Russia and China: Breathing a Sigh of Relief

The launch of the new Power of Siberia gas pipeline, through which Russian natural gas will flow to China, symbolizes the establishment of a new type of relationship between the partner countries. Within the framework of these relations, economic interdependence is combined with political understanding. These components support and reinforce each other.

Today, the latest illusions are dying out that large volumes of trade or the interdependence of the hydrocarbons supplier and buyer are able to reconcile rivals, make them forget about their differences and focus on making a profit. Economic globalisation proved to be reversible. Trade interdependence has become a weapon in the hands of strong players to deter weak countries that are more dependent on export earnings.

Until recently, Beijing was convinced that trade between the PRC and the United States, which exceeded $ 700 billion, was a solid guarantee of stability in bilateral relations. However, in just a year and a half of the “trade war” unleashed by Trump, it became clear, that Sino-US ties were quickly gaining signs of a real Cold War. Washington uses trade interdependence to put pressure on the Chinese leadership and extort political concessions.

A similar lesson can be learned from the history of gas pipelines built over the last century from Russia to Western Europe. During the Cold War, gas deals with the West contributed to lucrative economic benefits. Now they have become a source of constant debate, mutual suspicion and political manipulation by third countries.

The launch of Power of Siberia confirms that Russia is making a real turn to the East. Moscow and Beijing have learned the necessary lessons and came to the conclusion that creating interdependent relationships is better if done with time-trusted partners rather than rivals. For both countries, this is an important step towards the diversification of energy trade channels. Russia gets a new prospective buyer, and China gets a stable and reliable supplier.

Just a couple of years ago, China discussed plans for large-scale LNG purchases from Alaska with the US. Gas consumption in China is constantly growing. A place in the Chinese market can be found for both Russia and the United States. However, during one of the rounds of the “trade war", China responded to Trump by introducing a 25% tariff on the US LNG supplies. As a result, this area of ​​cooperation has lost its economic appeal. The price advantages of Russian pipeline gas, by contrast, have become even more obvious and attractive.

Last year, the share of imported gas in China amounted up to 43%. The Power of Siberia pipeline has become the second key land- based channel for delivering gas to China after the gas pipeline from Central Asia. The rest is transported by gas tankers from the countries of Southeast Asia and the Middle East. Amid growing tensions in Sino-US relations, the benefits of pipeline gas are becoming undeniable. After all, tanker LNG deliveries through the Strait of Malacca and the South China Sea can be blocked by the US Navy at any time.

China needs natural gas in order to reduce coal consumption. Coal combustion provides about 60% of the country's energy needs. Solving environmental problems is not just a concession to modern Western fashion. The people of China no longer want to pay for accelerated economic growth with their health. The Communist party has promised the people that the country will again have "green grass and a blue sky."

Russian gas will bring China closer to this goal. If there is less choking smog in large Chinese cities, this will benefit not only the Chinese. The Power of Siberia will supply gas to the Northeast of China, bordering on Russia and the Beijing-Tianjin-Hebei region,  where smog is common. When Chinese air becomes less dirty, China's neighbours will also be able to breathe a sigh of relief.

The contract between Gazprom and the Chinese state corporation CNPC is intended to last thirty years. For China, this will be a very important period of development and the completion of nationwide modernisation. By the middle of the century, the centenary of the PRC’s founding, the country intends to become one of the world’s economic leaders.

A decade and a half ago, a senior US administration official suggested Beijing would become the "responsible shareholder" of the American world order. Soberly assessing potential costs, China rejected the offer. Today, constructive interdependence is turning Russia and China into interested "shareholders" of each other's development.

The Power of Siberia has further strengthened Russia's interest in China’s steadily growing, constantly consuming market for Russian gas. Russia is not interested in the Chinese economy’s collapse under a trade war  unleashed by Trump, or a surge of political instability outside Hong Kong. And for China the problems of Russia's economic development as a reliable energy supplier are becoming even more and relevant than before.

Power of Siberia Opens Chinese Gas Market
Alexei Grivach
In a December 2nd conference call, the leaders of Russia and China will officially launch a new era in relations between the two countries. The largest gas exporter and the fastest growing large market in the world will be connected by a pipeline system that will link the gas fields of Eastern Siberia with Shanghai; the pipeline network will extend more than 6,000 km.
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