Economics May Unravel China-Russia Ties - Gainesville Coins News
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Economics May Unravel China-Russia Ties

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Economics May Unravel China-Russia Ties
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An unprecedented level of cooperation between China and Russia worried many in the Western world as the new alliance began to take hold during 2014. Some observers went as far as characterizing the Sino-Russian partnership as a challenge to the dominance of the U.S., and of the West in general.

Yet, the ensuing downturn for the global economy exacerbated the two countries' own unique economic hardships—for Russia, its suffering under international sanctions and its over-reliance upon oil exports; for China, its overly ambitious growth targets and the popping of its equities bubble.

Now, the cooperation between Putin's Russia and Communist China appears far less potent that it did 10 months ago.

Feeling the Pain

No matter how defiant Russian Premier Vladimir Putin remains in the face of the battered state of his country's economy, and no matter how Chinese President Xi Jinping and the Communist Party of China try to spin the slowing down of economic growth on the mainland, the truth of the matter is that these factors have a huge impact on the trade partnership between the two nations.

Cool Putin

In Russia, the dual problem of dwindling export revenues and a weakening currency (amid Western sanctions that restricted trade and aid, no less) plunged the country into recession. The central bank repeatedly cut rates and attempted to stimulate the economy while simultaneously propping up the ruble, which sank to all-time lows against the dollar late in 2014. Although the ruble has recovered somewhat over the interim, it remains volatile while lacking purchasing power. Compounding this problem is the cratering of crude oil prices: Russia is one of the region's leading energy exporters, and the oil and gas trade make up a disproportionately large part of its economy. Before the regime of sanctions took effect, Russia was traditionally Europe's biggest supplier of oil; it made sense for the Russians to look to China as a new market for its oil exports in the absence of its erstwhile European partners.

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In the case of China, however, economics are likewise throwing a wrench in the burgeoning alliance with Russia. As Chinese manufacturing and consumption ease back from their previous breakneck pace, their demand for energy resources (Russian translation: export revenues!) also falls. Moreover, the massive oil-and-gas deal the two countries agreed to in 2014 (worth $400 billion on paper) is not expected to actually have an impact on trade until at least 2017, as China has balked on building long pipelines connecting its borderlands to gas fields in Siberia.

Interestingly, throughout the 20th century, Russia and China have alternated back and forth between diplomatic relations that resembled ideological and geopolitical kinship to, at times, a bitter regional rivalry. This history of mercurial relations between two of the most preeminent powers in Asia (including Japan, South Korea, and India) adds a degree of predictability to the whole affair: although they are aligned in accumulating gold and devaluing their currencies to undermine the U.S. dollar, the two nations inevitably accuse one another of cozying up too closely with America. Right now, Russia can make this claim of China, who is deeply intertwined with U.S. economic interests; in the past, it's been China who has accused Russia of abandoning their off-again-on-again anti-Western bloc.

Unless the economic realities change dramatically, Russia and China will remain tense "frenemies"—and largely impotent to economically combat the West, at that.

About the Author

Everett Millman

Everett Millman

Analyst, Commodities and Finance
Managing Editor

Everett has been the head content writer and market analyst at Gainesville Coins since 2013. He has a background in History and is deeply interested in how gold and silver have historically fit into the financial system.

In addition to blogging, Everett's work has been featured in CoinWeek, Advisor Perspectives, Wealth Management, Activist Post, and has been referenced by the Washington Post.

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