Something About The Law

The series of energy and trade deals inked between China and Russia during PM Putin’s visit to Beijing is of special significance for a number of reasons.

Trade spats between China and the industrialized nations is not uncommon; indeed, Russia and China needed an almighty oil deal of $25bn and trade contracts worth $3.5bn to heal a summer-time dispute.  Even now, several important details need to be worked out, especially with regard to the construction of pipelines that connect north-east China and Russia’s Sakhalin Island. Nonetheless, the timing of the deal is highly significant when one looks at the bigger picture.

Last month witnessed a highly publicized and vitriolic  dispute between the US and China over seemingly frivolous issues: while the US imposed a 35% tariff on Chinese tyres, the third largest economy in the world, after spewing considerable anti-American rhetoric, responded by imposing tariffs on US automative products, and, wait for it, chickens. Of course, it is evident that this is no pa(oul)try dispute, and that there are serious complications in the relationship between two of the largest trading partners in the world. While China looks to increase its exports to the US to generate massive revenue, the US is heavily reliant on Chinese investment to reduce its enormous deficits. The holding share of China in US treasury bonds is staggering, and has raised several concerned eyebrows in Washington.

It is precisely this imbalance (for every dollar worth of American goods bought in China, the US buys $4.5 worth of Chinese stuff) that is annoying policy-makers; while other issues on the Obama agenda such as labour regulations and WTO compliance hold water, nothing worries more than the mounting American debt to China. The Chinese Government does not help matters, keeping the Remninbi value artificially low, and granting huge subsidies to internal players.

Add to that, the deal with Russia.  Sino-Soviet relations haven’t exactly been the picture of bonhomie, and ever since the big Fall-Out, relations between both countries have remained just about civil. So if you are the US President, and wake up one fine morning to see a multi-billion dollars signed between Russia and China, you are legitimate in getting really worried. True, the Chinese are hungrily eyeing vast, untapped energy reserves in Siberia, and Gazprom would do well to seal a few deals with Chinese companies, but the deals, for all the reasons mentioned above, come at a highly critical juncture.

China can and could have waited, for its energy needs will definitely be met by its deal in Central Asia (with Turkmenistan) and other parts of the world (one-sixth of proven reserves in Nigeria is now supplied to CNOOC). However, the deal had to come in tandem with souring of trade relations with the US, and President Obama’s imminent visit to Beijing in November. Will the US rise to the occasion and amend its partnership with China? We’ll just have to wait and watch.

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