Sinorussian Forum

.. mmodities even like some African countries. Therefore, the production, trade and commodity inspection units, to some degree, acquiesce in the overflow of counterfeit goods. Fourthly, after so many years of foreign goods pouring into the Russian market, Russians are accustomed to high-quality commodities. More important, the renaissance of Russias economics, the rapid growth of Chinas economy, and the allied strategic interests really remind us of the complementary need between each other. The guarantee of the retirement pay and the increase of the salary could help improve the purchasing power and arise higher claims of Chinese commodities.

1.2 Many Chinese tourists almost send all their profits back to China and cause the discontent of Russians. The Russia migration service reported on any given day, about 30,000 Chinese tourists are in Russia’s Far East. In Ussuriysk, just north of Vladivostok, they’ve congregated in a small Chinatown, with its own hotels, casinos and restaurants. Russian officials complain that while the Chinese are engaged in successful trade in Russia, none of their profits find their way into the local economy. Instead, they say, the money ends up back in China.

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Such economic expansion is observed throughout the entire Russian Far East, said Sergei Pushkaryov, chief of the region’s migration service branch. All the profit is theirs. More important, as Pavel Gladkikh, a migration service official said, besides selling cheap clothing, toys and other consumer goods, Chinese tourists are increasingly involved in illegal timber and scrap metal exports through elaborate trading networks. Chinese businessmen hire unemployed countrymen and send them to Russia as tourists. Afterward, they ship containers of goods for the tourists to sell.

Receipts from the sales go to firms that the same businessmen establish in Russia. The money is then used to buy timber and scrap metal. They then create Russian shell companies to send the shipments across the border to China. 1.3 The bilateral trade volume is small and the cooperation level is low. Firstly, according to the China Trade, in 1998 the trade volume covers only 5% of the total importing and exporting volume of Russia.

On the other hand, the trade volume only covers 2.4% of the total importing and exporting volume of China, or 20.1% of Sino-Japan trade volume. Secondly, the low level of trade cooperation is also showed on the trade form. In 1995, the barter trade covers 61.2% of the whole Sino-Russia trade. Later bilateral governments reach an agreement that bilateral trade should be transformed from the barter trade to spot transaction, and thus the proportion of the barter trade falls down. However, at the same time the bilateral volume also decreases with the falling of small barters.

In fact, Sino-Russia trade relations lack the form of big global standard trade cooperation; therefore, this cooperation still remains at a very small level. Thirdly, the bilateral direct investment has remained at a low standard until now. Until 1998 Russia has only invested 0.2 billion US dollars in China, while from 1993 to 1997 the direct foreign investment amount in China is almost 185.8 billion US dollars. On the other hand, until 1997 China has only invest 0.18 billion US dollars in Russia, while from 1993 to 1997 Russia has absorbed 9.7 billion US dollars. Therefore, the trade cooperation is not in line with the large potential of both countries, and also not in line with the rapid increasing Sino-Russia political and military relationship. 1.4 The bilateral trade volume is not stable and in line with the good bilateral political relationship.

Firstly, Big rise and fall of the turnover often strike the normal bilateral trade relationship. For example, according to Chinas trade yearbook, in 1993 the total import and export trade volume between China and Russia is almost 7.5 billion US dollars, while in 1994 the volume is only 4.9 billion US dollars. In 1998, the total trade amount between China and Russia was 5.48 billion USD, 10.5% lower than that of 1997. Secondly, Chinas trade deficit becomes larger and larger during the past years. This disequilibrium of bilateral trade seriously influences the normal development of Sino-Russia trade relationship. From 1992 to 1998 Chinas total trade deficit adds up to over 12 billion US dollars.

More important, the trade structure is not fit for the stable growth of Sino-Russia trade relations. According to Chinas 1999 economic report, until now what Russia exports to China are still mainly so-called four main commodities, which are machines, ferrous metal, chemical fertilizer and timber. What Russia import from China are mainly foodstuff and some household electrical appliances. The present Sino-Russia trade structure cannot spur the further and steady trade development, and cannot make the full use of the present trade complementary potentials. 1.5 The high risks existing in bilateral trade relations.

Many Chinese and Russian companies have to run high risks to go on the bilateral transactions because of three reasons: (1) Two countries have never established trade relation mechanism system conformed to the world standard until now. Their trade system reforms have not been accomplished. In Chinas respect, the SOEs have not transformed the past planned system. In the trade relations with Russian companies, many big trade companies lack the trade flexibility, and cannot adapt themselves to the moving market. On the other hand, most of private companies have no adequate capitals to run big bargains with Russian companies. In Russias respect, the trade policies are not stable and effective; as a result, Chinese companies that are accustomed to trading with Western corporations are full of worries when they trade with Russian companies. What affects the Sino-Russia trade relationship is that these two countries have never established trade relation mechanism system conformed to the world standard until now.

(2) Problems of the bank setting accounts system. According to the statistics of China trade, spot transaction is becoming more and more important. However, after Russias radical economic reform, few Russian banks have the adequate strength and credit. More important, the agency system between Chinese and Russian banks is not mature, so there are few spot transaction accounts between Chinese and Russian companies. Until now almost 420 banks in 33 countries have established representative units in China, however, Russia has only established the Russian International Business Bank and the Russian Credit Bank have established branch banks in China.

On the other hand, only the Bank of China established branches in Russia. Therefore, the cash settlements through L/C (letter of credit) have not been widely used by corporations of both sides. Therefore, the bilateral trade relationship is seriously influenced by the trade settlement. (3) The arbitration system is not mature. There is no denying that many trade disputes often emerge in the Sino-Russia trade relations, but they cannot be easily settled, because no just, reasonable and effective arbitration systems have been built up until now. In this situation, the irregular trade actions such as illegal speculations, defaulting and the low rate of discharging contracts emerge and prevail between Chinese and Russian traders. Therefore, Chinese and Russian corporations legitimate rights and interests cannot be effectively guaranteed.

Therefore, the intentional swindles and some other unlawful activities begin to run rampant. (4) Exporting insurance problems. Now Russia is still distinguished by WTO as the high-risk country. When Chinese companies export commodities to Russian, Chinese companies are often required to get payment until Russian companies get receipts of goods. However, when Chinese companies want to import commodities from Russia, Russian companies send goods upon receipt of payment. In this situation, Chinese companies always have to bear all risks no matter whether they are exporters or importers.

More important, because China and Russia have not established an efficient good exporting insurance system, many big Chinese trade companies have no end of misgivings when they want to enter the Russian market. (5) Because of the mentioned risks, Chinese leading trade corporations are still cautious of Russian investment conditions, though Chinese government has tried best to encourage them to invest in Russia. Recently Russia’s Yukos oil company agreed to a symbolic deal with China. Yukos oil company head Mikhail Khodorkovsky recently signed an agreement on increasing next year’s oil supply to China by 1.5 million tons. Not a big contract by world standards, but it is expected to become a milestone in Russian-Chinese relations. The contract has symbolic value – 1.5 million tons of oil is exactly the amount the limited capacity railway link to China can handle. Building a pipeline from the Irkutsk region through Mongolia and into China would be the only way to further increase supplies. The pipeline would have a capacity of 25 million tons to 30 million tons a year and would cost $1.7 billion. However, neither Yukos nor the Russian government has the money to finance such an ambitious project.

The project will be realized only if the Chinese themselves can come up with funds. Indeed, if the ever-cautious Chinese do agree to invest in the project, it would signal the end of all the talk about a Russian-Chinese strategic partnership and the beginning of action. 1.6 Transportation and other basic infrastructures fall behind the great development of Sino-Russia trade relations. According to the statistics of China Trade, the Chinese ports transporting capacity is very limited in the present trade situation. Our important international trade port Manzhouli can only transport 3,000,000 tons per year; the port Suifeng River port can only transport 900,000 tons per year; the port Ernianhaote can only allow freight of 300,000 tons to pass. Because the poor port transporting capacity, it is estimated by China Trade that almost 2000 railway freight carriages were detained on the railway in 1999.

In 1999, the transportation units only finish 84% of the volume of rail freights. Because of the limited transporting capacity, almost 25% of the contract assignments have not been fulfilled. On the other hand, Rail lines continue to be the main means of freight transport between China and Russia, however, the Russian railways in Siberia of Russia are all single-track railways, and the air transporting is still too expensive and inconvenient, therefore, the Russian transporting capacity also hinders the normal development of the Sino-Russia trade relations. The Far East Railway Network, in a statement via Grodekovo (near Ussurysk), isn’t able to handle the increased turnover of goods between the countries. The line, near the small Russian cities of Khasan and Posyet, is the second Chinese-Russian railway line crossing the countries’ Far Eastern border. The other line is about 100 km north on the border with the Chinese province of Heilongjiang. Another rail link, part of the original Trans-Siberian railroad completed in the 1890s, connects Russia to China near Mongolia.

Therefore, China and Russia have to spend a lot in forming a comprehensive transporting system of railway, highway, water and air transporting forms. Andrei Ostrovsky of the Far East Institute said Russia itself still has issues to take care of before trade can be expanded. We shouldn’t forget that we still have to improve our border passages, services, capacity and customs processing, he said. The bad conditions on our side of the border impede all efforts to increase cross-border trade. 1.7 The nationalism in Russia and other political trends may seriously affect the Sino-Russia relationship. Firstly, the pouring of Chinese traders and immigrants make many Russians feel disturbed and even panicked.

It is estimated by the Russian government that the Russian Far East comprises a territory of 36.4 percent of the entire Russian Federation. However, its population is only 7.6million and 5.4% of the total population of the Russian Federation. The Far East is a large area, endowed with rich natural resources, and a very small population. More important, it is remote from Moscow. Therefore, the so-called Chinese Expansionism also affects the bilateral understanding and trade relationship.

Secondly, many Chinese media still denounce Russia because it had taken away almost 1.5 million square-kilometers fertile land from China and bullied on Chinese there. In the Russian Far East Programme composed by Russian government, it is said, The decline of Russian geopolitical positions has spurred Japan and China to directly arise their territorial claims to Russia. Therefore, Russian government has taken some precaution measures to control the so-called Chinas economic infiltration. Thirdly, the good Sino-Russia political relationship is based on the common suspicion against the Western countries. If Russia has improved its relationship with the Western countries, the Sino-Russia political and trade relationship will be inevitably affected. These are favorable conditions for expanding trade. However, the total amount of two-way trade is quite small, and by the year 2000, it is expected to reach no more than $20 billion.

2. How to tackle these problems Facing the mentioned problems, China and Russia must try their best to overcome the difficulties existing in the developing Sino-Russia trade relationship. 1.China and Russia must sternly strike the illegal tourist trade, more important, they should support big trade companies as the main Sino-Russia traders. For example, they may levy heavy penalty against those tourist traders and counterfeit commodity producers. Fortunately, two Chinese state-run business centers selling Chinese-made goods opened in Moscow this spring. Assembly of Chinese TCL televisions in Russia is also planned.

China could also provide funding for the manufacture of the Be-200 100-seat passenger aircraft that can land on water, and for a new generation fighter plane. China is also studying possible participation in development of the Russian Far East port of Zarubino. 2.Chinese and Russian traders must transform their original views of mutual markets. Chinese traders should notice the great changes of Russian market. Now many western competitors have made use of their technique and quality advantages to push Chinese traders out of the Russian market. China should not take Russian market as the so-called parallel market, which can absorb low-grade commodities even like some African countries. 3.China and Russia must help the mutual media form the correct and comprehensive views of each other. On Boundary Question, in April 1994, both sides completed the protocol on the description of the national boundary and its appendices on the eastern and western sections of the Sino-Russian Boundary, which marked the successful conclusion of the demarcation of the boundary line in the sections unanimously agreed upon through consultations.

In this way, the Sino-Russian boundary for the first time in the relations between two countries has been accurately indicated on the spot. Chinese and Russian media thus should comprehensively reconsider and try their best to preserve the Sino-Russia relationship. 4.China and Russia should diversify the importing and exporting commodities. Now Main products exported through border and local trade are cereals, oils and food, vegetables and fruits, garments, shoes, general merchandise, construction materials, electronics and computer equipment, medicines, oil tar, asphalt, refractory materials, ceramics, cigarettes and tobacco, and cotton. China-made electrical household appliances and electrical products are also entering Russian market.

Chinese and Russian traders should analyze mutual markets thoroughly and then pursue a great variety of commodities. 5.China and Russia must continue to provide good policies for the Sino-Russia trade relationship. Fortunately, the Russian government has announced on September 4th, 2000 that Russia is going to have a better control the custom duty. From 2001 Russia will decrease the kinds of custom duties from 7 to 4, and the highest duty decrease from 30% to 29%. On the other hand, the undersecretary of Chinas Foreign-trade Department, Long Yongtu announced that any enterprises could directly take part in foreign trade after the registration in business branches, in no need of the governments permission. These all show the determination of mutual governments, however, they still need go on the preferential policies, more important, they should struggle against corruption and malfeasance in order that mutual traders can really enjoy these policies.

6.Chinese and Russian governments should strengthen the cooperation in the scientific resources, energy and capital field. Now China still tries its best to finish a program Russia-China Energy Bridge. United Energy Systems of Russia has signed a co-operation agreement with China and is proposing the development of this project that provides for volume electricity exports from Russia to China. Existing power plants in Siberia have sufficient capacity to export up to 15 billion to 18 billion kW/h of electricity to China. UES is presently able to supply electricity to China from the Amur region using existing cables. The Chinese side has agreed to consider the question of Chinese participation in the efforts to complete the construction of Bureya hydroelectric plant in Russias Far East.

This is a good example, however, such big cooperation projects by mutual governments still fall behind the rapid developing Sino-Russia political relationship, therefore, the high officials of both governments still need spur the relative units to carry these important projects. Overall, effective economic cooperation will help cement the foundations for a Sino-Russia strategic partnership. The people in both countries should seriously value the hard-earned Sino-Russia relationship, and spend all their intelligence, wisdom and courage to overcome all odds on the way to a prosperous Sino-Russia trade relationship. Chapter4. Putins Economic Reform 1. Russian Economic Environment Everybody who does business in Russia knows that problematic laws and weak legal enforcement, corruption, high taxes, and Mafia (organized criminal) activity make it an ordeal.

Improving the financial and legal environment must be high on Putins agenda, because Russias economic behavior of regional leaders. If this plan works, Russia may substantially improve tax collection and management of public property. However, Putins success is not certain, because the governors tacitly but stubbornly resist the plan. 2. Putins Economic Reform Russian economic background Putins historical duty is to build Russia into a strong nation, make it an influential part of the world, but Putins present target is to stabilize the Russian economy. Putin says, although Russia is a resource abundant country, it would still be subject to other countries that are without an advanced economy and powerful arm forces.

He emphasizes that the stabilization of economy is the nations most important target; the economic growth must reach 7% to 10%. Now the Strategic Research Center, Which Putin has constructed, is setting up the development plan in medium and long run. Although this plan has not been revealed, we can still acknowledge the primary ideas of Russias economic construction from Putins recent words and actions. First, perfect the role of the market and strengthen the governments macroscopic control over the economy at the same time, Putin asserts that the government should not give up its necessary control over the economy, while the markets adjusting function should be respected. Russia should strictly control the war industries and those enterprises of strategic resources, and posses the dominant part in main industries so that a radical economic development plan could be carried out under administration. Russia must support competition. Russia is not yet a truly open and competitive economy because of high barriers to entry for investors.

The government must establish simple and uniform terns for establishing new companies and put an end to the arbitrary rule of regional officials as well as to criminal pressures on businesses. Second, the role of markets must be substantially enhanced. Introducing private ownership of land will benefit the agrarian sector and also bolster financial markets, because land could serve as collateral for mortgages. No less important is enacting more flexible policies for wages and working conditions in the private sector. Third, a reform of the judicial system like that mentioned by German Gref os badly needed to ensure that independent courts can enforce contracts (replacing criminal groups as enforcers) and resist pressure from high-ranking officials. Second, develop high-tech industriesespecially information industriesand complete the industrial construction adjustment systematically.

Having established and strengthened basic market and democratic institutions during the 1990s, Russia became an emerging market country that badly needs a modernization breakthrough. How can the government of President Vladimir Putin attain this goal? The urge for modernization in Russia is stronger than in any other emerging market country. This former superpower lags further and further behind world leaders: Russias GDP now ranks only fourteenth in the world, and its social indicators are close to those of medium-income developing countries. Putin begins his rule during a strong economic recovery that follows a fourfold devaluation of the ruble in 1998 and a sharp rise in world oil prices. Throughout 2000, macroeconomic and industrial indicators are likely to remain favorable, with GDP expected to rise by 4-5 percent if oil prices stay close to $30 a barrel. In view of this good economic mews, is achieving a modernization breakthrough really that important for Russia? The answer is definitely yes, because, during 2003-05, Russia may experience shortages of natural resources, and its efforts to boost economic growth may be hampered by the continued decay of its industries.

The more an economic takeoff is delayed, the more difficult it will be for Russia to catch up with the advanced nations. Leading experts estimate that $2 trillion will be required in the next 20 years to modernize Russias production facilities, infrastructure, and labor force. If modernization efforts begin today, it will take from 15 to 30 years for Russia t catch up with the Westand that is if the Russian economy grows at 6-8 percent annually. Putin thinks the backwardness in information industry will lead to the lag in all other industries, so Russia should push up the development of information technology. Presently, resource and war industries are still the leading parts of national economy, so the government should show adequate emphasis upon these industries and increase the export of these products so as to accumulate enough capital for the industrial constriction adjustment. Third, administrate financial orders, reform tax system and improve the investment environment.

What hamper business in Russia most of all are taxes. If entrepreneurs paid all the taxes they owed, they would pay more than they earned. Therefore the shadow economy amounts to about 25 percent of GDP. Tax evasion is one of the main reasonsalong with control of mediators over resource and output flows, schemes designed for managers personal benefit, and the high price of moneybehind the wide use of money surrogates (for example, promissory notesveksel) and barter. Over the years, there has been much talk in Russia about reducing the tax burden, but only Putins government has tackled the issue. It intends to improve the general rules of the game for taxation and lower taxes on producers and ordinary citizens.

Tax officials plan to eliminate all preferences and seek to establish equal conditions for all. This approach signals a radical shift in the governments economic philosophy. The government seems to understand the significance of improving the economic environment. Legal experts are working on protecting minority stockholders interests, introducing transparent accounting techniques, and implementing other reform measures. But carrying out some important reforms requires consistent policy rather than isolated initiatives.

Putin requires that the banking system strictly control the exclusive use of national loans in order to stop the abuse of the budget and preferment loans. In order to relieve the burden of enterprises, Putin continues the policies of cutting tax types, lowering tax rates while widening tax sources. He is going to cut the tax sorts from 35 to 5 only, and lower the income tax rate from 45% to 30%. Fourth, decrease the gap between the rich and the poor; improve citizens living standard. Nowadays, the rate of the income of richest 10% citizens and that of the poorest 10% citizens is 1:15, far beyond the warring line of social stability, which is 1:10.

More than 1/3 citizen live under the poverty line. In order to conquer the impoverishment of citizens, the government has decided to impose luxury consumption tax upon the rich and constantly enhance the lowest wage and welfare standard according to the price index. The government set up a system to redistribute money through Moscow to support poorer regions. Although net redistribution accounts for only 1 percent of GDP, it arouses considerable conflict. There are only 10 donor regions that is, regions that contribute more to the federal budget than they receive from it and they are unhappy that their payments make up more than half the federal budget.

Some regions pursue policies of glocalization by establishing direct links with foreign partners, which often makes them more dependent on international markets than on decrees signed in Moscow. But one should also bear in mind that Russias real economic course is strongly influenced by businesspeople who are accustomed to lobbying, corruption, and paternalism. Influential industrial groups want the government to protect them from rival foreign investments by allowing only selected friendly companies to operate in Russia (the stance labeled hammerization after U.S. oil tycoon Armand Hmmers strategy of relying on his friendships with Kremlin leaders to make business deals in the former Soviet Union). So Putins policy must be pragmatic in responding to various challenges and vested interests.

Nonetheless, it is likely, though not inevitable, that his economic policy will have a liberal bias, because the government currently controls a very small share of the national economy. Federal budget revenues in 1999 were only about 14 percent of GDP, and those of all levels of government combined were only 36 percent of GDP. Existing government financial and economic institutions lack the power and the resources to intervene effectively in the Russian economy, so it will be difficult for the government to be an active player in Russian markets in the years to come. The first few months of Putins rule show that he is quite serious about the comprehensive modernization of Russia. If her continues to pursue this objective, his economic achievements will depend on progress being made in four areas: bringing down foreign debt, creating a market-friendly environment, restructuring the real sector, and bringing order to economic federalism.

After several months reform, Russias economy has abundant natural resources, apparent technical advantages and fine economical foundations, it will have a brilliant future with an effective macroscopic policy and social stabilization. 3. The Future of Putins modernizing Policy Putin has already shown himself to be a resolute and efficient leader. The economic problems he faces are very serious, However. It will be difficult to deliver Russia quickly from foreign indebtedness.

Debts will press on the economy throughout Putins rule, although the government can ease this burden somewhat if it comes to an agreement with creditors. In any case, paying Russias debts may entail austerity measures, and living standards are not going to improve. The money flowing into the country now, following political and financial stabilization will be spent on technological modernization. But prospects in other economic fields are less gloomy. Putin has sufficient power to carry out badly needed reforms.

Muddy depends on whether he will persist in seeking profound changes in economic institutions despite the reluctance of Russian businesspeople to adjust to a liberal economy and competitive markets. Still, if a pro-market policy is pursued, Russia can enjoy sustained growth. The most plausible economic growth projections based on this assumption, calculated by the CSR, are in the range of improvement in Russias international positions, because the world economy is expected to grow at almost the same rate. Even if a pro-market strategy is pursued, Russia will not be able to meet the modernization breakthrough. ?.Problems in the Real Sector Putin will need to force companies to undertake adjustment with restructuring. Companies should be pressed to separate into viable and nonviable divisions and to sell off the latter, thereby reducing overemployment.

By now, companies have stopped providing social safety nets for their equipment has been used for an average of 16 years and has depreciated to only 30 percent of its original value. The government has been unable to finance modernization (companies have enjoyed tacit subsidies, however, because the government did not press them to pay their taxes), so companies must rely primarily on their own resources and private loans. The government must help companies get rid of arrears that arose from a discrepancy between a restrictive macroeconomic policy and a soft microeconomic policy that has tolerated tax arrears and interenterprise debts, and from the governments failure to meet its commitments. The first step should be arranging mutual settlements between companies. But this must be followed by development and implementation of a consistent policy of gradually strengthening budget constraints in various types of settlements, including payments for energy supplies, interenterprise payments, and tax payments. Chapter5 Prospects and Suggestions for Sino-Russian Economic and Trade Relationship People may care about the prospect of Sino-Russian economic and trade relationship very much after reading the previous chapters.

Here, first, let us have a look at the tendency of Russian economic and trade policy, then discuss the prospect of the Sino-Russian Trade. 1.Changes in Russian Foreign Economic and Trade Policy In the recent several years, Russia has adjusted its foreign economic and trade policy continuously. On one hand, the government manages to make its foreign trade adjusting system step closer to the international standard; on the other hand, the government made its foreign trade policy fit the demand of national security more. Especially in Putins reform, many new policies and strategies have been made. 1.1 The Open Policy and the struggle for a Favorable International Environment The Open Policy is the basic national policy after Russias Independence.

Here are some observations on the policy. First, after the disintegration of USSR, Russia got its international position as its legal successor. Second, Russia set up a flourish trade relationship with the countries around. Based on geo-economics, Russia strengthened its international.

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