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How far Russia-China “friendship” can go?

15 August 2014
Brian Yeung

Brian Yeung, Hong Kong-based independent journalist and writer

As the inaugural Russia-China Expo ended in Harbin last week, which was attended by more than 1,500 exhibitors, the event has created another momentum for Russia-China relations since the Russian-Chinese “gas deal of the century” was signed in May. As apparently Russia is looking east to diversify its economy amidst economic sanctions from the West, China, Russia’s counterpart with more than 4,000 kilometers shared border and the world’s one of the biggest economies shows its strategic importance to Russia.  Despite several momentums of Russia-China relations this year, how closely can Russia and China cooperate? How far can this “friendship” go?

While the two countries set their goal to achieve US$ 200 billion trade turnover with China by 2020, there are inherent obstacles based on the “nonparallel trade structure” between the two countries, as Dr. Liu Hongyan of Chinese Academy of Social Sciences puts it. What he meant by “nonparallel trade structure” is that Russia’s trade with China (or vice versa) is only one-way – while Russia exports energy and natural resources to China, China exports manufacture products to Russia.

The problem of such “nonparallel trade structure” is that the level of interdependence between two countries is low. As China’s economy gradually focuses less on manufacturing, partly driven by the rising labor costs, Russia could import manufacture products from Vietnam and other Southeast Asian countries. Meanwhile, despite China’s growing appetite for energy and natural resources, Russia is not China’s only strategic partner and China would never over-rely on a single country as its energy supplier.

Russia and China appear as “friend” on the world stage but they are “partner” and “competitor” at the same time. The two countries’ battle of economic influence particularly in Central Asia is far from obvious. While Russia, Kazakhstan and Belarus signed the treaty forming a new trading bloc known as the Eurasian Economic Union, which shall be joined by Kyrgyzstan and Armenia by the end of this year, China has introduced the concept of “the Chinese Silk Road Economic Belt”, which also targets Central Asian countries.

Despite “nonparallel trade structure” and “battle of influence”, Russia and China have strategic importance to each other from geo-political point of view. While Russia has experienced growing tensions with Ukraine, China also has strained relations with some Southeast Asian countries such as Vietnam and the Philippines. As these countries all turn to United States for support, the Russia-China partnership can serve as a rival to the United States and thus to strengthen both Russia and China’s position in the region.

In other words, Russia-China “friendship”, or “partnership” as we name it, is more driven by political interest than economic interest. However, to make this partnership more substantial and sustainable, its economic dimension provides a solid ground. The questions remain are: what are the areas that appear economic viable enough for Russian and Chinese investors? What architecture is needed to facilitate more trade and investment between the two countries that can go beyond state-driven initiatives?

Though not many, there are private companies who put real money on Russia’s Far East and their investment projects are more than extracting natural resources but developing the region. For instance, Summa Group has presented its “Bolshoy Zarubino Port” project at the Russia-China Expo and Head of Zarubino project Alexandr Zagorskiy said “most of the [partnership] agreements [signed] are not about export but are meant for intra china trade, for the goods from north-east of china to go to the southern provinces”. He estimates that intra China trade will account for 60% of the port annual turnover when the project is completed in 2018.

Meanwhile, a consortium of Summit Ascent Holdings Ltd. and Taiwan-listed electronic gambling machine maker Firich Enterprises Co. backed by Macau’s Lawrence Ho has announced plan to develop a casino project in the Primorye Integrated Entertainment Zone, one of the five gambling zones in Russia, and the gambling zone is described as “a powerful engine to the [local] economy” by the Governor of Primorsky Territory Vladimir Miklushevskiy.

Building a substantial and sustainable partnership is a long winding road for Russia and China but there should be no fear for forward-lookers. Partnership with mutual benefits and the right architecture will pay off in the end.