Xi-Putin friendship under strain as economies falter

Mr Xi with Mr Putin on Thursday, after they attended a big military ceremony marking the 70th anniversary of Japan's defeat in World War II. They were expected to sign a contract for delivery of natural gas from Western Siberia, but that did not take
Mr Xi with Mr Putin on Thursday, after they attended a big military ceremony marking the 70th anniversary of Japan's defeat in World War II. They were expected to sign a contract for delivery of natural gas from Western Siberia, but that did not take place. PHOTO: AGENCE FRANCE-PRESSE

Hopes of China fuelling demand for Russia's commodities fade amid economic slowdown

BEIJING • They have met more than a dozen times and they stood shoulder to shoulder during Thursday's military parade here. But the once-vaunted relationship between Chinese President Xi Jinping and his Russian counterpart Vladimir Putin has come under strain as the economies of their countries have faltered.

Two landmark energy deals signed last year for Russian natural gas to flow to China have made little progress and were barely mentioned when the leaders met for talks after watching the show of weapons on Tiananmen Square.

The bilateral trade that was predicted to amount to more than US$100 billion (S$142 billion) this year instead reached only about US$30 billion in the first six months, largely because of reduced Chinese demand for Russian oil.

Mr Putin has enjoyed basking in the stature of Mr Xi, who leads one of the world's largest economies. But with the recent stock market turmoil in China and the slowest economic growth in a quarter-century, Beijing will be unable to provide the ballast Mr Putin has sought against economic sanctions imposed on Russia by Europe and the United States after its annexation of Crimea, not to mention plummeting oil prices worldwide.

"Russia was dependent on China growing and driving the demand for its commodities - oil, gas and minerals," said Dr Fiona Hill, a Russia specialist at the Brookings Institution in Washington.

The linchpin of the relationship between Mr Xi and Mr Putin was a May 2014 accord on a 30-year deal for China to buy natural gas from fields in Eastern Siberia for a reported US$400 billion, with first delivery between 2019 and 2021. During the signing in Shanghai, Mr Putin bragged that the deal was an

"epochal event", and expressed relief that Russia, under pressure from European sanctions, would be able to diversify its gas sales.

But the price was never formally announced, and it is possible that with plunging energy prices, the deal will have to be renegotiated, said Professor Jonathan Stern, chairman of the natural gas research programme at the Oxford Institute for Energy Studies in Britain. The Chinese wanted the gas for its depressed north-east region, and the Russians had started to prepare for its delivery, but there has been only limited drilling, he said.

Another deal, for natural gas from Western Siberia, was initialled by the two leaders in November in Beijing, but a formal contract that was expected to be signed during Mr Putin's current visit appeared to have fallen by the wayside, he added. "This is the contract which Putin could have signed this week, but we understand will not, partly because Chinese gas demand now looks much lower than previously thought," he said.

Further complicating that deal is Russia's inability to pay for the pipelines, and the question of whether China needs the Russian gas badly enough to finance their construction, said Mr Edward C. Chow, senior fellow at the Centre for Strategic and International Studies in Washington.

A Chinese expert on Russia, who is usually sanguine about the relationship with Moscow, said the deal had also run into pricing problems.

"The negotiations face many difficulties due to the plunge in the price of gas," said Professor Zhao Huasheng, director of the Centre for Russia and Central Asia Studies at Fudan University in Shanghai. "We have to recalculate all the costs and try to push for a price cut."

In Moscow, similarly, optimism about China substantially helping Russia out of its economic problems has faded.

"The big hope that China is going to provide a lifeline to sustain Russia through the sanctions and the falling oil price is not working," said Mr Alexander Gabuev, an analyst of Russian-Chinese relations at the Carnegie Moscow Centre. "It is a symbolic relationship - with a small, volatile economic base."

The big energy deals are not the only victim of the economic slowdowns. A fast Beijing-Moscow rail link that China had said it would build is in doubt because China is demanding that Russia pay for it. "The Russians won't have the money to pay for it, and the Chinese are not going to do it for free," Dr Hill said.

NEW YORK TIMES

A version of this article appeared in the print edition of The Straits Times on September 05, 2015, with the headline 'Xi-Putin friendship under strain as economies falter'. Print Edition | Subscribe