Russia-China Cooperation: Problems and Prospects

15.09.2015

The evident targets of Chinese investments are oil, gas, metals, soya and beans. Many Chinese agricultural producers are trying to start business in Russia, yet not all of them manage to overcome the administrative barriers.

The Rossiya Segodnya International Information Agency held a Moscow-Beijing videoconference entitled "Russia-China cooperation at the current stage". Early September  Russian President Vladimir Putin visited China at the invitation of General Secretary of the Communist Party of China Xi Jinping to celebrate the 70th anniversary of Chinese people's victory in the War of Resistance against Japan's Aggression and the End of World War II.

Within the framework of the visit, the leaders of states negotiated topical issues in the development of bilateral relations, exchanged opinions about international and regional problems, signed joint documents. Then, the Russian president attended the Eastern Economic Forum hosted by Vladivostok.

The videoconference was attended by Andrei Ostrovsky, Deputy Director of the Institute of the Far Eastern Studies (IFES), Russian Academy of Sciences (RAS), Head of the Center for Economic and Social Studies of China, IFES RAS, an expert of the Valdai Discussion Club.

On May 9, 2015, Ostrovsky reminded, Xi Jinping visited Moscow, resulting in signing of 32 agreements. Vladimir Putin's reciprocal visit to Beijing yielded 29 agreements.

The expert emphasized the deal struck with Rosneft, which stipulates supply of additional 5 million tons of oil to China. However, he noted, Russia was not the key supplier of black gold to China. This is where Saudi Arabia, Angola and Oman hold the lead.

Leaders of Russia and China meet several times a year, discussing topical political problems. However, in the economy, according to Ostrovsky, the situation falls short of the progress in politics. He quoted a phrase common in Chinese media, which reflects the state of the Russia-China relations: "It is hot in politics but cold in economy." Agreements, such as the one signed with Rosneft, facilitate efforts to overcome obstacles in the development of relations.

In 2013, during the visit to Kazakhstan, Xi Jinping declared the foundation of the New Silk Road to build the One Belt – One Road economic bridge between countries. On March 28, 2015, the creation of the Silk Road Economic Belt was announced. Basic courses and routes were unveiled. Russia joined the Asian Infrastructure Development Bank only a day before the closing of bid submission. In Andrei Ostrovsky's opinion, it gives an impression that Russian business "is procrastinating in entering the Chinese market." A slump occurred in the field of commercial and economic cooperation in 2015. Some 7-8 years ago, Dmitry Medvedev and Hu Jintao outlined plans to raise trade turnover to $100 billion in 2015 and to $200 billion in 2020. "But only during the first half of 2015, the trade turnover dropped by over 20%," the expert reminds. Cross-border cooperation is underdeveloped, the investment volume is insufficient, hence the poor development of international trade.

The paramount goal, Ostrovsky believes, is to ramp up commercial and economic ties – "the key to development of Russia's Far East." The region lags behind the European part of the country. The latter has a market consisting of 100 million people. The market of the Far East Federal District has a little over 6 million people. "Without development of our Far East regions, where, in general, we have all the key natural resources, without development of infrastructure of international trade, nothing will come off," Ostrovsky assumes. The border between Russia and China is 4,000km long, yet it lacks any bridges, save for two railway-based border crossings.

Explaining the tumbling level of trade between the two states, Ostrovsky reminded about serious economic problems in Russia as a whole. Of course, the cause of that is the dramatic fall of the ruble value in relation to the yuan-to-dollar rate. In 2014, according to the expert, a yuan was worth 3.5 rubles, it costs 10 rubles today. It is unfavourable for importers to do business. Russia tried to rectify, compensate the situation by selling oil, but oil prices crashed. "The physical volume went up, but the cost [volume] dropped". The tendency will change when oil prices rise.

In his opinion, the volume of mutual investments is exceptionally low. China invested $1 billion into Russia in 2014, compared to only $29 million of direct investments from Russia to China. Cross-border trade with China is below 15% of all Russia's international trade.

Concerning payments in national currencies, Ostrovsky assumes that the process should be intensified. Trade turnover between Russia and China is tied to foreign currencies, predominantly to the dollar. Most deals go through a New York bank. Russia loses 20-30% of product value in the process.

The main products imported by China are oil, iron ore, soya and beans. Beans, in Ostrovsky's opinion, are a promising line of exports for Russia. Russia produces 2.5 million tons of beans a year. China has a demand for about 60 million tons.

The evident targets of Chinese investments are oil, gas, metals, soya and beans. The expert believes that Russia should export high-tech products, not raw materials. The country needs more enterprises manufacturing engineering products. Money should be invested into development of national science and technology, not into purchases of foreign technologies. "Expecting that someone will sell something is the most improvident thing to do," Ostrovsky warns. Rusnano (Russian joint-stock company specializing in nanotechnologies) was a good project in this context, but the realization of the project has yielded little results.

Many Chinese agricultural producers are trying to start business in Russia, yet not all of them manage to overcome the administrative barriers. Speaking about the Chinese manpower on the Russian territory, the expert amounted them to 270,000 people. The leading suppliers of manpower are Ukraine, Tajikistan, Kyrgyzstan. Workforce is actively migrating from China's Heilongjiang Province, yet not to Russia, it is moving to the provinces of Shandong and Guangdong. "Russia is not a zone attractive for Chinese. Here, attracting Chinese manpower to the Russian territory, to engage in agriculture, among other things, would take enormous efforts," Andrei Ostrovsky.

The videoconference was also attended by Yevgeny Avdokushin, Director of the Center for Asian Studies, Faculty of Economics, Lomonosov Moscow State University, Igor Tomberg, Director of the Center for Energy and Transport Studies, Institute of Oriental Studies, Russian Academy of Sciences. Beijing was represented by experts and local journalists.
Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.

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