Russia To Get Chinese High-Speed Rail Amid Oil Deal

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Russia To Get Chinese High-Speed Rail Amid Oil Deal
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While Moscow is threatening Washington to aim its armed forces to the “territories from where the threat comes,” Russia has become China’s top crude supplier as the battle for Chinese market share intensifies.

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In May, for the first time since October 2005, Russia became the key crude oil exporter in China. Russia has increased its supplies by 20%, surpassing Saudi Arabia, which was the key oil exporter before Russia but saw its import numbers fall by 42% compared to April.

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In May, China, the world’s second-largest oil consumer, imported a record-breaking 3.92 million of metric tons of oil from Russia, which equals to 927 thousand barrels per day, according to Bloomberg, which cites the data from Chinese customs. According to the data by the Organization of Petroleum-Exporting Countries, Russia produces 10.54 million barrels of oil per day.

Last month, Saudi Arabia supplied China with only 3.05 million tons of oil, falling behind Russia and Angola, which sold 3.26 million tons of oil. In April, the import of Saudi oil to China had its highest peak since June 2013 with 5.26 million of tons.

Iran also remains a large supplier of oil to China wits its 2.2 million tons of exported oil. With the nuclear deal’s June 30 deadline coming closer, the country is expected to double its global oil sales within just half a year after the international sanctions are lifted.

Russia uses its warm relationship with China to increase oil supplies

“Russia is using its good relationship with China to increase supplies and has now taken the top spot,” Gao Jian, an analyst at SCI International, a Shandong-based energy consultant, told Bloomberg by phone. “Meanwhile, Saudi Arabia is losing its crown as its selling prices in Asia haven’t been attractive enough.”

Bloomberg notes that China’s role in crude oil exports is constantly growing as the U.S. halts its imports and relies on the growth of production on shale fields. According to the International Energy Agency, this year China will consume over 11% of all the oil produced in the world.

“Following Russia’s recent acceptance of the renminbi as payments for oil, we expect more record high oil imports ahead to China,” Gordon Kwan, the Hong Kong-based head of regional oil and gas research at Nomura Holdings Inc., told Bloomberg via e-mail, referring to the Chinese currency – yuan. “If Saudi Arabia wants to recapture its number one ranking, it needs to accept the renminbi for oil payments instead of just the dollar.”

China is planning to design a high-speed railway in Russia

Russia and China may agree on a contract that would allow China to build a high-speed railway connection between Moscow and Kazan.

Beijing’s state-run China Railway Group signed a contract to develop and design a nearly 800 kilometer high-speed railway connection between Moscow and Kazan, according to the Wall Street Journal report.

China Railway Group will cooperate with two Russian companies for the next two years to realize a set of designs for the rail that would connect Moscow and Kazan, according to Vladimir Yakunin, the president of Russia’s state-owned JSC Russian Railways, as reported by the WSJ.

The initial contract on building a high-speed railway connection is signed for just $383 million, with Yakunin saying that the actual contract for the building of the railway is “quite likely” to go to China Railway Group, however this is not guaranteed. “Of course, the one who is participating in the planning has an advantage. This is obvious,” Yakunin said.

The news come as the European Union has recently confirmed that it extends the sanctions against Russia for another six months. As Russia finds itself isolated from the West, with the plummeting oil prices, weakness of ruble as well as U.S. and EU sanctions, Russia seeks new pals in the East.

If it wasn’t for China, Russia wouldn’t survive

Ever since signing a 30-year $400 billion natural gas supply agreement with China one year ago, Russia has officially started encouraging Chinese companies to bring investments into Russia.

Russia is lucky to have China, the economy of which has significantly grown during the past decades. If it was any other country, Russia would not hold for so long after the West halted all its investments in Russia’s energy, finance and economy as a whole.

Furthermore, in May this year, the two countries also signed a $25 billion deal that would bring financing of up to $25 billion to Russian companies from Chinese banks.

The Chinese are known for their love to invest into other countries and keep everyone on the hook in order to get certain benefits for themselves later on. Let’s not forget that China is one of the largest foreign holders of the U.S. debt. China’s holdings of U.S. Treasuries amount to $1.28 trillion.

As for the high-speed rail, it must be pointed out that China could not be happier with the contract signed with Russia. China has attempted to sign similar contracts for building high-speed rails across the world, including in Thailand and Mexico.

The main factor that prevented the Chinese to sign contracts with other countries is transparency of such contracts, which was clearly indicated in the case with the Mexicans. However, the advantages of Chinese high-speed rails are obvious: low costs, quick construction and available financing. And as the Kremlin is not exactly the pickiest partner right now, Russia has no choice but to sign such deals even though there might be some concerns over the transparency of the deal.

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Polina Tikhonova is a writer, journalist and a certified translator. Over the past 7 years, she has worked for a wide variety of top European, American, Russian, and Ukrainian media outlets. Polina holds a Master's Degree in English Philology from the University of Oxford and a Bachelor's Degree in Journalism from the Saint Petersburg State University. Her articles and news reports have been published by many newspapers, magazines, journals, blogs and online media sources across the globe. Polina is fluent in English, German, Ukrainian and Russian.
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4 COMMENTS

  1. In “punishing” Russia, Obama is just following a well beaten path of Washington.
    Washington has been spoiled by its success in the use of the “weaponization of finance” over little guys such as Cuba, Iraq, Iran and Venezuela etc(the list is long)
    Ian Bremmer defines weaponization of finance thus:
    the “systematic use of carrots (access to capital markets) and sticks (varied types of sanctions) as tools of coercive diplomacy.”
    “The US-imposed sanctions are part of Washington’s larger strategic geopolitical plan called “the weaponization of finance,”
    Basically, the US imposes sanctions (or other coercive economic measures) on “rogue states” (i.e., states that are acting contrary to US interests), which should then force that state to change its behavior if it wishes to have the sanctions lifted or to have access to US capital markets again.”

  2. Washington has been spoiled by its success in the use of the “weaponization of finance” over little guys such as Cuba, Iraq, Iran and Venezuela etc(the list is long)
    Ian Bremmer defines weaponization of finance thus:
    the “systematic use of carrots (access to capital markets) and sticks (varied types of sanctions) as tools of coercive diplomacy.”
    “The US-imposed sanctions are part of Washington’s larger strategic geopolitical plan called “the weaponization of finance,”
    Basically, the US imposes sanctions (or other coercive economic measures) on “rogue states” (i.e., states that are acting contrary to US interests), which should then force that state to change its behavior if it wishes to have the sanctions lifted or to have access to US capital markets again.”

  3. A couple of comments:

    (1) lack of transparency has been a valid concern with Chinese contracts, but things may be changing. Australia has just vouched for the transparency and accountability of the Chines led AIIB, and I quote :
    (Australian treasurer)Hockey said that following “intense negotiations” with China and other prospective founding members, Australia was satisfied with how the bank would be governed.
    “We are absolutely satisfied that the governance arrangements now in place will ensure that there is appropriate transparency and accountability in the bank,”

    (2)Why has China bought US treasury?
    A more informed reason is this—If a nation finds itself with excess foreign currency( as a result of trade surplus), it needs to invest it. The only market that has the scale and liquidity to absorb a large amount of cash is the US treasury. Bar none. This has been the case. It will be the case for the foreseeable future.
    Chinese investment in US treasury has slowed because its trade volume has shrunk since the 2008 GFC (great financial crisis), and because it has diversified in other assets. It is still the number 2 investor after Japan( who held # 1 position for most of the history of foreign ownership of US treasury, with only a few years’ break).
    That said, I don’t see too many options for China not to invest in US treasury, should its foreign currency amount rebound anew. US is the only market with the scale and liquidity.
    An important note: the majority owner of US treasury, at >83%, are domestic.

  4. I cannot understand how Obama and some western leaders like to give the impression that Russia is isolated internationally. Russia and China are proving each day that in the pipeline lies an alternative financial system powerful enough to evade Sanctions and operate out of the loops.

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