BOFIT Viikkokatsaus / BOFIT Weekly Review 2019/39

The Chinese premier Li Keqiang visited Russia on September 16–18. Russian and Chinese prime ministers envisioned doubling the value of mutual trade to 200 billion dollars a year over the next five years. The countries see opportunities for trade and cooperation in agriculture, energy and military technology. Currently, most Russian exports to China are basic commodities, while most Chinese exports to Russia consist of machinery or consumer goods.

Regarding food supplies, particular emphasis has been put on basic crops. China’s trade war has radically reduced soybean imports from the United States, making it a natural topic of discussion. The Chinese have sought soy sources elsewhere, especially South America, but soy is being produced closer to home as well. China’s soy-growing areas are located in the northeastern parts of the country, and the climate band where soy cultivation is optimal extends into Russia. However, the border currently complicates shipping of Russian-grown soybeans to Chinese markets. In any case, Russia cannot match American soy production as the current amount of land in Russia dedicated to soy can only meet a tiny fraction of Chinese demand and there is not much uncultivated arable land left in Russia. Large-scale conversion of land used for cultivating other crops into soy production also seems unreasonable.

The countries are investing in energy trade. The Power of Siberia gas pipeline, which runs from Siberia to China, is set to be completed by the end of this year. In addition, China has invested in gas liquefaction facilities in Russia. Asia is the most important market for liquefied natural gas.

In recent years, China and Russia have criticised the dominant role of the dollar in the international financial system. While politicians in both countries have talked of harmonising payment systems, no big changes have happened. In spring 2018, the Central Bank of Russia shifted 15 % of its currency reserves into Chinese yuan.

Russia and China also engage in military cooperation. In conjunction with Li’s visit, China participated in military exercises in Russia’s southern regions. Other participants in the military exercises included India, Pakistan, Kazakhstan, Kyrgyzstan, Uzbekistan and Tajikistan. In the 1990s, China emerged as one of Russia’s most important arms buyers. The arms trade with China has since diminished as China has increased its own arms production.

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