Crude drop may deepen Sino-Russian trade ties

Energy, forestry seen as basis of stronger cooperation

While the continuing bearish performance of crude oil appears to have plagued the Russian economy recently, an overall economic collapse still looks unlikely for the country. Instead, a cheap oil crisis could enable Russia to finally overcome its heavy reliance on a single commodity by lifting the manufacturing sector's share in its economy.

For China, Russia is not only one of its major trading partners but also a neighbor with common strategic interests. Yet, due to historical differences and misunderstandings, trade frictions were once common between the two countries, causing losses to Chinese businesses. The recent oil price plunge will likely allow Russia to recognize the importance of China as its major trading partner.

Under current circumstances, the top priority of Sino-Russian trade and economic development is to ensure the implementation, or even the expansion, of contracts involving the energy sector. When Russia sees its oil and gas export revenues plummet, the more oil and gas China will purchase. In the end, such an arrangement will benefit and support both countries.

The second priority is to deepen energy cooperation by improving efficiency and reducing costs for Russia's oil and gas industry. Chinese enterprises should take the current opportunity to explore the industrial equipment and component market in Russia's oil sector, replacing expensive Western products with Chinese ones. Moreover, Chinese outbound infrastructure investment could also facilitate the improvement of Russia's infrastructure related to oil and gas production and exports.

The third priority is to diversify the bilateral energy cooperation. For instance, both countries could jointly build hydropower stations in Russia and sell electricity to the Chinese market.

Aside from cooperation on energy trade, Chinese enterprises, which already invest in the production of light industrial products and automobiles in Russia, are expected to see remarkable improvements in their business environment.

Meanwhile, the sharp depreciation of the Russian ruble highlights the stability of the renminbi. As Russian residents and companies are likely to be more willing to accept the Chinese yuan, it would be a good time for China to promote yuan-denominated settlement of bilateral trade.

On the other side of the coin though, the impact of the recent oil price slump on Russia's economy has dealt a blow to China's trade and economic exchange with Russia. Some large-scale exports could slide to a halt due to payment issues; while retailing, real estate and other service industries in some Chinese cities near the border may also be affected.

In addition, the forestry sector could be an area of great potential for future Sino-Russian trade and economic development.

China's demand for forest resources far exceeds domestic supply. According to the results of the eighth national forest inventory, China's forest coverage is only 21.63 percent of its total land area, in comparison to the world average of 31 percent; while the country's forest stocking volume covers merely 3 percent of the world's total, with the area of forest plantation accounting for 5 percent. However, domestic timber consumption has grown rapidly over recent years, jumping from 119 million cubic meters in 2001 to 495 million cubic meters in 2012, making China the world's second largest timber consumer. Moreover, it is estimated that China's timber demand will exceed 700 million cubic meters by 2020, with timber imports expected to rise to at least 200 million cubic meters in the years to come.

In comparison, Russia's forest area accounts for about one-fifth of the world's total, at around 800 million hectares; while the country's timber stocking volume amounts to 82 billion cubic meters, about one quarter of the world's total. Russia's annual timber harvest is about 150 million cubic meters, with 667 million cubic meters of timber available for harvesting.

For Russia, it is time for the country to reevaluate China as an important trading partner; while for China, expanding imports has become an important feature of its foreign trade development. Raising imports of scare resources is also critical to support steady growth of foreign trade.