Gas and a free yuan will fire China's next boom

Global finance China's new gas deal was signed in US dollars. But it is a liberalised yuan that will become a major flow of capital into some new destinations.

Russian President Vladimir Putin cut a 30-year deal with China last week to deliver 38 billion cubic metres of natural gas a year.

The estimated value of the contract is $US400 billion ($433 billion). Since gas is a buyer's market these days and Russia is struggling on the economic front, it can safely be assumed that the Chinese who have been haggling over the price for nearly a decade have achieved a significant discount on the current price level.

The deal has prompted speculation that Putin has outflanked the US attempt to isolate Russia because of its annexation of Crimea and subsequent undermining of the Ukrainian political system with armed militia.

In fact, a case can be made that sanctions imposed by the west and led by the United States have exposed the economic fragility and political vulnerability of Putin's Russia.

Rather surprisingly, in view of China's determination to internationalise the renminbi (RMB), the gas deal currency is denominated in US dollars. 

Australia has been quite supportive of China's RMB internationalisation policy.

Read the full article: Gas and a free yuan will fire China's next boom (subscription required)