Banking Sphere. New Opportunities for Interaction in Industrial and Financial Spheres in the Context of the Russian-Chinese Integrated Energy Cooperation
KEY CONCLUSIONS
Russia has adopted a number of measures aimed at supporting energy projects
“In recent years, the state has done a lot to create a whole set of tools to support initiatives of this kind [in the oil and gas sector]. These tools are aimed both at reducing the cost of funding and at reducing the risks inherent to these projects. [...] First of all, attention should be given to the possibility of financing priority projects at the expense of the National Wealth Fund. Finance for priority projects is provided by the Fund at a pretty favourable rate (inflation + 1). The opportunities provided by the Russian Agency for Export Credit and Investment Insurance should be mentioned. Special investment contracts are also an important element of state support,” Sberbank of Russia Vice President Alexey Grenkov said.
Energy is an important component of Russian-Chinese cooperation
“A change is taking place not only in the whole of the Russian economy in the East, but first and foremost in our energy complex. We expect that oil exports to China will increase from approximately 20% to a third by 2025, and gas will increase from 6% to 18%, especially with the launch of the Power of Siberia pipeline. Coal exports are also being redirected to China in a significant way,” VEB.RF State Development Corporation Deputy Chairman (Chief Economist) and Member of the Board Andrey Klepach said.
“China is a major consumer of energy resources, and Russia is their important global producer and exporter. Last year, Chinese and Russian trade exceeded USD 100 billion and was growing rapidly. Energy trade has made a great contribution. Energy cooperation has made a great contribution to stimulating the socio-economic development of both countries”, Silk Road Fund General Director Wang Yanzhi said.
“Energy cooperation is an important part of a comprehensive strategic partnership and interaction between China and Russia. It is in the common interest of our two countries to further expand energy cooperation. Energy cooperation continues to develop successfully in various fields, including coal, oil, and gas. It plays an important role in improving the welfare of the population and in socio-economic development”, Chairman of the Board of Directors of the China Development Bank Zhao Huan said.
PROBLEMS
Restrictions on infrastructure and the market for a full-scale transition to settlements in national currencies
“A full-scale transition to settlements in national currencies is hampered by the limitations that Russian banks and companies face in the following areas. First of all, it requires infrastructure, the development of correspondent relations, an exchange of settlement financial documents, and the co-ordination of mutual compliance procedures. Secondly, these are financial markets. There is low liquidity and the absence of mutual limits. There are also high risks, primarily market risks, due to the high volatility of the rates,” Russian Regional Development Bank President Dina Malikova said.
A lack of interest on the part of Chinese investors in market instruments for financing Russian energy projects
“Unfortunately, our financial markets cannot be said to be balanced in terms of different categories of investors from different countries, unlike the energy sector. [...] Participation on the part of Asian investors, in particular Chinese investors, is still small”, Member of the Board and Managing Director of Money and Derivatives Markets of the Moscow Exchange Igor Marich said.
“Projects [in the energy sector] are financed primarily out of pocket, sometimes through loans. Institutional investors from Russia, China, or our countries are essentially absent”, First Vice President of Gazprombank Denis Shulakov said.
SOLUTIONS
Developing bilateral settlements and financing in national currencies
“A quantitative increase in financing is impossible without the active use of national currencies, not only in terms of trade settlements but also in terms of financial lending”, VEB.RF State Development Corporation Deputy Chairman (Chief Economist) and Member of the Board Andrey Klepach said.
“It is necessary to facilitate trade in energy resources by increasing the use of national currencies. This will make it possible to reduce costs and increase regional energy security. Both sides should improve the corresponding infrastructure mechanisms in order to carry out pricing, accounting, and payments in national currencies ", Chairman of the Board of Directors of the China Development Bank Zhao Huan said.
“The potential of settlements in national currencies is far from being realized. We are also actively developing financing in national currencies. We have opened correspondent accounts in Chinese banks. There is also a lot of potential here too”, EXIAR General Director Nikita Gusakov said.
“If Russia and China begin to develop borrowing in each other’s markets, we will create not only incentives for growth in our own markets but also a powerful regional market for other countries, and that includes the implementation of the Silk Road Belt and Road projects. Therefore, I have a specific proposal: let's celebrate the 70th anniversary of diplomatic relations between Russia and China with mutual government bond issues this year in our national currencies. […] According to our surveys, approximately 15–20 Russian companies and banks are already interested in RMB placements,” First Vice President of Gazprombank Denis Shulakov said.
Developing financing tools through digital technology
“Comprehensive financial services need to be provided through innovations in the financial sector in order to meet the need for diverse financing at different stages of the energy production chain”, Chairman of the Board of Directors of the China Development Bank Zhao Huan said.
“Financial technologies such as blockchain, big data, and artificial intelligence must be employed to re-equip the system for monitoring financial risks and the service system. Digital transformation must be employed to increase the intensity of innovative searches in areas such as online financing, financing of the production chain, and the active development of integrated models of services, including for syndicated credit”, Agricultural Bank of China Vice President Zhan Dongsheng said.
Improving the energy pricing system and developing energy financing rules
“We must improve the system of pricing rules and create international rules for pricing energy resources. This is a dynamic and lengthy process that requires long-term planning. Energy enterprises and financial structures in China and Russia should actively study international rules and take an active part in the international energy trade”, Vice President of the Bank of China Wu Fulin said.
“We must intensify the creation of energy financing systems and rules. China and Russia should consider developing and creating energy financing rules. At the same time, the scope of bilateral rules for financing energy in the region or even the whole world should be gradually expanded to provide reference material for the sustainable development of energy financing”, Vice President of the Bank of China Wu Fulin said.
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