Russia, China Strengthen Economic Cooperation, Advance Effort to Move Away From US Dollar

By Dimitri Simes | December 22, 2020 | 5:20pm EST
Russian President Vladimir Putin and Chinese President Xi Jinping review an honor guard in Beijing in 2018. (Photo by Greg Baker/AFP via Getty Images)
Russian President Vladimir Putin and Chinese President Xi Jinping review an honor guard in Beijing in 2018. (Photo by Greg Baker/AFP via Getty Images)

Moscow ( – Russia and China are strengthening their economic cooperation as the two countries seek to lessen the blow of U.S. sanctions and tariffs imposed against them.

As 2020 draws to a close, a consortium of Russian and Chinese businesses are negotiating 70 joint investment projects worth $107 billion. According to a statement from the Russian Direct Investment Fund (RDIF) earlier this month, the sovereign wealth funds of both countries have invested over $500 million in joint projects.

RDIF CEO Kirill Dmitriev referred in particular to the launch in July of a $1 billion technology investment fund “which is already studying more than 10 projects worth $150 million.”

China has emerged as Russia’s largest trading partner and overall trade turnover between the two countries reached a record $110 billion in 2019. Moscow and Beijing have pledged to boost their trade turnover to $200 billion by 2024.

Despite the coronavirus pandemic, two-way trade has remained relatively steady. According to China’s General Customs Administration, trade turnover in January-November declined by just 3 percent compared to 2019, and is expected to exceed $100 billion by the end of the year.

China’s investments in Russia have grown at a much slower pace to date. As of January 2020, Chinese direct investments in Russia amounted to just $3.7 billion, according to data from Russia’s Central Bank. By contrast, China has invested more than $2.2 trillion worldwide.

However, tensions between Washington and Beijing have spurred some major Chinese companies to begin shifting their investments to Russia. In August, Huawei founder Ren Zhengfei announced the Chinese tech giant had expanded its presence in Russia after being targeted by the Trump administration over espionage concerns.

Tensions with the U.S. show little sign of easing. On Monday, the U.S. Department of Commerce published a blacklist of 58 Chinese companies and 45 Russian companies suspected of having close links to those countries’ militaries. Companies on that list will not be allowed to purchase certain kinds of U.S. goods and technologies.

U.S. sanctions have pushed Russia and China to reduce their shared dependence on the U.S. dollar. In 2014, the two countries signed a three-year 150 billion yuan ($24.5 billion) currency swap deal, providing their central banks with greater access to each other’s currency. During President Xi Jinping’s visit to Moscow in June 2019, Moscow and Beijing inked an agreement to expand the use of national currencies in trade settlements between them.

The two countries’ de-dollarization efforts have already yielded some results. Between 2015 and the first quarter of 2020, the share of the dollar in trade settlements between Russia and China fell from 90 percent to 46 percent. Meanwhile, in 2018, Russia’s Central Bank bought a quarter of the world’s yuan reserves, while also cutting its dollar reserves in half.

Now Russia is hoping to enlist China’s help in creating a new monetary and financial system for the Eurasian Economic Union, a Moscow-led trade bloc. In October, Sergei Glazyev, the union’s Minister of Integration and Macroeconomics, proposed the initiative as a way of helping wean both countries off the dollar.

“Russia and China have created their own payment systems and a system of electronic information exchange between banks, but economic activity participants are still very inactive in using these infrastructure elements and still work in foreign currencies,” he said.

“I believe that we should radically reverse the situation and create our own Eurasian monetary and financial system,” Glazyev added. “It would insure us against risks and would be reliable, transparent, convenient and efficient, and would not be burdensome for economic activity participants.”

Some experts have argued that growing Chinese-Russian cooperation on de-dollarization could help to undermine U.S. global financial leadership in the long run. Alexey Maslov, director of the Institute of Far Eastern Studies at the Russian Academy of Sciences, told Nikkei Asia in August that the bilateral relationship was approaching a “financial alliance.”

“Russia is used to fighting, it does not hold negotiations,” he said. “One way for Russia to make China’s position more decisive, more willing to fight, is to show that it supports Beijing in the financial sphere.”

Other analysts have argued that the effort to move away from the dollar is unlikely to gain global momentum.

“Although China and Russia have faced growing sanctions from the United States, their hostility to the dollar is not shared by many of their trade partners,” Francis Shin, a researcher in the CNAS Energy, Economics, and Security program wrote in The Diplomat last month.

“Unless pressured, few of Beijing and Moscow’s trade partners would try to decrease their own dollar-based trade, as these partners would be restricting their own trade outreach, exposing themselves to greater currency volatility, and building up harder to use and exchange currencies.”

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