A Friend in Need is a Friend Indeed

Posted by on Dec 20, 2014 in Blog | 0 comments

As the piece suggests, helping out Russia is entirely in China’s interests and would solidify its relationship with the energy powerhouse, not to mention adding to China’s rising reputation as a great power that strives to help others to maintain global economic and political stability.

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China offered enhanced economic ties with Russia at a regional summit this week as its northern neighbor struggled to contain a currency crisis.

“To help counteract an economic slowdown, China is ready to provide financial aid to develop cooperation,” Premier Li Keqiang said at a Dec. 15 gathering in Astana, Kazakhstan of the Shanghai Cooperation Organization.  There Li met with Russian Prime Minister Dmitry Medvedev.  While the remark applied to any of the five other nations represented at the meeting (the group includes Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan along with Russia and China), it was directed at Russia, according to a person familiar with the matter who asked not to be named as the plans weren’t public.

Any rescue package for Russia would give China the opportunity of exercising great-power leadership — sustaining other economies with its superior financial resources. President Xi Jinping last month called for China to adopt “big-country diplomacy” as he laid out goals for elevating his nation’s status.

“If the Kremlin decides to seek assistance from Beijing, it’s very unlikely for the Xi leadership to turn it down,” said Cheng Yijun, senior researcher with the Institute of Russian, Eastern European, Central Asian Studies at the Chinese Academy of Social Sciences in Beijing. “This would be a perfect opportunity to demonstrate China is a friend indeed, and also its big power status.”

One-time Cold War ally China already proved a help to its neighbor embroiled in tensions with the U.S. and European Union earlier this year, signing a three-decade, $400 billion deal to buy Russian gas.

Seeking China’s support is one of Russia’s most realistic options, the state-run Chinese newspaper Global Times wrote in a Dec. 17 editorial. A decision on whether to use some of its windfall gains from falling oil prices to aid Russia would hinge on whether Putin’s government is willing to ask for assistance, said Cheng, who is also a research fellow at the Development Research Center, which is a unit of the State Council, or cabinet.

The two nations’ strategic partnership means that China would have to step in if the ruble crisis deepens, Cheng said.

While emerging markets facing such situations typically can turn to the International Monetary Fund for help, Russia’s impasse with Group of Seven nations over the situation in Ukraine may make it difficult to find loan conditions agreeable to all member countries, given that the U.S. and European nations dominate the Washington-based lender.

China has used $25 billion of its foreign-exchange reserves to support oil supply from a Sino-Russian pipeline, and another $67.3 billion to boost the supply of crude oil from Russia, according to a statement on the central Chinese government’s website posted this week. The statement didn’t specify what type of support was provided or a time frame for the help, other than saying it was since Li took office in March 2013.

China’s reserves — the world’s largest — stood at $3.89 trillion at the end of September. Russia had $373.7 billion at the end of last month, according to data compiled by Bloomberg.

Russia’s currency-swap deal with China is one potential avenue of help. The agreement on a three-year 150 billion yuan ($24 billion) local-currency swap was one of the accords reached between Putin and Xi in October.

China, the world’s largest oil importer, has emerged as one of the biggest winners from the slump in the fuel’s price that has hammered its northern neighbor. A 30 percent drop in the price of oil alone could add 0.3 to 0.5 percentage point to China’s growth, says Mizuho Bank Ltd.

– Bloomberg