Medvedev in the right direction:Russia strengthens trade ties with China

By Anna Varfolomeeva

BEIJING— (October 8 —M4relay) — President Dmitry Medvedev’s recent visit to China has been challenged by some critics who fault the Russian leader for not breaking Russia’s dependence on its mineral wealth, but rather deepening it, according to a report from the Newsweek magazine. But with the long term economic benefits to be derived from the two countries’ trading in the Yuan and the Ruble, Medvedev could just be on the way to transforming the Russian economy.

According to the Newsweek article titled, Tangled by China Ties, Russia is going to hitch its economy to China even more closely, making it difficult for Russia to break loose from the country’s overdependence on its mineral wealth, rendering Russia as a country whose future lies in its dependence on the export of raw material. The article highlighted the raw materials trade contracts signed by Russia and China as the most important consequence of the visit, but other vital aspects leading to the agreements were left out.

Faulting Medvedev for not sticking to his words, the author of the Newsweek article, Owen Mathews pointed out that over a year ago Medvedev argued that Russia’s future is not in “a primitive economy based on raw materials…but in an economy based on brainpower. Owen quoted Medvedev as saying “a Russian version of the ‘Silicon Valley’ would be created in Skolkovo near Moscow.” It will serve as a place where new economic strategies would be experimented in a bid to drift the Russian economy away from its over reliance on the export of raw materials.

Owen who sees Medvedev’s visit to China as a move in the opposite direction, failed to highlight the more beneficial trade and bilateral options which Russia would benefit by strengthening its relations with China.

Russia and China are planning to conduct all the trade transactions in each other’s currencies. China – the world’s second-biggest energy consumer – and Russia – one of the largest energy suppliers – seek to diminish the dollar’s role in global trade.

“Given the risk of the dollar and U.S. assets from their fiscal position they want to reduce their dependence on the dollar as an invoicing currency,” Bhanu Baweja, global head of emerging markets fixed income, currency and credit research at UBS AG, said.

“It makes sense for two large economies to exclude a third, overly dominant economy from their trading equation” he said.

Reuters reported that “Russia has been pushing for a greater role of the ruble on the global financial market and, eventually, as some form of a reserve currency. Russian analysts agreed that at first the market impact would likely be limited, but it will cause significant changes in the long run.

“Taking into account a growing trade turnover with China, the demand for such operations (direct currency settlements) will be also increasing,” said Alexander Morozov, Chief economist for Russia and CIS at HSBC in Moscow. “However, in the longer run, the direct yuan-rouble trading will transfer to less demand for the dollar as a transit currency,” he added

. “Gradually the dollar is being eliminated from the foreign-trade settlement flows,” said Dariusz Kowalczyk, a Hong-Kong based senior economist at Credit Agricole CIB. “People are beginning to trade Asian currencies without intermediation via the dollar,” he added. With the steps taken, Russia’s economy that needs stability will strengthen, and this could become a basis for future positive transformation of the Russian economy.

Leave a Reply