SRC Winter Symposium Socio-Cultural Dimensions of the Changes in the Slavic-Eurasian World ( English / Japanese )
FOREIGN TRADE OF THE RUSSIAN FAR EAST WITH THE PEOPLE'S REPUBLIC OF CHINA: DEVELOPMENT AND PROBLEMS *1
Nadezhda Mikheeva
(Institute of Economic Research, Far East Branch of RAS)
Copyright (c) 1996 by the Slavic Research Center( English / Japanese ) All rights reserved.
For several decades, foreign trade played a subordinate role in the economic development of the Russian Far East. Commercial links with foreign markets were only supplementing inter-regional relations. At the same time, in terms of the export volume, the Far East surpassed a number of larger economic areas; indeed, in certain goods, exports from the Far East have played an extremely important role in the formation of the country's hard currency earnings. This is particularly true about a certain group of export goods in which, in the second part of the 1980's, the Far East accounted for a substantial share of total Soviet exports: round timber (40 percent), fish (26.5 percent) and canned fish (22.3 percent). Nevertheless, the impact of foreign trade on the economic development of the Far East has been limited. However, in the early 1990's, the Far East showed some new indications of a partial reorientation from inter-regional trade towards more effective access to foreign markets.
In the very beginning of economic reforms in Russia, the Far Eastern region found itself in a relatively favorable economic situation to some other regions of the Russian Federation. One of the most important conditions was the emerging opportunity for local exporters to increase export earnings, due to relative liberalization of foreign trade activities in Russia and to current gaps between domestic and international market prices for raw materials (which were the major export items of the Russian Far East).
At that moment, it seemed that rapid expansion of economic cooperation with foreign countries, particularly with the countries of North East Asia, would enable the region to accrue benefits from active participation in the international division of labor and to use its comparative advantages to the fullest degree. Reorientation of economic links of the region towards cooperation with Asian-Pacific countries seemed to be especially desirable, for the Russian government was no longer supporting economic development of the Russian Far East, and since domestic competitiveness of local products was continuously falling, due to the rise of transportation costs as well as to the steep decline in investment activities after liberalization of domestic prices.
|
1992 |
1993 |
1994 |
1995 |
|
|
Total turnover |
2728.9 |
3238.9 |
2260.3 |
4180.2 |
|
Exports |
1539.2 |
3048.1 |
1610.5 |
2426.8 |
|
Imports |
1189.7 |
1190.8 |
649.8 |
1753.4 |
But the real developments proved to be more complicated than had been expected. Indeed, the first signs of expansion of the region's foreign trade under the reforms looked very promising. In 1992, regional exports grew by 30.4 percent and imports, by almost 260 percent. However, the results for 1993 were rather modest. Nonetheless, growth of foreign trade in the Far East was impressive against the background of the situation in Russia in general, where exports grew by only 1.4 percent, and imports decreased by almost 30 percent.
The situation changed radically in 1994, when the economic position of the Far East deteriorated dramatically. Some factors in the development of the Russian Far East deepened the regional crisis. The situation in foreign activities was one of the main forces to trigger a sharp decline in economic indicators. In 1994, the turnover of the RFE's foreign trade decreased by 30%, while the decline in imports of over 45% was especially remarkable, caused mainly by the emerging problems in trade with China.
The situation improved dramatically in 1995, when foreign trade indicators exceeded the level of 1994 and even that of 1993. But there were no reasons to consider the course of the region's foreign trade sector to be stable.
This situation came about for a number of reasons [2]. Exports grew against a background of sharply declining industrial output in export-oriented industries. This is eroding future prospects for export-oriented industries. The structure of exports by commodity groups is very unstable, and it does not have much in common with the long-term needs of region's economic development. Moreover, in some important commodity groups (petrochemicals, rolled steel, non-ferrous metal scrap and alloys) an increasing portion of export shipments is carried out by a small number of enterprises. This indicates that the regional export base is narrowing. Growth of exports is closely related to imports of capital goods for modernization of export-oriented industries. As in the past, a major portion of enterprises and industries remain isolated from export activities and had no other option under present conditions than to degrade. The structure of regional exports by industry and commodity groups is diversified so poorly that the Far East's foreign trade is quite unprotected against the volatility of international markets. Nevertheless, export trade has become the most vigorously developing sector in the regional economy.
In the period of economic reforms, there were no fundamental changes in the commodity composition of regional exports. As before, it consists mainly of raw materials. As before, the total of timber, fuel and fish products amounts to nearly 90 percent of the aggregate regional exports.
The region's imports are composed mainly of consumer goods and foodstuffs. Within the entire period of economic reforms, the dependence of the Far East on imports of consumer goods and foodstuffs was steadily growing.
For many years Japan has been the main foreign trade partner of the Russian Far East. Yet, since the late 1980's, the process of market diversification has begun. The People's Republic of China has emerged as one of the most important new foreign trade partners for the Russian Far East, and problems which occur in trade with China now have immediately affects on the overall situation in the region's foreign trade.
Trade and economic cooperation of the Far Eastern parts of Russia with China were important factors in social and economic development of the Russian Far East during the whole period of economic reforms. However, the economic reforms which are being carried out by both Russian and Chinese sides are affecting the stability of this relationship and burdening it with a great deal of problems.
Specific features of trade and economic ties of the Russian Far East with China are determined by the state of bilateral relations between Russia and China as well as by problems in their own development. Rapid expansion of economic cooperation started after Mutual Agreements on development of trade and economic cooperation between Russia and China were signed in 1988, following adoption of a resolution in 1987 by the USSR Cabinet of Ministers which gave enterprises a right to establish direct ties with foreign partners.
In the late 80's, rapid expansion of trade between the Russian Far East and China (in the first place, with the Dongbei region which consists of three North-East provinces, namely, Heilongjiang, Jilin, and Liaoning) can be explained by its geographical location. Russian-Chinese trade provided for the Far East the opportunity to use Chinese goods to saturate the local market with consumer goods and to use these goods for the promotion of inter-regional barter exchange with other Russian regions. When shortages of consumer goods ended in the complete devastation of the market and the system of centralized supply of producers' goods collapsed, this channel played a vital role in supporting the economic activity of Far Eastern enterprises.
The collapse of the USSR and social and economic crisis in 1991 brought about a dramatic reduction in bilateral trade, and the turnover figure decreased by almost a third. However, the main factor which caused the reduction of turnover was a decrease in mutual deliveries within a framework of inter-governmental agreements. Regarding coastal and across-the-border trade and direct ties between Russian and Chinese enterprises, in 1991 their growth amounted to almost 60% of turnover.
These two ways of economic cooperation remained vital for the next several years, and they defined the overall pattern and problems of trade cooperation. They were attractive for the following reasons:
-direct barter trade gave the enterprises an opportunity to sidestep their obligations in planned exports via the specialized foreign trade bodies, which usually left them with a fraction of earnings;
-under direct commodity exchange, payments for exports operations were settled almost immediately after the shipment, and the money was delivered immediately rather than through a foreign trade intermediary;
these barter dealings were not related to any hard currency exchange, and this simplified the transactions and facilitated the development of foreign trade without delays.
Such ways of cooperation were desirable for the Chinese side as well. Prices of direct commodity exchange were denominated in Swiss francs for convenience sake, which implied a fixed rate of the Chinese yuan, but this rate happened to exceed the rate on the Chinese black market by several times. By that time, foreign trade within the framework of inter-state agreements was implemented at the world market prices.
Both Russian-Chinese trade and trade of the Russian Far East with China reached a peak in 1992-1993.*3
In 1993, according to Russian statistical data, the turnover reached 5.4 billion US$. The data of China's custom's statistics exceeded this figure by a great deal. Total amount of Far East's turnover in Russia-China trade reached 984.1 million US$ in 1992 and 1181.5 million US$ in 1993 (table 2).
|
1992 |
1993 |
1994 |
1995 |
|
|
Total turnover |
984.1 |
1181.5 |
250.6 |
328.0 |
|
Exports |
564.6 |
575.5 |
156.0 |
172.4 |
|
Imports |
419.5 |
606.0 |
94.6 |
155.6 |
As a result, the share of the Far East in two-way trade turnover between Russia and China was over 20% in 1993, the share in exports being about 17%, and in imports, 25%.
The composition of Far Eastern trade by country shows China to be the second largest market for exports after Japan (33% of the total volume of regional exports) and also the largest source of imports (48.4% of the regional imports) [2].
By this time, a range of factors in the Russian and Chinese economies contributed to the rapid development of trade between the Far East with China.
On the one hand, acute shortages of consumer goods in the Far East opened opportunities for imports of foodstuffs and low quality cheap consumer goods from China. On the other hand, local industrial enterprises were able to expand their exports of producers' and capital goods both of local origin and imported from other Russian regions.
This opportunity was especially important under circumstances in which regional internal demand declined sharply, while Far Eastern products lost their competitive power in the markets of other Russian regions due to increased transportation costs, and the opportunity to enter foreign market for most Far Eastern products was extremely limited due to low level of competitiveness.
At that moment, Far Eastern foreign trade was growing due to exports of commodities which were non-traditional for the region, notably of machinery and equipment, which were mostly imported from other Russian regions. In 1993, exports to China amounted to 91.8% of total exports of machinery and equipment from the Far East, 87.8% of total exports of metals, and 58.4% of non-ferrous metals. In some regions, the share of re-export transactions reached 85% of total exports [6].
On the Chinese side, this pattern of foreign trade development provided access to sources of raw materials and investment goods in exchange for expansion of the market for China's traditional low quality export goods which had no chance of being sold in other markets.
In 1990-1993, Russia-China trade developed predominantly in this pattern of direct inter-firm relations, mostly on the regional level. The share of barter transactions amounted to some 80% of this direct firm-to-firm exports, and virtually to 100% of export quotas which were assigned to the region and used there. Despite the fact that levies on this type of export transaction were heavier than ordinary exports-by almost 30%, such transactions were free from the mandatory sale of hard currency earnings to the state. This provision, along with numerous flaws in the system of currency regulation and with a general shortage of hard currency in Russia, gave the exporters a good incentive.
After regulations on barter transactions were tightened, the share of barter trade decreased, but it remained significant as it was profitable to both sides as they were equally short of hard currency.
This period of extensive growth in trade between the Far East and China had both positive and negative components which defined the further prospects for cooperation.
In the early 90's, when the general volume of Russian foreign trade was shrinking, growing trade with China allowed the Far Eastern regions to increase the amount of their foreign trade and therefore to stabilize their overall economic situation, as well as their consumer markets. The positive impact of this trade on the economic performance of the Far Eastern enterprises was mentioned above.
At the same time, this period left a range of unresolved problems which continued to grow and eventually led to a collapse in foreign trade of the Far East in 1994. The sharp reduction in trade with China was the main factor explaining this collapse. In 1994, total foreign trade turnover decreased by 30% from 1993, while the turnover of trade with China shrunk by a factor of 4.7. The volume of exports decreased from 575.5 million US$ in 1993 to 156 million dollars in 1994, the volume of imports fell down from 606 million dollars to 94.6 million dollars.
In 1995 the situation stabilized and the decline was stopped, but the 1993 level of trade transactions with China was never reached again.
Trade with China played the most important role in the foreign trade activity in the southern borderline regions of the Far East: Amur Oblast, Jewish Autonomous Oblast, Khabarovskii krai, Primorskii krai. In 1993, the share Chinese in foreign trade turnover amounted to 91.9% in Amur Oblast, to 94.6% in Jewish Autonomous Oblast, to 44.8% in Khabarovskii krai, to 44.9% in Primorskii krai [2].
The situation in Amur Oblast is a good example of development of foreign trade in the Far Eastern territories where China was the main foreign trade partner. Being almost completely dependent on trade with China, Amur Oblast demonstrated the whole range of problems in foreign economic cooperation of the Russian Far East with China [6].
The volume and composition of exports from Amur Oblast to China is marked with extreme instability and with a high degree of dependence of China's market. In 1992-1993, due to the activities of foreign trade middlemen and re-exporters, the share of machines, equipment, and especially means of transportation in exports from the territory increased sharply, amounting to 70% of total exports from Amur Oblast to China. In 1994, exports of metals (which were also re-exported) increased, while there was a noticeable decline in the share of machines and equipment. In 1995, the main export items were iron and steel and non-ferrous metals.
The composition of imports is more stable. Imports of consumer goods dominated and the share of foodstuffs increased steadily. In 1994, foodstuffs accounted for over 60% of imports.
In 1994, foreign trade turnover in Amur Oblast decreased sharply, as it did everywhere in the Far East, and trade turnover with China fell to one fifth. The decline in foreign trade with China continued in 1995 too.
Sharp reduction in two-way trade was troublesome for both Russian and Chinese partners. A number of publications appeared, analyzing the reasons of this phenomenon [1, 5, 6, 7, 8, 9, 10].
The common explanation was that the period of extensive development in bilateral trade, based predominantly on barter transactions, was already over. Due to economic conditions in both countries, barter transactions were profitable for Russian and Chinese partners and provided the opportunity to overcome a range of emerging problems in economic cooperation. However, their time had virtually come to an end [1].
A more detail analysis showed that the decrease in Russian-Chinese trade was caused by troubles in Russia's and China's economic development. Russian experts point out the following problems in economic performance of Russia and the Far East:
-domestic prices are approaching the level of international markets, while in the Far East they are even higher; import duties are growing steadily and many transactions do not pay;
-transportation costs, particularly railroad tariffs are growing sharply, separating producers in the European part of Russia from the Chinese market and largely decreasing the opportunities of the Far Eastern regions for re-exports;
-the potential of barter trade is already exhausted; the Russian market is saturated by imported consumer goods from other countries (USA, South-East Asia, Europe);
-the quality of Chinese goods is generally low, and the demand for cheap consumer goods is mostly saturated;
-in trade contracts, the Chinese are non-reliable and careless partners.
There are also some new features in the economic performance of China which are having a negative impact on development of foreign trade:
-the general situation in Chinese capital and producers' goods markets has deteriorated;
-regulations of foreign trade in China have changed, including the introduction of exports quotas for certain goods, licensing of imports to China, administrative limitations on across-the-border trade;
-acceleration of inflation in China, bringing about domestic price hikes and lowering profits in trade with Russian partners.
There are also some long-term reasons underlying this decline in the trade turnover. They include weaknesses in the trade infrastructure in both countries: weak physical infrastructure in the Russian Far East and in North-East China, such as inadequate transportation and communication facilities, as well as a lack of legislation, deficient payment system, and so on.
The former pattern of trade cooperation with the Russian Far Eastern regions lost its attractiveness and profitability for Chinese partners as well. The Chinese experts identified practically the same obstacles to development of trade between North-East China and the Russian Far East, but stressed political and economic instability in Russia and permanent and inconsistent alterations in customs and tax regulations [10].
A sharp reduction in trade cooperation in 1994 helped both the Russians and the Chinese to realize that it was necessary to radically change the forms of cooperation, and to develop some new and more effective forms of collaboration. In 1994-95, there were summit and high level official talks between the two countries, which helped to implement certain reforms in the sphere of mutual cooperation and to open the way for some more effective forms, including joint production and capital investment, to replace traditional commodity trade. In 1995, substantial progress was made in transition to hard currency settlements which prevail in international trade. The share of barter trade decreased from 50% to 28%. Interbank links are established, and new directions and objects for mutual cooperation are worked out [9].
However, future development of the Far Eastern regions' trade with China most probably will be defined by the situation in across-the-border trade and by direct inter-firm relations. There has been some progress in this sphere also. In particular, across-the-border trade and economic ties were arranged in a more orderly fashion. The Far Eastern International Trade Chamber was established to promote reform in the system of across-the-border cooperation and to make it consistent with GATT rules.
But effective development of regional cooperation needs state support and regulation from both sides, Russian and Chinese.
According to some experts [1, 5], China is fairly active in this field. On the other hand, Russia lacks a clear-cut official policy to support development of eastern regions, consistent with a global strategy for development of Russian-Chinese relations.
There are no inter-government agreements to regulate regional and across-the-border cooperation and to create the legislative base for its effective development. The Basic Declaration on the relationship between the Russian Federation and the People's Republic was adopted in 1992, expressing the readiness to promote mutual across-the-border cooperation. The inter-regional agreements between the administrations of the Far Eastern territories and people's governments of China's provinces are playing and are going to play in future an important role in the development of direct ties and across-the-border trade. These agreements were adopted mostly in the period between 1989 and 1993. However, they have defined no more than a general framework for mutual cooperation and usually, they were merely documents about intentions. Implementation and the real contents of these agreements are very poor. Absence of a real mechanism to implement the regional agreements was been the main reason for their poor efficiency. The across-the-border trade is carried out rather spontaneously, disorderly, and it is not backed up with signed agreements, so that as a result many contracts are failing and the number of mutual claims is increasing.
China adopted a more flexible approach to the development of across-the-border cooperation, changing the trade rules and providing special privileges according to the circumstances of Chinese markets. Custom duties are also changing, according to domestic demand, different goods, and the ability of China's producers to export certain goods.
A policy of opening the border regions which was carried out in the Dongbei region is an important factor stimulating the domestic economy of North East China. This policy is granting border regions of Dongbei the same system of grants and privileges as coastal regions of China.
Creation of a multisystem structure for the "open border regions" in Heilongjiang and Jilin is an important part of a program of regional development which is being implemented in Dongbei. The task was set up to transform the North-Eastern provinces into advanced posts to enter into Russian markets, to create the basis for well developed, export-oriented industrial and agricultural production, to promote the development of centers for trade, finance, and tourism. Plans to construct and develop special border crossings at the Russian-Chinese border which would be open for two-way and international cargo, and passenger communications, are carried out rather quickly. In China all these plans are implemented slowly and gradually, but still they are being implemented. This means that in the near future the Russian regions neighboring China will face a well developed structure of "open border regions" based on the industrial and agricultural potential of the entire Dongbei [5].
The long-term Program for development of the Far East and Zabaikal'e until 2005 is probably going to become the main document describing perspectives for cooperation between the Russian Far East and China. The Program, which was enforced by the Russian Federal Government in April 1996, formulated the policy of the central government concerning the development of the eastern regions of the country.
The Program determines a range of measures to promote the development of various forms of cooperation between the Far East and China, including capital investments, the creation of free economic zones, working out joint projects in infrastructure, and so on.
Here we will observe only the problems of foreign trade as they are stated in the Program. The Program considers across-the-border trade and direct inter-firm relations not just as an important stimulus for the economic development of neighboring regions of Russia and China, but also as a factor for the integration of the Far East into the regional economic cooperation scheme in Pacific Asia.
Similarly on the Chinese side, the Program recognized that in the future, across-the-border trade should become closer to universal world standards of foreign trade. In the meanwhile, Russia is facing a necessity to preserve and to reinforce official controls over across-the-border trade and economic ties with China. This is especially important since a great number of non-organized independent Russian participants in Russian-Chinese trade are dealing with fairly better established Chinese foreign trade organizations which are managed and supported by central and local authorities.
Therefore, the Program has designed a range of measures to ensure official support to export sectors, to promote the access of domestic products to foreign markets with the support of public foreign trade organizations, to create transportation infrastructure and to provide an effective legislative base for international cooperation.
Some concrete proposals are included in the Program to promote across-the-border trade and economic cooperation. In particularly, completion of construction of a set of border crossings supplied with custom houses, trade and transportation facilities, extension of cooperation in agriculture, forestry, fishery and other sectors helping to promote bilateral trade.
At the same time, the Program does not provide any special privileges to participants of across-the-border trade for the reason that this form of international cooperation, despite a number of problems, has great potential of growth. The Chinese authorities are inclined to share this view on across-the-border trade, especially since Russia and China are going to introduce the GATT system of foreign trade regulations and to unify foreign trade rules for all their territories. These factors will probably define the development of trade between the Russian Far East and China in the near future.
Notes
The comparison of volumes of foreign trade for Russia total according the Goskomstat data and the China's custom's statistics showed a marked difference pointing out an underestimation of volumes of foreign trade by Goskomstat.
|
Russian sources |
China's sources |
|
|
Exports from Russia to China |
||
|
1992 |
2864 |
3526.1 |
|
1993 |
3058 |
4987.4 |
|
1994 |
2832 |
3495.8 |
|
1995 |
3376 |
3798.6 |
|
Imports to Russia from China |
||
|
1992 |
1790 |
2333.6 |
|
1993 |
2335 |
2691.8 |
|
1994 |
953 |
1581.1 |
|
1995 |
864* |
1664.7 |
Sources: Rossiiskii statisticheskii ezhegodnik,
1995,
Moskva, Goskomstat RF, 1995, p. 431. China's Custom's
Statistics, No.4, 1992, p.5; No.12, 1993, p.6; No.12,
1994, p.7; No.12, 1995, p.5. Rossia v tsifrah, Moskva,
Finansy i statistika, 1996, p. 143.
References
SRC Winter Symposium Socio-Cultural Dimensions of the Changes in the Slavic-Eurasian World ( English / Japanese )
Copyright (c) 1996 by the Slavic Research Center( English / Japanese ) All rights reserved.