An Zhao Zhen – An effective way to improve overall economic relations Between China and the Russian Federation

In August 2012 Russia officially became a WTO member. In March 2013 President Xi Jinping successfully visited Russia. Nowadays relations between China and Russia are in the best stage in history. Comprehensive increase of economic cooperation between China and Russia is facing important strategic opportunities, as well as many challenges. It is necessary to use the opportunity, research plan, update the idea hard to promote Sino-Russian economic and trade cooperation to a deeper and more rapid development.

I. The strategic importance of the overall improvement in Sino-Russian economic relations

(I) Important foundation for the Sino-Russian strategic partnership

In March 2013, the Chinese President Xi Jinping visited Russia with official visit. The liders of two states signed the ‘Joint Statement between China and Russia on joint prosperity and mutual benefit, and deepening the comprehensive strategic partnership’  ( hereinafter referred to as “Joint Statement”). In order to raise a new stage in comprehensive strategic partnership, which is an example of equitable trust, mutual support, shared prosperity and eternal friendship.

Comprehensive strategic partnership becomes important bilateral importance, as well as a global significance. It plays a key role in promoting regional and world development and security in international relations. As reflected in the “Joint Statement” strategic task for China and Russia is to make an unprecedented upscale political advantage in the practicalities of cooperation in the sphere of economics, humanities, etc.

From 26 to 30 April 2012, the State Council of the PRC Li Keqiang visited Russia, and observed that economic and trade cooperation is an important foundation of Sino-Russian strategic partnership supports the prospects of Sino-Russian relations. Bearing in mind its economic development strategy, as well as with potential and advantage of its States, China and Russia must continuously reinforce business cooperation in all areas to promote common development and bring happiness to the people. The President of the Russian Federation Vladimir Putin also observed, that the comprehensive development of trade relations is very important, common position of Russia and China are largely dependent on the level and quality of such relationship.[1]

(II) Powerful impulse to support the prospects of Sino-Russian relations

Relations between China and Russia are in the best stage in history, the continuous development of political relations between the two countries provides the political support and the preconditions for cooperation in other areas. But in comparison with the political relationship Sino-Russian economic cooperation still has inconsistencies, the great potential of economic cooperation between the two countries. But in comparison with political attitudes, Sino-Russian economic cooperation still has inconsistencies, the great potential of economic cooperation between the two countries. It is necessary to reveal all the potential, strengthening businesslike cooperation is becoming an important strategic task in the development of Sino-Russian relations. China and Russia already have the conditions and opportunities for the development of large-scale economic cooperation. Both countries should fully use the potential of development and be mutually-complementary advantages, to take care of strengthening trade and economic cooperation, and jointly improve their economic strength and international competitiveness. In order to achieve this strategic goal, China and Russia claim fulfillment of ‘Implementation Program <China-Russia Treaty on good neighbourhood and friendly cooperation > (2013 ~ 2016) to strengthen bilateral cooperation, and jointly raise the state power in complex.[2]

The president of the Russian Federation Putin has estimated the Sino-Russian relations, ‘Russia needs a stable and prosperous China, China also needs a powerful and successful Russia’. China’s development is not a threat for Russia, but the opportunities therefore, the Russian economy needs the development of China.  Chinese President Xi Jinping in delivered speech at the Moscow Institute of International Relations has noted “Joint development of both countries gives Sino-Russian strategic partnership wider development space”.

Comprehensive development of Sino-Russian economic cooperation is a powerful incentive to support Sino-Russian relations. In the field of economic cooperation, in addition to traditional cooperative project, China and Russia have decided to cooperate in the field of aircraft construction for big projects, such as joint research projects, joint production, etc. In June 21, 2013 President Putin made a speech on the 17-th Saint Petersburg International Economic Forum, that in the future within the 25 years Russia will supply China 46 million tons of oil a total value of $ 270 billion dollars. During the forum the two parties have signed the relevant agreement on construction of Railway bridge over the Amur river.

(III) Real claim to a joint response to the global financial crisis

Under the influence of the international financial crisis, the uncertainty of the global economic recovery has escalated. The sovereign debt problem is the major developed economic subjects becomes more severe, the fluctuation of international financial market stronger, and , Monetary policy the main developed entities affect the structure of the Global capital flows.

Under the influence of the financial crisis, the United States and other developed economic entities have been financial crises and deadlocks, the impact of new economic entities becomes stronger. After the financial crisis, the Asian and Pacific region more strongly guide and promote the global economy. It is expected that the global economy has grown by 2.1%, including the growth of the U.S. economy – 1.9% of the EU economy – 0.3%, China’s economy – 8.2% [3], the Russian economy – 1.8%. [4] Although the economy of new countries is growing very fast, but the development has many challenges.

According to statistics, the total amount of capital outflow in Russia in 2012 reached 56.8 billion dollars, down by 23.7 billion dollars compared to the year 2011. According to the forecast of the Ministry of Economic Development of Russia, in 2013 the total amount of capital outflow, Russia will not exceed $ 10 billion, but according to the forecast of the Central Bank of Russia, if in 2013 the average price of oil will reach $ 97 dollars / barrel, the amount of capital outflow Russia down to 10 billion; if the average price of oil – 73 dollars / barrel, the amount of capital outflow will reach 35 billion; If the average price of crude oil is $ 121 per barrel, Russia will not have the capital outflow. {5]

II. The main problems affecting the development of Sino-Russian economic relations (I) Lack of knowledge about the investment environment of Russia

In China, the Russian language is negligible. According to statistics, in 2008 the school work, Heilongjiang Province 13000 teachers of foreign languages, including only 500 teachers of the Russian language. In the years 2004-2006, in the area of ​​Sui Fenhe, out of all graduates from primary school, only 10% studied Russian language. It can be expected that graduates of Chinese universities, only few people master the Russian language, of which very rarely work in companies on economic and trade sector. Therefore, it can be said that most companies cannot actually cooperate with Russia.

In August 2012, Russia formally joined the WTO, ‘the Russian Federation will be open to influence all legislation on trade in goods, services and intellectual property, before the adoption of such legislation, it is necessary to publish them for discussion between the participants in a period of not less than 30 days. All laws that affect the commodity trade, trade in services and intellectual property rights, are effective only after their publicity’. [6] But few people in China studying Russian laws, so promptly and accurately translate the relevant laws and regulations for Chinese enterprises is still difficult.

Currently, the number of enterprises engaged in economic and trade cooperation with Russia, in China, such enterprises are very small, and their power is not very strong. By the end of 2010, the number of Chinese enterprises in Russia, which are registered and approved by the Ministry of Commerce of China reached up to 772, including most of the medium-sized and small enterprises. By the end of 2010, in the province of Heilongjiang Province there are 13 enterprises, import-export operations with Russia of which exceed more than $ 100 million, and 118 enterprises which import-export volumes amount more than $10 million.

Heilongjiang province has approved State 856 investment projects in Russia, the total amount of investment is 2.935 billion dollars. Due to financial difficulties in economic cooperation with Russia, businesses do not receive the necessary financial support, which strongly influences the development of cooperation with Russia. Many companies located in economically developed southern provinces of China, due to lack of knowledge about Russia, after the integration of the increase of capital and investment risk, most companies choose to develop the European and American markets.

(II) Lack of optimization of trading structure

For a long time our country mainly exports to Russia textiles, clothes, shoes and appliances, along with other consumer goods, imports of raw materials and primary products. This problem is not yet solved enough. In 2011, Heilongjiang Province exported to Russia in 2685 different range of products. Including textile clothing is 47.47%; agricultural products and subsidiary farming – 28.63%; electromechanical products – 15.04%; tech products – 1.23%. In 2011, Heilongjiang province has imported from Russia 232 different assortments of goods, the first ten of which follows: crude oil, iron ore, timber, lumber, petroleum products, fertilizers, atomizer, synthetic rubber, plastics, paper products.[7]

Both parties recognise the importance of optimizing the structure of import and export goods, and delivers improved trade body goods the two countries at the level of the continuous development of economic and trade cooperation. Strengthening cooperation in the field of high technology not only changes and improves the structure of the content of cooperation, but also improves the quality of bilateral cooperation. Both countries are actively promoting their joint development of their strategies at the national and district levels. They turn commodity imports in kind of cooperation of exports in joint research and manufacture, expand our cooperation of energy resources in the areas of investment, infrastructure construction, high technology, finance, etc.

Especially in the eastern regions of Russia, there are geographical advantages of foreign trade with China. Russia’s participation in the WTO and the further opening of the market will expand space for the export of Chinese goods in Russia, which will improve the quality of export products from China to Russia, optimizes the structure of trade flows between the two countries, and promote trade cooperation with Russia.

(III) Small scale of mutual investment

At the end of 2012, the accumulated foreign investment in Russia amounted to 362.4 billion dollars, including the Netherlands which took the first place with a volume of 61.49 billion dollars, or 17%, other countries: Luxembourg-42.774 billion. or 11.8%; China-27.922 billion. or 7.7%; England-26.677 billion. or 7.4%; Germany-24.913 billion. or 6.9%; Ireland-14.31 billion. or 3.9%; Japan-10.777 MAWP. or 3.0%; France-9.82 billion or 2.7%. For 2012 year China invested in Russia 0.74 billion dollars, and Japan-1.135 billion dollars.

At the end of 2012 the total investment from Russia amounted to $ 117.797 billion. In particular, Russia has invested in Holland U.S. $ 30.48 billion (25.9%) more than in other countries, both in Cyprus – U.S. $ 29.553 billion (25.1%) in the U.S. – 7.76 billion dollars . (6.6%). China is still not the part of the main investment partners of Russia, and accounts less than 1.2%.[8]

Until the end of 2011, the Heilongjiang province authorized the 930 enterprises that invest in Russia, the total direct investments amounted to 1.105 billion dollars, Russia’s share of the total volume of investments amounts to 35.7%. At present, Heilongjiang province is the largest province in China, it develops cooperation with Russia on agriculture, forestry, oil and gas resources, electric resources and mineral resources.

(IV) Lack of new areas of cooperation

At present, the number of China’s cooperation with Russia is not enough, mostly develops cooperation in trade, investment, construction and labour migration. The main types of direct investment from China to Russia include the creation of shell companies, joint ventures and other forms, such as branches and representative offices. In 2008, Russia adopted a federal law on foreign investment in strategic sectors of the economy where imposed severe restrictions on investments, primarily in the resource sector. Although the Russian government encourages foreign direct investment in the oil, gas, coal, wood, building materials, construction, communications and transportation equipment, food processing, textiles, etc autostructure. Only in wood product processing, textiles and other traditional industries few restrictions on foreign investment, the investment of Chinese enterprises in these industries is usually done in the form of creating subsidiaries. If Chinese companies want to enter the sphere of oil, gas, coal, electricity, water, steel, mining, and other autostructure Russian strategic resources, it is only possible to set up branches, as joint company or representative, and conduct ethnic purchase to perform investment. Most of them just have the right to vote, the participants or the company law of foreign companies is less than 50%, do not have the right to control. Signed in 2006, the project “Baltic Pearl” supported the financing of export-import Bank of China, the project builds and invests in Shanghai foreign investment enterprise, this is a new attempt by China’s investment in Russia in the form of an investment Union.[9]

II. Effective way of improving Sino-Russian economic relations

To adhere to cooperation with Russia for mutual benefits is a basic principle of China’s cooperation with Russia. The participation of Russia in the WTO and the further expansion of the market need for fast transformation of Sino-Russian high-level political engagement in a certain business cooperation. Along with the improvement of the level of energy cooperation, to actively promote cooperation in other areas, such as high technology, transportation infrastructure projects, environmental protection, agriculture, etc., advance negotiations on the establishment of Sino-Russian free trade area in order to meet common prosperity and development of Sino-Russian economy.

(1) Strategy to stimulate large projects at the state level

China’s cooperation with Russia may not depart from support large projects at the State level. Over the past years, China and Russia are actively promoting investment cooperation in the fields of energy, investment, air navigation, scientific equipment, forestry, transport, infrastructure construction, resource development, finance, etc.., creating unprecedented conditions for increasing investment in Russia. In March 2013, during the State visit of China’s President in Russia, XI Jinping, the two sides signed a number of protocols of trade and economic cooperation concerning energy, regional cooperation, military cooperation and other areas. Cooperation in the implementation of large projects, such as joint research and joint production of will change and improve not only the structure but also the content and quality of cooperation.

The acceleration of scientific and technological cooperation was very important. In the future of Sino-Russian economic relationship will first perform in the high-tech field, it is necessary to actively promote cooperation in the high-tech sector, to accelerate the implementation of cooperation projects for high-tech industry, improve the quality and level of cooperation. It is necessary to develop cooperation in the aerospace industry, , high-tech construction, environmental protection and energy economy, biological medicine, information technology and other. Actively develop cooperation on agriculture and tourism as well as becoming very important areas of cooperation in the subsequent period. Cooperation in the financial investment also has the ability to break.

(II) The effort to develop economic cooperation at the local level

Economic cooperation in Sino-Russian frontier regions is an important part of Sino-Russian cooperation. formally signed a programme of coordination and cooperation between the north-eastern provinces of China and the far East, the Eastern Siberian regions of Russia, which is essential for cooperation in Sino-Russian frontier regions. In order to implement this program is to create and improve border infrastructure, to promote cooperation in the fields of transport, tourism, labor migration, cultural exchanges, environmental protection, etc.; implement regional scale cooperation projects. ‘The main problems in the execution of the program of Sino-Russian border cooperation in how to perform a large-scale investment projects, especially the need to strengthen the economic foundations of mutual cooperation.’ ”.[10]

Currently, when executing a program, there are some shortcomings still need to specifically solve the existing problems.

The two leaders of the countries joined the revival of northeastern China and the development of Russia’s Far Eastern regions, hoping using this opportunity to increase the scale and quality of cooperation between China and Russia. This far-sighted strategic initiative. Northeast China not only can become an active participant and the strategic partnership of cooperation in the development of the far East and Baikal regions of Russia, but also become a major market in the far East region of Russia. [11]

(III) A presentation on the investment environment

Because most Chinese enterprises know little about Russia, especially absent full knowledge about Russia’s investment environment and relevant laws and regulations, China and Russia must work together to assist each other to hold a presentation about the investment environment and project. In the Sino-Russian border areas and major provinces of cooperation with Russia, according to different investment areas, every year on an irregular basis to the reports about Russian laws, fairs of Russian investment projects in a timely manner, the newest laws, rules and regulations. Otherwise, it is necessary to strengthen training of the Chinese and Russian teachers of both sidesto increase their level of language teaching. deeper expand the scale of Chinese students and personnel of Chinese enterprises in Russia to study abroad, study and expedition, to raise level of mastery of the Russian language personnel of Chinese enterprises.

(IV) Active search for new forms of economic cooperation

‘Implementation of comprehensive modernization’ and ‘Creating a knowledge-based economy instead of the traditional raw material economy’ is a major challenge in the future Russia 10 years. Participation in the WTO will accelerate the full entry of Russia into the world economic system. During the economic movement of Russia faces an entirely new development environment. Comprehensive and diversified expansion openness gives the possibility of accelerating the attraction of foreign capital, the result is a lot of good effects, while weak to bring Russian industry tough competition.

China is an important trade and economic partner of Russia. Against the backdrop of the international financial crisis fully lifting Sino-Russian economic cooperation conforms to the common interests of China and Russia, is for the benefit of the successful implementation of strategies for the development of the far East region of Russia. During the subsequent period advanced by the USA ‘Agreement on the Trans-Pacific Strategic Economic Partnership Agreement’ certainly have a major impact on the development of Sino-Russian obmenovi. cooperation, to accelerate negotiations on the establishment of the China-Russia free trade zone to promote Sino-Russian economic exchanges to fast, stable and continuous development.

An Zhao Zhen

Assistant Director of the Institute Russian Academy of Social Sciences of Heilongjiang Province (Harbin).

[1] Lu nanquan. China and Russia should turn a good political atmosphere in businesslike cooperation. ‘Collection of articles in the international forum of the 6th North-East Asian regional cooperation’, 2013.6

[2] Xing Guangcheng. The prospect of Sino-Russian relations comprehensive strategic partnership for the future. ‘Qiu Shi’, 8th edition number 2013.

[3] Grant Thornton.Global economy in 2013:uncertainty weighing on growth,

[4] ERDB were twice worsened almost with the forecast on growth of GDP of Russia in 2013

[5] The outflow of capital from Russia in 2012 fell to $ 56.8 billion

[7] So Lynley. Remembering the historic achievements of cooperation with Russia in Heilongjiang Province and advice on countermeasures deepen their cooperation. ‘Collection of articles in the international forum of the 6th North-East Asian regional development’, 2013.6

[8] Foreign Investments in 2012

[9] Gao Xin. Present situation of China on the Russian investment scale formation, investment and industry analysis of their collaborations. ‘Economics and Management’, 5th edition number 2011.

[10] D. Suslov Implementation of the program of cooperation in eastern Russia and north-eastern region of China in the period 2009-2018. ‘Collection of articles on the second International Forum for Development and Cooperation in Northeast Asia’, 2013.6

[11] Li Yongquan. Broad prospects of China and Russia in the north-east Asia. ‘Collection of articles in the international forum of the 6th North-East Asian regional development’, 2013.6

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