World Economy

Russia-China Trade Ties Falter

Vladimir Putin (left) and Xi Jinping at Beijing’s Great Hall of the People on June 25.Vladimir Putin (left) and Xi Jinping at Beijing’s Great Hall of the People on June 25.

Universities advertise Chinese classes in Vladivostok, the unofficial capital of the Russian Far East. Billboards offering cheap cancer treatments in South Korea litter the streets and cars imported from Japan clog the roads. In parks, clutches of locals practice qigong—an ancient Chinese exercise and breathing routine.

Vladivostok is a physical embodiment of Russia’s economic “pivot east”—mainly toward China—launched after Moscow’s ties with the West began to fray badly in 2014, NBC news reported.

“Relations between the two countries are at an unprecedented level,” Russian President Vladimir Putin declared in a televised address in May 2015. But despite their 2,600-mile border, a gulf separates the two countries’ economies.

Russian-Chinese trade fell by 5% year-on-year to $28 billion in the first six months of 2016, mainly because of plummeting prices for commodities such as oil, gas, lumber, metal and coal, Russia’s main exports. At the same time, the US remains China’s most important economic relationship with bilateral trade between the two hitting $263 billion in the first half of this year.

According to Gilbert Rozman, an expert on Asia at Princeton University, Russia “exaggerated the prospects for an alliance too soon.”

In theory, Chinese lenders and investors were expected to help compensate for the western sanctions over Moscow’s annexation of Ukraine’s Crimea peninsula and alleged meddling in that country’s civil war. But those sanctions hit Russia hard.

In 2014, European Union-Russian trade stood at $377 billion, making the bloc Moscow’s most important economic relationship. That fell to $235 billion last year.

Part of the problem for Russia’s Far East is an underdeveloped, depopulating region with a mere six million inhabitants that is connected to Europe only by one railway line—the Trans-Siberian Railroad.

The Russian Far East is just not developed enough, said Vasily Kashin, a China expert with the Higher School of Economics in Moscow. He added: “It’s a strategic problem, something you can’t fix in a hurry.”

Then there are the problems of actually doing business with Russia hinted at during the Eastern Economic Forum business conference held in Vladivostok earlier this month.

Meanwhile, Japanese firms are keeping their eyes peeled for emerging business opportunities in Russia following Prime Minister Shinzo Abe’s announcement of an eight-point cooperation plan with Russia in May.

To help realize the plan, Japanese firms are aiming to accelerate investments in resources development and automobile-linked projects, as well as projects to build medical, housing and other infrastructures supporting daily life, which President Putin focuses on.