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Worldcrunch

How Russia Can Profit From China's Big Plans For Growth

Article illustrative image Partner logo A cement factory in Chongqing, China

MOSCOW - Seeking to guarantee greater energy and food security for its population, China is coming up against serious limitations. Just look at the basic numbers: the country only has 8% of the world’s energy reserves, and only 11% of the world’s arable land – yet, it is providing for 19% of the planet’s population. 

At the same time, one should remember that the whole world is undergoing rapid urbanization, and more and more people worldwide are adopting the consumption model associated with the middle class, of increased demand for meat, fish, fruits and vegetables, greater use of private cars, and so on.

It is very likely that by 2020, China will not yet have exhausted its energy or agriculture potential. But at the very least, three important raw materials - oil, gas and soy beans - will not be produced in sufficient quantities inside of China.

How to provide the Chinese economy with energy 

The Chinese government has been following an aggressive program of increased energy efficiency throughout the national economy. That is why the country’s energy use is going to increase by around 4% each year between 2010 and 2020.

According to current projections, it will increase more slowly than the country’s GDP. But in a country as large as China, even a small percentage increase can be a lot in absolute terms. Just the estimated annual increase in Chinese energy use represents all of Russia’s current annual energy use.

What is the Chinese government doing to plan for increased energy security? About half of the energy will be produced using nuclear, coal and hydro power plants. In spite of those plans, China will also need to increase its oil and gas imports by 200%, causing its overall imports to increase by around $300 billion.

China is using four strategies to ensure that it has access to the necessary oil and gas supplies, and all of them could open doors for Russian oil and gas companies.

First of all, China is working on a pipeline network that would connect it with neighboring countries, including Russia. China and Russia are currently discussing the construction of two new gas pipelines. Secondly, China’s state-owned energy company is taking part in new gas and oil drilling projects around the world, investing major sums of money, although they are not investing anything in Russian projects. Third, China is working on long-term contracts on deliveries via gas tankers, which could easily include gas from the area around Vladivostok in eastern Russia. Lastly, Chinese players in the gas market are looking for partners among gas companies that have the resources to look for and drill gas in non-traditional sources, including offshore. 

Feeding China

The agricultural revolution in China has allowed its yield to increase quickly over the past 50 years. As a result, today, China absolutely does not depend on crop imports (98% of demand is met by domestic production). But with increases in the size and wealth of the Chinese population, there will be a lot of possibilities for countries that produce low-priced crops, such as the United States, Russia and Ukraine, to work with China.

There is yet another opportunity due to changes in what Chinese people are eating – the demand for high quality meat, fish, fruits and milk products is increasing. As a result of this trend, the amount of imported food products is increasing, as are territorial investments on the part of Chinese companies in foreign countries.

Chinese companies already own land in many countries around the world. For example, there are fish farms in Malaysia, sugar plantations in Australia, palm oil producers in Africa and fruit orchards in Chile that belong to Chinese companies.

Soy - which is used for many oils, and to feed livestock - is only one of the many agricultural products that are expected to see an increased demand and increased imports. Latin American countries already provide about 75% of Chinese soy imports, and in the future, as new opportunities present themselves, those countries will take advantage of the situation, and perhaps sell or rent Chinese companies land to grow soybeans on. 

Supplying China with the energy and agricultural resources it needs in the coming years will not be easy. That is why foreign partners will take the opportunity to make millions of dollars by exporting to China, as well as by opening up opportunities for Chinese companies to operate on their country’s territory.

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About this article source Website: http://www.kommersant.com/about.asp

Kommersant ("The Businessman") was founded in 1989 as the first business newspaper in the Russia. Originally a weekly, Kommersant is now a daily newspaper with strong political and business coverage. It has been owned since 2006 by Alisher Usmanov, the director of a subsidiary of Gazprom.

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