Putin Leaves China Without Financing For Some Big Projects

Russian President Vladimir Putin's visit to China produced a batch of new deals September 3, but failed to secure financing for some major infrastructure and energy projects.

The failure of Russian giants Gazprom and Novatek to obtain needed funding in Beijing underscored the limits of a relationship that Moscow has cast as a counterweight to the West.

China's banks so far have failed to fully fill the financing void left by strict Western sanctions which prevent Western banks from financing Russian projects because of its aggressions in Ukraine.

Putin attributed the hold-up to "turbulence" in the world economy, alluding to the dramatic fall in China's stock market which touched off a global market rout in the last month.

"We see..turbulence happening in the world and in our economies, and we are prepared for this," Putin said at a meeting with Chinese President Xi Jinping September 3.

"We have absolute certainty that we will be moving ahead steadily, developing our relations, and implementing all our plans, including major projects, which will undeniably have a positive effect both on the development of Russia's and China's economies and the entire world economy."

Putin's visit to Beijing, as expected, resulted in a couple dozen new agreements in sectors from banking to trucks and telecoms. Igor Sechin, one of Putin's close allies, said the deals had a combined investment potential of around $30 billion.

But what stood out was that joint Russia-China projects worth around $113 billion got stalled or delayed by financing issues.

In one notable misfire, Novatek, Russia's biggest independent producer of natural gas, did not secure Chinese financing to help it build the $27 billion Yamal LNG project, something it is working on with France's Total and China's CNPC.

Co-owned by billionaire Gennady Timchenko, one of Putin's closest friends, Novatek was shut out from Western financing when the United States imposed sanctions on Timchenko.

Timchenko has previously said China would lend up to $20 billion to the project. But the money has yet to be disbursed.

There was no breakthrough either for energy giant Gazprom, which has been seeking Chinese funding for a gas pipeline to China through Russia's Altai region.

While coming up short-handed September 3, Gazprom chief Alexei Miller said he expected to sign a deal on the project in spring 2016.

Industry analysts say the fall in oil prices and the Russian ruble in the last year, coupled with China's own economic problems, means some projects may be delayed indefinitely.

Chinese commerce official Ling Ji said last month that weak oil prices had complicated talks over the Altai gas project, and that the ruble's volatility was generally bringing extra risks to Russia-China cooperation.

"With Russia and China both experiencing economic slowdowns, China will continue to stall on financing many of these large projects until it can get more favorable terms," said a Stratfor Global Intelligence report.

The economic think-tank noted, nevertheless, that Chinese foreign direct investment into Russia nearly tripled in 2014 from the previous year, to $1.27 billion, making China the second-largest foreign investor in Russia behind France.

Chinese banks also lent Russian businesses $13.6 billion last year at a time when Western banks and investors were pulling out of Russian markets en masse, it said.

"In the long term, China will become one of Russia's major partners, but not as quickly or on as large a scale as Moscow would like," the think-tank said.

Aside from some big energy and infrastructure projects, many other deals agreed to between Russia and China still appear to be on track. They include a Chinese commitment to help finance a Moscow-Kazan high speed rail link in time for the Russia's hosting of the World Cup in 2018.

The line might eventually be extended all the way to Beijing, lowering the rail time between Moscow and the Chinese capital time from six days to 36 hours.

Another big project already under construction is a superhighway from China to Europe, crossing Kazakhstan, Russia, and Belarus.

Among other developments during the Beijing visit, Russian oil major Rosneft advanced its deal to acquire a 30 percent stake in China’s ChemChina Petrochemical. Rosneft has also agreed to increase oil supplies to Chinese petrochemical plants to four million tons a year, said CEO Igor Sechin.

Overall, Rosneft signed agreements with China worth a potential $30 billion, he said.

The China Development Bank Corporation said it is ready to provide $600 million to Russia’s second-biggest cell phone operator, MegaFon. The money will be spent on equipment and services from Huawei, the Shenzhen telecommunications giant.

Russian Post and China Post signed an agreement to strengthen cooperation and improve delivery of mail.

The Russian truck producer KAMAZ and Chinese Hawtai Motor Group signed an agreement to establish a joint venture. Reportedly, Hawtai production in Russia will be organized on the premises of KAMAZ, while China will build a new plant for the production of KAMAZ trucks.

With reporting by Reuters, Christian Science Monitor, and RT.com