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China and Russia to Cooperate on Energy Supply

China and Russia team up on energy and economy.

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China and Russia this week agreed to build an oil pipeline linking Siberia to China's northeastern borders. The pipeline, to be built by Russia's Transneft and China National Petroleum Corp. (CNPC, the parent company of  PetroChina (PTR)), is expected to carry about 15 million tons of oil per year (290,000 barrels per day). The construction cost is estimated at $800 million. In return for this strategic long-term energy supply agreement, China is in talks with Russia to provide $20 billion to $25 billion in loans to help Russian corporations through the current credit crisis, according to various media reports.

This is a major step that energy-hungry China has taken to secure long-term oil supply. Due to political reasons and geological constraints, China has yet to tap into the rich reserve of its northern neighbor; currently, Russia is not among the top three crude oil exporters to China. Because the Chinese and Russian economies are complementary in many ways, we will likely see a broader range of cooperations after some initial success.

Market Recap
While rallies in Asian stock markets helped buoy the market in China, major indexes still finished in the negative territory. For the past five days, the Shanghai Composite Index retreated 6.0% to 1,728.79, while the Shenzhen Composite Index dropped 5.2% to 5,839.33.

China Cuts Lending and Saving Rates by 27 Basis Points
After the central bank's third rate cut in two months, the benchmark one-year lending and saving rates stood at 6.66% and 3.60%, respectively. The aggressive moves indicate China's determination to steer clear of a significant economic slowdown. China's monetary tightening policies in the past two years have given the country some room to further lower its rates, and there will likely be several more rate cuts in the coming year.

Alipay to Make Utility-Bill Payment Easy
Alipay, China's equivalent of Paypal and a subsidiary of e-commerce behemoth Alibaba, has launched a new service to offer a one-stop payment solution for utility bills. The service is available to both registered members and nonmembers. Previously, consumers needed to stand in queues at the banks to pay those bills.

 China Southern Airlines  (ZNH) to Build Aviation Hub in Northeast China
The airline, ranked as Asia's largest by passenger numbers, will invest $1.5 billion in Liaoning Airport, which is located in China's traditional heavy industrial base in northeastern China. In recent years, China has made it a priority to rejuvenate the economy in this so-called "rust belt" region.

Iris Tan, Peter Liu, and Feliz Li contributed to this article.

 

Dan Su does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.