Expert Speak Raisina Debates
Published on Jul 16, 2020
The Russian Far East has had to deal with the impact of a stagnating Russian economy in aiding regional growth and has itself witnessed a decline in business activity in 2018.
Russia-China relations in the Russian Far East

Driven by a mix of economic and geopolitical factors, Russia has declared the development of the resource-rich Russian Far East (RFE) ‘a national priority for the 21st century.’ This pivot to the East has been based on the need to develop the RFE, integrate it with the rapidly growing Asia-Pacific and secure a strategic location that abuts Northeast Asia and gives it access to the Pacific.

Given the increasingly close economic, political and strategic linkages between Russia and China, driven closer together due to the breakdown of Moscow’s relations with the West since 2014, the extent of Chinese presence in the RFE has also come under greater scrutiny. Geographically, China borders four of the eleven constituents of the Far Eastern Federal District (FEFD). Unlike the 1990s, when there was much paranoia regarding a rise in Chinese immigration, the RFE is today much less wary of engaging with a China that has become the world’s second largest economy and whose involvement in the RFE will be critical for its development.

Geographically, China borders four of the eleven constituents of the Far Eastern Federal District.

This assumes importance as the Far Eastern Federal District (FEFD) in 2019 contributed a share of 6.8 percent and 3.4 percent to Russian exports and imports respectively. Out of this share, four constituents namely Sakhalin Oblast, Primorsky Krai, Sakha Republic and Khabarovsk Krai contributed six percent and three percent respectively. To understand their trade pattern with foreign countries, following is a breakdown of their external trade partners, ranked according to their contribution to the FEFD trade.

Sakhalin Oblast This key exporter conducted most of its trade in 2019 with South Korea (47.3%) followed by Japan (31.4%) and China (13.4%). The leading oil importers are South Korea, Japan and China with a share of 64.9 % (of the physical volume), 22.7% and 12.7% respectively. For LNG, Japan imports 55.6% followed by South Korea, Taiwan and China at 19.5, 14.8 and 10.1% respectively. China is the leading importer in coal and fish and seafood section with a share of coal with 49.7% and 68% of the physical volume respectively. Sakhalin primarily imports from USA (21.7%), China (13.6%), Italy (8.7%), South Korea (7.6%) and Japan (7.2%).
Sakha Republic The key export partners in the first six months of 2019 were Belgium (42.8%), India (14.3%), UAE (11.1%), China (7.9%), Israel (7.6%), Japan (5.5%) and Korea (3.4%). The main import partners were USA (32.4%), China (21.1%), Austria (7.6%), Poland (5.5%), UAE (5.2%) and South Africa (2.6%).
Primorsky Krai China, Korea and Japan are the main trading partners of the Primorsky Krai, accounting for more than 80% of its foreign trade. In 2018, the trade with China registered an increase in volume by 23% and reached $4 billion, constituting little over half the foreign trade of the Krai. This is followed by South Korea ($1.4 billion) and Japan ($726 million).
Khabarovsk Krai In 2019, main export partners of the krai were China (45.1%), Philippines (45.5%), Japan (11.8%), Taiwan (9.5%) and South Korea (4.1%). The main imports were from China (59.4%) and South Korea (10.8%).
Kamchatka Krai Fish products are the primary exports with key trade partners being South Korea, China, Japan and the USA.
Republic of Buryatia The main export partners include China, Mongolia, Uzbekistan, Slovakia, the UAE, Vietnam, Argentina and Brazil.
Zabaikalsky Krai The region exports primarily to Kazakhstan and China while the key import partner is China.
Amur Oblast In 2018, its biggest trade partners were: China - (83.5% of the trade turnover), Turkey (5%), Mongolia (3.8%), followed by Finland and Belarus.

China also trades with Magadan Oblast, Jewish Autonomous Oblast and Chukotka Autonomous Okrug of the FEFD but their overall contribution remains very less to Russian trade. The four FEFD constituents bordering China — Primorsky, Amur, Jewish Autonomous Oblast and Khabarovsk — have much closer trade links with the rising power. There is no denying the important role of an economy the size of China for the RFE. However, it is far from being the sole player — especially in exports — as can be deduced from the table below.

Top 5 export and import markets for the RFE:

Export % Share Import % Share
South Korea 28 China 45
China 23 South Korea 13
Japan 22 Japan 9
Belgium 11 USA 7
India 3 Brazil 3

Source: Deloitte CIS Research Center

This translates to China and South Korea being the main trade partners of the RFE, accounting for ‘27% and 25% of the total commodity turnover.’ The two countries have witnessed a ‘significant increase in exports and imports’ from the RFE during 2017, as well as Japan. While the RFE exports are diversified among the three Northeast Asian states, its imports are heavily dominated by China, mainly consisting of machinery and equipment and metals.

The completion of the first road bridge over Amur river, connecting Blagoveshchensk and Heihe on the Russian and Chinese side respectively, is aimed at giving a boost to trade between the two sides.

There are plans to further cement these links with China through connectivity projects. The completion of the first road bridge over Amur river, connecting Blagoveshchensk and Heihe on the Russian and Chinese side respectively, is aimed at giving a boost to trade between the two sides. A railway bridge over Amur river is expected to open at the end of 2020. Efforts are ongoing to improve infrastructure along the Primorye-1 and Primorye-2 international transport corridors, which connect China’s northeast provinces to the RFE and beyond, besides providing the Chinese access to the Sea of Japan. The infrastructure on Primorye-2 still requires considerable work while the other route is in much better shape. But current estimates suggest that the routes would be disproportionately dependent on ‘intra-Chinese trade’ and have a limited role in diversifying Russia’s ties to Asia.

An over-dependence on China has not traditionally been considered a wise move for the region, due to the vast differences in economic capacities between the two countries. But given the prevailing regional conditions, RFE has primarily served as a raw material supplier to China and significant ‘market integration’ has not been achieved. Neither has the partnership reached a level at which it can fuel growth in local economy of RFE.

In terms of investment, the FDI by Western partners — who were the key players before 2014 — has drastically declined while that of Japan and South Korea has seen a modest rise.

The Program of Cooperation between Northeast China and Russia’s Far East and Eastern Siberia (2009–2018) also failed to deliver on its promises. Analysts have noted that the proposed projects faced financial difficulties and less than 20 per cent of the projects were implemented. In addition, only eight projects in Russia were able to attract Chinese investment amounting to $1.77 billion. It has also been argued that the local economic needs were not considered into what was seen as a top-down directive. A new programme for the period 2018-24, focusing only on the RFE, has since been signed at a much-less ambitious scale than the previous one.

In terms of investment, the FDI by Western partners — who were the key players before 2014 — has drastically declined while that of Japan and South Korea has seen a modest rise. Russian officials have highlighted the Chinese investments in the region, which touched $2.6 billion in 2015-16. However, concerns have been expressed over reliability of Chinese investment figures as announcements in RFE have not always translated into concrete projects. In fact, most of the FDI in the region is directed to the natural resources sector. About 90% of FDI of RFE is in the hydrocarbon sector and some other minerals mostly concentrated in Sakhalin Oblast.

The Russian census data has negated the fears of excessive Chinese migration to RFE. The number of Chinese migrants in the region is estimated to be around 400,000 and 550,000, with most of them coming for work on temporary basis. Therefore, the overall picture of Russia-China relations in the RFE presents a mixed picture at present.

Investments have suffered due to the impact of US sanctions, deterring other potential investors, apart from poor business climate, outmigration and lack of proper infrastructure within the region itself.

Meanwhile, the Russian government has taken several steps to develop the RFE — including setting up a separate ministry to manage its affairs, creation of Advanced Special Economic Zones to attract investment, government funding to encourage migration to the region, hosting of Eastern Economic Forum annually to promote the region among Asian countries — to name a few. But the region has had to deal with the impact of a stagnating Russian economy in aiding regional growth and has itself witnessed a decline in business activity in 2018. Investments have suffered due to the impact of US sanctions, deterring other potential investors, apart from poor business climate, outmigration and lack of proper infrastructure within the region itself.

Despite these limitations, the importance of RFE in Russian policy can hardly be denied. As part of the military modernization program, the Eastern Military District came into being in 2010, and subsequently plans were announced for modernization of the Pacific Fleet. Meanwhile, the RFE needs to focus on its domestic development, in which China will inevitably play an important role. In addition, the overall value of China in Russian foreign policy cannot be under-estimated, and it will continue to be a critical partner for the former superpower. However, if Russia wishes to build a truly diversified policy in the region and avoid a tilt towards China, it will have to invest significantly in a steady pursuit of relations with other regional powers to aid economic growth.

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Contributor

Nivedita Kapoor

Nivedita Kapoor

Nivedita Kapoor is a Post-doctoral Fellow at the International Laboratory on World Order Studies and the New Regionalism Faculty of World Economy and International Affairs ...

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