Collapse of Russian economy accelerates transfer of raw materials sector to China

Chinese companies are expanding their ownership of Russian raw materials enterprises (Image: RIA Novosti)

Chinese companies are expanding their ownership of Russian raw materials enterprises (Image: RIA Novosti) 

2015/12/21 • Analysis & Opinion, Politics, Russia

Stories about the transfer of territory from Russia to China and the arrival of Chinese settlers in Siberia get far more press play, but far more important as a measure of what is happening between the two countries is China’s moves to dramatically increase its ownership stakes in key Russian raw materials producers.

The Chinese are taking advantage of Russia’s need for capital, but two things about this trend are striking. On the one hand, China has typically moved relatively slowly and cautiously in its investments in foreign markets, testing the waters as it were before getting heavily involved.

And on the other, Moscow officials are now openly acknowledging that they are willing to allow China to acquire not just a major stake but potentially a controlling share of the ownership not only of raw material processing and shipping industries but also the fields and mines from which these materials come.

If this continues, it will mean that the part of the Russian economy on which Vladimir Putin has most relied may pass under Chinese control; and the perception that the Kremlin leader’s turn to the east may leave Russia the victim of Chinese neo-colonialism may spread, something few Russian nationalists are likely to be happy about.

In today’s “Nezavisimaya gazeta,” journalist Olga Solovyeva describes what she calls “the expansion” of Chinese interests into the Russian raw materials sector and why it appears likely that this expansion will only grow in the future given the attitudes and needs of Moscow officials.

Last week, she notes, China’s Sinopec purchased a major part of the shares of Sibur and Yamal-SNG; and next in line will be a purchase of 19.5 percent of the shares of Rosneft. These things are happening, Solovyeva suggests, because Moscow has signaled that it is now prepared to have China take a controlling interest in Russia’s strategic minerals sector.

China has been investing in Rosneft for some time, but the Russian government until recently had limited its stake lest Moscow lose control. But, Solovyeva says, the question now is “how long” will this limitation last if the Russian budget deficit continues to widen and China retains its interest in acquiring Russian strategic assets.

Arkady Dvorkovich, Russian deputy prime minister, says that Moscow would prefer to keep China a minority shareholder but is prepared to allow Beijing to acquire a larger share if that is what China wants. “For us, it is more comfortable to work in a 50-50 partnership or even 51-49, but if there is demand, we will seriously consider it, and I do not see any political obstacles.”

As Valery Nesterov of Sberbank Investment Research points out, this new Russian willingness to sell strategic assets to China is happening only because Moscow needs to attract foreign investments, something it currently is finding it harder to do from other sources. And Moscow needs money for the state budget as well, especially given current projections.

Edited by: A. N.

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  • jexni

    How much of this new capital is reaching the state budget and how much is diverted to the kleptocracy?

    • Dagwood Bumstead

      I’d say 75% will end up in the demented dwarf’s offshore bank accounts and those of his crooked chums Medvedev, Rogozin, Lozhvrov, Shoigu, Siluanov and Co. The remaining 25% will actually reach the state treasury, where lower echelons will pilfer most of what’s left leaving perhaps 10% will be available for plugging holes in the budget.
      The dwarf had better meet his obligations to Peking without fail. If he doesn’t he won’t be eating shark fin soup but be a prime ingredient for soup for the sharks.

  • NickDavisGB

    Once the Russian people understand that Putin has led them to an empty well – they will not be please.

    • Dagwood Bumstead

      By the time they understand what’s going on it will be too late. Peking will be controlling Dwarfstan’s economy. Moscow won’t be a equal partner, but very much Peking’s vassal, constantly kowtowing and obeying Peking’s every command, fulfilling every wish- including handing back the territories Tsar Aleksandr II stole from China in 1856 and 1860. Say “do svidaniya” to Vladivostok, Khabarovsk and Komsomolsk-na-Amure, and “jo san” to Mao Tse-tung City, Lin Piao City and Chou En-lai City.
      And WHEN that happens (NOT if), Dai-Nippon will reclaim the Kuriles and Sakhalin which Stalin stole in 1945.

  • Brent

    I hope all the trolls are brushing up on their Mandarin!!!

    • Dagwood Bumstead

      No need. They only need to learn how to handle chopsticks so they can eat their daily ration of one bowl of rice, and how to obey hand signals.

  • Murf

    The Finance Ministry is looking at selling a 20% share of Rosneft.
    When all this began i warned the Rolls the sooner or later the Chinese would realize that they could spend billions building a fleet that the combined US/Japaneses /South Korean Fleets could sent to the bottom in an afternoon.
    OR
    They could use their huge army and attack a weakened, isolated Russia and there would be little the West could do about it.
    Sounds like that day is rapidly approaching.

    • Dagwood Bumstead

      The dwarf is overstretched as it is with two small wars: the Donbas and Syria. If (or rather WHEN) Peking decides to “libelate the lost tellitolies” the dwarf will not have the strength to defeat the Chinese Red Army. What’s he to do- complain at the UN? Peking will simply say “We ale asselting oul histolic lights, dwalf, just as you did in the Climea, and plotecting Chinese minolities in Dwalfstan flom Dwalfstanian agglession”. Ever wondered why Peking abstained during the UN vote on the Crimea? Peking wants its hands free to do the same in the Dwarfstanian Far East.
      The dwarf’s only alternative would be to nuke Peking. NOT a good idea when you’re dealing with one of the two superpowers.

      Those 20% of Rosneft will be just the start. Peking will also demand representation on Rosneft’s Board of Directors as major shareholders. As the dwarf needs more $$$, he will be forced to sell more shares, with Peking finally gaining a controlling interest. Expect to see a Chinese Chairman of the Board, then lower management levels being taken over and finally Chinese workers replacing Dwarfstanians.
      Peking has the dwarf’s “delicate parts” in a vice and it will depend on Peking’s mood whether the dwarf sings alto, contralto, mezzosoprano or soprano.
      Alfred Koch, former deputy prime minister of Russia, pretty much predicted this in October 2014:

      https://rufabula.com/news/2014/10/05/collapse-of-russia

      The above is the original Russian, there’s a German translation plus an article on the same subject by Russian commentatrix Ania Dorn in German here:

      https://informnapalm.org/de/drei-verlorene-kriege-gas-land-und-menschlichkeit/

      Unfortunately I haven’t found translations of the two articles in English; they fully deserve to be translated. I did translate the Koch article into English for a friend, I’ll check if I still have a copy.

      • Dagwood Bumstead

        I still have the English translation of former deputy PM Alfred Koch’s piece, here it is:

        “Alfred Koch 5/10/2014

        In short. What do we have here. The sanctions against us won’t be
        lifted. We haven’t seized the Donbas. And as it turns out, we didn’t
        even want to. People (many) died. Among them also Russian
        citizens/civilians (Bürger can mean either- DB.).

        The oil price is sinking. The budget is going to the devil. Economic
        growth is equal to zero. There is no industrial growth. Foreign
        exchange intake is shrinking. The state’s balance of payments worsens day by day.

        Soon times will come, when even critical import will become problematical (medicines, spare parts for electrical gear, for control and measurement apparatus in medicine, energy etc), because there will be a shortage of convertible currencies.

        The ruble is falling. By the end of the year inflation will be a
        double-digit number. In combination with zero growth it will be a
        classic stagflation- the nightmare of every politician.

        Capital export (more accurately, flight- DB.) from Russia will be around 150 billion. Investments will be frozen, and those done by the state will only be a waste of money.

        The real estate market will collapse. Together with it first the
        developers, and then the banks that financed them will fall. Peoples’ bank deposits will disappear together with the banks. Inflation will devour the people’s wages.

        Judicial arbitrariness will take gruesome forms. People will simply disappear who knows where. Whereby- where is known. But at the top they will simply shrug their shoulders and say that they don’t have a clue. That they are still searching. But they aren’t magicians.

        The political system will turn into a quirk fulfillment and wild fantasy
        execution of a single person, who because of boredom and
        supersaturation is in a state of an absolute prostration. The state
        will take forms which best match his personal phobias and complexes.

        The media will be finally satanised, and will accuse the West and the Ukraine of everything. The authorities will throw themselves before China, in the hope that it will throw them money. There won’t be any. Because most of all it is interested in a weak and agonising Russia.

        Then the authorities will throw themselves before the Americans. The Americans will grin broadly and say: “1. Putin to The Hague (like Milosevic). 2. Demonopolising and privatising of the media. 3. Free elections with participation rights for all those interested under control of international observers. 4. Constitutional reform. 5. Renouncing of the nuclear status and disarmament under NATO control. 6. NATO military bases on Russian soil.”

        We will reject all this. Then the Americans will say: “Then go back to the Chinese.” The Chinese will say: “OK. Good. We will help you. But we have one condition: exchange of peoples. We have no complaints against Russians whatsoever, but our people are more effective. Nothing personal, just business.

        See for yourselves: when you take over a farm as manager and see that the herd consists of cows of the central Russian breed, you will understand that it must be exchanged for the Holsteiner breed. Simply because the Holsteiner breed will give more milk at the same cost. And this herd must be processed to sausage.

        And you have no aversion to the central Russian cows. You simply don’t need them for your tasks. It’s the same here: which arguments should they be? We need your resources. We don’t need you. What should we feed and maintain you for? Become sausage. Our Chinese will do our tasks better.”

        Shocked by this truth, we will fall back before the Americans. And will fulfill their conditions.

        That is where our fight for the Russian World will lead, the fight for an “own civilisation”. The loss of sovereignty and possibly the
        decay of the state- that is a realistic perspective at this starting
        point.”

      • Murf

        All for that barren peninsula that he can’t even supply. Can only reach by air three months out of the year. Which is only slightly better than the north pole.
        The west needed Russia and Putin to counter balance China. Which is why they put up with his unsavory reputation and his treatment of the Chechens but now he has thrown that completely out of wack.
        The next time Russia falls apart they will have to be neutered like a unpredictable Rottweiler. That means their NUCs. But that leaves China a free hand in Siberia.
        Some people should know their place and stay there.

        • Dagwood Bumstead

          China will take over part of Siberia in any case. As for Dwarfstan
          falling apart, it will only be completing the breakup of the USSR. Japan
          wants the Kuriles and Sakhalin back. Others will presumably also want
          parts of the corpse, Finland will demand Karelia and Petsamo back for
          instance, Germany Königsberg. Then there’s Putin Jr., Kadyrov. He’ll
          probably create his own little empire around Chechnya and Dagestan. It’s
          merely a matter of time, and time is running out for he dwarf…….
          tick tock, tick tock………

          • Murf

            The price of oil dipped below 36 DPB briefly and is at 36.11.
            It’s like a death counter for the Putin regime.

          • Dagwood Bumstead

            OPEC predicts that oil could be up to $70 per barrel by 2020. Possibly, but if it does go up to that level then Dwarfstan won’t be able to benefit fully from that price any longer. With China having at least a 20% stake in Rosneft, 20% of the profits will go to Peking, leaving less for Dwarfstan’s treasury plus the offshore accounts of the usual suspects. And if the price stays low for the next two or three years the dwarf may be forced to sell Peking a bigger stake in Rosneft than 20%, meaning even less for Dwarfstan.
            News Media Holdings, parent company of Izvestia among others, has to reduce expenditure by 30% according to Meduza:

            https://meduza.io/en/news/2015/12/23/parent-company-of-lifenews-and-izvestia-to-cut-costs-by-a-third

            It’s not only Dwarfstan’s oil sector that is being hit hard. With prices ever increasing, in part thanks to the dwarf’s idiotic boycotts of first EU foodstuffs and now the Turkish replacements, the prospect of either a 30% wage cut or 30% redundancies will make the mood at the affected companies rather grim.
            The dwarf could, of course, show he has a heart and pay the 30% out of his own pocket. And if pigs had wings…..

          • Murf

            That 70 DPB is based on a lot of assumptions.
            We’ll see.
            Even at 70 Putin has cost Russia a huge market share and that is still 270 odd billion less than the pre crisis budget. In 2011 the finance minister said the arms build up was unsustainable. I don’t see that changing at 70.

          • Quartermaster

            There are predictions that oil will see 10 DPB before it starts a long term rise again. Russia is toast.