Russian pivot from West to China stunted as Beijing economy cools

Chinese President Xi Jinping, right, and Russia's President Vladimir Putin at a Sept. 3 gala marking the 70th anniversary of the Allies' World War II victory over Japan.

Chinese President Xi Jinping, right, and Russia’s President Vladimir Putin at a Sept. 3 gala marking the 70th anniversary of the Allies’ World War II victory over Japan.

(Wu Hong / European Pressphoto Agency)

When China’s president graced Moscow’s celebration of the 70th anniversary of the Allied victory in World War II in May, Russian President Vladimir Putin cast his nation’s expanding economic collaboration with Beijing as a welcome substitute for the Western trade lost to sanctions imposed by the United States and the European Union.

But when Putin paid a return visit to Beijing on Wednesday and Thursday to take in China’s lavish military parade marking victory over Japan during that war, he found that many of the projects and investments have been put on the back burner by Beijing as growth slows and markets are in turmoil.

Russia’s economy continues to contract due to the prolonged slump in global oil prices and more than a year of sanctions imposed by the European states on which Moscow previously depended for energy sales and food imports.

U.S. sanctions were issued as punishment for Russia’s seizure of Crimea from Ukraine and its role in the separatist war ripping apart its former Soviet neighbor. The measures have cut off Russia from international lenders, compounding a capital crisis resulting from the fall in oil revenue that provides more than half of Russia’s budget.


Chinese President Xi Jinping signed trade deals with Russia during his May visit to Moscow that envisioned China financing a $25-billion investment fund to develop energy projects in the Far East, $6 billion in loans to Moscow for a high-speed rail line between the Russian capital and provincial Kazan, $2 billion in food-production ventures and a $3-billion joint enterprise to build 100 long-haul Sukhoi jumbo jets for lease to airlines throughout Asia.

But the ambitious plans laid out four months ago -- as well as a $400-billion megadeal agreed to a year earlier for joint development of Siberian oil and gas fields that would supply China for the next 30 years -- remained on the drawing boards after Putin’s meetings in Beijing with Xi and other high-level officials.

Analysts estimate that more than $110 billion in joint ventures are stalled by disputes over the price Beijing will pay for its Russian commodity imports and the volatility afflicting both countries’ currencies and stocks.

China’s economy grew 10% or more annually throughout most of the past quarter of a century but it slowed to 7.4% last year and is expected to slide to 6.8% this year, the International Monetary Fund reported in July.


That has tightened the money supply that Russia had been eyeing to replace the funds to which it no longer has access because of sanctions and Western blacklisting of top Kremlin officials and business cronies.

The Russian ruble tumbled to a nadir of 80 to the U.S. dollar at the end of 2014 -- less than half its value at the start of that year. Putin sent paratroopers to seize Ukraine’s strategic Crimean Peninsula on the Black Sea and fanned the pro-Russia rebellion in eastern Ukraine in the early months of 2014. In spite of satellite imagery showing Russian troops and heavy weapons in the battle, the Kremlin has denied involvement in the Ukraine conflict.

The ruble overcame much of that loss in the spring of this year, settling briefly around 55 to the dollar in May. But it has been sliding back since midsummer, now around 70.

Having China to brandish as a more reliable partner than Western states has helped Putin temper public concern over the economic crisis gripping Russia. The twin blows of sanctions and falling oil revenue have saddled consumers with 16% inflation and a 43% drop in the ruble’s buying power, the state statistics agency reported last month.


On Friday, Russian Labor Minister Maxim Topilin said real incomes were expected to decrease by as much as 5% this year, the Tass news agency reported. And Russian finance officials were quoted recently as saying import substitution -- the ramping up of Russian farms and factories to produce goods previously bought from the West -- was proving to be a longer-term process than expected and would require another two to three years to achieve.

Russia’s economy shrank by 4.6% in the second quarter of this year, posting the worst performance since the crippling recession of 2009.

Russian officials continue to tout the emerging deals and collaboration with China, in spite of the delays. At an East Asia economic summit in Vladivostok on Friday, the head of Russia’s biggest oil company, Rosneft Chief Executive Igor Sechin, told Russia Today television that the energy industries expected trade with Beijing to amount to $500 billion over the next 20 years.

Sechin’s Chinese counterpart, Wang Yilin, chairman of the China National Petroleum Corporation, also waxed optimism at the Vladivostok conference. He told Russia Today that Moscow and Beijing were drafting plans for a new pipeline to boost the supply of crude to China.


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