Stephen Blank
China is opening its bond market to Russian energy companies, e.g., Gazprom. This report is noteworthy for several reasons going beyond Russo-Chinese relations. First, China has hitherto refused to provide this open access to its bond market lest Washington impose sanctions upon it. Therefore this decision, coming after China and Russia have both faced the Trump Administration down, evidently reflects China’s belief that it can challenge the U.S. with minimal risk. Moreover, it is clear to both parties that Washington will not desist from trying to pressure them even if it does so without any true strategy. So, they probably feel that they have nothing to lose by proceeding in this fashion.
Second, although many will feel that this is a victory for Putin that he has now gained ac access to capital, albeit Chinese rather than Western funding. But in fact this decision represents another Chinese victory and signified Russia’s growing dependence upon it. This agreement, like the Memorandum of Intent to build the Power of Siberia 2 pipeline reflect Russia’s dependence on China as its main energy customer.
Although China is exposing itself to greater reliance on Russian gas in fact it is Russia who loses here. A pipeline to one customer as will be the case here, gives that customer enormous leverage over the seller, i.e., Russia, regarding price and the terms of the contract. Likewise, now that China will be the bondholder for companies like Gazprom which is a notoriously corrupt company and has been an obstacle to and competitor with China in its bilateral negotiations with Russia, China will gain great leverage over Gazprom and other companies’ operations. Third, these energy giants as well as Russian businesses are increasingly reliant if not dependent upon the Renminbi, China’s currency. And this deal will increase the presence and thus the power of China’s currency in and over Russia.
Thus, these energy policies extend China’s influence over the Russian economy to the point of being able to guide major Russian energy firms’ policies by virtue of its status as bondholders. But the political significance of these decisions is potentially even greater.
These energy decisions on the pipeline and on opening the bond market go far to ensnare Russia in a Chinese-led Renminbi bloc that would challenge the dollar for primacy in global economics and politics. Creation of such a bloc is a long-standing Chinese objective, but it is difficult to see how Russia benefits from it.
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