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Analysis & Opinion
12.10.11 Strengthening Stability
By Tai Adelaja

Russia’s Prime Minister Vladimir Putin led a powerful delegation of corporate executives to China on Tuesday, as Russia redoubles efforts to exploit new opportunities in Asia. Experts saw the trip as a sign that Russia is trying to reduce its dependency on sluggish European energy markets and is looking for opportunities in the East to hedge its bets. Putin's visit also came amid a flurry of pre-election preparations at home, prompting experts to suggest that the Russian prime minister is set to place more emphasis on trading relations with the Asian giant in the near future.

Putin hopes the visit to China, his first trip abroad since announcing he was ready to reclaim the Russian presidency, will help broaden trade with China, which he expects to grow to $200 billion in 2020, up from $59.3 billion last year. “To gain more room in the international market, we need to make joint efforts to push our cooperation to a new level,” Putin told Chinese journalists after talks with his Chinese counterpart Wen Jiabao in Beijing.

Thanks in part to his political clout as Russia's president-in-waiting, seemingly irresolvable problems in bilateral ties are now proving to be more manageable, if not completely resolvable. “As far as the economy and trade are concerned, issues of a practical nature are being resolved, and this is good,” Putin told reporters at the start of bilateral talks. One such issue is the decade-long negotiation to supply China with up to 68 billion cubic meters of Russian gas annually over a 30-year period, which has been held up over pricing disagreements. “We are nearing the final stage of work on gas supplies,” Putin finally announced Tuesday.

A breakthrough in the decade-long negotiations on a gas accord with the world’s biggest energy consumer would boost Moscow's efforts to reduce its export dependency on the European market. Russia, which supplies 25 percent of the European Union’s gas, is under mounting pressure to cut its European pricing formulas and analysts said clinching a deal with China could provide Russia with a bargaining chip and a credible alternative to ease such pressure.

Russian officials had tried to lower expectations for a gas-supply deal ahead of Putin’s visit, suggesting that bilateral talks will only focus on the expansion of mutual investment and cooperation in hi-tech industry, and the implementation of long-term energy projects. “However, the signing of official documents on the deliveries of Russian natural gas to China is not on the agenda of this visit,” Putin’s deputy chief of staff Yuri Ushakov said on Monday. While, defying expectations, Putin said Tuesday that talks have been taking place “in a business-like atmosphere, with the mutual desire to find compromise on difficult questions which inevitably arise given the sheer scale of our relationship.”

In addition to energy, which accounts for more than half of Russia’s exports to China, Russia also hopes that expanding economic ties with the Asian nation will help it to diversify its economy. Russia has lately tried to China into partaking in innovative projects as diverse as energy efficiency, information technology and space exploration. “Our goal is to diversify our economic ties,” Putin told reporters in Beijing. “I think that everyone will agree that compared with the known difficulties in the global economy, this aspect of the Russian-Chinese relationship has a stabilizing impact.”

One of the nine agreements signed between China and Russia on Tuesday is for the construction of a modern 750,000-ton Taishet aluminum smelter in Russia's Irkutsk region. According to the terms of the agreement, the China Development Bank (CDB) will open a $1.5-billion line of credit for the Russian state bank VEB intended to finance construction of the first stage of the project, part of Oleg Deripaska's aluminum giant United Company RusAl.

The Russia Direct Investment Fund, which was established in June, also received a much-needed cash boost on Tuesday after inking an agreement with the China Investment Corp. The deal will see the Chinese sovereign wealth fund injecting up to one billion dollars into various projects in Russia and the CIS. Kirill Dmitriyev, who heads the Russia Direct Investment Fund, described the CIC commitment as “a resounding vote of confidence for Russia from one of the premier investors globally.”

Perhaps more resounding is Putin’s disclosure to Chinese media that he is reclaiming the presidency next year in order to strengthen the system of governance in Russia. Putin said his party could count on the support of Russian voters because his government has been able steer the country out of the worst economic crisis that it has faced in a decade. The Russian government, he said, managed to halve the number of people living below the poverty line even as the global recession sent the economies of rich countries into a tailspin. “We understand what needs to be done in order to achieve the maximum impact on social development and economic growth,” Putin said.
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