China offers support to Russia, as Putin seeks to shore up ruble without depleting foreign-exchange reserves

China offers support to Russia, as Putin seeks to shore up ruble without depleting foreign-exchange reserves

22 December 2014, 14:42
News
0
355

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, as Bloomberg reports.

China will 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 Dec. 20 report by Hong Kong-based Phoenix TV.

While the offer won’t relieve the main sources of pressure on the ruble, the currency gained 3.1 percent against the dollar by 12:37 p.m. in Moscow. The Micex Index (INDEXCF) was little changed, and the yield on Russia’s 10-year bond fell 30 basis points to 13.3 percent, according to data compiled by Bloomberg.

“In the current conditions, any help is very welcome,” Vladimir Miklashevsky, a strategist at Danske Bank A/S, said by e-mail. “Yet, it can’t substitute the losses of the Russian banking system and economy from western sanctions.”

“Many Chinese people still view Russia as the big brother, and the two countries are strategically important to each other,” said Jin Canrong, 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 cooperation with Russia when such cooperation is in need.”

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.

In October this year China and Russia signed a three-year currency-swap line of 150 billion yuan ($24 billion), 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 Dec. 19 and the official People’s Daily newspaper said today 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 said in the microblog, using an alternative name for the yuan. The swap amount can be adjusted to allow for changing circumstances and prevailing exchange rates, rather than pre-determined, are used, it said.

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 are the world’s largest and compare with Russia’s $374 billion. 

“Russia is an irreplaceable strategic partner on the international stage,” according to an editorial today 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.”

At the same time, “China’s help for Russia will be limited,” : while China can offer capital, technical and market support, it can’t address Russia’s economic structure and excessive reliance on energy exports, the editorial said.

China signed a three-decade, $400 billion deal to buy Russian gas earlier this year. Oil imports from Russia hit an all-time high in November, according to China’s General Administration of Customs.

According to Dmitry Peskov, a spokesman for President Putin, Russia isn’t in talks with China about any financial aid.

Share it with friends: