Bloomberg Hong Kong
TWO Chinese ministers offered support for Russia as President Vladimir Putin seeks to shore up the rouble without depleting foreign exchange reserves.
China would provide help if needed and is confident Russia can overcome its economic difficulties, Foreign Minister Wang Yi was cited as saying in Bangkok in a Saturday report by Hong Kong-based Phoenix TV. Commerce Minister Gao Hucheng said expanding a currency swap between the two nations and making increased use of yuan for bilateral trade would have the greatest impact in aiding Russia, according to the broadcaster.
While the offer will not relieve the main sources of pressure on the rouble – capital outflow tied to plunging oil prices and sanctions linked to Russia’s annexation of Crimea from Ukraine – the currency gained 3.1 percent against the dollar by 12.37pm in Moscow.
The Micex index rose and was little changed, according to data compiled by Bloomberg.
“In the current conditions, any help is very welcome,” Vladimir Miklashevsky, a strategist at Danske Bank, said. “Yet, it can’t substitute the losses of the Russian banking system and economy from Western sanctions.”
Strategic
Russia, the biggest energy exporter, saw its currency tumble as much as 59 percent this year. Putin asked business leaders last week to report on plans to sell foreign currency revenues and to engage in responsible foreign exchange operations, Vedomosti newspaper reported yesterday.
Former economy minister Alexei Kudrin said Russia was entering a fully-fledged economic crisis.
A Chinese Commerce Ministry news official, who asked not to be named, said his department declined to comment on the Phoenix TV report, and a faxed question to the Chinese central bank went answered.
President Xi Jinping last month called for China to adopt “big-country diplomacy” as he laid out goals for elevating his nation’s status as the world’s second-largest economy.
“Many Chinese people still view Russia as the big brother, and the two countries are strategically important to each other,” said Jin Canrong, the associate dean of the School of International Studies at Renmin University in Beijing, referring to the Soviet Union’s backing of Communist China in its first years.
“For the sake of national interests, China should deepen co-operation with Russia when such co-operation is in need.”
Swap line
China and Russia signed a three-year currency-swap line of 150 billion yuan (R282bn) in October, an agreement that can be expanded with the consent of both parties.
The People’s Bank of China published a chart detailing how such an agreement works in a microblog dated December 19 and the official People’s Daily newspaper said yesterday that the explanation was provided to address concerns the nation could suffer losses if Russia used the facility to obtain funds.
“As all we pay out and receive in return are renminbi, we don’t have to bear exchange rate risks,” the PBoC (People’s Bank of China) said in the microblog, using an alternative name for the yuan.
China is promoting the yuan as an alternative to the dollar for global trade and finance, and the PBoC has signed currency-swap agreements with 28 other central banks to encourage this.
The nation’s foreign exchange reserves of $3.89 trillion (R45 trillion) are the world’s largest and compare with Russia’s $374bn.
Strategic partner
“Russia is an irreplaceable strategic partner on the international stage,” according to an editorial in the Global Times, a Beijing-based daily affiliated with the Communist Party.
“China must take a proactive attitude in helping Russia walk out of the current crisis.”
Still, “China’s help for Russia will be limited”, the editorial said.
While China could offer capital, technical and market support, it could not address Russia’s economic structure and excessive reliance on energy exports, the editorial said.
China signed a three-decade, $400bn deal to buy Russian gas earlier this year.
Oil imports from Russia hit an all-time high last month.