Russia’s economic policy and Russia-China economic relations

Conclusions

After the break-up of the Soviet Union, it took a dozen years before trade between Russia and China gained momentum. Although political relations between the two countries are arguably better than ever, the growth of trade has been driven by economic forces. China’s phenomenal economic growth, its export success, and the need to find new energy and raw material suppliers have been the engine of growth in Russia-China trade. Political breakthroughs directly supportive of economic relations have been rare and the necessary decisions have been reached only after lengthy and difficult negotiations. While it is easy to give individual examples of mutual investments, economic cooperation between Russia and China is largely limited to trade in goods. As regards crucial energy issues, China has proceeded much faster with the Central Asian countries than with Russia. A certain superficiality and lack of vision plagues Russia-China dealings, and the prospects for deeper economic integration are not promising. This is often said to reflect the burden of history and mutual distrust. In this paper, we argue that Russia-China economic relations are also burdened by industrial policies that emphasize strategic sectors, which has led to a rise in protectionism, particularly in Russia. The fact that the actors are often state-owned companies, which in addition to business factors take into account the owner’s political interests, complicate the situation. Russia-China economic relations are currently reduced to individual business projects with no clear framework or direction. While this resembles Russia’s cooperation with other countries, the approach is in striking contrast to the rules and institutions-based approach which characterizes (naturally in relative terms) China-US or China-EU economic relations. The current situation is not a problem for China: it can get the energy and raw materials it needs from Russia, and regular talks concerning mutual investments and cooperation within the BRICS are enough to satisfy the political needs. Moreover, China’s rapidly developing economic relations with other CIS countries enhance its negotiation power vis-à-vis Russia as regards energy issues. From the Russian point of view, the situation is far from satisfying, as Russia-China economic relations to a large extent highlight the overall weaknesses of the Russian economy. Falling behind China, which has succeeded in modernizing and diversifying its economy, and the fact that Russia has become a pure raw materials supplier even among the emerging markets, is not what the leaders in Russia had promised. The major barrier for wider economic cooperation between Russia and China – or any other country – is Russia’s inward-looking, statist and protectionist economic policy. While Russian decision-makers seem to think that the Russia-China economic relationship and Russia’s role in the CIS region somehow grant it a specific role and rules in the global economy, the actual situation is likely to be quite the opposite; the rise of China’s economic power in Russia and the CIS region will force Russia to re-evaluate the costs and benefits of its current approach. This may take time, and meanwhile enterprises in Russia and China will of course continue to search for new business and cooperation opportunities and will keep the weak integration process alive.