Informal cross-Informal cross-border exchanges: border exchanges:

reaction to reaction to institutional institutional transition transition Ryzhova NataliaRyzhova Natalia

Cand. of Science (in Economics)Cand. of Science (in Economics)Amur State University,Amur State University,Blagoveshensk, RussiaBlagoveshensk, Russia

PURPOSE PURPOSE --

is to develop of understanding concept is to develop of understanding concept of “informal border trade” with of “informal border trade” with regards to Russian-Chinese case and regards to Russian-Chinese case and to link it with paradigm of to link it with paradigm of “institutional market transition”.“institutional market transition”.

STRUCTURE:STRUCTURE:

1.1. theoretical background;theoretical background;

2.2. research methodology;research methodology;

3.3. comparison of Chinese & Russian border comparison of Chinese & Russian border openness; openness;

4.4. description of informal cross-border practices;description of informal cross-border practices;

5.5. assesment of informal China-Russian assesment of informal China-Russian exchanges & openness. exchanges & openness.

6.6. discussing how informal border trade is discussing how informal border trade is related to market transition.related to market transition.

11stst part part.. Theory of transition & Theory of transition & opennessopenness

In theory In theory following transition following transition paradigmparadigm must lead countries to must lead countries to show show good economic good economic performanceperformance..

The transition paradigm comprises The transition paradigm comprises flexible price regime, minimal flexible price regime, minimal government interventions, private government interventions, private ownership as well as ownership as well as openness to openness to international tradeinternational trade..

11stst part part.. Theory of transition & Theory of transition & opennessopenness

However there is empirical evidence that However there is empirical evidence that opennessopenness is not important for economic is not important for economic growth in Africa (Edwards 1998; growth in Africa (Edwards 1998; Yanikaya 2003 and others). Yanikaya 2003 and others).

Moreover trade openness may even retard Moreover trade openness may even retard growth (Baliamoune 2002). growth (Baliamoune 2002).

Unexpected outcomes for African countries Unexpected outcomes for African countries can be attributed to low quality can be attributed to low quality institutionsinstitutions..

11stst part part.. DefinitionDefinitionIn the research context In the research context absence of ‘rule-absence of ‘rule-

of-low’of-low’ = informal cross-border trade. = informal cross-border trade.

Informal cross-borderInformal cross-border trade can be trade can be referred to as referred to as

(a)(a) largely unobserved largely unobserved trade of goods and trade of goods and servicesservices, passing through, and in the , passing through, and in the

neighborhood of the established customs neighborhood of the established customs points along the borders of countries points along the borders of countries ((in in

the broad sensethe broad sense))(b)(b) unobserved unobserved people’s trade of goodspeople’s trade of goods in in

the neighborhood along the borders of the neighborhood along the borders of countries countries (in the narrow sense)(in the narrow sense)

11stst part part.. Statement of the Statement of the

research topicresearch topic

Despite occasional papers about Despite occasional papers about informal border trade in Inner Asia, informal border trade in Inner Asia, there is a little evidence about there is a little evidence about current situation with Russian-current situation with Russian-Chinese, Russian-MongolianChinese, Russian-Mongolian and and other cases in the literature. other cases in the literature.

22ndnd part. part. Methodology MethodologyCase-study approach. Case-study approach. Pair of Pair of

borderline cities Blagoveshensk and borderline cities Blagoveshensk and Heihe is examined as a special case. Heihe is examined as a special case.

Study designStudy design comprises inclusive comprises inclusive observation, statistical data, mass-observation, statistical data, mass-media publications, as well as media publications, as well as individual interviews. individual interviews.

Blagoveschensk

Heihe

Heihe (PRC)

A m u r r i v e r

Blagoveshchensk (RF)

33rdrd part. part. Chinese border Chinese border opennessopenness

““Open border belt” includes:Open border belt” includes:

Capitals of borderline provinces Capitals of borderline provinces Borderline cities with openness status Borderline cities with openness status

((HeiheHeihe and and SuifenheSuifenhe of Heilongjiang; of Heilongjiang; HunchunHunchun of Jilin Province; of Jilin Province; Manzhouli Manzhouli and and ErenhotErenhot of Inner Mongolia Region; of Inner Mongolia Region; Tacheng, Bole Tacheng, Bole andand Yining Yining of Xinjiang Uygur Region; of Xinjiang Uygur Region; Hekou, Wanding Hekou, Wanding andand Ruili Ruili of of Yunnan Province; Yunnan Province; Pingxiang Pingxiang andand Dongxing Dongxing of Guangxi Zhuang of Guangxi Zhuang RegionRegionсс

Border economic zonesBorder economic zones (the same cities + (the same cities + Dandong)Dandong)

Inland Inland ссustomsustoms Borderline trade zonesBorderline trade zones

33rdrd part. part. Chinese border Chinese border opennessopenness

““Open border belt” in Heilongjiang provinceOpen border belt” in Heilongjiang provinceCapital of borderline region

Harbin

Inland сustoms

Harbin, Suifenhe, Heihe, Tongjiang, Jiamusi, Huachuan, Fujin, Fuyuan, Raohe, Luobei, Jiayin, Xunke, Sunyu, Huma, Mohe, Dongning, Mishan, Hulin

Borderline trade zones

Heihe, Dongning, Suifenhe, Fuyuan, Tongjiang, Raohe, Luobei, Mishan, Hulin

Cities with openness status

Suifenhe, Heihe

Border economic zones

Suifenhe, Heihe and other zones with special status

Customs Customs

++

Absence of legislation concerning Absence of legislation concerning border trade border trade

33rdrd part. part. Russian border Russian border opennessopenness

44thth part. part. Informal cross-border Informal cross-border practicespractices Informal border practices exist in several Informal border practices exist in several

areas: areas: cross-border tradecross-border trade, public catering, , public catering, construction, industry (including mining), construction, industry (including mining), agriculture, logging; also job placement agriculture, logging; also job placement and intermediary services.and intermediary services.

Trade center. Heihe

44thth part. part. Practices of informal cross-Practices of informal cross-borderborder trade trade

Trade by barter is the form of border trade, when people offer goods in exchange for what they want, that is they swap goods for other goods (in Russian: “barter”, “tolknut’ po barteru”) Shuttle-trade (people’s trade = “xiaoer maoyi”) can be referred to as the activity in which individual (registered or not) entrepreneurs buy goods and import them for resale in bazaars or small shops (“chelnochnaya torgovlya”; “chelnoki”). Open, non-organized bazaars are temporary merchandising area where goods are exchanged or sold (“neorganizovannyi rynok”, “bazar”, “tolkuchka”, “tolchok”, “baraholka”). Open, organized bazaars are permanent merchandising area, marketplace where goods and services are sold (“rynok”, “bazar”). Commercial depot is permanent merchandising area for small-scale wholesale (“torgovaya baza”). Transport middle-men are organised, but informal and non-registered groups of “straw men”, who form firms with supervisors (“brigadier”) and carriers (“phonary”, lit. “lamps”), tourists who register the imported items under their names. The chief of the group is called a “brick”, (“kirpich”), or camel (in international practice use term mule). (In Russian: ”kirpichno-fonarnyi” bisness; “kirpitch”, “kemel”, “phonar’”, “pomogaika”) Tourist journeys form Blg to Heihe (or other Chinese cities) in order to buy goods for personal needs. These practice can be defined as shop-tours (in Russian: “shoptur”, “shopnik”) Also shop-tours are used for informal transport schemes.

Straw-men (“Kirpitch” &

“Fonaries”) at the border

“Baul” (“баул” = big carrier bag)

“Fonar’ ” has to prove that all items in his bag (“baul”) are for “personal use”. Otherwise bag goes to Customs Temporary Storage Depot followed by customs duties.

4th part.4th part.

44thth part. part. Dynamics of informal cross-Dynamics of informal cross-borderborder trade trade

Forms/ practices 1988-1991

1991-1993

1994-1998

1998-2000

2001-2004

2004-2007

2007-…

People’s barter +++ ++ +

Open, non-organized bazaars

+++ ++ +

Shop-tours +++ ++ + + + + +

Shuttle-trade (Russians traders)

++ ++ + + +

People’s trade (Chinese traders)

+ +++ +++ +++ ++

Open, organized bazaars ++ +++ ++ ++ +

Small-scale wholesale commercial depot

++

Transport informal schemes

++ +++ +++ ++

1998: “trade on the

ground” (open, non-

organized

bazaars)

2006: trade in kiosks and

open organized bazaars

4th part.4th part.

4th part.4th part.

Near of the biggest trade center “Amurskaya fair” in Blagoveshensk appeared “shuttle-

trader” in the bronze.

208: trade in trade-center

4th part.4th part. EnforcementEnforcement

Russian authorities regularly tried to increase Russian authorities regularly tried to increase border trade enforcement.border trade enforcement.

““24 cargos weigh 35 kilo and below were 24 cargos weigh 35 kilo and below were transported from China to Russia through transported from China to Russia through Nizhneleninskoe customs service point by Nizhneleninskoe customs service point by tourist group. Birobodzhan customs services tourist group. Birobodzhan customs services staff having investigation established that all staff having investigation established that all these cargos were received by tourist from these cargos were received by tourist from tourist agency representative. As a result tourist agency representative. As a result tourist agency was charged with smuggling”tourist agency was charged with smuggling”

(news from Russian Federal Customs Service official)(news from Russian Federal Customs Service official)

4th part.4th part. Main markers Main markers

…-1990 Soviet period

1990-2008 Market transition means new “markers”.

2009-… New “transition” means new “markers” (?)

Official discourse

“Fartsovka” (“фарцовка”, goods “for sale”), speculation, black marketing (“спекуляция”, “spekulyatciya”), etc.

Grey channels, grey import (серые каналы, серый импорт), shuttle trade (“челночная торговля”, “chelnochnaya torgovlyya”), etc.

Smuggling, grey channels, shuttle trade

Everyday discourse

“Fartsa” (“фарцаZ”), “Bombila/o” (“бомбила/о”), etc.

“Chelnochnaya torgovlyya”, “chelnoki”, “kirpitch”, “fonar’ ”, pomogai-ka (“помогай/ка”, help/er), “meshochnik”, “baul’schik” (“мешочник”, “баульщик”)

“Chelnochnaya torgovlyya”, “chelnoki”, “kirpitch”, “fonar’ ”, pomogai-ka (“помогай/ка”, help/er). Tourists

4th part.4th part. Conflict of interest?Conflict of interest?

(1) “(1) “In My Honest OpinionIn My Honest Opinion, , ““ourour” officials “protect” ” officials “protect” mythic “mythic “state intereststate interest”, but they don’t care about ”, but they don’t care about INHABITANTS RIGHTSINHABITANTS RIGHTS” ” (“(“Всё дело в том ИМХО - Всё дело в том ИМХО - "наши" чиновники "защищают" мифические "интересы "наши" чиновники "защищают" мифические "интересы государства", а на ПРАВО ГРАЖДАН своей страны – государства", а на ПРАВО ГРАЖДАН своей страны – плеватьплевать”)”)

(2) (2) Let’s set a custom-house on fireLet’s set a custom-house on fire ( (предлагаю сжечь предлагаю сжечь таможнютаможню))

// // IIloveloveMedvedevIMedvedevIlavelaveMedvedev…Medvedev…((ЯЛЮБЛЮМЕДВЕДЕВАЯЛЮБЛЮМЕДВЕДЕВЯЛЯЛЮБЛЮМЕДВЕДЕВАЯЛЮБЛЮМЕДВЕДЕВЯЛЮБЛЮМЕДВЕДЕВАЯЛЮБЛЮМЕДВЕДЕВАЯЛЮБЮБЛЮМЕДВЕДЕВАЯЛЮБЛЮМЕДВЕДЕВАЯЛЮБЛЮМЕДВЕДЕВАЯЛЮБЛЮМЕДВЕДЕВАЯЛЮБЛЛЮМЕДВЕДЕВАЯЛЮБЛЮМЕДВЕДЕВАЯЛЮБЛЮМЕДВЕДЕВАЛЮБЛЮМЕДВЕДЕВАЯЛЮБЛЮМЮМЕДВЕДЕВАЛЮБЛЮМЕДВЕДЕВАЯЛЮБЛЮМЕДВЕДЕВАЕДВЕДЕВА))

http://forum.amur.info/http://forum.amur.info/. Internet forum concerning changed enforcement. Internet forum concerning changed enforcement

55thth part. part. Assessment of informal Assessment of informal Sino-Russian exchangesSino-Russian exchanges

2000 2002 2003 2004 2005 2006

Foreign trade turnover

according to Russian statistics,

mln. USD 5347,2 7722,6 10248,5 13106,8 18469,4 26760,0

Foreign trade turnover

according to Chinese statistics,

mln. USD 8003,2 11927,4 15758,0 21225,5 29101,2 33386,8

Differences, times 1,50 1,54 1,54 1,62 1,58 1,25

Sources: Uncomtrade Database (http://comtrade.un.org)

countries level data

55thth part. part. Assessment of informal Assessment of informal Sino-Russian border tradeSino-Russian border trade

Source: Main indicators in cities at prefecture level (www.chinadatacenter.org); Amurskiy statisticheskiy yezhegodnik (Statistical Yearbook of Amur Oblast); Amurskyi Custom office. Internal statistical data.

1998 2006 2008

Differences between Export from Heihe and Import to Blagoveshensk, times

3,5 4,4 4,4

Differences between Export form Blagoveshensk andImport to Heihe, %

3,5 0,9 1,1

cities level data

55thth part. part. Assessment of openness Assessment of openness

  2000 2006 2008

Amurskaya oblast 6 4,6 4,5

Heilongjiang province 3,7 10,9 n/d

Level of “formal” export-openness (volume of export/ GDP, Gross Domestic Product) – according to the official data

Level of “formal” and “informal” openness of Amurskaya oblast (volume of turnover/ GDP) – according to author assessment

  2002 2006 2008

Formal openness (%) 4,9 7, 9 6,9

Total (Informal+ Formal) openness (%) 25,9 29,8 28,5

Source: www.chinadatacenter.org; Amurskiy statisticheskiy yezhegodnik (Statistical Yearbook of Amur Oblast); Amurskyi Custom office (internal statistical data); Central Bank Statistical data (internal)

5th part.5th part. SummarySummary

Unlike Russia, China created special border openness institutions.

Borderline regions have institutional asymmetry.

That is why Russian borderline region does not follow “transition paradigm”, as “transition paradigm” includes only

formal openness.

Formal economy of Russian region has become less open (in contrast to economy of Chinese provinces, which have become

more open).

Currently informal border trade plays a significant role in the economy of borderline Russian region, but authorities try to decrease

informality.

Market institutions were substituted by informal ones, which resulted in further strengthening of informality in border

Russian-Chinese exchanges.

Unlike formal openness, informal openness is perfect in the Russian region.

But does informal openness lead to market economy or not? And does reduction of informal openness develop formal

one?

Informal cross-border Informal cross-border exchanges: reaction to exchanges: reaction to institutional transitioninstitutional transition

Thank you for listeningThank you for listening

Author's photos as well as photos from AmurInfo site (http://www.amur.info/) are used to illustrate my findings.