Russia, China Forge Closer Ties With New Economic, Financing Accords

Wall Street Journal, Dow Jones News, 07.05.2015

MOSCOW—Russia and China signed economic deals and a financing agreement for up to $25 billion for Russian companies from Chinese banks, as Moscow looks to seal closer ties with its southeastern neighbor given its standoff with the West.

President Vladimir Putin and his Chinese counterpart Xi Jinping oversaw the signing of an agreement here allowing domestic companies to raise funding from Chinese banks against guarantees provided by Moscow, which is cut off from global capital markets by Western sanctions. The two countries also signed a preliminary deal for Russia to supply gas via a pipeline to China, although key details remain to be resolved, as well as agreements in aviation and farming.

 “Today, China is our key strategic partner,” Mr. Putin said, seated alongside Mr. Xi as the deals were signed.

Mr. Xi is the highest-profile foreign leader in Moscow for Russia’s celebrations Saturday of the end of World War II. Western leaders aren’t attending the event after Russia’s annexation of Crimea and support for separatist militants in eastern Ukraine.

Facing Western economic sanctions, Moscow has touted a turn eastward, saying it would seek Asian investors to reduce reliance on Europe and the U.S. But results have been mixed. Russia was disappointed last year that Chinese and other Asian investors didn’t jump in to the void left by Western creditors. The financing deal, signed Friday by the Russian Direct Investment Fund, the Russia-China Investment Fund and China Construction Bank, appears to represent a typical example of China’s hard bargaining, leaving Russia bearing all the risk.

The agreement will allow Russian companies, struggling to repay foreign debts, to raise up to $25 billion in the next two to three years at lower costs than on the domestic market, the spokeswoman for RDIF said.

The state-run RDIF will provide around $1.5 billion to the financial partnership, co-financing future deals and acting as a warrantor in case of possible defaults.

 “We will focus on companies that are not under formal sanctions but are having difficulties attracting money. We plan to help companies that as a result of the current geopolitical situation are experiencing problems attracting liquidity,” RDIF chief Kirill Dmitriev said in televised remarks.

 “We see excellent opportunities with many Russian companies seeking debt financing from overseas markets, and it is of mutual interest to leverage the strong capital of Chinese banks and financial institutions, which have active plans to invest internationally,” Hu Bing, president of the Russia-China Investment Fund said in a statement.

But there was no evidence of a breakthrough on energy deals, which the Kremlin has placed at the center of its hoped-for eastward turn. Russian state gas giant Gazprom signed a preliminary agreement with China National Petroleum Corporation on supplying 30 billion cubic meters of natural gas to China via the so-called “western route,” which would allow it to divert gas from fields that currently serve Europe. But there was no indication of progress on the key issue of price. Gazprom Chief Executive Alexei Miller declined to provide any details on the timing of the project.

Russia wants to sell more gas to Asia as Gazprom is facing competition and regulatory pressure in Europe. But progress has been slow, and analysts question the economic viability of the “Strength of Siberia” pipeline, planned to take gas to eastern China in a deal signed in May 2014 worth $400 billion.

Speaking in the Kremlin after meeting with Mr. Xi, Mr. Putin touted China’s status as Russia’s largest trading partner, as well as the countries’ “common heroic past” in World War II.

As a part of plan to boost the trade in rubles and the yuan, Russia’s largest lender Sberbank agreed with the China Development Bank Corporation to set up a facility agreement worth 6 billion yuan ($970 million) for trade purposes.

Among other deals signed on Friday, Russia and China agreed to set up a $2 billion agriculture fund to invest in agricultural projects in both countries.

Moscow has also secured a deal to supply up to 100 Russian-made Sukhoi Superjet aircraft to both Chinese and Southeast Asian markets over the next three years, the RDIF said.

Russia and China also signed a framework cybersecurity deal. The two countries agreed not to conduct cyberattacks against each other, as well as to jointly counteract technology that could create political or social disturbances.