China offers Russia help with currency-swap suggestion

Two Chinese ministers offered support for Russia as President Vladimir Putin seeks to shore up support for the rouble without depleting foreign-exchange reserves.

China will provide help if needed and is confident Russia can overcome its economic difficulties, Foreign Minister Wang Yi was cited as saying in Bangkok in a December 20 report by Hong Kong-based Phoenix TV. Commerce Minister Gao Hucheng said expanding a currency swap between the two nations and making increased use of yuan for bilateral trade would have the greatest impact in aiding Russia, according to the broadcaster.

The rouble strengthened 4.1 per cent against the dollar on Monday amid the signs of willingness by China, the world's second-largest economy, to prop up its neighbour. Russia, the biggest energy exporter, saw its currency tumble as much as 59 per cent this year as crude oil prices slumped and US and European sanctions hurt the economy. President Xi Jinping last month called for China to adopt "big-country diplomacy", as he laid out goals for elevating his nation's status.

"Many Chinese people still view Russia as the big brother, and the two countries are strategically important to each other," said Jin Canrong, Associate Dean of the School of International Studies at Renmin University in Beijing, referring to the Soviet Union's backing of Communist China in its initial years. "For the sake of national interests, China should deepen cooperation with Russia when such cooperation is in need."

Swap line
China and Russia signed a three-year currency-swap line of 150 billion yuan ($24 billion) in October, an agreement that can be expanded with the consent of both parties. The People's Bank of China published a chart detailing how such an agreement works in a microblog dated December 19 and the official People'' Daily newspaper said on Monday that the explanation was provided to address concerns the nation could suffer losses if Russia used the facility to obtain funds.

"As all we pay out and receive in return are renminbi, we don't have to bear exchange-rate risks," the PBOC said in the microblog, using an alternative name for the yuan. The swap amount can be adjusted to allow for changing circumstances and prevailing exchange rates, rather than pre-determined, are used, it said.

China is promoting the yuan as an alternative to the dollar for global trade and finance and the PBOC has signed currency-swap agreements with 28 other central banks to encourage this. The nation's foreign-exchange reserves of $3.89 trillion are the world's largest and compare with Russia's $374 billion.

'Irreplaceable partner'
"Russia is an irreplaceable strategic partner on the international stage," according to an editorial on Monday in the Global Times, a Beijing-based daily affiliated with the Communist Party. "China must take a proactive attitude in helping Russia walk out of the current crisis."

Still, "China's help for Russia will be limited," the editorial said. While China can offer capital, technical and market support, it can't address Russia's economic structure and excessive reliance on energy exports, the editorial said.

China signed a three-decade, $400-billion deal to buy Russian gas earlier this year. Oil imports from Russia hit an all-time high in November, according to China's General Administration of Customs.

Russia isn't in talks with China about any financial aid, said Dmitry Peskov, a spokesman for President Putin, on December 20.

Argentina
Russia wouldn't be the first country in financial strife to turn to China for support this year. Argentina's central bank utilised a cross-currency swap with the PBOC to stem a slide in the peso, which dropped 24 per cent against the greenback this year as the government defaulted on dollar bonds. The peso has weakened 0.3 per cent this month following a similar decline in November.

A similar move by Russia could help stabilise the rouble, according to Jan Dehn, the London-based head of research at Ashmore Group Plc, which manages about $70 billion in emerging-market assets. It would also bolster Chinese efforts to make the yuan a global reserve currency, he wrote in a December 18 report.