Russians shrug at the thought of a 3 per cent currency devaluation, such as the renminbi experienced last week. After all, the rouble experiences similar swings almost daily.
But as Russia puts ever greater weight on its ties with China as part of President Vladimir Putin’s strategy of “pivoting to Asia”, the slowdown in the Chinese economy is not so easy to shrug off.
Russia this month reported that its recession deepened in the second quarter, with the economy contracting 4.6 per cent year on year.
China is Russia’s single largest trade partner, accounting for $30.6bn of imports and exports in the first half of the year. That figure represents a 28.7 per cent fall from a year earlier, according to Russian customs data. However, Russia’s trade with China has declined less than with other countries, meaning that China has increased its share of Russia’s trade from 10.8 per cent to 11.4 per cent.
Oleg Kouzmin, an economist at Renaissance Capital in Moscow, says the sheer size of China’s economy means the country will continue to represent an opportunity for Russia, even in an environment of slower growth. “In physical amounts, the volumes of their exports is still considerable. They’re still buying a lot from Russia,” he says.
Moreover, Mr Kouzmin points out that the focus on increasing economic ties between the two countries is primarily a political project built on grandiose deals, such as the 30-year gas export contract signed between Gazprom and CNPC last year. “To a large extent it’s a politically driven decision,” he says. “Politics doesn’t get scared by all this stuff about GDP.”
Even grand political projects however are not immune from the effects of China’s economic swoon.
In the energy sector, Gazprom has been hoping to sign another deal for exports to western China. A deal on the so-called “western route” is important for the state-controlled gas export monopoly as it would allow it to deliver gas from its existing west Siberian fields, which produce much less than their full capacity.
But negotiations are progressing slowly, according to people familiar with the talks.
Jonathan Stern, chairman of gas research at the Oxford Institute for Energy Studies, says a sharp slowdown in Chinese gas demand in the past year has strengthened Beijing’s hand.
“The Chinese are really in the driving seat. Their economy is doing poorly; gas demand is way down on what we thought it would be. They’re in a really strong position to negotiate with the Russians,” he says.
There are some bright spots. The sharp decline in the rouble since last December has stimulated an increase in Russian exports of certain products, such as sunflower oil and beer, to China, says Evgeny Gavrilenkov, chief economist at Sberbank CIB.
“Russian manufacturing companies have become competitive in principle on the Chinese market,” he says. “Russian small and medium-sized business is quite adaptable. If there is a demand in China it will always be possible to find some niches on the Chinese market.”
In comments carried by the news agency Ria Novosti, the Russian central bank said the devaluation of the renminbi would have “no significant impact” on the rouble. The central bank argued that in the medium term it might even lead to a stronger rouble by helping to stimulate a recovery in the Chinese economy, and so in commodity prices.
Mr Gavrilenkov points out that it is the volatility of the rouble — which has fallen 44 per cent against the dollar in the past 12 months — rather than the volatility of the renminbi that is holding back Chinese investment in Russia.
“This is not an environment where you can make long term decisions,” he says. This is what holds people back from moving to invest in Russia.”