Medvedev to Trade Energy for Investment on China Trip

President Dmitry Medvedev will seek to use Russia’s energy might to win Chinese investment in his drive to modernize the nation’s economy as he travels to China for the annual summit of BRICS nations.

Medvedev will meet with the leaders of Brazil, India, China and South Africa on April 14 in Sanya, China’s southernmost city, attend the Boao Forum for Asia’s annual conference and visit Hong Kong, according to the Kremlin. He also plans bilateral talks with Chinese President Hu Jintao.

“He will try to make China a source of investment and technology, not just a vacuum cleaner for Russian resources,” said Fyodor Lukyanov, an analyst at the Council on Foreign and Defense Policy in Moscow.

China, the world’s biggest energy consumer, became Russia’s top trading partner last year, with trade jumping 50 percent to $59 billion, according to the Russian Economy Ministry. Energy accounted for more than 55 percent of exports to China. Medvedev expects trade to reach $100 billion in the near future, he said in an interview with China Central Television released today.

While relations are at their highest point, the two countries should focus on new areas of investment and create joint ventures, Medvedev told CCTV. The president sought China’s help in modernizing the economy when he visited Beijing in September. He brought home mostly energy deals.

Photographer: Jock Fistick/Bloomberg

Dmitry Medvedev, Russia's president. Close

Dmitry Medvedev, Russia's president.

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Photographer: Jock Fistick/Bloomberg

Dmitry Medvedev, Russia's president.

Gas Talks

Russia promised to supply China with all the natural gas it needs for economic development under an agreement signed in September, Deputy Prime Minister Igor Sechin said at the time. Deliveries may start in 2015 as China seeks to triple use of the fuel by 2020. The price is still being negotiated.

Russia agreed in 2009 to supply China with oil for 20 years in return for $25 billion of loans to state oil company OAO Rosneft and national oil pipeline monopoly OAO Transneft. China is seeking to increase shipments to 30 million metric tons a year from the agreed 15 million tons.

China has also asked Russia to build two more 1,000- megawatt nuclear reactors at the Tianwan complex near Shanghai. ZAO Atomstoyexport, Russia’s reactor builder, completed construction of two units at the site in 2007.

Rosneft Chief Executive Officer Eduard Khudainatov and Sergei Kiriyenko, head of Rosatom Corp., the nation’s nuclear holding company, will accompany Medvedev on this week’s trip, said Sergei Prikhodko, the president’s foreign policy aide. Khudainatov won’t attend the meeting between Hu and Medvedev.

‘Colossal Potential’

More than 60 Russian business leaders will attend the BRICS summit to look for projects that will diversify economic ties, said Sergei Sanakoyev, head of the Russian-Chinese Center of Trade and Economic Cooperation in Moscow.

“We have colossal potential for industrial cooperation in the sphere of technology, construction and aerospace that is not being used,” Sanakoyev said by phone. “Russia needs to use its natural resources to trade in for industrial cooperation.”

Medvedev travels to Hong Kong on April 16, the first visit by a Russian president to the special administrative region. He will meet with Chief Executive Donald Tsang and business leaders to discuss investment in Russia and plans to create a global financial center in Moscow, Prikhodko said.

Bartering Gas

Chinese investment in Russia, including the loans to oil companies, reached almost $28 billion last year, while Russia invested $150 million in China last year. Equipment and machinery accounted for 8 percent of Russia’s exports to China and 50 percent of China’s shipments to Russia, according to the Economy Ministry in Moscow.

Arms exports to China, once Russia’s largest client, have all but dried up. Mikhail Dmitriev, chairman of the Federal Commission on Military and Technical Cooperation with foreign countries, will accompany Medvedev.

China stopped buying Russian fighter planes in 2005 and in 2007 India became the biggest purchaser of Russian weapons, said Konstantin Makiyenko, deputy head of the Moscow-based Center for the Analysis of Strategies and Technologies.

“The Chinese will want to prioritize the long-outstanding gas talks,” said Chris Weafer, chief strategist at UralSib Financial Corp. in Moscow. “Medvedev will try to barter that energy deal with increased trade and investment links with China.”

UN Veto

China and Russia, keen on using multipolar relations to weaken U.S. dominance, will also discuss regional issues, he said. The two countries, which have a veto over United Nations Security Council resolutions, abstained from last month’s vote authorizing North Atlantic Treaty Organization airstrikes that enabled Libyan rebels to halt a government offensive.

“Kremlin strategists will try to persuade China that the actions by the U.S. and its NATO allies create an opportunity for both Russia and China to be seen as neutral brokers,” Weafer said.

Medvedev has made improving ties with China a priority, choosing the country as his first destination outside the former Soviet Union in 2008 and pushing for more engagement with China through the BRICS and Shanghai Cooperation Organization, a security alliance, Lukyanov said.

“If he stays as president for the next six years it will be the main priority in Russia’s foreign policy,” he said. “China in many respects is becoming a key global power and a lot will depend on how it develops, including Russia’s position in the world.”

Speaking at the World Economic Forum’s annual meeting in January, Medvedev said he wants the economy to grow as much as 10 percent annually within five years, in line with other BRIC nations. Russia’s gross domestic product will expand 4.2 percent this year, the Economy Ministry estimates.

“Russia’s economic future lies to the east,” said Roland Nash, chief investment strategist at Verno Capital, a Moscow hedge fund that manages about $140 million. Medvedev “will want to focus on building economic and financial ties away from the slow-growth, structurally hobbled western world and toward fast growth, dynamic economies, first among them China.”

To contact the reporter on this story: Lyubov Pronina in Moscow at lpronina@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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