Economic cooperation

China and Russia, as complementary economies and energy players, seem to be well- matching in many economic sectors. It seems to be relevant to call this as strategic convergence.

Strategic convergence can be defined as the overlap of key resources, capabilities and interests with regard to long-term developments in the global context, which provides the basis for extensive strategic and tactical cooperation between two or more states.

In order to examine strategic convergence between China and Russia, one should analyze both material and ideational factors.

“Material factors” mean physical and economic aspects, with the emphasis on complementary economies, natural resources (like oil and gas), geography and technology.

“Ideational factors” refer to ideology and political values with focus on views like separatism, terrorism, democracy, human rights and the common threat.

Nearly fifty years have passed without any hostile clash along the over joint 4000 km China–Russia border. Given the historical armed conflicts, a peaceful border is viewed by officials in Beijing and Moscow as a paramount mutual interest in itself.

Two countries also share contiguity with the vast Central Asia region, which they both wish to see as stable and secure. Because the Chinese and Russian governments share a fear of internal threats to national unity, in Central Asia they strive to jointly and multilaterally prevent the regional spread of terrorism, separatism and extremism. Furthermore, both seek to limit the US influence in Central Asia. Officially, China and Russia pursue common interests in Central Asia through the Shanghai Cooperation Organization (SCO).

US sanctions, trade wars and protectionism increasingly strengthen energy bonds between Russia and China in 2018 – 2019 and far beyond into the future. Energy ties between China and Russia will see deepening development as the neighboring countries are planning to jointly work on the Arctic shelf projects.

The natural resources, strategic raw materials, that Russia has and that China needs, extend far beyond the energy sector. China is already the world’s largest consumer of steel, cement, copper and many other raw materials. Russia has a strong position in the global supply of many strategic non-ferrous metals necessary for the type of industrial production at the core of China’s strategy for continued economic growth. Whatever happens in domestic politics in the two countries, in the diplomatic relations between them and in world politics, resource-rich Russia have many of the commodities that the Chinese need and the Chinese will be able to provide vast non-Western markets for Russia.

New opportunities for Russia-China bilateral trade is opening due to US induced punitive measures. According to China Overseas Development Association (CODA), Russian companies have expanding strongly their business in 2018-2019 in China, especially agricultural trade has enlarged and increased fast (incl. soybeans, corn, meat, grains, honey, wheat and other goods).

The complementary feature of Russia and China in the “power” sectors ensures the possibility of expanding the volume and improving the quality of economic cooperation.

Today, Russia–China trade and economic cooperation is still mostly in the domain of major companies. Russian and Chinese small and medium-sized businesses note the lack of information on the specifics of doing business in the other country, especially information on local legislation. To remove these obstacles to cooperation, relevant educational and training programmes have been developed by the Russian Export Center in partnership with academic bodies and businesses that have experience with working in China.

Since 2016, besides “old economy” sectors (energy and heavy equipment industries and the financial infrastructure), some promising results are seen in new areas as well: cross-border e-commerce, trade in the products of the agro-industrial complex and tourism. These results may be largely due to structural changes in the Chinese economy, where city consumers are gradually becoming the new driver of growth.

Russia’s Far Eastern regions continue to develop the institutional environment and transportation infrastructure for expanding cooperation with China and to attract investments.  New signed documents demonstrate the parties are interested in increasing the role of technological partnerships.

The second largest Russian export category is wood and wood products representing a substantial growth in value terms. China retained its status as the biggest buyer of Russian timber. The third largest export category, machinery and equipment, is also growing. The largest sub-category here remained nuclear reactors, boilers, equipment and mechanical appliances and parts. Trade of agricultural produce and agribusiness are increasing substantially.

A relatively new trend in Russian Chinese trade and economic relations has become cross-border online trade. By late 2016, the share of Russians making purchases on Chinese online stores had grown to nearly 60 percent. The popularity of Chinese online stores in Russia is explained by the broad range of products they offer and the low prices.

Efforts have been made to create Russian online platforms for exporting Russian commodities. In September 2016, the Russian national pavilion was inaugurated at TMall Global (part of Alibaba Group) as part of measures agreed at the 20th St. Petersburg International Economic Forum. Several other online platforms created in 2016 are also dedicated to the export of Russian pro ducts to China.

Cooperation in investments, finance and banking.

Russia and China have developed noticeable bilateral investment cooperation in recent years, but the level of interaction still does not meet the expectations of the two parties. While assessing the market access measures, the tariff levels, high entry thresholds for foreign investments, low level of openness of domestic market, insufficient development of domestic financial markets and complicated hiring procedures, both nations are far from the optimal situation. Lifting these barriers is important for the expansion of mutual investments.

According Chinese and Russian economists, it would be wise to consider establishing a free trade zone (FTZ) between the two countries. The creation of an FTZ could provide important institutional guarantees for the growth of trade turnover and optimizing the trade structure. FTZ could also help improve the investment climate by lowering the market access threshold and creating a favorable environment for the expansion of mutual investments.

Russia and China demonstrate similar approaches to the development of the global economy amid the threats that protectionism and unilateralism. The America First policy adopted by Trump Administration entails unilateralism and the withdrawal from a number of international associations and agreements. Russia and China are responding to external challenges working even more together and bolstering bilateral economic ties to counter pressure from the US.