Are Western sanctions pushing Russia into the arms of China?

Russian President Vladimir Putin plans to open the door to Chinese money as U.S. and European sanctions over Ukraine threaten to tip the economy into recession, according to two senior government officials.

The move would roll back informal limits on Chinese investment as Russia seeks to stimulate growth, said the officials, who have direct knowledge of talks and asked not to be identified as the information isn’t public. The government wants to lure cash from the world’s second-biggest economy into industries from housing and infrastructure construction to natural resources, they said.

The Chinese won’t be welcome in all areas: Russia plans to set “red lines” around significant gold, platinum-group metals, diamond mining and high-technology projects, the officials said.

Putin is turning to Asia as financing from the U.S. and EU tightens and capital outflows surge amid the worst standoff since the fall of the Iron Curtain. The U.S. and the EU have accused Putin of fomenting unrest in Ukraine’s easternmost regions after annexing the Crimean peninsula in March, threatening to widen the sanctions to target the economy unless Russia helps ease tensions.

Putin oversaw nationwide military drills in the run up to today’s World War II Victory Day celebrations, after saying May 7 that Russia had pulled troops from the border with Ukraine, a claim that the U.S., the U.K. and the government in Kiev have challenged. Pro-Russian separatists in Ukraine’s Donetsk and Luhansk regions vowed to press ahead with autonomy votes on May 11, after the Russian leader urged them to postpone the plebiscites.

China Ties

The International Monetary Fund said last month that Russia’s economy is already in a technical recession, and cut its growth forecast to 0.2 percent this year.

Russia has been building trade ties with China, including long-term oil deals worth hundreds of billions of dollars, to tap Asia’s biggest energy consumer as the European economy slowed. China is Russia’s largest trading partner with $95.6 billion of turnover in 2012, followed by Germany, according to data compiled by Bloomberg.

“It’s a clinical fact” that China is heading to become the number one state in the global economy, Putin said during his annual televised call-in show on April 17. Russia will develop ties with China and the two countries’ union will be a “significant factor” affecting the architecture of modern international relations, Putin said.

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