While the Western world was held spellbound, as usual, by its own navel fluff (which this week answered to the silly media catchword “Brexit”), the real action was once more happening in Asia.
One day after having met privately with President Xi Jinping during the summit of the Shanghai Cooperation Organisation (SCO), Russian President Vladimir Putin visited China this Saturday, accompanied by six of Russia’s seven Deputy Prime-Ministers – the core of the country’s government – and, crucially, by the CEOs of Rosneft and Gazprom, the giant oil and gas companies.
Let us cling to only 4 out of the 58 joint business initiatives (46 of which are new projects) agreed upon by the two countries, adding up to a grand total of over US$ 50 billion in investments.
First, there is the binational project for a new wide-body, 300-passenger aeroplane that will compete with Boeing’s 787 (Dreamliner) and with Airbus’ A350 (XWB). Cooperation between China and Russia in the aviation industry could pave the way to viable solutions for the mid-range and regional jet models both countries have been developing separately. Particularly should they decide, as a matter of policy, to favour the use of their own aircraft in their territories.
The other selected initiatives are all in the energy sector.
ChemChina will invest in Rosneft’s petrochemical complex in Nakhodka, conferring de facto binational status to the project by acquiring 40 per cent of its equity;
ChemChina also signed a new contract to buy 2.4 million tonnes of crude from Rosneft next year, while it was announced that the Russian company’s total yearly supply of oil to China (around 40 million tonnes or more than 285 million barrels) will be maintained, despite growing availability from the Gulf countries and Iran;
Terms for the acquisition by Beijing Gas Group of a 20 per cent stake in Rosneft’s oil-producing subsidiary VCNG were settled.
All those initiatives were formalised a mere two months after a landmark decision by China to bring in the funding necessary for the completion of the Yamal Liquefied Natural Gas project in Siberia.
Faced with the reluctance of their commercial banks, which were concerned with possible Western (especially US) reactions to perceived sanctions-busting, at the end of last April the Chinese government decided that state-owned China Development Bank and China Ex-Im, less exposed to Western financial markets, shall provide the US$ 12 billion finance still required by the Russian project.
Not uninterestingly, the Chinese state already owned 29.9% of Yamal LNG, the other stakeholders being France’s Total (20%) and Russian private company OAO Novatek (50.1%) – and the new plant is on schedule to begin shipping gas next year.
The final element to adequately gauge the overall significance of the business initiatives above is the agreement signed yesterday by the central banks of Russia and China to have a clearing bank in Moscow “in order to provide the RMB clearing and settlement services […]and further facilitate cross-border transactions in RMB between our companies and financial institutions, including bilateral trade and investment”.
It should be noted that despite official press releases talking about “expand[ing] mutual payments in national currencies, to decrease dependency on external factors” the agreement in effect centres upon RMB transactions.
China’s relentless drive to strengthen the global weight and reach of its currency is no secret. The Chinese central bank has signed local-currency swap agreements with over 30 developing countries with expanding markets and, on 1st October, the RMB will become the 5th currency in the world to be “officially” convertible, as it is included in the IMF currency basket for the Fund’s Special Drawing Rights. (The Chinese currency’s weight in the formula will be greater than that of the yen and of the pound sterling.)
Should Russia indeed be willing to add the pull of its sizeable domestic and export markets to boost China’s bid for global monetary influence, the recent and future dealings between the two powers (and those of the SCO, more generally) may prove of even greater import than their already significant impact on the geopolitics of Asia’s energy sector.