Russian president Vladimir Putin wants to include economic powerhouse China in its fledgling Eurasian Economic Union, and is even considering inviting India, Iran and Pakistan to the mix. Putin made the partnership proposal during his keynote address Friday at the annual St. Petersburg International Economic Forum.
Negotiation with China are scheduled to kick off later this month. China has become a relatively new discovery to the Russians. Once European sanctions hit Russian banks in 2014, Russia quickly moved to China to fill the gaps. Most of the deals have involved oil and gas pipelines. But other economic tie-ups include a joint venture in agribusinessalong the Russian-Chinese border, and 2015 memorandum of understanding to connect the Moscow Stock Exchange to Shanghai in order to facilitate currency swaps and other forex hedging instruments that would allow the two countries — in theory — to conduct trade in their own currencies instead of the dollar.
Russian and Chinese officials will meet again in September to discuss China’s role, if any, in the Eurasian Economic Union. China already has a large investment plan set in place, known as One Belt One Road, which includes Pakistan on its to-do list of foreign infrastructure investment.
The roughly $4 trillion Eurasian Economic Union was the brainchild of Kazakhstan leader Nursultan Nazarbayev. It was first proposed after the fall of the Soviet Union, of which Kazakhstan was one of the larger members. But while Nazarbayev may see it more as a means to bring foreign investment into a country that’s more known for the film Borat than for its cities and landscapes, Russia’s view of the EEU is more of an “iron curtain” of sorts against European Union influence within Russia’s political orbit.
To date, Russia, Kazakhstan, Belarus, Armenia and Kyrgyzstan are the only members. Putin’s offer is not for full integration of China and others into the EEU. He called it a Eurasian Partnership agreement, which on the surface looks a bit like the U.S. Trans-Pacific Partnership deal with the Pacific Rim countries ex-China.
Investors should watch to see if this is mere Putin political rhetoric, or if the Chinese are going to hop on board.