On September 4, 2019, a regular session of the Valdai Discussion Club was held as part of the Eastern Economic Forum. This year, it was dedicated to the perception and assessment of Russia's pivot to the East by its leading Asian partners. The pivot really happened, the speakers stated, but there is a lot of work which must be done to consolidate and develop the successes and overcome systemic difficulties, and this work must be done on both sides.
Russia’s pivot to the East is a multifaceted concept, which includes the search for new markets, the determination of Russia’s place in the world, and a general geopolitical reorientation. However, it also has a very specific internal dimension - the development of the Far Eastern territories of the country, which border the fastest-growing region of the world, but for a long time could not take advantage of their position. That is why the scope of the discussion was described by Yuri Trutnev, Deputy Prime Minister of the Russian Federation and Presidential Plenipotentiary Envoy to the Far Eastern Federal District, who spoke about the interim results to raise the Far East.
According to the Deputy Prime Minister, the basis of these efforts was the study of business practices of Russia’s neighbours. The government went on to apply certain tools in order to improve the business environment of the Far East, including preferential tax treatment, the simplification of administrative procedures and the preparation of dozens of laws. As a result, over five years, the rate of return increased by 50%, 242 new enterprises were launched, $612 billion in private investments were made in the region (most of which, and this is important, are domestic ones), and 39,000 jobs were created. In 2014–2018, a third of foreign direct investment in Russia was spent specifically on the Far East. More than 1,800 new investment projects are awaiting implementation, with a declared investment volume of $ 3.9 trillion. In general, the majority of procedures in the Far East offer the best conditions for investors.
This forum is special, a senior Russian participant emphasised. It discusses the national programme for the development of the Far East; its goals are to improve the quality of life to a level higher than the average Russian and accelerate the economic growth of the Far East to 6 percent from its current 4 percent.
Foreign panellists noted in their speeches that the eastern pivot policy has yielded positive results both in terms of achieving internal development goals and in terms of involving the Far East in the system of economic relations with the countries of the Asia-Pacific region. The most obvious successes are in the development of relations between Russia and its most important Asian partner - China. According to Fan Weiguo, Chief of the Eurasian Bureau of Xinhua News Agency, in the first six months of 2019, the trade volume of the Russian Far East with China alone amounted to $5 billion, an increase of 16% compared with the same period last year. The trade war between China and the United States has had an unexpected positive effect of Russian-Chinese economic ties. China sharply reduced its purchases of soybeans from the United States and later stopped importing them altogether; in August of this year, it opened its market for soybeans from all regions of Russia.
China is not the only example of progress in economic relations between Russia and the countries of the region. To Anh Dung, Deputy Minister of Foreign Affairs of Vietnam spoke about the significant successes of Russia’s new economic track. According to him, the creation of a free trade zone between Vietnam and the EAEU in 2015 gave an impetus to economic ties, and by the end of 2018 the trade turnover amounted to $4.5 billion, compared to $ 2-3 billion earlier. Russia is carrying out 115 investment projects in Vietnam with a volume of $940 million, and the oil and gas industry remains the main area of cooperation.
But such a large-scale project as a pivot to the East cannot but encounter difficulties. These are associated both with general trends in world development, and with domestic obstacles in Russia. According to To Anh Dung, the Russian-Vietnamese trade and economic relations are under the influence of adverse changes in Russia's relations with a number of important partners, and the parties' capabilities (including financial) are limited.
Another example of untapped potential is the current scale of Russian-Chinese cooperation in agriculture. Fan Weiguo said that the volume of Chinese imports of agricultural products is $ 127 billion - of which Russia only accounts for $3 billion. Meanwhile, the demand among Chinese consumers for Russian agricultural products is great, which is largely due to the fact that they are perceived as more environmentally friendly, since GMOs are not used in their production.
Lee Jae-Young, president of the Korea Institute for International Economic Policy (KIEP), also spoke about difficulties associated with Russia’s pivot to the East. Despite measures to develop the Far East, the main indicators of the socio-economic development of the region still do not reflect stability and sustainability; for these to improve, there needs to be a strengthening of internal potential, he noted. The key problems, he said, are high logistics costs, which account for about 50% of total costs due to lags in transport infrastructure, and the lack of digitalisation of administrative institutions.
In terms of bilateral relations, according to Lee Jae-Young, South Korea and Russia should seek out and promote joint projects that contribute to economic integration between the Russian Far East and the Korean Peninsula. In particular, both countries need to stimulate innovation within the framework of the fourth industrial revolution. As possible areas of cooperation, he named the development of new modern materials and components, Arctic shipbuilding, agricultural development, “smart city” development, as well as the development of tourism and medical services.
Apurva Sanghi, Acting World Bank Director for the Russian Federation, said that the reality of Russia's pivot eastward is not in doubt. He pointed to two significant problems associated with the expansion of Russia’s economic ties with Asian countries. These include the continued dominance of natural resources in the structure of Russian exports, and an insufficiently favourable environment for foreign direct investment. Making Russia more attractive for FDI will require serious internal reforms.
Responding to these comments, Yuri Trutnev noted, that Russia seeks to prove to its foreign partners that the investment environment is changing, but so far it has managed to improve this environment without successfully promoting the effectiveness of these changes. This also reflects the broader problem of lack of information regarding Russia's pivot to the East among its partners. Obviously, a mental shift must occur at all levels - not only in the perception of the Far East as an integral part of the Russia’s historical and cultural space (last year's Valdai club report, “Toward the Great Ocean- 6: People, History, Ideology, Education. Rediscovering the Identity” was devoted to this) but also in perception of Russia as a country seeking to fully participate in the creation of value chains in the Asia-Pacific region.