Russia And China Strengthen Bonds

At a time when Russian and Chinese relations with the West are hitting a low point, Russia’s Sibur and China’s Sinopec agreed to deepen their business ties during a visit to China by Russian President Vladimir Putin.

The cooperation agreement signed by the firms—leaders in energy and petrochemicals in their respective countries—does not commit them to anything specific. But while Putin was in China, the two agreed to build a butadiene-nitrile rubber plant in Shanghai. Based on a Sibur process, the facility will be owned 75% by Sinopec and 25% by Sibur.

The cooperation deal came together in an atmosphere of warming Sino-Russian relations. Simultaneous with the Sibur-Sinopec accord, Russia’s Gazprom and China National Petroleum Corp. signed a massive 30-year agreement that entails building a $55 billion pipeline to carry Russian natural gas to China.

Both Russia and China are suffering strained relations with the West. Russia is under Western sanctions for its annexation of Crimea, and China has reacted angrily to the U.S. indictment of five Chinese military officers on charges of industrial espionage (see page 35).

It’s not clear whether the Sibur-Sinopec cooperation agreement will yield initiatives beyond the relatively modest rubber plant. Sinopec’s track record with other companies is mixed. For instance, a “strategic business partnership” that Sinopec formed with Mitsubishi Chemical in 2009 has yet to yield anything substantial. On the other hand, Mitsui Chemicals and Sinopec entered into a similarly vague strategic alliance in 2009; a few months later the two had agreed to build a large phenol plant in Shanghai.

Sinopec investment in Russia would be the most productive product of the relationship, according to David S. Jiang, president of Sinodata Consulting, a Beijing-based chemical market research firm. Over the past year or so, Chinese state-owned companies such as Sinopec have been struggling in China because of a slowing of the domestic economy. Sinopec could probably uncover promising opportunities in Russia, a country where chemical feedstock is cheaper than in China, Jiang says.