Putin Courts China to Bridge Differences on Gas

Prime Minister Vladimir Putin may give Asia more weight in Russian foreign policy when he returns to the presidency next year, broadening a relationship with China and trying to bridge differences on gas exports.

Putin, who will meet Chinese President Hu Jintao and counterpart Wen Jiabao on a two-day trip to Beijing that starts today, will take full control of foreign policy again after four years marked by improving ties with the U.S. under outgoing President Dmitry Medvedev.

“It’s a landmark visit that will set the nature and vector of the future foreign policy of his administration,” said Dmitry Mosyakov, head of theSoutheast Asia, Australia and Oceania Center of the Moscow-based Institute of Far East Studies. “In the 1990s, Russia focused on the West while leaving Asia behind, which was a mistake. Now we see Russia turning to the East for new markets, new partners and capital.”

The prime minister, who aims to reclaim the Kremlin next May by swapping jobs with his successor, is seeking to diversify trade with China and navigate a stalemate in talks on natural- gas deliveries to the world’s second-biggest economy. The two neighbors also share a determination to counter U.S. global influence, signaled by them teaming up on Oct. 4 to veto a Western-backed United Nations resolution targeted at the crackdown on protests in Syria, a Soviet-era ally of Russia.

Diversifying Trade

With energy accounting for more than half of its exports to China, Russia wants to expand economic ties with the Asian nation as trade turnover may exceed $70 billion by year-end from $59 billion in 2010, Yury Ushakov, Putin’s deputy chief of staff, told reporters in Moscow yesterday.

“China has become our first trade partner, bypassing Germany, and this is quite symbolic,” Ushakov said. “The task for the visit is not only to expand trade and economic contacts but also to diversify the structure of our relations as the structure itself does not satisfy us.”

The countries so far have no plan to sign a gas pricing deal during Putin’s visit even as Deputy Prime Minister Igor Sechin “will discuss all issues of energy cooperation in the gas and oil sphere,” Ushakov said.

Russia wants to conclude decade-long negotiations on a gas accord with the world’s biggest energy consumer, which has been held up by wrangling over how much China will pay for the fuel. Sechin pledged to supply China, which wants to triple its gas consumption by 2020, with natural gas during Medvedev’s visit to Beijing a year ago.

Pricing Dispute

OAO Gazprom, Russia’s state-controlled monopoly exporter of gas, wants to increase shipments to fast-growing Asian markets. Pricing disagreements have held up an accord for several years. Gazprom Deputy Chief Executive Officer Alexander Medvedev said in an interview last month that negotiations may be concluded by year-end.

Russia, which supplies 25 percent of the European Union’s gas, is under pressure to cut its European pricing formulas. Gazprom’s contracts are the focus of a European antitrust investigator’s raids across central and eastern Europe.

“If the China contract is soon agreed, then the Kremlin’s negotiating position in Europe will be improved, that is if you don’t want more of our gas, then we have a customer with a big appetite in the east,” said Chris Weafer, chief strategist at Troika Dialog, Russia’s oldest investment bank.

Agriculture, Communications

In China, Sechin will be joined by Agriculture Minister Elena Skrynnik and Communications Minister Igor Shchegolev. Also attending are Sergei Kiriyenko, head of Russia’s state-owned nuclear energy holding company Rosatom Corp. and Vladimir Dmitriev, chairman of VEB, Russia’s state development bank.

A total of 17 agreements may be reached during Putin’s visit including deals between state development bank VEB and the Russian Direct Investment Fund with China Investment Corp. to create a joint investment fund. ZAO Sibur Holding, eastern Europe’s biggest petrochemical producer, will sign a cooperation accord with China Petrochemical Corp., the nation’s biggest refiner, he said.

Russian Technologies Corp. will sign an accord with China Poly Group Corp and China Electronics Technology Group Corp. Billionaire Oleg Deripaska’s EN+ Group will agree to a deal with China State Grid Corp., Ushakov said.

Russia, which wants to develop its Far East region bordering China and raise more than 1 trillion rubles ($32 billion) from selling state assets between 2012 and 2014, also aims to increase Chinese investments, said Weafer.

Following the “reset” in relations with America spearheaded by President Barack Obama and Medvedev, Putin is now seeking to re-balance foreign policy, said Alexander Rahr, a Russia expert at the German Council on Foreign Relations.

“There is a huge neighbor and everyone is talking about China’s might,” Rahr said. “For Russia it is more important than for Europeans to understand where China is heading and how you can build relations.”

To contact the reporters on this story: Lyubov Pronina in Moscow at lpronina@bloomberg.net; Henry Meyer in Moscow at hmeyer4@bloomberg.net;

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net.