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Russia and China: who needs whom?

Interim results of Russian-Chinese economic cooperation after the "turn to the East"

The impetus for the "turn to the East" was the aggravation of Russian relations with Europe and the United States against the backdrop of the annexation of the Crimea and the conflict in the territory of Eastern Ukraine. The very idea of ​​a "turn to the East" seemed at that moment to be a breath of fresh air: the most active foreign policy activity was now associated not only with confronting the West and imposing sanctions, but with building constructive relations in the East. Russia has a new positive international agenda.

Russia and China: who needs whom?
Photo: Vladimir Putin and Xi Jinping signed a Joint Statement of the Russian Federation and the People's Republic of China on Further Deepening the Relationship of Comprehensive Partnership and Strategic Cooperation, July 2017. Source: kremlin.ru

Vyacheslav Kushnaryov

Director of the Far Eastern Institute of Management RASHiGS
SPECIAL RELATIONSHIP: SUCCESSES OF RUSSIAN-CHINESE COOPERATION
The loudest success of the first year of "turning" is considered to be contract between oil and gas giants of Russia and China - Gazprom and CNPC. The contract involves the supply of gas to China for the next 30 years, beginning with 2019. Russia will receive a total of $ 400 billion for this. The largest Russian state corporation Rosneft also developed the Chinese direction. This year, with the CNPC, the 2013 contract was extended for the supply of oil through Kazakhstan, with Rosneft will build Refinery in Tianjin, with the energy corporation Huaxin Rosneft signed the a long-term agreement this September, Sinopec and Rosneft agree on the joint development of deposits in Siberia and on the construction of an oil refinery in Russia. Moreover, in September it was announced, that the Chinese corporation CEFC buys 14% of Rosneft shares from Glencore and the Qatar sovereign fund QIA.

China today is the main importer of petroleum products in the world; therefore, for the Russian raw materials economy, the projects described above are a fairly logical step. Much less obvious was the development in the military-technical sphere. China has long been actively importing Russian weapons, but Russia has always recognized the risks associated with copying domestic equipment. Therefore, the latest developments and equipment of strategic importance for the country's defense are not subject to sale to China. But after the "turn" occurred significant changes in the valuation of such sales. Director General of Rosoboronexport in 2015 saidthat "if we work in the interests of the PRC, then we work in our own interests." In 2017, it was taken decision about the supply to China of modern air defense systems C-400 and SU-35 fighters. Experts notethat such a decision was made possible by reducing the risks of copying - China today already relies more and more on its development, and in some areas (for example, unmanned aircraft) ahead of Russia.

Against the backdrop of actively negotiated contracts in the oil and gas and military-technical spheres, agreements from other spheres are dying, and many have been concluded at the intergovernmental level. Even during the first Chinese visit, V.V. Putin in 2014 year were signed the order of 40 commercial contracts, among which there were many non-resource projects - from the development of a wide-body aircraft to the construction of infrastructure for the elderly.

Russia also managed to determine its role in China’s implementation of the One Belt and One Road Initiative (OP-OP), a huge infrastructure project that should link China with the Middle East and Europe. In May, 2015 was signed the agreement on conjugation of the Eurasian Economic Union (EAEU) and OP-OP, which should result in the implementation of a number of joint projects. To smaller scale achievements, the RFPI Russian-Chinese investment fund for $ 1 billion can be attributed. Another 17 projects are being implemented under the aegis of the Russian-Chinese intergovernmental investment cooperation commission, whose total cost is about $ 15 billion. In August this year, Rosatom and Russian-Chinese regional development investment fund deal on partnership in the construction of nuclear power plants in third countries. Most recently, we are talking about unification of Russian and Chinese payment systems "Mir" and UnionPay.

Russia and China, along with other developing countries, often jointly criticized international financial institutions under the auspices of the United States for the injustice of the decision-making procedures within organizations. In particular, developing countries, which most often need the help of these institutions, have the least influence on the development of their decisions. To solve this problem, China and Russia already had a common platform - BRICS, on the basis of which the New BRICS Development Bank was created with a similar IMF package of functions. Bank started work in 2015 year and already singled out Russia means for development programs. Also, the Russian Federation in its role co-founder participated in the formation of the Asian Infrastructure Investment Bank (AIIB), a major development institution under the auspices of China, which was joined not only by the countries in the region, but also by European states seeking to increase their economic presence in rapidly developing Asia. Size of authorized capital should make order $ 50 billion with a further increase to $ 100 billion.

With particular pride, the media wrote about a significant increase in the number of Chinese tourists. In 2015, almost 600 of thousands of Chinese tourists arrived for tourism purposes. Visited Moscow spent in the capital, about one billion dollars. First quarter 2016 of the year registered the increase in the tourist flow from China by 74% compared to last year. And in the last Chinese week-long weekend in honor of the Education Day of China, Russia was the first in the list of the most popular tourist destinations of Chinese citizens, surpassing Thailand and Vietnam. Last but not least, the number of Chinese tourists increased due to the simplification of the visa regime for Chinese tourist groups and the devaluation of the ruble against the backdrop of falling oil prices.

Finally, the frequency of visits by the first person of the state is a diplomatic criterion for the quality of relations between countries. Before the 2014 year, Vladimir Putin visited the PRC on average once every two years (and at the same time no more than one visit per year). During the same 2014-2016 years. visits were noticeably more frequent. In 2014, these are two visits - in addition to the already mentioned May visit, also the November APEC summit. In 2015, Putin came to celebrate the victory in the Sino-Japanese War. In June 2016, the president led a delegation that signed a couple of dozen documents with the Chinese side (the same year, the G-20 summit in China, which Putin also visited) was signed. In 2017, Putin came to the PRC once.


EXPLANATORY ASYMMETRY: PROBLEMS AND OPPORTUNITIES
If you look at the number of visits of the Chinese leader, then a completely different picture is drawn. Xi Jinping visited Russia once in 2015 and 2017 years, which, taking into account the visit of 2013, points to the schedule of "one visit in two years". Such a slight asymmetry in the number of mutual visits reflects asymmetry in virtually all areas of cooperation.

Many contracts concluded between Russian and Chinese firms raised questions about the fairness of pricing. Such contracts include the largest transaction of Gazprom 2014 year. In turn, the Chinese oil state corporation CNPC predicted a rather conservative increase in demand for gas, which made the situation look like a political concession than a deal. In 2015 year discussed an additional contract for the supply of gas under the Altai project ("The Power of Siberia -2"), but due to a sharp drop in the price of hydrocarbons, its payback was in question, and China is not going to overpay. Because of falling prices Suffered and a contract already concluded, as traditionally contracts for gas supplies are tied to spot prices. However, it is not necessary to worry about the termination of cooperation in the energy sector, since these agreements were made at the highest level. These projects are important from a political point of view.

And it is precisely such projects that most often find a response in the Chinese elites. Therefore, such “political” banks as the China Development Bank and the Export-Import Bank are actively involved in working with Russia. But how write experts, many other corporations, are afraid to cooperate with Russia, they see in it a lot of risks. In addition, due to the fact that many large Chinese companies operate in the US and European markets, participation in transactions with Russia can inflict reputational damage on them. It is quite indicative that to the Western sanctions informally connected the four largest Chinese banks.

The importance of political approval of major transactions is inherent in both Russia and China. Therefore, the presence of high-ranking officials favorably affects the investment mood of major forums. The presence of the first person strengthens this effect many times, and vice versa. In the program of the first Eastern Summit in Vladivostok, the president was scheduled to meet with major Asian investors (together managing $ 5 trillion). But at the last moment Putin's participation was reduced to a short speech, after which he left investors, which, obviously, caused their discontent.



Perhaps the most unpleasant story is related to the Russian-Chinese trade, which, a year after the announcement of the "turn" fell by 30%. The reason for this, most likely, was the fall in oil prices and the subsequent shrinking purchasing power of the population in conjunction with the pessimism of entrepreneurs. Therefore, the entire trade between Russia and the rest of the world led to in some moments, even to a slight increase in the share of China. For Russia, China is a top importer - about one-fifth part of all imported products hailing from the PRC. For China, Russia is somewhere between Vietnam and Singapore with a share in China's imports, constituent modest 2,5%.

What could have a positive impact on the turnover, but that while only partially recorded by the services of state statistics, is online trading. In recent years, one of the world's largest companies Alibaba through its service, AliExpress, has been actively expanding. In 2015 year playground has become most popular in Russia among online services. Today in the State Duma are discussed bills that impose separate (and very high) duties on foreign purchases on the Internet, which will almost certainly lead to a noticeable drop in it. This does not look very friendly to Chinese producers, who hold a significant share of online trading and whose prospects were very optimistic. Russian companies on the wave of enthusiasm tried to enter the Chinese market, but faced a huge number of obstacles caused by the specifics of doing business in China. Significant progress in these three years has not yet been heard, but it is known that some still managed, at least, to gain a foothold (for example, "Dodo Pizza" by Fedor Ovchinnikov).

“Turning to the East” was a political decision, therefore economic cooperation to some extent remained political: the largest contracts are oil and gas agreements between state corporations and shifts in the sphere of military-technical cooperation. For private business in both countries, reciprocal investment remains quite risky: compared to other countries, Russians have for the last three years lost much of their purchasing power and are not willing to spend actively; China for Russian business is a complex and not very clear environment. Large investment projects do not bring quick results, so you have to wait a few more years. At the same time, the Chinese are not in a hurry at all, since Russia for them is the same economic partner as three dozen others. All this in aggregate, especially against the background of the euphoria of the idea of ​​"turning" in 2014, causes so far only cautious optimism. But, nevertheless, China is the fastest growing country in absolute numbers. In Russia, China has become very actively interested, and China still treats us quite well. So now it makes sense, at least, not to turn away from the East.

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