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UPDATED: November 15, 2014 NO. 47 NOVEMBER 20, 2014
New Impetus
Facing challenges, China and Russia must extend their economic ties
By Shi Ze

Through concerted efforts spanning many years, China and Russia have completely resolved their border disputes through peaceful negotiations, marking a great diplomatic achievement for both sides. In 2008, the border demarcation work was completed.

Today, no major obstacles stand in the way of bilateral relations. In 2010, China and Russia vowed to comprehensively deepen their strategic partnership of coordination.

In a sense, cooperation between China and Russia can help them protect their core interests and maintain the balance of global power. But their efforts have focused more on short-term cooperation and coordinated emergency responses than strategic and long-term cooperation projects. As a result, bilateral practical cooperation has not become a priority, which, in turn, has hindered the elevation of Sino-Russian economic and trade ties.

Economic ties

There are several reasons for the still low level of economic and trade ties between China and Russia.

In the early 1990s, political turbulence and economic depression in Russia restricted its cooperation with China. For a long time, bilateral trade was much smaller than that between China and other economies in the world. During the same period, China's annual trade with the United States has topped $500 billion, and its trade with the EU is even higher. Even annual import and export volume between China and South Korea has reached $210 billion.

Economic cooperation should have been an important drive for deepening bilateral ties, but in fact, China and Russia have not become major trading partners of each other. Against the backdrop of the global economic recession following the 2008 financial crisis, improving economic and trade ties between China and Russia is urgent.

Currently, a major problem is the unbalanced trade structure between China and Russia. China is the world's factory of light industrial goods and machinery products. Meanwhile, Russia's economy relies heavily on exporting natural resources and energy. Exports of natural resources and energy account for 65 to 70 percent of Russia's government revenues and 85 to 90 percent of its foreign exchange earnings.

As China and Russia are seeking new impetus for the development of their bilateral relationship, they should put more emphasis on economic and trade cooperation given their post-crisis development challenges.

In the aftermath of the 2008 financial crisis, a recession hit developed economies and had a serious impact on emerging economies including China and Russia. Previously, economic growth of the two countries was driven by foreign investment and exports—a heavy reliance on overseas markets. Because of the recession, developed economies cut a large number of orders for Chinese manufacturers. China's exports dropped rapidly, while foreign investment in Russia also decreased sharply.

Furthermore, the recession impacted energy markets. In particular, the United States has reduced its dependence on oil imports since it made a breakthrough in exploiting shale oil and gas. The EU is also shifting its energy source away from Russia to other regions. Recently, falling crude oil prices on the international market has impacted the Russian economy. Under such circumstances, the huge Chinese market becomes an important alternative for Russia's abundant energy resources.

China's role in bilateral economic and trade cooperation is changing. In the past, commodities exports accounted for a major portion of China's trade with Russia, and the latter had to turn to developed countries to meet its foreign investment needs. But with China's rapid development over the past few years, it is now in a position to become not only a major trading partner but also a major investor of Russia.

At present, the United States, the EU and Japan have imposed economic sanctions on Russia over its role in the Ukraine crisis. Their businesses are barred from investing in Russia, forcing Russia to seek greater economic cooperation with China. In 2012, Russia entered into the World Trade Organization. The opening Russian market will provide Chinese enterprises with growing investment opportunities.

China and Russia are attaching importance to transforming their economic growth modes. The two countries each have their own advantages. Russia is a world leader in aerospace and defense technology and heavy equipment manufacturing; China excels in agriculture, light industry and information technology. The two countries can complement each other and unleash huge potential for economic cooperation.

In recent years, bilateral trade and investment has been on the rise, and major projects such as the east route of the Sino-Russian natural gas pipeline have also made progress.

Although China and Russia have built their strategic partnership due to national security and geopolitical challenges, the partnership cannot be sustained for long without a solid foundation of economic cooperation. Now their bilateral ties have been pushed to new heights as practical cooperative efforts have been introduced.

Xi and Putin have repeatedly reiterated to expand economic cooperation between the two countries, which is expected to consolidate their strategic partnership. China needs to cooperate with Russia to attain the sustainable development it seeks. Meanwhile, Russia also needs support from China to tackle the challenges of economic sanctions imposed by the West.

Furthermore, in the future, China-Russia relations will be enriched with more practical cooperation in a broad scope, including energy, science and technology, culture and people-to-people exchanges, which will push bilateral ties to a higher level and benefit the two peoples as well as the prosperity of the world.

The author is a senior research fellow with the China Institute of International Studies  

Email us at: yanwei@bjreview.com

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