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Neighborly cooperation

RF - PRC: are new formats of economic cooperation between the countries possible?

Against the backdrop of long-term and not very productive talks about Russian-Chinese production cooperation, information about the possible transfer of Chinese enterprises to the territories of advanced development in the Far East sounded very optimistic. This news gave rise to the hope that finally there will be a breakthrough in bilateral economic cooperation. And the bilateral trade, to which China has so far made the main bet, will cease to be a factor that determines the nature of economic cooperation between Russia and China.

Neighborly cooperation

Alexander Isayev

Leading researcher, Deputy Head of the Center for the Study and Forecasting of Russian-Chinese Relations, IFES RAS

The negotiations of the delegation of the Ministry for the Development of the Russian Far East with Chinese partners, which took place in early April, inspired hope that the time had come to move from words to deeds. Immediately after the meeting with the director of the department of industrial development of the northeastern provinces of the PRC of the State Committee for Development and Reform of the PRC (SCRD), Zhou Jiangping, information was disseminated that China intends to transfer manufacturing enterprises of 12 leading industries to the Far East. Moreover, it was about serious objects: shipbuilding enterprises, chemical and metallurgical plants and other facilities.

The turn, in its own way, is unexpected and even innovative in our economic relations. It is no coincidence that the media's reaction was stormy - some write that it is the Chinese who want to transfer part of their enterprises, others say that decisions have already been made, and still others quite rightly point to the hypothetical probability of the appearance of Chinese factories on Russian territory, and even then if strict environmental standards.

However, there are no specific agreements on the movement of industrial facilities from Chinese territory to Russia. In China itself there are also discussions on this topic.

Zhou Chongling, a member of the People's Political Consultative Council of China, recently reminded Chinese reporters that Beijing has approved the creation of new industrial development zones in the provinces of Heilongjiang and Jilin bordering Russia. He noted that this decision, taking into account the resource base of Northeast China and the Far East, could be built into a production and cooperation chain. In this regard, the State Chinese Information Portal reported that "based on China's strategy to move industries to foreign markets and Russia's strategy to develop its eastern territories, the parties can create an economic development zone or an industrial park in the eastern part of Russia."

Of course, today we are talking about new formats for economic cooperation between the two countries. First, about the real production cooperation, which has been talked about for about two decades, but little progress has only begun today. And, secondly, the possible expansion of Chinese investment in the region.

Due to the economic policy pursued in the Russian Far East, the region is becoming more attractive to foreign partners, both in terms of capital investment, and taking into account the location of production capacities and the development of the agricultural sector. Siberian and Far Eastern agro industry has already become an object of joint management of Chinese (and not only) and Russian entrepreneurs. But with the rest so far, everything is very problematic.

To begin with, in the investment strategy of China, Russia, unfortunately, is not a priority country. If China invests decent money in our country, it does this mainly in the commodity sector, which is extremely important for strengthening the Chinese resource base.

However, in recent years, China has significantly increased its investment abroad. In 2015, China's direct non-financial investments abroad increased by 15 percent over the previous year and amounted to $ 118 billion dollars. In the same year, their total volume overcame a trillionth line. In January of 2016 year, compared to the same period of the previous year, they again increased, this time by 18,2% and amounted to just over $ 12 billion.

The main attention of the Chinese investors is paid to completely different directions and countries. In 2015, the volume of Chinese investments in ASEAN countries increased by 60,7%, and in the USA - by 60,1%. The PRC willingly invests in Europe, primarily in Italy, France, Great Britain and Germany. The preferred industries for investing Chinese money are mechanical engineering, the auto industry, the oil and gas industry (in the United States), high technology and other topical areas.

According to the Ministry of Commerce of the PRC, in 2015, capital investments from the PRC to countries involved in the implementation of the Silk Road Economic Belt program increased by 18,2%. Among them are Indonesia, Kazakhstan, Laos, Singapore, Thailand. Russia is sometimes mentioned in the same context.

Russia on this background so far retains an honorable place on the outskirts of Chinese investment projects. And although an ambitious goal has been set, as they say, to increase Chinese direct investment in Russia to $ 12 billion by 2020, this figure can hardly be considered sufficient.

According to the Ministry of Economic Development of the Russian Federation, the main areas of the PRC's investment activities in Russia were still the development of minerals, forestry, energy, trade, household electrical appliances, communications, construction and the service sector. The nature of the activities of Chinese investors in the Russian market is also evidenced by such facts as the purchase by the Chinese National Oil and Gas Corporation of 20% of shares in the Yamal LNG project from the Novatek company (estimated at $ 810 million) or the purchase by the Chinese Investment Corporation of 12,5% shares of Uralkali (estimated at $ 2 billion).

The Chinese International Non-Ferrous Metals Engineering and Construction Company (NFC) has invested in a joint project with the Metals of Eastern Siberia corporation in the Republic of Buryatia (estimated at $ 750 million). Experts pay attention to the investments of the State Electric Grid Corporation of China in joint projects with the Russian GK Sintez (estimated at $ 1,1 billion), the acquisition by the Chinese Investment Corporation of 5,4% of the shares of the Moscow Exchange (estimated at $ 100 million), the purchase by Construction Bank China 2% stake in VTB Bank (valued at $ 100 million). A number of agreements have been signed between Chinese corporations and the Russian holding Rusnano. 

In addition to the agrarian sector, commodity programs and several infrastructure projects such as the bridge over the Lena River in Yakutia, China's investment asset in the Far East is almost nothing. In the production sector - in general, almost complete zero. And here Chinese business is noticeably inferior to the assertiveness of South Korean, Japanese and Vietnamese entrepreneurs, risking to give them business in the Far East.  

Quite recently, the Ministry of Industry and Trade approved a new project with the Japanese Mazda. Under the terms of the contract, Mazda Sollers undertakes to build new capacities for the production of 50 thousand engines per year at its plant in Vladivostok, investing 2 billion rubles. The plant will be oriented towards foreign markets, that is, the produced engines will be supplied to Japan to the enterprises of the same Mazda. Japanese manufacturers have calculated that the conditions in Russia today are beneficial for the organization of production. Likewise, it is beneficial for Russia to create export-oriented enterprises in the Asian part of the country.

According to the Ministry of Economic Development, the leaders of the largest Japanese companies Sumitomo Corporation, Kawasaki Corporation, Sojitz Corporation, JBIC, Marubeni, Hitachi, Mitsubishi Corporation, Mitsui expressed interest in projects in the Far East. Schemes are being developed to provide related loans to residents of future TRA with the Japanese Bank for International Cooperation “JBIC” and the Korean “Korea Eximbank”.

South Korea is ready to invest in the development of business infrastructure, is interested in using the Northern Sea Route, the shortest sea route between the European part of Russia and the Far East. However, in Beijing the project is cool considering the one-way-one-way program implemented in the southern And the western directions from China.

Nevertheless, the Chinese cannot fail to see the real benefit in the creation of production facilities in the Far East and in the formation of infrastructure components in this promising region. However, the traditional conservatism of the Chinese and the strict rules for creating production facilities abroad with the participation of Chinese capital restrain Chinese big business from entering the Russian market.

Nevertheless, China's participation in the economy of the Far East is stimulated for a number of reasons. First, the growing competition in this region forces the Chinese to be wary of being late to an economic pie in this world-saturated region of the world. Secondly, the economic recovery north of China will stimulate trade. And, thirdly, a new serious employment market is being formed here. The demographic infrastructure in the Far East is such that a long-term outflow of population from this region to central Russia will objectively create a shortage of labor in the near future. 

The northeast of China bordering Russia is a region with a fairly high level of urbanization, and its labor market is one of the most intense in the PRC due to high unemployment.

Its participation in the creation of new production capacities, both in industry and in the agricultural sector, China strictly stipulates the export of Chinese labor. It seems that this will also be the case if a decision is made to export Chinese production facilities to our country.

However, the Far East is not against Chinese factories on its territory. The Ministry for the Development of the Russian Far East and the administration of the Primorsky Territory confirmed their readiness to accept Chinese factories and create joint export-oriented production facilities, but "without burdening the region's ecology."

The Chinese, in turn, promise to actively involve private and state companies in the implementation of such projects.  

Of course, the results will not quickly appear. It so happened in Russian-Chinese economic relations, that from the beginning of the discussion of a serious project to its practical implementation, it extends from 5 to 10 years.

The main thing is that such loud promises do not hang in the air. Indeed, back in the second half of the 1990s, the Chinese side proposed transferring textile production to the border areas east of Lake Baikal. It was then about the transfer of the textile capacities that are being released in the PRC and the supply of surplus equipment that had already been in operation to the regions or regions concerned. Let's hope that today we are talking about really modern production in the promised 12 industries. 

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