World Economy

China's troubles make Russia's Putin into a loser


As if the falling ruble, crippling sanctions and plunging oil prices weren't a bad enough combination for Russian President Vladimir Putin, now his most important ally, China, is facing serious economic problems of its own.

Russian President Vladimir Putin
Sasha Mordovets | Getty Images

Putin is in China this week for a World War II commemoration ceremony and for talks with his counterpart, Xi Jinping. The focus of the trip, according to the Kremlin, is to discuss trade and economic issues. Both are big priorities for Russia and China right now. Trade between them has dropped about 29 percent this year, according to investment data firm FactSet.

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Eurasia Group president Ian Bremmer told CNBC that Russia is becoming more dependent on the Chinese economy, which he called a "dangerous proposition for Moscow given the uncertainty and volatility of China's long term trajectory."

"In the near term, announcements of Chinese investment and trade have had more political meaning for Putin (undermining U.S. sanctions) than translating into huge concrete investment and trade," Bremmer said.

"Beijing is going to drive a hard commercial bargain with the Russians, made even more challenging by China's stalled demand for oil, gas and other key Russian commodities."

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Edward Mermelstein, a New York attorney who advises high net worth individuals in Russia and the former Soviet Union, told CNBC his clients are less concerned about China and more worried about whether Russia will eventually pivot back toward the West.

"No matter how hard they try, both (Russia and China) are on a downward slide," Mermelstein said. China is experiencing its slowest economic growth in 25 years, and Russia's economy is shrinking. "There is no substitute for re-engaging with the West and removing all sanctions. It's the best thing for Russia, Europe and the U.S."

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In order to stimulate growth, China is likely to spend more money at home, which could affect foreign assistance and projects outside China, said Jonathan Fenby, author and China director of the Research Service, a firm that analyzes emerging markets.

"The fall in energy prices is likely to lessen keenness of Chinese companies to invest in Russian oil and gas," Fenby added. "The bilateral relationship is primarily political."

Last year, China threw Putin a "lifeline, which included a currency swap agreement, credit for two sanctioned banks, the creation of renminbi-ruble derivatives, and the signing of dozens of agreements in October," said Gordon Chang, author of "The Coming Collapse of China." "Now, however, the arrangements look dubious."

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Eurasia Group's Bremmer underscored that Putin is under no threat at home, however, and he still sees Russia benefiting from the relationship with China in the form of military ties and other links.

"That will only intensify going forward, a Chinese economic slowdown notwithstanding," Bremmer said.