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Mike Larson, Money and Markets columnist and editor of the Safe Money Report, is out this afternoon. Mark Najarian, the managing editor of Money and Markets, is filling in. Mike’s regular afternoon column will return on Monday…
My enemy’s enemy? Is that how Russia and China are looking at the West now? Is the West pushing the two giants into each other’s arms? That’s what it was starting to look like over the weekend.
As Russia struggles to stabilize its currency and fight off recession, China says it is ready to do what it can to help the Russian economy.
Here’s what Chinese Foreign Minister Wang Yi said this weekend:
“If the Russian side needs, we will provide necessary assistance within our capacity.”
And this from the Global Times, a Beijing-based daily linked to the Communist Party: “Russia is an irreplaceable strategic partner on the international stage. China must take a proactive attitude in helping Russia walk out of the current crisis.”
Meanwhile, the Chinese Commerce Minister said that expanding currency swaps and making use of the yuan for trade between the two countries would have the biggest impact in aiding the Russian ruble and the economy overall.
China has avoided getting involved in the dispute between Russia and the West over Russia’s moves in Ukraine, urging only that talks be held to settle the matter peacefully. But the Asian giant has been increasing its trade relations with Russia at a time when Russia’s ties to its European neighbors deteriorate. China’s exports to Russia rose 10.5 percent while imports increased 2.9 percent in the first nine months of 2014. Total trade was valued at $70.78 billion, according to Reuters.
As has been widely reported over the past few months, Russia’s energy-reliant economy has been hit hard by the fall in oil prices and by sanctions set by Western Europe and the U.S. over what the West sees as Russian interference in Ukraine’s sovereignty. It has ignited comments that remind us all of the dark days of the Cold War.
|The fall in the value of the Russian ruble has sent Russian shoppers on a buying frenzy to get big-ticket goods before potential price rises.|
The West, especially Germany, has made attempts to bring Russia in from the cold since the fall of the Soviet Union. And it worked at times, especially under Russian leader Boris Yeltsin, when relations were warmer. But the sides appear to be moving further and further apart in recent periods, and that has Russia and China moving closer together. While they probably should no longer be labeled our “enemies,” they certainly are rivals of the West, and it’s potentially a bad sign if they are driven closer to each other, both geopolitically and economically.
“Many Chinese people still view Russia as the big brother, and the two countries are strategically important to each other,” Jin Canrong of the School of International Studies at Renmin University in Beijing was quoted by Bloomberg as saying, referring to Soviet backing of Communist China in its first years after the Chinese revolution. “For the sake of national interests, China should deepen co-operation with Russia when such cooperation is in need.”
|“Should we cooperate with Russia and keep it in the European family, or put more pressure on it to change its ways?”|
Russia’s currency, the ruble, has fallen in value by as much as 59 percent this year, and President Vladimir Putin has warned his countrymen to prepare for a recession that could last as long as two years. The debate is on as to whether the economic problems will force Putin to back down on his aggressiveness in Ukraine or will back him into a wall and force him to be even more antagonistic toward his critics.
After the news out of China and an early rally in oil prices this morning, the ruble stabilized against the dollar. The Russian central bank also said that it sold $500 million from the country’s reserves since late last week to bolster its currency. Since the start of December, it has spent some $10 billion to back the ruble, but it has also said that it doesn’t have an endless well of foreign currency to back the ruble.
What happens in Russia is important not just in geopolitical terms, but also in business terms. Here’s a chart published today by Business Insider with details of companies most-exposed to Russia.
|Click chart for larger version.|
What is your view on our Russia/China strategy? Should the West be playing those two against each other, as we often did during the Cold War? Should we be trying to cooperate closer with Russia and keep it in the European family or put more pressure on them to change its ways? International readers of Money and Markets have in the past had heated debates of Putin, Russia and the West. Click here to add your views to the latest developments.
|Other Developments of the Day|
Speaking of Russia, a potential major deal appears to have become the victim of the bad relations between the U.S. and that country. Morgan Stanley’s deal to sell its oil merchant business to Russian oil producer Rosneft has fallen through. Rosneft blamed the failure of U.S. regulators to approve the move. The transaction was announced last year, before the latest crisis over Ukraine developed. The Financial Times said: “The collapse of the sale is a blow to Morgan Stanley, which had sought to offload the unit as Wall Street’s relationship with the commodities business draws more intense regulatory scrutiny in the U.S.”
Here’s one to go ape over: A court ruled that an orangutan in a zoo in Argentina should be recognized as a “non-human person” and can be freed and moved to a sanctuary, a victory for animal rights campaigners. In a ruling that could clear the way for other such suits, the court agreed with the campaigners that Sandra had sufficient cognitive functions and should not be treated as an object. “This opens the way not only for other Great Apes, but also for other sentient beings which are unfairly and arbitrarily deprived of their liberty in zoos, circuses, water parks and scientific laboratories,” the La Nacion newspaper quoted AFADA lawyer Paul Buompadre as saying. Many groups in the U.S. have campaigned against marine parks for their capture and treatment of dolphins and orca whales, and it will be interesting to see if this adds ammunition to their battle to have them freed.
More American companies are eagerly anticipating opportunities that may open up after President Obama’s move to restore relations between the U.S. and Cuba. According to media reports, companies like Cargill, MasterCard, Marriott, PepsiCo, Caterpillar, John Deere and many more are gearing up to do business when, and if, the U.S. trade embargo is fully lifted.
The Associated Press reports the Peterson Institute for International Economics estimates that the export of U.S. goods to Cuba could reach $4.3 billion a year, a rise from just $360 million in 2013. Cuban exports of goods to the U.S. could reach $5.8 billion from zero now.
What’s your view: Should U.S. companies rush in to do business as soon as possible? Even if the government there is still repressive? Are profits more important than politics? And will the presence of U.S. companies help push Cuba to more economic — and political — openness? Click here to join the conversation.