Pivot to the East: Main Aspects of Russian-Chinese Relations

As Dmitry Birichevsky, director of the Department of Economic Cooperation of the Russian Foreign Ministry, said at the end of August, trade turnover between Russia and China in 2022 is growing at an enormous pace. According to the Russian Foreign Ministry, in 2021 the trade turnover between the countries amounted to about $140 billion.

Experts on Asian countries divide the entire spectrum of today’s Russian-Chinese relations into several aspects.

The first is commodity trading. And here we have with China, apparently, the prospects are very stable and bright. According to sinologists, the Celestial Empire will remain the largest buyer of Russian energy resources in the next five to ten years. And not only crude oil and gas, but also finished products of oil refining.

According to the General Administration of Customs of China, in 2021 the trade turnover between Russia and China reached a record $146.88 billion, an increase of 35.8% compared to the same period in 2020. The Chinese customs department notes that over the past year, exports of supplies to Russia increased by 33.8%, to $67.56 billion. Imports of goods and services from Russian suppliers to China grew by 37.5% to $79.32 billion. In turn, in January-July 2022, trade between Russia and China grew by 29% year-on-year to $97.7 billion.

At the same time, the authorities of Russia and China agreed to increase the volume of bilateral trade to $200 billion a year.

According to the Federal Customs Service of the Russian Federation, the first place in the structure of Russian exports to China is steadily occupied by energy resources – 71.4% of the total supply. In second place are wood, pulp and paper products – 8.4%. The third place in the supply chain to the Middle Kingdom is metals and metal products (6.6% of the total).

Meanwhile, a fly in the ointment nevertheless crept into the oil barrel. Despite the growth of foreign economic turnover, Russia is still not among the top 10 trade partners of China. In terms of imports from China, we are consistently outside the top ten and are ranked 11-13 in the rankings. China is Russia’s largest supplier of goods, accounting for 20% of all imports ($72 billion this year). The Russian market occupies only 2.4% of Chinese exports. Most Chinese goods go to the United States, followed by Hong Kong and Japan in second and third places. One could blame the covid pandemic for such modest results. But, as sinologists note, it has nothing to do with it.

– Russia has not been among the top ten trading partners of China for decades. The influence of the incomparability of the scales of our economies comes into play here. Even with little Vietnam, China’s trade turnover reaches 200 billion US dollars. And this despite the fact that Vietnam deliberately restricts flows, allowing the transportation of Chinese goods exclusively on Vietnamese ships, – explained the deputy director of the Institute of the Far East of the Russian Academy of Sciences Andrey Ostrovsky.

Director of the Institute of Asian and African Studies, Moscow State University Alexey Maslov, on the contrary, believes that such a balance in trade allows us to keep a positive balance: at the moment, Russia is the only country in the world that has a trade surplus with China. Unlike other countries, we sell more to the Chinese than we buy from them.

The second important aspect of Russian-Chinese relations lies in the agro-industry. In recent years, we have significantly expanded our exports, and we have no reason to stop.

For example, the supply of Russian beef to the Celestial Empire for the eleven months of 2021 showed an increase of 2.4 times compared to 2020 and reached 17 thousand tons. According to economists, the share of China is about 10% of the total agricultural exports of the Russian Federation.

– In China, there will be a shortage of agricultural products for years. First of all, it is environmentally friendly and organic food, cereals, soybeans, rapeseed. If everything goes well in Russia in terms of harvest and there are no failures in agriculture, we will soon become the largest supplier of products for China. This will ensure the loading of Altai, Krasnodar and Irkutsk manufacturers, – Alexey Maslov explained.

On the other hand, Russia has now changed the strategy of economic work with China. Now we are negotiating the purchase of not finished products, but production lines. For us it is very important. First of all, such a policy will give us the production of high-precision equipment.

“We now have a problem with Taiwan, their company TSMC has stopped supplying microprocessors to Russia, although China itself does not have similar production processes, but we can establish production, including in Zelenograd, that will satisfy our needs,” says Maslov.

Another important area on the Russian-Chinese track is the banking and financial system. Today, we are not even talking about abandoning the dollar in favor of direct settlements under the ruble-yuan scheme, but about creating a new joint supranational currency for cross-border payments between Russia and China, the expert explained:

– The fundamental decision has already been made: we are moving away from the dollar. But here the main question is that either we are moving towards the yuan, since the ruble is worse secured, or we are working on creating a new currency that will depend not only on the decisions of Russia and China, but also of a number of other countries. First of all, the SCO and BRICS member countries. There is great potential here.

The fourth very important point is the creation of a trade system within the EAEU and the Belt and Road system. Such a system will not depend on sanctions. It assumes the absence of tariff barriers and a simplified system of customs corridors. As a result, we get cheaper products. True, for this our country will have to seriously invest in the creation of a new transport infrastructure and the modernization of the current one. The elements of integration of logistics chains should be the international transport corridors “Primorye-1” (Harbin – Grodekovo – Vladivostok / Nakhodka / Vostochny – ports of the Asia-Pacific region) and “Primorye-2” (Hunchun – Kraskino – Posyet / Zarubino – ports of the Asia-Pacific region). The project for their development is included in the Russian-Chinese cooperation program for 2018–2024.

In addition, it is convenient to trade with China by sea. In China, there are enough maritime logistics hubs. There are twelve main ports where foreign, including Russian, cargoes arrive. The largest is Ningbo-Zhoushan. But here a problem arises already on the Russian side: we do not have sufficient capacities of the merchant fleet, which is directly reflected in the new Naval Doctrine. Simply put, in order to effectively trade with the PRC by sea, we need to build ships.

Politically, Russia and China are also making serious positive shifts in relations. The two countries began to think about a joint form of geostrategy.

– Until that time, we actively discussed the contours of the world, but in practice we did not have any joint strategy. We are talking about a sanction-free world, a world that allows countries to make political, environmental and many other decisions that today, for various reasons, are not allowed to this process,” says Alexei Maslov.

On the whole, the Sinologists call the current processes on the world stage a continuation of the anti-colonial struggle. Although officially colonialism died in the 60s of the last century, nevertheless, even today it remains decisive both in trade and in politics. The new system, on the construction of which Russia and China are currently working, should provide equal access to knowledge, technology and information.

If earlier we said that Russia really needs China, now the model has changed exactly the opposite. China badly needs Russia not only as a source of energy resources, but also as a partner. If it were not for Russia on the world stage, the Celestial Empire would be face to face with the United States. It would be very difficult for China in such a situation.

So experts are confident that the risks of turning from a raw material appendage of the West into a raw material appendage of China for Russia are minimal. Moreover, the very essence of relations between us and China has fundamentally changed. If earlier there was a scheme “China pays – Russia sells”, now communication between the two powers is going on in the so-called package model.

Now, in addition to energy resources, we are also selling a whole “package”. The first is military security. It is also stability in the Asian region. Russia has proven to be a very important partner for China in terms of political support.

Sinologists are confident that the Russian leadership and business have managed to understand the subtle oriental psychology. Small friction periodically, of course, arise. But we have learned to step over market barriers. Experts call today’s Russian-Chinese relations as transparent as possible. Moreover, experts note an interesting fact: the United States is much more dependent on China today than Russia. In addition, China’s problems with Laos, Malaysia, and even the Czech Republic are known. But for China to deceive Russia somewhere in a big way – experts cannot remember such a thing over the past decades.

In addition to China, India can become a reliable partner for Russia, economists say. The trade turnover between our country and India in 2021 amounted to about $12 billion. Analysts emphasize that this is a record for the entire long history of Russian-Indian relations. By 2025, based on an agreement between the leaders of the two countries, the trade turnover should reach $30 billion.

Moreover, against the backdrop of the economic crisis of 2022, India stepped up the purchase of Russian energy resources. As a result, as of June this year, the Russian Federation was in second place in terms of oil supplies to India. Coal purchases look even more impressive: compared to 2020, they increased by 500%. In terms of coal sales to India, only Indonesia and South Africa are currently ahead of Russia.

The only question that worries skeptics lies in the geopolitical plane: is India stable enough, if we take it as an element of the Russia-India-China trio? Will it become a weak link due to the long-term territorial conflict with China, the last escalation of which took place literally in May-June 2021? Countries for several decades cannot divide the Aksai Chin region on the border of China, India and Pakistan. The desolate high-mountain salt desert is controlled by the PRC but disputed by India.

Experts believe that Russia should not expect any problems from this side.

Moreover, Russia can act as a mediator in the Indo-Chinese conflict. As Aleksey Maslov explained, the problems between India and China are historical. You can’t solve them quickly and easily. So the most important thing is that the conflict does not deepen. But now both India and China face many new challenges. It distracts from small collisions. Sinologists are sure that the Americans will do everything possible to spin this case too – if only to kindle a new point of turbulence in Asia. In this regard, Russia may have a very important role – a moderator and conciliator. As a result, the RIC system (Russia-India-China) can become a new stable space where you can use your currency and develop joint production. This design promises to be very stable.