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Sino-Russian Relations:
Current Status and Challenges Ahead
April 20th 2015
Hong Kong
Elena Sushkova
SKOLKOVO Institute for Emerging Market Studies
SKOLKOVO Business School - Institute for Emerging Market Studies (IEMS) 2
Evolution of Sino-Russian relations R
ussia
C
hin
a
1949 1989 1956 1969 1979 2001 2013
The blossom of
Sino-Russian
Friendship
Sino-Soviet
Treaty of
Friendship,
Alliance and
Mutual
Assistance
USSR builds
plants, bridges
and roads in
China, assists
with education,
healthcare and
weapons
Sino-Soviet split
Ideological debate between Nikita Khrushchev and
Mao Zedong;
cancellation of all mutual agreements;
Sino-Soviet border conflict (Damansky island)
After the short period of Khruschev Thaw, USSR
enters the era of Stagnation and gets involved into
Afghanistan. All relationships with China are ceased
The revival of Sino-Russian relations
Mikhail Gorbachev’s visit to Beijing in 1989 laid a foundation for the
revival of relations;
Russia and China signed mutual declarations in 1992, 1994, 1996
and 1997;
In 2001 Jiang Zemin and Vladimir Putin signed a major agreement on
Sino-Russian relations - Treaty of Good-Neighborliness and
Friendly Cooperation Between the People's Republic of China
and the Russian Federation
2014
The new stage of Sino-
Russian relations
Vladimir Putin’s visit to
Beijing in May and
October 2014 have
triggered a series of
agreements and allowed
Russia to strengthen ties
with China
Western sanctions
accelerate Sino-
Russian relations;
More than 40
agreements are signed
in banking, energy,
transportation, finance,
agriculture, etc.
Socialist Transformation (Mao Zedong)
Era of Economic reforms (Deng Xiaoping,
Jiang Zemin)
Economic growth and
rising importance of
domestic issues (Hu
Jintao)
The era of structural changes, new
round of reforms under Xi Jinping
USSR enters the period of perestroika and eventually breaks up
in 1991. Russia launches new economic reforms, transists to
market economy with privatization of industries
China has undergone a turbulent period of Great
Leap Forward, Anti-Rightist Campaign and
Cultural revolution
Border conflict
Economic
reforms
Mikhail
Gorbachev’s
visit
China entered
WTO
Third Plenum
Reform Plan
Western sanctions End of USSR
1991
Through Economic reforms and openness policy China has achieved an
unprecedented growth during several decades. However alongside fast industrial
development China faced the necessity of structural changes
In November 2013 Xi Jinping unleashed
an set of economic and social reforms
aimed at the rebalancing of the economy
Three levels of relationship
Private Business
General Public
Government and State companies
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Intergovernmental cooperation
Supernational Government
Organizations
Shanghai Cooperation Organization
BRICS
Asian Infrastructure Investment Bank
APEC
Intergovernmental commissions
Russian-Chinese commission for preparation of the regular
government head meetings*
Russian-Chinese Commission for Investment cooperation
Russian-Chinese commission for Energy cooperation
Russian-Chinese commission for Academic cooperation
Associations
Chamber of Commerce and Industry of Russian federation in
China
Russia-China Chamber for Trade Cooperation on Machinery and
Innovative Products
Russian-Chinese Business Council
Russian-Asian Union of Industrialists and Entrepreneurs
*includes subcommissions on trade and economy, science and technology,
transport, nuclear energy, communication and information technologies,
cosmos, finance, environment, civil aviation and avaiconstruction, customs
and agriculture
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State-backed industrial initiatives Industry Russia China
ENERGY Gazprom (30-year contract with CNPC), Rosneft, Novatek, RusGidro, Rosatom, InterRao, RAO Energy Systems of East, Rosseti, Sibur Holding
CNPC, Sinopec, PowerChina, China Atomic Energy Authority, Huanen, Dongfang Electric Corporation, State Grid Corporation of China
PETROCHEMICALS Sibur Holding (Joint Venture with SinoPec) SinoPec
CONSTRUCTION Eurocement China CAMC Engineering, China Triumph International Engineering, SINOMA International Engineering
TRANSPORTATION United Aircraft Corporation (Joint Project with COMAC on wide-body aircraft), Russian Railways, Russian Machines, Moscow city government, UralVagonZavod, Volga Group
COMAC, China Railway Corporation, NORINCO, China Railway Construction Corporation Limited, Jizhou Zhongyi FRP Co. Ltd., Chinese Harbour Engineering Co
SCIENCE, TECHNOLOGY AND
IT
Rostelecom, Russian Railways, Foundation for development of the New Technologies Development and Commercialization Centre (SKOLKOVO)
Huawei, Zhongguancun Science Park,
SPACE Russian Federal Space agency (cooperation of GLONASS and BeiDou navigation systems)
China Satellite Navigation Office
FINANCE VEB, VEB-leasing, Gazprombank, VTB, Russian Direct Investment Fund (Russia-China Investment Fund), Export Insurance Agency of Russia
The Export-Import Bank of China, China Development Bank, Bank of China, Vcanland, HOPU Investments, China Investment Corporation, China Export&Credit Insurance Corporation
RESOURCES Baikal Mining Company Hopu Investments
MILITARY Air-defence missile system S-400, heavy helicopter Mi-26 production in China
Politics drive Sino-Russian alliance
The economy remains largely politicized. State and state affiliated companies get full government support and financial incentives, as well as access to accumulated government and academic expertise, usually have resources to develop internal China research departments
Political leverage helps business. The relationship between Chinese and Russian companies is usually based on intergovernmental cooperation framework. State companies rely on intergovernmental agreements and sign contracts backed up by government support
Cross-border relationship is getting the momentum. Recent government initiatives have triggered the development of the region and activated bilateral projects. (Special development zones; localized resources transfer; Vladivostok free port; key attractiveness in infrastructure, resources, energy&electricity, agriculture)
Sensitive point for the government is the area of Eurasian integration. Some regional Russian and Chinese interests overlap, while many regional infrastructural and industrial initiatives are being discussed
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Russia-China Trade
Source: EY, Rosstat
$53 677 bln $41 607 bln
Russia mainly sells mineral resources to China and imports
machinery, industrial products and durable goods
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Bilateral Trade and Export&Import
In 2014 Russia and
China’s combined trade
reached $95 285 bln
(6,8% up).
The growth increase is
mainly due to Russian
export to China (+15,2
p.p.)
Export from Russia to
China reached
$41 607 bln (+4,9%)
Import from China
reached $53 677 bln
(+8,2%).
In 2014 ruble depreciation have had a downward influence on bilateral trade
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Private Business
Large Enterprises •En+ (with Shenhua) •Lukoil (ex-partner with Sinopec)
•Vimpelkom (loan from CDB and Bank of China)
•Yandex (e-commerce project with PayEase)
Small and Medium Enterprises •Yota Devices (YotaPhone 2) •PC & Consumer Electronics: Roverbook, Bork, Scarlett
•Clothes& Foot wear: Gloria Jeans, Carlo Pazolini
•Electronics: Fly, iconBIT, Prology, Treelogic
Except for several big projects (related to resources), Russian private business mainly have a certain element of the value chain placed in China (such as production or assembly)
Majority of private businesses purchase goods in China in order to resell them in Russia and CIS
Private business has no external support
– Lack of external financial support
– No access to government financing
– Low quality risk insurance mechanism
– Lack of lobbying mechanism on Chinese territory
Challenges: language, culture, distance
Private Business
Russian business has 20-year experience gap with China compared to the western counterparts. Russian business is very young, it mostly emerged in late 80s-90s. Currently, both Russian and Chinese businesses operate in parallel world.
Russian private business, apart from few resources projects, mainly purchase certain goods (electronics, consumer goods, clothes&footwear, etc.) from China for future resale. – Small and medium enterprises invest into production in China or place orders
for certain goods. Very few companies sell to China (YotaPhone, Splat).
– However, the agriculture industry seems to be relatively prospective, as Russian agricultural products (grain, vegetables, etc) and food & beverages are gaining the momentum.
On the opposite, Chinese companies sell a lot to Russia. IT companies are conquering domestic market, automobile giants are building plants in Russia. – Chinese export to Russia is growing significantly. In 2014 machinery stood for
36,2% of Chinese export to Russia.
– Moreover, the level of FDI is also growing as Chinese involve into joint projects on Russian territory, especially related to land or resources
Joint businesses are hard to execute, due to lack of mutual business culture understanding and common business experience.
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People perception of China
SKOLKOVO Business School - Institute for Emerging Market Studies (IEMS)
Perception gap. General public lack of clear understanding of China. On the one hand, Russians tend to perceive China as a closest “friend” (Source: Russian Public Opinion Research Center, 2014)
– 49% of Russians think that China is primarily an economic partner
– 43% of Russians see China as a friend in the future, 36% - as a close partner
– 60% of Russians are confident that Russia-China partnership is mutually beneficial
On the other hand, in discussions related to China political discourse is dominating. Mutual understanding is very fragmented (except for food and cinema).
11 Source: IEMS
China coverage in Russian mass media
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Educational gap. Lack of mutual academic and business programs
Western countries has been actively studying China, creating academic programs and building business partnership with Chinese companies for more than 30 years. During this period western countries have raised their own professionals in Chinese culture, politics and economy, who possess not only theoretical knowledge, but also practical experience.
Russian Soviet sinological school was very strong, but during Sino-Soviet split (especially after 70s) the quality of studies started to decline. With the improvement of relationship with China in 1989, more professionals were trained, but due to lack of business cooperation they mostly stayed in academic or government institutions. Only in the recent 3-4 years there has been an increase demand for the business practitioners.
Moreover, Russian entrepreneurship is still very young (25 years), and most of the professional managers and entrepreneurs have been trained in the West and lack understanding of China. Russian companies are less competent in developing international business, and also less confident in their actions on Chinese market. Very few have a deep understanding of Chinese business and political culture, therefore in the next 3-5 years a great demand for such specialists will exist.
Education
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Travel
– 1st place in inland tourism: more than 1 mln Chinese visited Russia in 2014
– The depreciation of ruble and no-visa regime attracted more tourists
The gender imbalance provides incentives for cross-cultural marriages, especially in the Far East:
– Russia has 77 million women to 66 million men
– In China men outnumber women by at least 30 million (20% of men will be unable to marry in the future)
Social lift for less privileged Chinese citizens
– Free land to boost Chinese population in Russia’s Far East
Demographic situation
Source: Index Mundi
Key Findings
The government relationship is very warm as it has never been in the several decades
The business relations still tend to be very cautious: the absence of 20-year western China knowledge and basic “doing business in China” skills might make business with Chinese quite a painful process for business
The relations on general public level can be characterized as controversial due to perception gap.
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