June 7th, 2014
in Op Ed
by Stephen Yim, GEI Associate
The new gas deal between China and Russia, estimated to be worth around $400 billion, is yet another indicator of the fast and steady, albeit recent growth of Russian economy. China's need for alternative fuels other than coal and Russia's need for reducing dependency on gas exports to Europe resulted in an agreement that took well over a decade to negotiate. However, there are questions to be answered-what is to be expected from this new deal, and what are the immediate and long-term implications for trade dynamics of the region?
Starting from 2018, up to 38 billion cubic metres of gas will be delivered by Russia's Gazprom to China's CNPC. About $400 billion dollars is estimated to be generated from the business deal. This is a significant leap forward for Russia's endeavors to increase its FDI while trying to divert its businesses away from the European countries due to strained relations stemming from current political events. By 2030, Asia's share of Russian gas exports are looking to gain one-fifth of the total Russian gas production according to Russia's energy strategy, and this deal is certainly one of the many steps Russia needs to expand its role in the Asian trade industry.
Starting from the new millennium, Russian exports to China have been increasingly dependent on mineral fuels which include oil and gas. In contrast, exports of other goods have been decreasing, which can be explained by Russia's inability to compete with China in regards to both low and high-technology good production, particularly in the CIS region.
Russia's need for agglomeration and diversification of exported goods has come unanswered, as its market trend moves towards a one-dimensional industrial route. Despite placing third worldwide in the recent FDI ranking by UNCTAD, Russia will also need to address the current changes in unfavorable European trade dynamics as well as the rapid growth of China's taking over of West Asian markets for manufactured goods. Furthermore, the 38 billion cubic metres of natural gas that will be exported throughout a 13 year time frame is still much less than its current gas exports to Europe, which amounts to about 150 billion cubic metres a year. A conclusion can be reached where continued mutual distrust between the two states will make this renewed cooperation just as likely to fall apart as it is to develop into a beneficial one.