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As global economy cools, Russian-Chinese relations heat up

As global economy cools, Russian-Chinese relations heat up
Prime Minister Vladimir Putin arrived in China on Tuesday for a two-day working visit intended to strengthen diplomatic and economic relations between the two growing global powers.

­Putin, who was greeted at a formal ceremony in the Great Hall of the People, held talks with his Chinese counterpart, Prime Minister Weng Jiabao on ways to stimulate bilateral trade and economic cooperation at a time when the global economy is teetering precariously between recovery and recession.

Beijing and Moscow hope to ride out the economic storm with increased economic cooperation, as both sides sign off on a number of lucrative interstate and corporative projects valued at about seven billion dollars.

Putin was personally responsible for bolstering relations with China, which included ending a long-standing border dispute, as well as inaugurating the 'Treaty of Good-Neighborliness and Friendly Cooperation between the People’s Republic of China and the Russian Federation.' This twenty-year strategic document was signed into force by former Chinese President Jiang Zemin and Putin on July 16, 2001.

The talks between the Russian and Chinese sides in Beijing are expected to produce about a dozen economic agreements, including a natural gas deal worth an estimated one trillion dollars. The only hurdle involves an agreement on the price, but once completed it would give Russia the rights to supply its surging neighbor with up to 68 billion cubic meters of gas annually.

There has been a steady increase in trade volume between Russia, a resource-rich country that is looking to diversify its economic potential, and China, a red-hot manufacturing nation that has some serious energy needs. According to the Chinese Ministry of Commerce, bilateral trade volume in the first seven months of this year increased by about 38% to a record $42.2 billion compared to the previous year. The ministry forecasts that the bilateral trade volume will reach a new record in 2011, in excess of $70 billion.

This has led many analysts to describe the bilateral relationship as a “natural” phenomenon.

"They are natural partners because they are neighbors,” Aleksander Lukin, from the Center for East Asian and Shanghai Cooperation Organization Studies, told RT in an exclusive interview. “They share a long border, more than 4,000 kilometers (2,485 miles).”

But more than simply neighbors, China last year became Russia’s leading trading partner, and is the 5th biggest investor in the Russian economy, Lukin added. Meanwhile, China is predicted to surpass the United States as the world’s leading economy in just five years.

According to recent data from the International Monetary Fund, the Chinese economy is expected to mushroom from $11.2 trillion in 2011 to $19 trillion in 2016. Over the same period, the US economy will go from $15.2 trillion to $18.8 trillion. Much of the foam from that Chinese growth will run over into Russia, enabling to fund major modernization projects.

But the relationship flows in the opposite direction, too, as Russia continues to lend China its technical expertise, from atomic energy production to hydro power technologies.

Russia and China “will be developing closer cooperation in atomic energy, on the basis of the most modern world technology,” while promising to reduce the possible risks “virtually zero," Putin said after talks with Premier Wen Jiabao.

As to other areas of cooperation with China, Putin noted that the two countries have outlined other avenues of mutual cooperation in scientific research

"We see a future in hydropower, too, and in the development of alternative (energy) sources," the prime minister said.

Meanwhile, in news that underscores the frustration that both sides feel for the increasingly unpredictable US dollar, which is the international reserve currency, Russian and China have agreed to expand the use of the yuan and ruble, Putin said.

"It is convenient and beneficial for participants in economic activities from both countries, and insures us against many of today's risks," he said.

Another major deal signed on Tuesday represents a troika between Russian Direct Investment Fund, China Investment Corporation and Vnesheconombank, which signed an agreement to set up an investment fund worth up to 3-4 billion dollars.

The deal, created to make direct investments mainly on the territory of Russia, was sealed in the presence of Putin and Wen Jiabao on Tuesday. The Russian Direct Investment Fund and China Investment Corporation will make a 1 billion dollar contribution each, with the remainder of funds coming from outside investors.

According to Lukin, Putin is not mistaken in his assessment of the increasingly beneficial bilateral relationship, in which Russia plays a crucial part.

“China also needs Russia,” Lukin said. “Beijing relies on Russia for products that the Chinese can not get from other sources, like gas, oil and military weaponry, for example.”

Lukin emphasized that the military component of the economic relationship has been decreasing over the last several years while other parts of the relationship gain traction.

“Russian weapon sales to China have decreased significantly,” he stressed. “In the 1990s and early 2000s, the (weapon) sales were significant. So significant, in fact, that these exports to China and India helped to save Russia’s military industrial complex.”

Russian reliance on weapon sales to China, however, have abated since the Russian economy is now much stronger than it was just 10 years ago, Lukin said. Nevertheless, the “strategic partnership” between Russia and China, two countries that are finding their own way in the global economy, continues to strengthen.

According to Natalia Stapran, a professor at the Department of Oriental Studies at the Moscow State Institute of International Relations (MGIMO), Russia has everything to gain and nothing to fear from a surging China.

“The economic rise of China is not a threat, but rather a challenge for Russia,” Stapran told RT in an email. “There is no reason for fear; rather it is a lucky chance for Russia that it will use or lose.”

At the same time, economic cooperation is lagging behind political relations so there is much room for improvement, the Russian professor added.

Stapran then offered her thoughts on the “struggle” going on between the United States and China, which will play a big role, she says, in the future overall stability of the region.

“The 'old' leader (US) is violently struggling to maintain its positions, while the new 'young' (China), no less vigorously is trying to…take its place,” Stapran wrote. “Given the geopolitical and regional ambitions of each side, the success or failure of their development largely determines the future economic, political and even military stability in the region.

On Wednesday, the Russian Prime Minister, on his first international trip since officially entering the 2012 presidential race, will meet with Chinese President Hu Jintao and Chairman of the Standing committee of the All-China Assembly of People's Representatives Wu Bngo.

Robert Bridge, RT

Evgeny Sukhoi contributed to this article