China assesses stake in Russian energy, commodity companies

China is considering buying or increasing stakes in Russian energy and commodity companies, including gas giant Gazprom PJSC and aluminum producer United Co. Rusal International PJSC, according to people familiar with the matter.

Beijing is in talks with its state-owned companies, including China National Petroleum Corp., China Petrochemical Corp., Aluminum Corp. of China and China Minmetals Corp., about any potential investment opportunities in Russian companies or assets, the people said.

Any deal would be to boost imports from China as it intensifies its focus on energy and food security, and not as a show of support for Russia’s invasion of Ukraine, the people said.

The discussions are at an early stage and will not necessarily lead to a deal, said the people, who requested anonymity as the discussions are not public. Some talks between Chinese and Russian energy companies have started to take place, according to separate sources.

CNPC and China Petrochemical, known as Sinopec Group, declined to comment, according to the companies’ communications officers. China’s state asset regulator Sasac, Aluminum Corp. of China and Minmetals did not immediately respond to requests for comment. Gazprom and Rusal representatives had no immediate comment during a national holiday in Russia.

Russia’s war in Ukraine has increased pressure on Beijing to secure imports as the cost of energy, metals and food soar to unprecedented levels. Concerned about the impact rising prices will have on the economy, China’s top government officials have issued orders to prioritize security of supply for basic goods, Bloomberg reported last week.

China has vowed to continue normal trade relations with Russia despite a massive exodus of European and American firms. BP Plc, Shell Plc and Exxon Mobil Corp. took the energy industry by surprise by walking away from Russian assets valued at billions of dollars.

Meanwhile, Chinese Foreign Minister Wang Yi said earlier this week that China-Russia ties remain “very firm”, even as Beijing expressed concern about civilian casualties and called for peace talks to end the war.

Among China’s current energy investments in Russia, CNPC has a 20% stake in the Yamal LNG project and a 10% stake in Arctic LNG 2, while Cnooc Ltd. also owns 10% in Arctic.

The two countries had already been strengthening their ties, with Presidents Xi Jinping and Vladimir Putin signing a series of deals last month to increase Russia’s supply of oil and gas, as well as wheat. Gazprom and Rosneft PJSC were among Russian energy giants to seal deals when the two leaders met in Beijing ahead of the Winter Olympics.

Still, any investment in Russia is fraught with risks that go beyond the geopolitical balancing act facing Beijing. Russia has become a hardly investable market for global companies as the nation’s economy deteriorates rapidly.

Sanctions have wiped out billions of dollars of Russian assets and bonds have plunged as default risks intensify. The yuan has risen against the ruble, raising questions about the strategic relationship between the two countries.

An investment from China could help solidify Moscow’s effort to accelerate the so-called “Pivot to Asia” with oil and gas supply deals. China has doubled purchases of Russian energy products to nearly $60 billion over the last five years.

The Power of Siberia pipeline began shipping gas to China in 2019, and Gazprom is already in talks with China about another route that could be signed this year, eventually allowing it to ship fuel from gas fields that supply Europe.