economic relations between russia and china –...
TRANSCRIPT
Suomen Pankki
Economic Relations between Russia and China – Increasing Inter-Dependence? Bruegel 21 June 2016 Heli Simola, Senior Economist, BOFIT
21.6.2016 1
Suomen Pankki – Finlands Bank – Bank of Finland
Economic Relations between Russia and China
Russia and China seem to have huge potential for economic cooperation – Large neighboring markets – Complementary production structures
Economic relations between countries have long time been even surprisingly narrow despite many years of high-level dialogue
21.6.2016 2
”Year of China” in Russia in 2007
Suomen Pankki – Finlands Bank – Bank of Finland
Trade has increased notably and its structure has changed
21.6.2016 3 Source: Author’s calculations based on OECD-WTO TiVA data
0
5
10
15
20
25
30
35
40
1995 2000 2005 2011
Trade between Russia and China, bn USD (in value added terms)
Exports from China to RussiaExports from Russia to China
0 %
10 %
20 %
30 %
40 %
50 %
60 %
70 %
80 %
90 %
100 %
1995 2011 1995 2011
Chinese exports to Russia Russian exports to China
Structure of bilateral value added trade, %
Other
Financialintermediationand businessservicesTrade andtransportservices
Machinery,equipment andtransportequipmentMining andquarrying,petroleumproductsAgriculture andfood industry
Suomen Pankki – Finlands Bank – Bank of Finland
Bilateral dependency still low
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0 %
10 %
20 %
30 %
40 %
50 %
60 %
70 %
80 %
90 %
100 %
1995 2011 1995 2011
China Russia
EU28 NAFTA East and South East Asia China/Russia Other
Supply (import) dependency Demand (export) dependency
0 %
10 %
20 %
30 %
40 %
50 %
60 %
70 %
80 %
90 %
100 %
1995 2011 1995 2011
China Russia
EU28 NAFTA East and South East Asia China/Russia Other
Source: Author’s calculations based on OECD-WTO TiVA data
- Bilateral dependency has increased, but remains low - Both more oriented towards other markets - Rather one-sided dependency of Russia from China than inter-
dependency
Suomen Pankki – Finlands Bank – Bank of Finland
Russia’s statement of ”pivot to Asia” – Hope to receive additional income and
financing under western sanctions
Much attention for new steps in cooperation – Agreements on natural gas supplies
from Russia to China – Contract on Russia selling missile
defense system to China – Joint declaration on cooperation in
coordinating development of Eurasian Economic Union and Silk Road Economic Belt
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High-level relations blooming after Russia’s relations with West cooling
Sources: Kremlin, Xinhua.
Suomen Pankki – Finlands Bank – Bank of Finland
Trade development more moderate and again one-sided
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-60 -50 -40 -30 -20 -10 0
Korea
Japan
EU
China
EAEU
US
Total
Change in Russian goods imports in 2013-15, %
Sources: Russian Customs, IMF DOTS
0
5
10
15
20
25
China's sharein Russian
imports
China's sharein Russian
exports
Russia's sharein China'simports
Russia's sharein China'sexports
Share of Russia and China in each other's goods trade in 2013 and 2015, %
2013 2015
Suomen Pankki – Finlands Bank – Bank of Finland
Investment flows have continued small and fallen
Russia and China not among each others’ most important investment partners
– FDI stock from Russia to China (incl. Hongkong) 1.5 bn USD
– Estimates for Chinese FDI stock in Russia vary from 1.5 bn to 25 bn USD
Chinese credit to Russian companies has not increased notably in general except some individual deals
– Chinese banks take Western sanctions into account
– Difficulties to agree on price
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N.B. Figures from different sources are not comparable due to different methodologies.
Sources: MOFCOM, China Investment Tracker, CBR, author’s calculations
0
1
2
3
4
5
6
7
MOFCOM MOFCOM adj. CIT CBR
Chinese direct investment flows to Russia, USD bn
2011 2012 2013 2014 2015
Suomen Pankki – Finlands Bank – Bank of Finland
Oil trade volumes and inter-dependency have increased – reflecting earlier developments
21.6.2016 8
Sources: CEIC, UN Comtrade
0
5
10
15
20
25
30
35
40
45
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Volume of oil exports from Russia to China (million tons)
Saudi Arabia15 %
Russia 13 %
Angola11 %
Iraq10 %
Oman9 %
Other42 %
China's oil imports by area in 2015
EU 61 %
China16 %
Belarus9 %
Japan 6 %
Korea5 %
Other3 %
Russia's oil exports by area in 2015
Suomen Pankki – Finlands Bank – Bank of Finland
Natural gas agreements an important step forward, but much work remains to be done
21.6.2016 9 Source: IEA
China - Myanmar pipeline (12 bcm)
China – Central Asia pipeline (55 85 bcm)
Power of Siberia ( 38 bcm)
Power of Siberia 2 ( 30 bcm)
LNG facilities (55 bcm 88 bcm)
Suomen Pankki – Finlands Bank – Bank of Finland
Arms trade an exception in economic relations
Arms trade between countries has been declining during past decade
In arms trade opposite situation
than in other economic relations SIPRI estimates that Russia still accounts 60-70% of Chinese arms imports
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Source: SIPRI
0
20
40
60
80
100
120
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Russian arms exports to China, volume index 2005=100
Suomen Pankki – Finlands Bank – Bank of Finland
Practical implications of regional cooperation unclear and challenges remain
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Source: HKTDC
Suomen Pankki – Finlands Bank – Bank of Finland
Future perspectives for economic cooperation depend largely on political relations
Best potential for further increasing and deepening cooperation in the fields of energy and raw materials, infrastructure
– Politically the most sensitive areas – Especially in these areas both seem to be rather striving for reduced dependency on
any country instead of increasing inter-dependency
Russia wants financing but is not willing to give up on economic
independency China aims at securing diverse raw material supply and finding new
markets for domestic industrial production – Emphasis might be shifting to latter with China’s rebalancing of growth model and
already vast and diversified supply secured – Often implies majority stakes and / or use of domestic materials, labour etc.
Can a balanced approach acceptable to both be found or is it easier
to find other partners?
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Suomen Pankki – Finlands Bank – Bank of Finland
Limited potential for increased cooperation in other sectors
Traditional attractions of Chinese
markets offer less possibilities for Russian companies
– Poor competitiveness in most other products than energy and raw materials, especially consumer products
– China is no more a market of cheap labor at least for Russian companies, as average wage in China appears to be already higher than in Russia
Russia’s relatively large markets interest Chinese companies, but
– Investment hampered by problems in business environment
– Further increasing exports might be restricted by Russia’s protectionist policies (reducing import dependency, import substitution)
– In sanctioned products China has less to offer and providing finance limited by risks
21.6.2016 13
Main entrance of the Matryoshka Park in Manchuria (Source: Kommersant)
Suomen Pankki – Finlands Bank – Bank of Finland
Conclusions
Bilateral inter-dependency has increased, but remains low and is rather one-sided
Recent warming of political relations has led to some
important steps forward also in economic relations, but less results in practice
In the near term, development of economic relations
continues to rely largely on political considerations
21.6.2016 14
Thank You for Your Attention