Compared to their warm political ties, the relatively cold economic relations between Russia and China have drawn a lot of comments. Trade cooperation has gone through doubts, divergences and numerous rounds of negotiations, in which energy has been one critical field.
In December 2002, the China National Petroleum Corporation (CNPC) was invited to participate in the auction of shares of the Russia oil company Slavneft. In the beginning, CNPC was said to be very likely to win the bid. But later, the Russian State Duma made an announcement reiterating the privatization law, aimed at pressurizing CNPC to give up the auction.
After weighing the political pressure and the potential economic benefits, CNPC finally decided to abandon its bid.
Illustration: Sun Ying
Three years later, China's State Development and Reform Commission, the State Development Bank and CNPC signed a loan contract worth $6 billion with Russia. Meanwhile, the two sides signed another contract in which Russia would supply 48.4 million tons of crude oil to China in five years.
In February 2009, China and Russia signed seven agreements on a package of energy cooperation deals, including a loan-for-oil deal.
According to this deal, China would offer Russian companies long-term loans worth $25 billion while Russia would provide 300 million tons of crude oil through the pipeline to China from 2011 to 2030. This was a significant breakthrough in energy cooperation between Russia and China.
While the oil cooperation has gone well, cooperation over natural gas between Russia and China is still under discussion. Negotiations were first started in March 2006, during Russian President Vladimir Putin's diplomatic trip to China. Since then, China and Russia have held many rounds of business talks about natural gas cooperation between high-level government officials and business leaders.
However, these talks have reached a bottleneck, namely the price divergence between both sides.
On June 1, Chinese Vice Premier Wang Qishan co-chaired the eighth round of the China-Russia energy negotiators' meeting with his Russian counterpart, Arkady Dvorkovich. During this meeting, China and Russia pledged closer ties on natural gas, which foreshadowed the visit of Putin. And during Putin's visit to Beijing in mid-June, the negotiations of the natural gas price were still atop the agenda. Unfortunately, no deal was struck and more talks will be held in the future.
Having participated in China's negotiations with Russia on the energy cooperation, I know it can be very exhausting to hold such talks.
The Russian delegates can be very changeable about certain specific items in order to maximize Russian profits.
But after all, energy cooperation is an important factor in the Sino-Russian strategic cooperative partnership. China exceeded Japan to become the world's second largest importer of crude oil in 2009, and in 2011, foreign oil imports broke the critical 50 percent barrier. These facts show that oil and gas resources from Russia mean a lot for China's energy security. And mutual trust between the two giants is the basis of their energy cooperation.
The future clashes in Sino-Russian energy deals will still revolve around the price issue. In this sense, if China insists on importing oil and gas from Russia at a price no higher than that in the domestic market, Russia may increase its exports of oil and gas to Europe.
The solution to the price divergence is still to enhance substantive cooperation between the two countries. Russia and China will be tied more closely together due to mutual economic interests.
Though spats and conflicts seem to be unavoidable in economic negotiations, they also provide a perfect chance for both sides to further learn about the political, economic and even cultural appeal of each other. All these factors can add to their mutual trust.
This article was based on a recent lecture by Wang Haiyan, a researcher with the International Department of CNPC, at Peking University.