Kremlin Economist Unfolds Russia's Roadmap

If Ukraine wants to join the union, the door is always open. It is Ukraine's call. But at the same time, Ukraine is a member of the WTO, while the three other countries are not. Now, we are able to have any form of cooperation with Ukraine, but I don't think Ukraine can become a member of the tariff union.

Background:

Reaching an agreement to create a tariff union was a significant strategic step for Russia's effort to retake its position as a regional, but not global, power. Whether the ruble or a new currency will be used, in the end the economic integration of these three former Soviet republics marked the beginning of Russia's journey back in time to its prime.

After the Orange Revolution, though, Ukraine dropped out of the integration process. And some turbulence was seen during the final stage of the tariff's union establishment by Russia, Belarus and Kazakhstan: Belarus insisted on tariff-free conditions by Russia for its oil and natural gas exports. Russia rejected that request, claiming that under the agreement a commodities tariff could be exempt only after a single market for goods, labor and investment is established in 2010. As a result, only Russia and Kazakhstan signed the agreement, which was supposed to take effect July 1. Belarus eventually signed into the union July 6, while Russia threatened several measures including the cutting of natural gas supplies to Belarus.

Neighborly China

Caixin: Could the yuan be used as the settlement currency for trade between Russia and China?

Shuvalov: We have such a plan. There's a treaty written in 1992 which provides that we need to use hard currencies when trading with each other. Later, it was changed at border regions where we can trade using the ruble and yuan. I think that we are very close to the goal that we can trade using the ruble and yuan altogether. I am aware that Chinese banks now in Russia can provide yuan to Russian companies trading with China, and it's a very positive signal because the yuan sooner or later will become an international reserve currency. It is very healthy for the global economy. I think that the ruble will become a regional reserve currency as well, and it will help both countries a lot.

Caixin: Is it possible for Chinese enterprises to make yuan investments in Russia?

Shuvalov: I think it's possible but we need to agree on what conditions should be equal, and we need to understand what kinds of game rules work for both parties equally. I think it's great if Russians and Chinese can easily invest in each other's countries using the ruble and yuan.

Caixin: We have seen increasing trade volume between Russia and China, but I don't think this number meets some high expectations for warm ties between our two countries. What do you think the two countries plan for expanding bilateral cooperation?

Shuvalov: We would like to think about "wise trade" between our two countries. We are looking forward to cooperation with China, but we don't want to just sell Russian metals and forest resources. We would like to see your investors here in Russia, and we hope that China also welcomes Russian investors coming to China. There should be cross-owned assets and cross-owned industries. It is very important to understand that what we need is to help each other, not to distrust each other.

Our two presidents now meet more often than before to talk about business, and the people exchange has expanded as well. Twenty or 30 years ago, I wouldn't say we were the closest friends. But if you look at the current relationship between Russia and China, I think it is really and truly friendly and strategic.

Background:

With Russia's rise since the turn of the century, and as the international pivot point shifts east, Russia is reviving a "double-headed eagle" strategy. Emerging markets are not only exporting natural resources, but also capital and knowledge and technologies. The listing of Rusal in Hong Kong in January was regarded as a move by Russian resource-oriented enterprises to take advantage of the Asia-Pacific capital market.

Due to the global financial crisis, bilateral trade volume between China and Russia fell from US$ 56.8 billion in 2008 to around US$ 4 billion in 2009. However, Sino-Russian trade volume was valued at US$ 16.2 billion in the first quarter of this year, a 57 percent increase from the corresponding period 2009, which means it is making its way back to pre-crisis levels. After years of ups and downs, new opportunities have emerged for energy cooperation – an essential part of bilateral economic and trade ties. Under a “loans for oil” agreement signed by the two countries in February 2009, China will provide a total US$ 25 billion in long-term loans to Russia. In return, Russia will supply via pipeline 300 million tons of oil to China, on an annual basis of 15 million tons, from 2011 to 2030.
 
The two countries are also paying close attention to trade settlement issues, especially trade settlement in border regions. The ruble and yuan together account for only 1 percent of overall trade payments, and both China and Russia are expecting that to grow. On April 27, Bank of China announced that it had started a ruble cash business against the yuan in China under the direct exchange rate account. The bank'­­­­­­­s move was seen as a realization of bilateral currency trade settlement between China and Russia in real terms.

Intern reporters Shan Zhou and Yang Yuanxiao also contributed to this article.