Bilateral trade may dispense with the U.S. dollar and revert to RMB and rubles

Prime Minister Wen Jiabao of China is in Moscow holding talks with his counterpart Vladimir Putin over plans to grant an immediate loan to Russian oil companies in return for guaranteed exports to China for the next twenty years. The amounts are expected to be in the region of an immediate US$20-30 billion loan, with supplies worth two billion barrels a year going to China for the next two decades.

Russia and China have already expressed a desire to greater integrate their two economies, and the proposed deal comes at a time when Russia’s relationships with the EU are strained. It also indicates another signal that global power is shifting in deal making processes away from the United States and towards the cash rich economies of China and Japan, both of whom, unlike America, posses enormous cash reserves.

Russia and China have already agreed to develop a spur of the Siberian oil pipeline from the Amur Oblast town of Skovorodino, which is on the Trans-Siberian Railway and borders the Chinese province of Heilongjiang, at a cost of US$800 million. Russian oil companies have had problems recently as prices have increased, revenue was lost in taxes, and debts to Western banks increased. Rosneft, one of Russia’s state-owned oil companies, owes international banks about US$21 billion and has been having problems with cash strapped Western creditors. China meanwhile has cash reserves of about US$1.9 trillion, the highest in the world.

The Russian government, which itself has healthy cash reserves, still requires additional funding to assist with the expansion of oil drilling and recovery fields in remoter parts of Siberia. This is also in China’s interests as it seeks to secure more energy resources for its growing economy. In other developments in the talks, both countries are considering discarding the U.S. dollar as the main currency for bilateral trading and revert to RMB and rubles. Mr. Putin commented that at the moment, “the world, which is essentially U.S. dollar denominated, is suffering serious problems as a result and we would like to see a reduction in the dollars role in international trade.”

2point6billion.com has just published a book in conjunction with China Briefing: “China’s Neighbors,” which details bilateral trade, development and relations with each of China’s 14 border countries, including a full chapter on Russia. It is available, priced US$25 plus p&p from the China Briefing Bookstore.

This entry was posted on Thursday, October 30th, 2008 at 10:47 am and is filed under Government, Politics, Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.