Trade

Documents & Texts from America.gov

16 October 2009
Clinton: China, Russia Trade Pacts Show Economic Interdependence

By Merle David Kellerhals Jr.
Staff Writer

Washington — Trade agreements recently announced between China and Russia, including a mammoth natural gas arrangement, illustrate a world of greater economic interdependence and interconnectedness, and a world vastly different from the Cold War period of the 20th century, Secretary of State Hillary Rodham Clinton says in a recent Moscow interview.

“It is far better to have two great countries like China and Russia cooperating commercially, looking for ways to support the economic growth and prosperity of their respective peoples,” Clinton said in an October 14 interview with Ekho Moskvy Radio during her travel to Russia for consultations. During the Cold War period, China and Russia were often at odds over policies, and relations between the two were strained, but the post-Cold War period has brought about many changes and a warming of their relationship.

“The United States is not threatened or worried by relationships between other countries. We just want to be sure that there’s a sense of equity and parity in this partnership world that we’re developing, because we have so many difficult challenges,” she added.

Besides energy issues, Russia and China are significant partners with the United States in foreign policy and economic problems. They are key partners with the United States in Six-Party Talks to convince North Korea to forgo a nuclear weapons development program in return for economic and political incentives. They are also partners with the United States in trying to convince the Iranian regime to abandon a nuclear weapons development program. Both efforts appear to be making gradual progress after many months of difficult, stop-and-start negotiations.

Russia and China are members with the United States in the Group of 20 (G20) advanced and emerging economies and have been working together to lead the global economic recovery from a financial crisis and forge a new, more balanced economic growth system.

“It is imperative for countries like Russia, the United States and China to lead against the forces of disintegration and destruction so that we can stand united against those who would undermine the opportunities that we are seeking to promote,” Clinton said.

Chinese and Russian officials announced October 13 that they had reached $3.5 billion worth of trade agreements, including an agreement for Russian energy giant Gazprom to provide about 70 billion cubic meters of natural gas annually through two pipelines from Siberia to Chinese markets. That arrangement now depends on reaching agreement on pricing, but it is expected to be completed by next year.

But trade agreements of this magnitude also carry substantial strategic implications, particularly for Europe and Eurasia, says Steven Woehrel, a European affairs specialist at the U.S. Congressional Research Service (CRS). “Russian oil and natural gas industries are increasingly important players in the global energy market, particularly in Europe and Eurasia,” Woehrel said in a September research report on Russian energy policies. Russia is the world’s largest producer of natural gas. It is not completely clear, he said, whether Russia’s energy policy is used to pursue foreign policy objectives.

Gazprom, the Russian state-run natural gas exporter, made the energy deal with China National Petroleum Corporation, which is China’s largest oil and natural gas producer. China has gradually become a manufacturing powerhouse that requires huge amounts of energy, usually oil and natural gas, according to China expert David Shambaugh at George Washington University in a recent essay for Time magazine. China consumes 16 percent of global energy resources and has become the world’s third largest consumer of oil.

The October 13 agreement goes back to an arrangement struck in 2006 for Gazprom to supply natural gas to China via two pipelines, but a pricing agreement has held up the arrangement. Russian Prime Minister Vladimir Putin was in Beijing to sign the trade agreements with Chinese Premier Wen Jiabao.

The new agreement would make China the biggest buyer of natural gas from Gazprom. By comparison Germany, which is currently Gazprom’s largest customer, imports about 37 billion cubic meters of gas from Russia annually — about half of the China deal.

Gazprom is the largest contributor to the Russian government’s budget, providing about 25 percent of tax receipts, Woehrel said in his CRS research report. Gazprom is the largest firm in Russia, Woehrel said, and the Russian government controls about 50 percent of its shares. Gazprom controls 90 percent of Russian natural gas production and slightly over a quarter of the world’s natural gas reserves.

Woehrel said that currently two-thirds of Gazprom’s revenue comes from European customers, and a sizeable number of central European nations depend on Russia to meet their energy needs.

Recently Gazprom’s U.S. subsidiary, Gazprom Marketing & Trading USA Inc., was granted permission by the U.S. Energy Department to buy and sell up to 20.7 billion cubic meters of natural gas and liquefied natural gas across North America, which includes the United States, Canada and Mexico. It is likely to lead to the sale of Russian natural gas in U.S. markets. The subsidiary’s headquarters is located in Houston.

Roland Nash, chief strategist at Renaissance Capital in Moscow, told Bloomberg News that this arrangement between Russia and China will have significant impact on Russia’s economic future. “If this relationship works out, it will be a major contributor to the stability and speed of global economic growth,” he said.

The State Department transcript of Clinton’s interview with Ekho Moskvy Radio is available on America.gov.

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