Russian Prime Minister Vladimir Putin hailed “unprecedented levels of cooperation” with China, including $7 billion in new investment deals, as he kicked off a two-day visit to Beijing Tuesday.

The main item still under negotiation: a potential $1 trillion contract to export Siberian natural gas to China’s industrial heartland, which would see Russia providing a third of China’s energy needs by the end of this decade.

Though the main substance of the burgeoning Russia-China relationship remains trade – Chinese cash and consumer goods for Russian arms, hydrocarbons, and engineering products – the strategic dimension is becoming more important, experts say.

Putin, who’s expected to return to his previous job as Russian president early next year, is making his 16th visit to China since becoming Russia’s top leader almost 12 years ago.

“While Putin remains prime minister, the focus of Russia-China relations will stay on economics,” says Alexander Khramchikhin, an expert with the independent Institute of Political and Military Analysis in Moscow. “The main subject today is gas. The political dimension will wait until Putin’s president again.”

China overtook Germany as Russia’s biggest trading partner last year. Annual turnover in Russia-China commerce may exceed $70 billion in 2011 and reach $200 billion in 2020, up from $59 billion in 2010, Putin told journalists.

Putin’s ‘Eurasian Union’ …

But the crucial political subtext of Putin’s visit is an article he published last week in the Moscow daily Izvestia calling for the creation of a “Eurasian Union,” a confederation of former Soviet states that might eventually rival the European Union or the United States.

“We suggest creating a powerful supra-national union capable of becoming a pole in the modern world, and at the same time an effective bridge between Europe and the dynamic Asia-Pacific Region,” Putin wrote.

That suggests Russia may be moving away from its previous priority of building relations with the European Union, and seeking to build stronger ties with China and the wider Asian region.

“Putin’s proposal of creating a Eurasian Union is the necessary political background for this visit to China,” says Andrei Klimov, deputy chair of the Russian State Duma’s international affairs commission. “And after Putin voiced his ambition to return to the presidency, it must be noted that he’s not just an ordinary head of government or party leader making this trip.”

“I am sure the Chinese are very interested in this [Eurasian Union] idea,” Mr. Klimov adds. “If I were them I’d have a lot of questions about the prospect of such a powerful union appearing near China’s borders.”

Russia and China have long been working together on central Asian security matters through the Shanghai Cooperation Organization, and have held several joint military exercises under its aegis.

But political dimensions seem certain to grow as Putin, heading into what may be 12 more years as Russia’s supreme leader, looks for ways to develop Russia’s underpopulated and largely untapped Siberian and far eastern regions, which abut some of the world’s most populous and economically active zones in eastern Asia.
… and how it ties into China strategy

“It’s not a coincidence that Putin published his article about a Eurasian Union just a week before visiting China,” says Andrei Ostrovsky, deputy director of the official Institute of Far Eastern Studies in Moscow. “Russia has been developing in a European direction for the past 20 years, while largely ignoring Asia. The difference in development levels between Russia’s Asian areas and those in China is now striking. There is a growing recognition that we need each other. A Chinese role in developing Siberia and the Russian far east could be of huge significance.”

In recent months Moscow has advocated a pipeline that would run through North Korea to South Korea, which together with associated rail links would bring Russian commercial power into the heart of the far east.

After meeting his Chinese counterpart, Premier Wen Jiabao, on Tuesday, Putin said the two had discussed investment projects and global affairs, and had discovered a “mutual desire to find compromise on difficult questions which inevitably arise …. In political, humanitarian spheres we have no problems at all. We have reached unprecedented levels of cooperation,” he said.
Deals to be signed

Among the deals to be signed during Putin’s visit are a $4 billion joint investment fund, a $1.5 billion deal for a Russian aluminium smelter in Taishet, and other cooperation agreements in energy-saving technology, high-speed railways, nanotechnology, pharmaceuticals, and the development of fast-neutron nuclear reactors, according to Russian media reports.

But disagreements over the price of gas are holding up the biggest deal, which would commit China to growing dependence on Russian natural gas, worth an estimated $1 trillion over the next decade.

Russia’s state gas monopoly Gazprom wants China to pay prices similar to Europe, which gets almost 30 percent of its energy needs from Russia, but the Chinese are said to want a better deal.

“Those who sell always want to sell at a higher price, while those who buy, want to buy at a lower price,” Putin told journalists in Beijing Tuesday, suggesting a deal was near at hand. “We need to reach a compromise that will satisfy both sides.”