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How Big a Deal is the $55 Billion Pipeline Between China and Russia? A Finance Expert at UVA's McIntire School of Commerce Weighs In

 Newswise
6-Dec-2019 12:25 PM EST, by Newswise

Zhaohui Chen is an Associate Professor of Commerce at the University of Virginia, McIntire School of Commerce.

Areas of Expertise: 

  • Finance
  • Corporate finance theory
  • Institutional and individual reputations
  • Financial contracts

 

How Big a Deal is the $55 Billion Pipeline Between China and Russia?

This is the question the world pondered as the pipeline began delivering Russian natural gas to China on Monday, Dec 2nd. China and Russia squandered no opportunities to emphasize the strengthening of their relationship. Putin called it “an absolute natural partnership” and Xi described Putin as his “closest and most intimate friend”. The Wall Street Journal on Dec 1st claimed that the pipeline “is a physical bond strengthening a new era of cooperation between the two world powers that have separately challenged the U.S.” But neither the Sino-Russian relationship nor their cooperation to challenge the U.S. is new.

China and Russia have seen much stronger relationship. The Soviet Union, the predecessor of Russia, helped founding the Chinese Communist Party (CCP) in 1921. It helped CCP winning a civil war and establishing the People’s Republic of China in 1949. After CCP became the sole ruling party of China, the Soviet Union played an essential role in industrializing China by building 156 major industrial projects in China, spanning the full spectrum of industries. Many students went to study in Russia at that time. Among them was Jiang Zemin, who later became the President of China. China and Russia were strong allies challenging the U.S. led global order in the Cold War. During the Korean War (1950-1953), the Chinese army fought the U.S. led UN army under the air support from Russian pilots. 

But the good relationship didn’t last long. China and Russia competed for control of the worldwide Communist movement after Stalin’s death. Things got so bad that there was a serious possibility of a major war between the two countries in the early 1960s and two border clashes in 1969. Their challenges to the U.S, either jointly or separately, failed too. China even joined force with the U.S. in the 1970s against Russia by invading Vietnam, an ally of Russia at that time. 

Now their common interest against U.S. seems to improve their relationship again. Both countries have a lot to gain from trading with each other and the world should welcome a stronger Sino-Russian relationship. Their cooperation to challenge the U.S. led world order however is a totally different matter. Both countries need the West in order to survive. In the Cold War, without Western technological and capital infusions, their economy collapsed on its own. China and Russia may be very different countries now, but their fundamental reliance on the West remains the same.

 

 

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