Interfax's Interview

Realistic goal

Record high growth rates are the most obvious matter in trade and business relations between Russia and China. We can be proud of that fact that the two countries' trade soared 37.1% to $29.1 billion in 2005.

The leaders of our countries set high trade turnover targets, which seemed unrealistic to many people, on several occasions. We sought to raise our bilateral trade to $10 billion in the 1990s. This target was reached in 2001. Russian-Chinese trade exceeded $20 billion for the first time in 2004. The goal set by the heads of our countries in 2003 was achieved ahead of schedule. Our new task is to bring trade turnover to $60 billion-$80 billion by 2010 and to secure $12 billion of Chinese investment in the economy of the Russian Federation by 2020.

It is a realistic goal, which will require Russia and China to make serious joint efforts to improve forms of cooperation and to make them more effective. In fact, it means a transition of our business relations to a new stage. This is our strategic objective. There is a need to drastically change the quality of our counties' business relations, which will help them match the new role China and Russia are currently playing in the world economy.

A 2006-2010 mid-term program aimed at promoting bilateral trade and business cooperation is being implemented as part of agreements reached by the Russian and Chinese presidents, as well as the Russian Economic Development and Trade Ministry and the Chinese Commerce Ministry. This program should act as a road map and set guidelines for the activities of the Russian and Chinese agencies in charge of these issues, regional governors and the two countries' business circles.

Cooperation in the energy sector

 Cooperation in the energy sector should undoubtedly remain one of the most crucial components of Russian-Chinese relations. For instance, we are planning to raise the amount of crude oil delivered from Russia to China by rail to 15 million tonnes in 2006. The authorized companies, Transneft and China National Petroleum Corporation (CNPC), began discussing the economic and technical aspects of building the Skovorodino-Danqing branch line after a decision was taken to construct the East Siberia-Pacific Ocean (ESPO) oil pipeline.

Cooperation in the gas sector has sound potential. Gazprom, which has been appointed by the government of the Russian Federation to coordinate all export gas projects, and CNPC are studying options for shipping natural gas from Russia to China. The next stage is commercial talks, the success of which will pave the way for the signing of an appropriate intergovernmental agreement and to switch to the actual organization of deliveries.

Russian Unified Energy Systems' long-term cooperation agreement with State Grid Corporation of China dated July 1, 2005, is being implemented. Russia is currently considering providing electricity supplies that will match the volume requested by China. New power generating plants and electricity transmission lines will be built.

The construction of the first section of the Tianwan nuclear power plant, which is a major Russian-Chinese project, will provide a sound foundation for promoting cooperation in the use of nuclear power for peaceful purposes. It is known that the Chinese government has taken a decision on a development strategy for the country's nuclear power sector. Russia, as China's closest neighbor and strategic partner with extensive experience in the nuclear power sector, is ready to play the most active role in putting this program into effect.

My brief review of the situation shows that it is important for Russia to bring its energy cooperation with China to a higher technological level, without confining it only to shipments of Russian raw materials. China sees that such plans will benefit it as well.

ESPO and the Altai gas pipeline

The construction of the ESPO oil pipeline network is one of the largest infrastructure system projects. A strategic decision on building this pipeline, including a branch to China, has been made. It will carry up to 80 million tonnes of oil a year, of which 30 million tonnes will go to China. The first stage of the project, from Taishet to Skovorodino is now being tackled at the corporate level, where technical and commercial issues are being dealt with. The first phase is to be completed by the end of 2008.

Transneft and CNPC have signed a protocol to study the issue of designing and building the pipeline's sector that will link Skovorodino and the Chinese border. The Russian company is general designer and ordering party, as far as the drafting of a declaration of intention and a feasibility study are concerned. The declaration has already been drafted, and work on the feasibility study is to be completed next year.

The system will be highly reliable and environmentally friendly. A set of technical solutions and environmental protection measures are being prepared to minimize any possible negative effects on the environment.

In addition, China is a crucial and promising market for gas shipments from Russia as part of a program to diversify exports and gain access to new markets. At the same time, Russia also views China as a partner in implementing gas transport projects and in joint gas monitoring.

In March 2006, Gazprom and CNPC signed a protocol on gas deliveries, which outlines the main agreements on deadlines, volumes and routes for possible shipments. Gazprom is compiling a feasibility study for a project to build a gas pipeline to China via the western sector of the Russian-Chinese border - the Altai project.

The feasibility study deals with a variety of gas transportation routes, which take into account the social, environmental and other consequences which will be entailed by the pipeline's construction and operations. The document's section assessing the project's impact on the environment will help find an environmentally friendly solution and work out measures to minimize or avert any negative effect on the ecosystem, as well as heed the opinion of scoiety. It will also offer answers to all questions about the project's environmental, technical and social safety aspects and will help conclude whether the project can be implemented in full compliance with the law.

The companies have already launched commercial negotiations on the terms for gas shipments via the western corridor. Price setting principles are currently being discussed.

Reversing a negative trend

Bilateral trade and business relations have plenty of untapped potential. The need to diversify the structure of mutual trade is quite acute for Russia.

Today oil, oil products and timber account for roughly 70% of all Russia's exports to China. The export of other commodities, primarily civilian engineering products, has been steadily declining. For instance, $328.3 million (-43.4%) worth of civilian engineering products were sold to China in 2005. The trend toward a reduction in the volume of engineering exports can be seen this year as well. In the first seven months of 2006, the amount of Russian engineering products exported to China decreased by 41.7% ($134.57 million). Consequently, the share of engineering products in the structure of Russian exports shrank from 2.1% in 2005, to 1.3%.

A mono-commodity export structure is effectively forming. At the moment, it allows us to maintain the rapid pace of growth in trade turnover. But, at the same time such a structure is increasingly vulnerable to fluctuations in world prices, which, generally speaking, may lead to limiting the range of bilateral contacts in the trade and business sphere.

Reversing the trend toward a decline in Russian engineering exports to China will take time and require major efforts.

Moderate positive changes have taken place over the past year. For instance, Silovye Mashiny and China's companies Technoimport and Huaneng are working on a contract on the delivery of Russian-made equipment to Weijiamao in Inner Mongolia. The Russian companies Aviastar and Aviaexport are engaged in talks on the sale of Tupolev Tu-204-120 airplanes and aircraft engines to China. Gornoye Oborudovaniye and Chinese companies are discussing the delivery of drag-line excavators.

Investment as an avenue for cooperation

Investment cooperation has become one of the most promising forms of Russian-Chinese trade and business ties in recent years. China's interest in investing in Russia is growing. Russia's regions and business circles, for their part, have shown strong interest in securing Chinese investment, which has created the necessary prerequisites for broader investment cooperation in the mid-term.

I have already mentioned the goal of bringing Chinese investment in the Russian economy to $12 billion by 2020. It is a relatively new avenue of our joint work. The number of investment projects involving Chinese capital has reached 657. The amount of China's investment provided under these contracts totals $320 million. The overall volume of Chinese investment provided under contracts stands at $977 million. The two countries' governments see great prospects in this area.

In November, Beijing is due to host the National Exhibition of Russia in China and the two countries' Week for the Promotion of Investment Cooperation. More than 50 Russian regions and a large number of firms and enterprises will display their products at the exhibition, which will also include presentations for several federal districts, banks and enterprises, as well as a conference on cooperation between small and medium-sized businesses. The program of the Investment Week involves the first Russian-Chinese investment forum.

2005 gave rise to cooperation in a new area  cooperation in establishing and developing special economic zones in Russia. The Chinese authorities view Russia's special economic zones as another opportunity to bolster investment in Russia. By putting all these plans into practice will certainly form a sound financial foundation for our strategic cooperation.

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