Why Sino-Russian trade not up to US$20 billion

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Last updated at: (Beijing Time) Friday, April 09, 2004

Why Sino-Russian trade not up to US$20 billion

Sino-Russian trade relation has entered into a fast track in recent years. Last year bilateral trade volume reached a record high of US$15.76 billion. In April 1996 when President Yaltsin visited China leaders of the two countries suggested a goal of $20 billion for the bilateral trade volume by 2000. Eight years have elapsed and the two countries still have a long way to go in reaching this goal. People are tempted to ask: "how long it will take for the bilateral trade volume to outstrip US$20 billion?"

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Respective position of China and Russia in their foreign trade

As for now Russia has become China's 8th trade partner and China Russia's 4th. In 2003 China's total foreign trade volume was $851.2 billion, of which Sino-Japanese bilateral trade volume reached $133.57 billion, Sino-US bilateral trade volume $126.33 billion, Sino-ROK trade volume $63.23 billion, Sino-EU bilateral trade volume $125.22 billion and Sino-Russian bilateral trade volume $15.76 billion. Russia's total foreign trade volume in 2003 was $192 billion. Its trade partners were mainly western countries.

A comparison shows that Russia's proportion in China's total foreign trade volume has been declining. In 2003 the proportion was 1.9 percent - lower than the 3.7 percent in 1990. Even if China-Russia trade volume reached $20 billion the figure would still not be comparable to those between China and Japan, China and the US and China and ROK. Sino-Russian trade structure is also very simple for it is mainly composed of raw products, with high-tech and high value-added products making very small proportions. There are not enough large-scale cooperative investment projects between the two countries.

As for now the development of the Sino-Russian trade relations are neither commensurate with their potentials nor are they with the development of political relations between the two countries. A full understanding of the existing problems in the Sino-Russian trade is of great significance to the growth of the bilateral trade.

Five big problems on the part of Russia

Russia has five big problems:

First is its dragging-on as to major projects such as those of energy resources cooperation. Russia is a major energy resources exporter in the world. In recent years China has been holding great expectations on energy resources cooperation between China and Russia. However, Sino-Russian cooperation in the energy resources area has encountered many "red lights". PetroChina was forced to withdraw from the Slav Oil stock auction. The Russian government dragged on the plan for Angarsk-Daqing oil pipeline construction which has been expounded and demonstrated for many years; and the construction of a natural gas pipeline that extends from Irkutsk to S. Korea via China was also put off.

Secondly, in Russia some are still buying the "China Threat" theory. In recent years rumors that China is "quietly expanding its economy and population" in Russia spread fast now and then in Russian Far East region. Some Russian politicians believe that China is using such means as migration to "systematically and step by step nibble away Russian territory". This Russian version of the "China Threat" theory has become a direct reason for the impeded Sino-Russian cooperation in labor services and energy resources. Given the influence, the UN Tumen River Triangle Development Program had to be aborted and the related departments in Russian Primorskij Kraj refused to rent Zarubina port to China. Some Russian companies refuse to import labor from China even though they are needed, and some Russians even regard China's import of timber as "a robbing of Russian resources by China".

Thirdly, Russia's Asian regions are economically undeveloped. Russia's industries are mainly distributed in western regions, particularly the emerging industries. The vast Far East and Siberia regions of Russia are less developed in terms of economy and infrastructure. The communications and economic ties between these regions and Russia's European regions depend mainly on the Trans-Siberian railway. The limited transportation capability of the railroad cannot meet the increasing needs of the two countries.

Fourthly, Russian economic and trade legislation remains still unhealthy. Imperfect legislation, arbitrary policy, lack of transparency and high risks of operation have become problems causing headaches for Chinese companies investing and running business in Russia. In recent years Russian law enforcing departments made frequent raids on the commodities of Chinese businessmen earmarked as of "gray clearance, unknown origin and illegal smuggling". On Feb. 12 the Russian police confiscated lots of commodities in Moscow "Emila" market, which belonged to Chinese businessmen, causing great economic loss to these Chinese businessmen.

Fifthly, some Russian companies and people suffer from jealousy. Once they found Sino-Russian joint ventures were profitable the Russian partner would do all they could to oppress and squeeze out the Chinese partner. In early 1990s a Shanghai restaurant in St. Petersburg was patronized by a lot of customers and its business was prosperous. Under the pressure of the Russian partner the Chinese side was forced to give up the restaurant. Besides some corrupted Russian policemen devise all kinds of means to blackmail Chinese businessmen.

Major problems on the part of China

Admittedly the problem existing between China and Russia is mutual, which means China has some problems too. For example, China's large state-owned enterprises are unwilling to make investment in Russia. Since Russian investment environment is not favorable some SOEs put the emphasis of foreign investment on the US, Japan and the EU, which are more developed, instead of Russia. By the later half of 2003, about 1,000 Chinese-invested companies have been registered in Russia and contracted investments were $290 million. Most of the Chinese investments are currently concentrating in wholesale, catering and labor export industries. It is hard to find any ads by a large Chinese SOE in the Moscow streets.

Chinese companies lacked the farsightedness of making long-term strategic investment in Russia. Many Chinese companies before making investment in Russia failed to make sufficient studies and assessment on the Russian market and are not familiar enough with the conditions there.

"Profiteering economy" ruined the reputation of Chinese commodities. In the early 1990s a great deal of shoddy and sham goods flooded into Russia, which not only hurt Russian consumers but also ruined the good reputation of Chinese goods in the minds of the Russian people. Now as many high quality western goods flow to Russia Chinese goods have a very long way to go in order to regain their reputation. Besides, Chinese people doing business in Russia generally have a low education and are unfamiliar with Russian laws and regulations. They lack risk-avoiding awareness. Some Chinese citizens illegally stay in Russia to do business whilst a few use Russia as a springboard to steal to a western country. These leave a bad impression in the Russian public.

More and more Russians are refreshing their understanding of China

Generally speaking, although there are still some problems in the Sino-Russian economic and trade cooperation, it will become sufficiently clear that the two economies are complementary to each other so long as the economies of the two countries continue to grow. Although up to now, Russian senior leaders have not made up their mind about the course of the oil pipelines there is a general consensus in Russia that there will eventually be a pipeline running to China no matter whether it be Angarsk-Daqing or Angarsk- Nachodka. If Russia can "keep its words and deliver its promise" in the field of energy resources China-Russia economic and trade volume will certainly see a dramatic increase.

China and Russia are the largest neighbors of each other and share a borderline of more than 4,300 kilometers, which means a natural geological advantage. Russian Far East and Siberian regions have rich resources but shortage of labor. Russian experts have come to realize that "Chinese migrants have become an important factor in the life of Russian Far East region. If handled appropriately Chinese migrants will become new blood of the local economy, a source of cheap and skilled labor and a motive force for promoting social and economic development". Currently timber export has become an important source of financial revenues for Russian Far East and Siberia regions.

In recent years as personnel exchange and trade activities increase more and more Russians will scrap their bias toward China and begin to refresh their understanding of China. Last summer a survey conducted by New Siberian University on 240 college students shows that only 1 percent of the students believed that "China is a rival of Russia" and "expanding toward Russia". Most of the interviewed held good opinions of China, among which 82 percent believed that "Chinese people are hardworking"; 49 percent thought that "Chinese are disciplined"; 26 percent believed that "Chinese are friendly". Based on thorough survey the students reached a conclusion - "it is absolutely wrong to consider China a potential hostile force to Russia".

Now the two countries have the advantages such as the opportunities of time, favorable geographical location and popular support in strengthening their economic and trade cooperation. There is no question that China-Russia economic and trade volume would overstep the $20 billion goal in a few years to come.

Source: Global Times, translated by People's Daily Online

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