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Chinese
factor in the RFE Economic and Business Development Trade
Trends between The Khabarovsk Krai and the People’s Republic of
China Author:
Andrei Vasenyov, BISNIS representative in Khabarovsk, Russia Date:
October 2004 Summary The
so-called “Chinese factor” is an ambiguous and multi-aspect issue
in both economic and social development of the Russian Far East.
It encompasses growing bilateral trade as well as expanding
share of Chinese enterprises operating in the area, especially in
production of consumer goods, agriculture, trade, services and
migration inflow. During
the last couple years, increasing Chinese investment in to the
regional economy became another issue to consider.
This IMI is the first of two reports describing specifics of
the economic relations between the Khabarovsk Krai (Russian Far East)
and People’s Republic of China.
It focuses on trade relations between the Krai and China as
well as banking cooperation between the territories, which appears as
one of the factors contributing to overall increase of trade and
investment inflow. End
Summary. General
Information “Russian
Federal Government views China as one of the most prioritized
strategic partners” stated German Greff, Head of the RF
Ministry for Economic Development at the Sitting of the Russian-Chinese
Sub-Commission on Trade and Economic Development in August 2004.
He also emphasized growing mutual interest of Russian and
Chinese businesses. By
the end of 2004, the Chinese-Russian foreign trade turnover is
expected to reach $ 20 billion, while in 2003 the volume was roughly $
16 billion. During the
first half of 2004, the foreign trade between the two countries grew
39 percent compared to the first half of 2003 and totaled $ 9.5
billion. Although during
the past few years the geography of Russian-Chinese economic
cooperation has expanded to the northwestern and central Russia,
Chinese key interests still focus on neighboring Russian Far East
regions. Since
the early 1990-ies, Chinese consumer products and food stuffs became
the primary source for life support for the RFE residents.
At the same time, two unequal capital flows began to form
between China and the Russian Far East.
China supplied RFE markets with cheap consumer goods of
questionable quality, while Russian enterprise in turn exported unique
natural resources to the neighboring country.
RFE regions are feared to be transferred in to a source of raw
materials for Chinese growing economy – exporters of oil, natural
gas, iron ore, timber and fish. The
powerful migration flow of Chinese people to the Russian Far East is
one mere grand concern for a number of Russian political and social
groups. In the early
1990-ies, Russia’s economic and political reforms evoked an active
inflow of Chinese migrants to the Russian Far East and Siberia, which
resulted in a multitude of social and economic as well as political
problems. Local mass
media suggested exaggerated numbers of the Chinese presence in the RFE
– 2-4 million people, while the more reliable statistic evaluations
estimated 50-80 thousand Chinese in the Russian Far East in 1992 and
200-300 thousand in 1996. During
the consecutive years, migration flows were decreasing due to stricter
visa control and a worsening economic situation in Russia and the
Russian Far East. Today,
the estimated Chinese presence in the territory does not exceed 250
thousand people. The
Program for the Development of
the Russian Far East and Zabaikalye until 2010 developed by a
number of local politicians and scientists envisions five scenarios of
development of the RFE relations with China and Pacific Rim Countries
in general. Surprisingly, the authors view economic union with the
western Russia as undesirable. According to them, such relations will
result in the RFE being largely dependent on the federal budget funds.
This is the reason, why the scenario for the equal openness for
the Western Russian and the Pacific Rim markets is considered
negative. The third
variant suggests a wider access to the region by the foreign
neighbors, including free flow of capital, people, technologies, which
provides other countries with access to biological and land recourses.
The fourth scenario is even more open.
It proposes most tight cooperation with the People’s Republic
of China to ensure forming of the unified economic area, while the
fifth alternative envisions equal orientation to all Pacific Rim
Countries. Although, at this time, none of the program scenarios
became an official document they provide interest as sample of the
local population opinions on the subject. Trade
Cooperation During
the past 10 years, foreign trade turnover between the Khabarovsk Krai
and China has been increasing steadily.
In 2003, it totaled $ 1,020.4 million or 51 percent of Krai’s
overall foreign trade volume. Export
volume amounted to $ 924.1 million (54 percent of Krai’s exports);
import volume – 96.3 million (33 percent of all imports).
The overall turnover grew 45.5 percent compared to 2002; export
volume increased 47 percent, imports – 33 percent. Foreign
Trade between the Khabarovsk Krai and People’s Republic of China in
2002-2003 and the First Half of 2004 (USD million)
Oil
products traditionally account for the primary share of exports from
Khabarovsk Krai to China (49 percent of the Krai’s total export to
China in 2003); timber products (24 percent) and machine building
products (19 percent) are the other major exports.
During the first six months of 2004, the export structure has
not experienced any significant change.
Oil products accounted for significant 64 percent ($301.1
million), timber products – 25 percent ($ 120.7 million), machine
building products – 7 percent ($31 million). High
rates of the Chinese economy development as well as growing demand for
power were the primary reasons for the increase of oil export to the
People’s Republic of China. In
2003 the volume was 2.6 million tons or $455.7 million, which was an
8.8 times increase in volume and 11.8 times increase in cost.
During the first half of 2004, Krai supplied 1.6 million tons
of oil products worth of $ 301.1 million to Chinese markets, which was
a 45 percent increase to 2003 performance in volume and 60 percent
increase in cost. Boiler
oil/masut accounted for the largest share of oil products exported to
the People’s Republic of China in 2003 – 63 percent of the total
oil export ($ 286 million), light distillates – 22 percent ($ 98.9
million), diesel fuel – 15 percent ($ 69.9 million). During
the past three years the volume of timber products exported by the
Khabarovsk Krai enterprises to their Chinese trade partners has been
constantly growing. While
in 2001 the volume of round logs exported to China was 2.4 million
cubic meters, in 2003 the volume has increased to 4.3 million. cub. m.
or $ 222.6 million, that is a 71 percent increase in volume and 76
percent increase in cost. Compared
to 2002, the volume of timber supplied grew 7.5 percent or 13 percent
in cost. During
January-June 2004, the volume of timber products exported from the
Khabarovsk Krai to China totaled 2.2 million cub. m. ($ 120.7 million)
and increased 22 percent compared to first six months of
2003. The
share of round logs in the timber products export is 99 percent, while
processed wood accounts for only 1 percent.
During the 2003, export of sawn goods amounted to 34.8 thousand
cub. m. ($3 million); 82.4 percent of them (28.7 thousand cub. m. for
$ 2.6 million) were sawn goods produced from broad-leaved trees, such
as oak, ash-tee and beech. In
2003, China accounted for 58 percent of the Khabarovsk Krai timber
export, increasing its share nearly two times compared to 2001, while
the share of Japan, Krai’s pervious largest importer of timber fell
to 30 percent. In
addition to oil and timber products Khabarovsk Krai supplies Chinese
markets with ferrous and non-ferrous metals and products made of those
metals ($11.3 million in 2003), transportation and business services
($11 million), fish and cell-fish ($7.4 million). During
2003, Krai supplied 9.3 thousand tons of fish products to China for
the total sum of $ 7.4 million, which was a 13.7 decrease in volume,
but a 35 percent increase in cost.
Increased prices for pollack allowed Krai exporters to increase
monetary profit, despite the decreased volume of supply. The average
cost of pollack delivered to China in 2003 was $720 thousand/ton,
which was a 44 percent increase compared to 2002.
The share of pollack in the Krai fish products export structure
was 82.4 percent. China
is the largest importer to Khabarovsk Krai, accounting for 33 percent
of the Krai’s import structure ($ 96.3 million).
The import volume grew 33 percent compared to 2002.
The Krai primarily imports food products and agricultural raw
materials from China – 27.5 percent ($26.5 million), machinery,
equipment and transport vehicles – 26 percent ($ 25.1 million),
textiles, apparel, foot wear – 9.2 percent ($ 9 million), ceramics,
gypsum and glass products – 6.6 percent ($6.4 million). During
the first half of 2004, China has reserved its position as the
Krai’s largest foreign trade partner, accounting for 38.5 percent ($
53 million) of the Krai’s overall import.
Increase of the Krai’s import from China compared to 2002
resulted from the 84 percent increase of the volume of machinery and
equipment supplied. Electric
machines and equipment accounted for the prevailing 85 percent in this
product group ($ 21.3 million in 2003).
Imports of electronic equipment from China grew 86 percent
compared to 2002 due to increased delivery of television and
electron-beam tubes for video-recorders up to 66 percent ($ 11 million
in 2003), transmitting telecommunication equipment - 27 times ($ 2.7
million) and spare parts for it up to 30 percent ($ 3.5 million). Avest
and Evgo, Khabarovsk Krai
producers of television, audio and video equipment as well as other
types of electronic appliances for households are the primary
consumers of Chinese-made components and supplies.
Growing production at these plants contributed to increased
imports of the related products from China. Growing
imports of telecommunication equipment is associated with the global
development of the satellite communication network in the Krai.
In the second half of 2003, Khabarovsk Branch of Vneshtorgbank
financed purchase of such kind of equipment by Mobicom (affiliate of
MegaPhone) from Chinese Huawei Technologies.
The $3.3 million deal was financed with the credit resources
attracted from the Industrial and Trade Bank of China.
Credit resources were provided under the basic credit agreement
signed in August 2002, which envisions opportunity to finance
contracts of the Russian importers to the amount of $ 200 million for
10 years. The Mobicom
deal became the first project in the Khabarovsk Krai to be financed
within the framework of this credit line. During
2003, import of agricultural and food products fell 5 percent compared
to 2002 and totaled $ 25.6 million.
Meat products accounted for 37.5 percent of food stuffs
imported by the Khabarovsk Krai from China ($ 9.6 million in 2003),
vegetables – 25.8 percent ($ 6.6 million), rice – 19 percent ($
4.8 million), fruits – 17.6 percent ($ 4.5 million).
China remains the largest foreign supplier of food products to
the Khabarovsk Krai market. In
2003, the share of China in the overall volume of imported food
products totaled 70 percent. BANK
cooperation Successful
cooperation between the financial organizations operating in the
Khabarovsk Krai and those of China contribute their share to the
growing trade and investment opportunities between the territories.
Current agreements between the Russian and Chinese banks allow
them to support payments for export and import deals, money transfers
and conversion deals and establish correspondence accounts.
Meeting of the Russian and Chinese Central banks to discuss
border trade between the two countries in national currency and the
second Russian-Chinese Finance
and Banking Forum held in November 2003 marked the new stage of
financial cooperation. Vneshtorgbank
(VTB),
which currently services 30 percent of the Khabarovsk Krai foreign
trade turnover with the People’s Republic of China, originally began
to open corresponding accounts with the Chinese Banks in 2001.
Today it operates direct accounts with China’s leading banks
including: Industry and Trade
Bank of China, Agricultural Bank of China, Construction Bank of China,
Guanda Bank, EximBank of China and Bank
of China. Khabarovsk
branch of VTB currently
operates direct accounts with China’s leading banks controlling 70
percent of the national bank system. Vneshtorgbank
recently became the first Russian bank to open a corresponding account
in US dollars with the Bank of China.
This event was a step forward in implementing Vneshtorgbank’s
plan for establishment of the unified China-focused
Clearing Center on the base of Khabarovsk branch.
The Clearing Center
will allow Bank’s Russian clients as well as their Chinese
counterparts to speed up, simplify and reduce the costs of business
accounting procedures. Mutual
foreign currency accounts allow both contracting parties to avoid
intermediary banks, save on commissions and settle their accounts
on-line. Regiobank,
one of local banks, which is rather active in foreign trade has signed
agreements with the Construction
and Agricultural Banks of China about opening of direct
correspondence accounts. Payments
in national currencies is the new service to the Russian financial
market, although highly demanded by the participants of foreign trade
with the neighboring China. An
experiment was recently launched envisioning that payments between
Russia and the People’s Republic of China are done in national
currencies. Although
Khabarovsk branch of VTB
did not participate in the experiment, its Blagoveschensk counterpart
reported active development of the new form of cooperation.
During the first quarter of 2004, the volume of payments
totaled $ 16.9 million, which exceeded the overall results of 2003. Today,
both parties negotiate potential expansion of the payments in national
currency throughout the Russian Far East regions, neighboring China.
The branches of largest Russian Banks are able to implement
this project. The
initiative received a support from the Khabarovsk Krai Government,
which approached Central Bank wit the request to include Khabarovsk
Krai in the list of the regions participating in the experiment. Growing
bilateral trade stimulates demand for the export credit.
This type of cooperation with the Chinese banks became one of
the most important and promising directions for Vneshtorgbank’s
activity. The current
volume of credit agreements signed with the Chinese banks is $ 700
million. In 2003, imports
of equipment accounted for 72 percent of all imports financed by the
Khabarovsk branch of VTB. This
way, China is able to sustain its industrial export, while their
Russian counterparts are provided with the favorable finance
conditions and longer term credit (from 5 to 10 years) A
number of such deals has been successfully implemented during
2003-2004. For example,
Vneshtorgbank financed the purchase of telecommunication equipment,
produced by the Huawei Technologies (China) for the Mobicom-Khabarovsk
JSC (the affiliate of the MegaPhone JSC - Russian cellular
communication provider). In
the nearest future, MegaPhone plans to launch the cellular
communication system with the use of GSM 900/1800 standard.
The funds for the deal were obtained as a part of the credit
project of the Chinese Bank of Industry and Trade (CBIT) through
EximBank of China. The
overall volume of credit secured for the project is $3.3 million; the
credit line is available for six years.
KEY
CONTACTS: BISNIS
in Khabarovsk Khabarovsk
Krai Ministry of Economic Development and Foreign Affairs FAR
EASTERN CHAMBER of Trade and
industry Useful
Links http://www.strana.ru/stories/02/11/14/3205/229530.html
- President Putin’s interview for Chinese mass media (Rus) http://www.chinaconsulate.khb.ru/rus/
- Chinese Consulate General in Khabarovsk; the site has a section on
trade and economic relations. (Rus) INTERNATIONAL COPYRIGHT, U.S. DEPARTMENT OF COMMERCE AND U.S. DEPARTMENT OF STATE, 2004. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES. |
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