China to become Russia’s Largest Trading Partner

Mar. 10 – China overtook Germany to become Russia’s largest trading partner in 2010. The bilateral trade between two countries has climbed back to the level seen prior to the global economic crisis.

Foreign trade turnover of Russia with China increased by 43.1 percent and has reached US$55.44 billion, according to the both Federal State Statistic Service (Roskomstat) and Chinese customs authority data.

Chinese exports to Russia increased by 69 percent and amounted to US$29.61 billion compared with 2009 (US$17.496 billion), while Russian exports to China increased by 21.7 percent to US$25.84 billion.

China and Russia had enjoyed sound cooperation on areas such as energy development, spaceflight and aviation, nuclear power, mechanics, high-tech industry. High growth rates in Sino-Russian commerce have been seen by Moscow as an important indicator of the state of the bilateral partnership.

In January 2006, then-Russian President Vladimir Putin announced plans to raise bilateral trade to between US$60 billion and US$80 billion annually by 2010. Initially, both countries appeared to progress rapidly towards achieving that goal. In 2007, Russia’s trade with China reached US$48.16 billion, or 44.3 percent up year-on-year.

In 2008, Russian-Chinese trade turnover grew by 38.7 percent to US$55.9 billion compared to 2007, with Russian exports to China having grown by 33 percent and imports from China by 42.3 percent. Some 74 percent of Russian exports to the PRC then was natural resources, and 50 percent of overall bilateral trade, while 68 percent of Chinese imports to Russia were machinery and technical equipment.

Russia’s trade deficit with China amounted to US$13.5 billion in 2008. However, in the second half of 2008 trade between the two countries apparently began to slow against the background of the global economic downturn. Nevertheless, Moscow achieved a sizable surplus in its trade with China in 2010.

Russia was the top exporter of log to China at 14 million cubic meters as well as the largest lumber importer at 4.4 cubic meters in 2010. It’s expected that Canada will overtake Russia this year as largest lumber suppler to PRC.

Trade in crude oil and natural-resource products accounted for 48.5 percent of the overall bilateral trade volume, compared with 50 percent in 2008.

“Cooperation between the two countries in the energy sector has achieved remarkable progress in 2010, and will become the major engine for bilateral trade development in the future,” said Sergey Tsyplakov, trade representative of the Russian Federation in China.

Construction of a crude oil pipeline was completed last year, and will transfer a total of 15 million tons of crude oil from Russia to China every year, with a maximum annual transportation volume of 30 million tons.

At the same time, analysts say China may not need to rely on Russian natural gas as much as before. China started importing natural gas from Turkmenistan in 2009 and is building new terminals to import larger quantities of liquefied natural gas. Meanwhile, bilateral cooperation with Russia in the natural gas sector is expected to strengthen in 2011.

China’s outbound direct investment in Russia was US$2 billion in first half of 2010 and is expected to hit US$12 billion by 2020.

Last November, Russia and China announced a decision to abandon the dollar in bilateral trade dealings, resolving instead to use their own currencies. The New York Times called it a “small but symbolic step in expanding economic relationship.”

Yuan started trading against the Russian ruble in Chinese bank market in Shanghai last November. The trade is reciprocal, as Russia in December 2010 opened exchange for rubles and renminbi on Moscow Interbank Currency Exchange, or Micex, which is Russia’s largest stock exchange and also handles foreign currency transactions. It was the first trading in the Chinese currency outside mainland China and Hong Kong.

According to the International Energy Agency, China is already the largest consumer of energy, and the largest automobile market in the world, it expected to rapidly increase oil consumption. Russia is already the second biggest oil exporter and the biggest natural gas exporter in the world.

Some observers forecast that the growing importance of Russia and China in the global energy picture and their phasing out of dollar usage for trading energy commodities may marginalize the status of the dollar.

“There is no alternative for the dollar, but the world is moving in a different direction, not toward a single reserve currency,” German Gref, chief executive officer of Russia’s largest lender, Sberbank, told reporters in Moscow on December, 13, added that operations with the yuan “have a future” even if demand isn’t so high at the moment.

Among the other facts which will henceforth promote bilateral trade and tourism between two countries is 866-km-long railway, been opened November, 26, which connects Russia’s largest port city on the Pacific Ocean, Vladivostok, with Northeast China.

Russia’s foreign trade in 2010 totaled US$625.4 billion (up 33 percent on the level of 2009), according to the Federal Customs Service. The trade with CIS nations was US$91.3 billion (up 33 percent) and the trade with other foreign states including PRC made up US$5453.1 billion (up 33.4 percent).