China & Russia View Their Trade Deals Differently

Russian Prime Minister Dmitry Medvedev visited Beijing on October 22 and 23, as Russia signed large energy, trade and investment deals with the Chinese government. Rosneft signed a Memorandum of Understanding (MoU) with CNPC to form a joint venture to explore several fields in eastern Siberia for oil and gas, with Rosneft taking a 51% share. The oil produced would satisfy local Russian demand for energy, with the rest going to China and other Asia-Pacific consumers (Xinhua, October 18). Rosneft also reached an $85 billion deal with Sinopec. This deal envisions an initial advance or down payment of 20-30% of the total, in addition to the $60 billion cited above from CNPC. At the same time, Russia’s Foreign Trade Bank, Vnesheconobank, signed several agreements totaling $1.9 Billion with the China Development Bank for the construction of important infrastructure projects in Russia (Kommersant Online, October 23).

These deals built on the earlier agreements signed by China and Rosneft in March 2013 about joint exploration in the Arctic (See Eurasia Daily Monitor, March 13). In that deal, Rosneft agreed to supply the China National Petroleum Corporation (CNPC) with 365 million tons of oil for 25 years, worth $270 Billion. In return, CNPC has apparently made a pre-payment to Rosneft of $60-70 Billion. This amounts to 15 million metric tons of crude oil annually for 25 years, at just over $10 billion per year. This oil will probably flow through the existing East Siberia Pacific Ocean (ESPO) pipeline to Daqing, China. Novatek, an independent gas producer, also granted CNPC a 20% stake in a liquid natural gas project on the Yamal Peninsula in the Arctic. CNPC will become an “anchor customer” and import 3 million tons of natural gas annually (Novatek press release, June 21; Upstream Online, June 21; Interfax, June 21).

While those deals are obviously motivated by energy and economic considers, Chinese press reports also highlighted their geopolitical significance. From the Chinese side, it seems clear that the visit’s purpose was to strengthen not only economic cooperation, but to enhance thereby overall geopolitical cooperation with Russia. As noted below, Russia does not appear to understand the relationship in the same way. The Medvedev visit built on the meeting between Chinese President Xi Jinping and Russian President Vladimir Putin at the annual APEC summit in Bali on October 7–8. At that meeting Xi said that “China and Russia had extensive common interests in the Asia-Pacific region. The Chinese side is willing to enhance coordination and cooperation with the Russian side and jointly help maintain security, stability, development, and prosperity in the Asia-Pacific region”

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