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"The turn to the East should be understood more broadly"

Nikita Maslennikov

Head of Finance and Economics, INSOR

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"The turn to the East should be understood more broadly"
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How to build relations with China, why geoeconomics is round, like the Earth, and when Vladivostok can become the second Russian capital - all this was told to EastRussia by Nikita Maslennikov, head of the Finance and Economics department of the Institute of Contemporary Development (INSOR).

- Today, Russia is trying to turn its face to the East. Do you think it is possible that because of poorly developed ties with neighbors and the infrastructure of the Far East and Eastern Siberia, hopes for a flow of investment from the countries of the Asia-Pacific region may not be fully justified?

- There is such a risk. Moreover, it is not only getting stronger, but has already begun to be realized in part. According to some expert estimates, our share in global GDP was almost 2013% back in 2,8, and 2015% is expected in 1,5. The main reason is lower than in the world as a whole, and, moreover, slowing economic growth as a result of toughening structural constraints and depletion of the resource of the existing development model.

Therefore, the turn to the East, in my opinion, should be understood more broadly than simply (unfortunately, largely belatedly) the development of a new economic-geographical direction. Behind this metaphor there are, in fact, the first steps in the search for a new Russian positioning in the global economy as a whole that goes far beyond the raw materials and mining frameworks.

All long-term forecasts of structural shifts that will reveal themselves in the pax economica in the next two to three decades are based on the assumption that the center of its gravity will be in the APR. If only because this region is a habitat for all three largest economies in the world on this time track - China, the United States and India. But there is also Japan, South Korea, Australia, Indonesia and many other national market economies - flexible, fast, able to compete aggressively. This means that if we are not there (now we are present, in fact, at the level of statistical error), then it will be difficult, if not impossible, to find ourselves in the future of geoeconomics. It is also important to understand that it, like the Earth, is, in principle, also round. Therefore, going to the East, you will come to the West and vice versa. Moreover, all routes have the same structural limitations. By the way, Sir Rudyard Kipling, speaking of the East and the West, his "they cannot get together," nevertheless wrote about something else in practice. In this famous ballad, the main characters eventually became blood brothers. This is exactly what happens in the real world of competition, trade, investment, financial instruments, etc.

In many markets for complex end products (aircraft construction, mechanical engineering, production of cars, ships, not to mention electronics in all forms), its share in global value chains reaches 50-70%. On average, there are 35-40 participants in such chains (sometimes up to 70) - companies from different countries. Often, the final product can be attributed to Western or Eastern origin only very conditionally, only by the geographical location of the headquarters of a particular brand.

It is in this new global economy (I called only one sign of it) that we have to find our place. Now we are standing in front of the eastern facade. Understand where the door is, let's go to the others.

- Can the state investment allocated for the development of infrastructure and territories of advanced development (TOR) give an opportunity to develop a sufficient number of projects to raise the economy of the East of Russia? What non-primary sectors and projects can be developed in the Far East?

- Let's take Primorye, for example. Here, at least six TOPs have good prospects. "Mikhailovsky" - agricultural production (primarily, beef cattle breeding) with a full cycle of processing, storage and efficient logistics. The volume of investments is over 4,5 billion rubles. "Nadezhdinsky" is a diversified trading and production site with a multimodal transport and logistics complex (the planned investment volume is about 9,3 billion rubles). Let's go further. "Pearl in the crown" - Rosneft petrochemical cluster "VNHK". Two stages of the project require almost 660 billion rubles, another (if everything goes well) is also a lot - 661-662 billion rubles.

ASEZ "Russky Island" is, of course, a research university and innovation. The volume of investment in a number of promising areas is still being determined and specified. But at least 3 billion rubles are already being recruited, for which there is clarity. ASEZ Zarubino is a universal sea terminal (grain, container, alumina, etc.), the estimated need is 60 billion rubles. Finally, "Sukhodol" - the construction of a fishing complex with the subsequent development into a similar cluster. Here the declared interests of investors have reached the level of 44-45 billion rubles. Apparently, this is not the limit.

As you can see, there is a fairly wide variety of non-raw materials. If we add the intentions to advance in shipbuilding, the aviation industry and the automobile industry, we get a quite promising development model, which is built into the Asia-Pacific region at the earliest approaches. Somewhat worse readily. As you know, in 2016-2017, 14 priority development areas are expected to be launched in the Far Eastern region. So far, only three have been selected, for which there is all the agreed design and estimate documentation, anchor investors, etc. are clear, and, consequently, the volume of government investments. In Primorye, this is the Nadezhdinsky ASEZ, plus Khabarovsk (transport and logistics complex) and Komsomolsk (aircraft industry). The investment economy is as follows: 23 billion rubles of state funds must correspond to 180 billion rubles of private investment.

However, there is a risk that the next steps this year will be more modest. The anti-crisis budgetary adjustments-2015 cut a number of areas of the Far East development program by 40-50%. In addition, the head of the Ministry for the Development of the Russian Far East, Alexander Galushka, recalled this again at a meeting of the government of the Russian Federation on March 12, “for a number of Far Eastern events within the framework of the FAIP, there is per capita underfunding compared to the national average, sometimes tens of times. It turns out that in order to reach advanced development, you first need to go through the catch-up phase. There is a feeling that the speed of the latter is decreasing. The promised state investments are, rather, a factor of 2016-2017. But at the same time, and an incentive to quickly bring to mind with the appropriate (preferably independent) financial expertise the remaining TORs with their projects.

- What priority measures, in your opinion, should the state take to keep the population of the Far East and attract young people from other regions of the country?

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- In my opinion, any measures are good that would not reduce, as is the case with the current state financing, but, on the contrary, would increase confidence in economic policy in the eastern direction. For people, especially young people, it is fundamentally important to have a confident sense of the sustainability of life prospects: work and career growth, a comfortable “living environment” for the family, social services, ecology, transport accessibility of the region, etc. The answers to these questions will be convincing, adequate motivation will arise for some to stay, and for others to come.

- What should be done to make Vladivostok or Khabarovsk become the second or third capital of Russia? Why did the plan to move the main offices of government departments and large state-owned companies to the Far East failed?

- Here, again, the factor of trust is essential. In fact, many even top managers in departments and in companies are thinking to themselves, is this not just another fashion campaign? If you are to come seriously and for a long time, you need to understand where, and most importantly - why. The investment climate is still worse than the Russian average. According to the RSPP polls, in the Far Eastern Federal District more than half of the respondents noted, for example, the “very poor” state of the exchange infrastructure and access to it. More than 40% of the lowest ratings were given to the availability of real estate and land. According to these indicators, the business feeling in the Far Eastern Federal District is the worst in the Russian Federation.

Therefore, the formation of an investment environment adequate to its state in the leading economies of the Asia-Pacific region is a top priority. Without this basis, there will be no development, not only advancing, in general. The fundamental component is to support the export of medium-sized businesses that are capable of creating new market niches around their “product lines”. And of course, such a landmark milestone on the eastern vector as the return to Vladivostok (for the first time since 1909) of the status of a free port with a simplified tax regime. After all these actions, it will probably be possible to place new capital serial numbers.

- What do the strategic interests of Russia look like in the Eastern direction today? How do you see the role of the SCO in the near and long term?

- In short, this is our route to the new global economy, emerging literally before our eyes in the course of structural transformations that began before the crisis of 2008-2009, but greatly accelerated by it. Naturally, without the development of Eastern Siberia, we will simply be stuck at the start.

As for the SCO (Shanghai Cooperation Organization - ed.), This is a useful tool, already quite influential in foreign policy scenarios (especially in terms of developing responses to new challenges to international security in the region). In the economic field, the use of its potential is not yet entirely optimal. The situation, I believe, will change as our own strategy becomes overgrown with details that turn it into a proposal for partners, from which it is difficult to refuse.

- Do the relations with China have real chances for success, and under what conditions?

- There are chances, and considerable. Now, in my opinion, the time for their positive revaluation begins. Let me explain what I mean. At the beginning of the year, a warning bell sounded: in January, Russian-Chinese mutual trade fell by a third. The reason is structural barriers associated with a high share of energy raw materials, market prices for which have gone down sharply. And this is the first challenge. If the spheres of economic interaction are not diversified, the risk of reproduction of hydrocarbon dependence may be realized, but this time in the eastern direction.

Large-scale gas projects (including the expected signing of an agreement on the so-called "western route" in May) are, of course, great. In addition to solid earnings, we also get a powerful driver for the development of our territories. Power of Siberia is already seriously supporting the domestic industry. Without it, the decline (1,6% in February) would have been steeper. But what will the gas market in the Asia-Pacific region be like in 10 years? The forecasts show an increase in the share of LNG and a reduction in the premium to the American and European markets. On the other hand, "pipe" gas provides the basis for the formation of oil and gas chemical clusters in the Far Eastern Federal District. And this is a different order of added value and a new level of partnership with a neighbor, for example, in the same chemical complex, the creation and production of new materials, etc.

The second challenge (in terms of opening opportunities) is China's course to change the economic model, which is ultimately oriented towards a multiple expansion of domestic demand. The growth rates of the main indicators are slowing down. In the current year, GDP may add about 7% or even slightly less. But there is a structural reform agenda and a course for its implementation, although everything is proceeding rather slowly and not without the accumulation of new imbalances. The Chinese economy will open up more and more. The liberalization of the financial market has already begun, restrictions on the participation of foreign investors in construction, mechanical engineering, electronics, etc. are being lifted. Ahead is the privatization of state assets, the wider use of mixed forms of ownership.

The expected result of this strategy is a multiple increase in the capacity of the internal Chinese market. This means that our businesses need to be already there - to enter assets, participate in privatization, work in the financial market, use (for example, through currency swaps) the internationalization of the yuan, etc. It is clear that with this approach, investment cooperation should become a two-way street. This includes construction, infrastructure initiatives, the automotive industry, and much more.

All this is connected with the third challenge - an in-depth understanding of the logic of each other's development with an eye to the long term. It is often said that the average forecasting horizon in Chinese is the active life span of at least one generation. We need a comparable strategy, at a global level.

I am sure that the partnership with China will be the more successful, the more understandable (first of all, for ourselves) will be our own long-term positioning strategy in the world economy. I repeat, it is radically rebalanced and we need to find our function in these processes. After a couple of decades, in economic terms, the current polarity of the West and the East in general may be indistinguishable. But the role of one of their system integrators will always be in demand. It would be worth thinking about it.

Text: Taras Frumin, photo: MEDIAMAX