by ZI YANG
Russia made the Chinese yuan a reserve currency in 2015, raising the prospect of deeper economic cooperation between the countries PHOTO/Reuters
An inadvertent beneficiary of US/EU sanctions against Russia, China stands to gain more by working to deepen commercial ties with its neighbor
The recovery of trade between China and Russia emphasizes the need for continued growth in financial collaboration between the two powers. Bilateral trade rebounded to US$69.5 billion in 2016, after sliding 27% in 2015 to $64.2 billion from 2014’s US$95.3 billion.
China’s top financiers have been reaching out to their Russian counterparts at recent international meetings. Burdened by US and EU sanctions, Russia is increasingly relying on the yuan as an international trade settlement currency. In 2016, China-Russia cross-border yuan transactions saw 27.7% year-on-year growth to 30.46 billion yuan, or 6.41% of total bilateral trade volume. In March 2017, Russian aluminum giant Rusal issued its first Panda Bond tranche of 1 billion yuan. In the same month, the Industrial and Commercial Bank of China officially began operating as a yuan clearing bank in Moscow, further raising the importance of the yuan in bilateral trade and investment.
It is useful to examine China’s commercial interests with Russia at two levels—national and provincial.
Nationally, China is in some respects a beneficiary of the US and EU sanctions against Russia. Although China-Russia trade took a gut-punch in 2015, Russia is now more dependent on China economically than before. Cut off from its traditional sources of financing in the west, Russia had to pivot east. In 2015, Russia made the yuan a reserve currency. The country is now a market for the internationalized Chinese yuan, important for cross-border commerce. Therefore, China’s key national financial interest is in augmenting the role of the yuan in bilateral trade.
Northeastern China’s Heilongjiang province is the locomotive in cross-border trade with Russia, which represents 65.3% of the province’s total import-export trade. In the first four months of 2017, Heilongjiang’s bilateral trade with Russia reached 25.02 billion yuan, a 45.8% increase year-on-year. In 2016, Heilongjiang’s total cross-border yuan transactions with Russia saw a 43.4% year-on-year rise to 7.76 billion yuan, or 25.5% of the national total. Chinese and Russian banks signed cross-border financing agreements totaling 33.5 billion yuan and established a 10 billion yuan fund targeting bilateral trade and infrastructure upgrade.
Asia Times for more