested funds is approaching $1 billion.

An impulse to more active investment cooperation was given at the 2nd Russian-Chinese Investment Forum held last year in St. Petersburg. As many as 7 agreements on investment projects worth $1.5 billion were signed there.

What attracts Chinese businessmen to Russia? First of all, they are interested in communications, electrotechnics, timber industry, commercial real estate, agriculture, power generating facilities and mineral resources.

Among the most significant projects, I would name Sinopec's purchase of Udmurtneft oil company; the $1.5 billion investment in the construction of the Baltiiskaya Zhemchuzhina residential area in St. Petersburg; the construction of the grand Park Guamin Chinese business center to be launched in Moscow. Everything is now ready for the construction of an offshoot from the East Siberia - Pacific Ocean oil pipeline.

In addition, there is the mega project of Chinese-Russian cooperation in natural gas supply. There are plans to build two gas pipelines with an annual capacity of up to 60-80 billion cu m. China is expected to receive first Siberian gas in 2011.

It would be wrong to speak only of China's interest in our economy. Russia's interest in investment in China is also growing. Its amount is now comparable to China's investment in Russia. Recently, we have been seeing greater interest on the part of large Russian companies, such as Rosneft, Severstal, RusAl, etc. in direct and portfolio investment in large industrial facilities in China.

The Year of Russia in China is drawing to a close, and we can start assessing the results. It has generated great interest not only among Chinese and Russian businesses. Numerous events were attended by representatives of Russia's central and regional authorities, public organizations, professional unions and private individuals.

The Year of Russia has shown that traditional interest in our country, its economy, culture and art, which had been lost earlier for different reasons, is now quickly reviving. At the same time, I can say with certainty that a new image of China as a dynamic and fast-developing state that will become a global economic leader in a couple of decades is shaping in Russia. In this connection, I would like to point out that Russian businesses have expressed unprecedented interest in partaking in the Russian National Exhibition in Beijing held as part of the Year of Russia. Despite the sizeable exhibition area at the Chinese International Trade Center, where the exposition was held, our organizers had to introduce restrictions on the maximum demonstration space per participant, which is something we are seldom forced to do.

The Year of Russia coincided with the 10th anniversary of strategic partnership between our countries and the 5th anniversary of the Chinese-Russian Treaty on good neighborly relations, friendship and cooperation. Perhaps, this is only a coincidence. Real-life cooperation is not confined to exhibitions, no matter how big they are. Our relations are developing on the basis of partnership and competition, under market rules and laws. And if they are strengthening and expanding, this means that we are on the right track.

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