Eurasia stuck in the middle: Will Russia’s “pivot” to the East ever overstep Western trade?

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May 17, 2016 – 

Mariya Lisitskaya, PolitRussia- 

Translated by J. Arnoldski

Turning to the subject [of Russia’s relations with East and West] was compelled by the free interpretation by various media of the words, taken out of context, of Deputy Minister of Foreign Affairs Igor Morgulov that he “would not begin to speak of a ‘pivot’ of Russia towards the Asia Pacific Region.” Some sources immediately focused attention on this quote. However, in the full version of the interview, the deputy minister of the Ministry of Foreign Affairs emphasized:

“Our country is a world power located on the Eurasian continent that is building relationships parallel with both West and East. The other point is that in this work we are taking into account the objective trends of global development. And these suggest that the role of the Asia-Pacific region as the ‘locomotive’ of the global economy and politics is substantially increasing.” 

Igor Morgulov went on to recount in detail what the government is doing and planning to develop in terms of trade and economic relations with the “Eastern segment.” He once again stressed that “we have traditionally paid special attention to the countries of this region.”

Quite another thing is how successful Russia has been in its efforts. In order to assess the effect, we must refer to the foreign trade of the Russian Federation as a whole. From 1994 to 2012 inclusively, our country successfully increased its foreign trade turnover. The momentum was stable with the exception of the crisis years, but even then the drop in export and import operations was not critical and was overcome in one to two years. 

Russia’s foreign trade in the past five year period is more complex. After the “fat” years of 2012 and 2013, when foreign trade indicators reached their peak, the curve of exports and imports went down sharply. Instead of general indicators, however, we are interested how things stand in foreign trade with the “Western” and “Eastern” directions.

In 2012, the total turnover of foreign trade amounted to $841.8 billion. We exported more than we imported. Nearly half of the trade turnover consisted of export and import connections with EU countries at 48.7%. The share of trade with APEC was at 23.8% and the trade turnover with the CIS countries fit a smaller niche of 14.7%. Among the three winner countries with which Russia developed the most durable trade relations were China (10.4%), the Netherlands (9.8%), and Germany (8.7%). 

The following year’s foreign trade figures were a bit better. Total turnover amounted to $844.1 billion and exports once again exceeded imports. The lion’s share of export and import transactions was once again with the European Union. They even rose in comparison with the previous year, totaling at 49.4%. In relation to the APEC countries a rise was also witnessed, coming to 24.7%. Exchanges with former Soviet republics grew, but not much, at 13.8%. As before, the three leaders were China (10.5%), the Netherlands (9%), and Germany (8.9%). 

Then came the most difficult year of 2014 – the year of sanctions, the collapse of oil prices and the ruble. According to the estimates of the Federal Customs Service, foreign trade turnover decreased by 7%. Russian exports fell by 5.8% and imports from abroad to our country decreased even more, by 9.2%. The US twisted the hands of the European Union and the trade turnover between Russia and the EU fell by 8.8%. Nevertheless, in relative term, the West once again took the priority of share in Russia’s total trade turnover, 48.2%. The APEC countries, slowing down in absolute terms, also grew their share of percentage to 27%. Relations with the CIS countries dipped slightly to 12.2%. This happened mainly due to the sharp reduction in trade with Ukraine. The “gold,” “silver,” and “bronze” leaders in trade remained the same: China (11.3%), Netherlands (9.4%), and Germany (9%). 

In the Asia-Pacific region, the leaders of trade with our country after China were and remain India, Vietnam, Indonesia, the Philippines, and Malaysia. Their share in total foreign trade turnover is quite stable. The apparent increase in these years is demonstrated in the very least in relations with China, which have changed by almost a percent over two years. India’s share, on the contrary, insignificantly declined in 2013 and remained at the same point in 2014. The same .1% by which India’s share fell in 2013 was taken over by the same increase in trade with Vietnam, which remained at this level for the next year. For these three years, the Philippines has occupied a stable .2% of our trade. Malaysia and Indonesia’s shares in 2013 rose to .1%, but a year later Indonesia returned to previous levels as Malaysia snatched another .1% of turnover. 

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In 2015, the expected happened as foreign trade turnover further collapsed. Turnover sagged very noticeably, decreasing to 33.2% compared to the previous year. We imported from abroad less at 36.7%, and exports in relative terms solidly fell to 31.1%. The reduced costs of exported goods can be noted, but their physical volume increased. Thus, there were once again no surprises as to the “country’s structure.” The leading economic partner of Russia was once again the European Union, who accounted for 44.8% of all Russia trade turnover. This was less than a year earlier, but still solid. 12.5% turned out for the CIS countries (a growth by .2%). The interesting dynamic with the APEC came out at 28.1%. A growth compared to 2015 was observed, but nonetheless a very small one of 1.2%. 

There is little hope that this year will be a turning point in Russian foreign trade. The political situation leaves much to be desired. Our “Western partners”, under the guidance of Washington’s advisors, are stirring up a psychosis of war. Sanctions and the retaliatory food embargo on our part, low oil prices, and a cheap ruble are the factors which place a heavy burden on the foreign trade of the Russian Federation. 

But if everything remains unchanged on the “Western front,” then why should we, finally, not intensify the proclaimed “pivot” to the East? [Why not strive] for the proportion of Russian foreign trade to be in favor of the Asian-Pacific region, and not the European Union? Moreover, the statistics show that something has begun to change. It is no coincidence that in the past few years China has become the main trade partner of Russia.

It would seem that there is a political will for this. In February 2012, when he was still prime minister, Vladimir Putin said: 

“Last year the Chinese came in second place in the world in terms of GDP and in the near future, according to international and even American experts, they will surpass the indicators of the United States.”

In connection with this, he emphasized:

“We have the chance to catch the ‘Chinese wind’ in the ‘sails’ of our economy.” 

Upon becoming president, in December 2012, Putin once again stated that Russia’s 21st century vector of development is oriented towards the East:

“This is an opportunity to take our rightful place in the Asian-Pacific region.”

The government responded to this call with numerous meetings, programs, and regulations. However, opinions on the pace of the Eastern “pivot” and its effectiveness are, mildly speaking, mixed. 

For example, candidate of political sciences and associate professor of international relations at the Far Eastern Federal University, Leonid Kozlov, believes:

“The modest achievements of the pivot to the East lie in the fact that the domestic political and economic elite is itself reluctant to invest in the Russian Far East. If we ourselves do not want to invest in our own development, then how can one expect foreign investors to do so?”

The opinion of this Far Eastern scholar seems to be quite reasonable if one gets acquainted with the point of view of his Moscow colleagues, such as the authors of the report “The New Positioning of the Russian Federation in the Global Economy” prepared by the Institute for Modern Development.

In this report, ex-Finance Minister Aleksey Kudrin believed the pivot to the East to be unrealistic for the Russian Federation’s economy: 

“In the East, we will still meet the West, where many Western institutions have been successfully engrafted and are functioning.” 

In solidarity with Kudrin, Igor Yurgens, the president of the institute, believes: 

“If the pivot to the East is carried out too harshly and without consideration, this will not only be a mistake of strategic planning, but could also be the end of the empire.”

The recipe presented by the liberal figures of the report is simple: first we need to implement structural reforms within the country such as raise the retirement age, cancel benefits, and then, well, open our arms to the West because “the country should be open, oriented towards global markets.” Considering just how many supporters Aleksey Kudrin has in the liberal bloc of government, we can safely assume that this view is shared there.

The development of mutually beneficial, bilateral trade relations with China itself is not only hampered by our difficulties, but also by their own economic problems. After all, last year trade turnover between Russia and China declined by one third. 

More than a few difficulties are created for the development of relations between Russia and the Asian-Pacific region’s countries by the Eastern mentality, the specifics of which are often not taken into account by Russian officials and businessmen. 

The CEO of the Fn+ company, Maxim Sokov, for example, is convinced: “The adage that ‘we harness long, but then quickly let go’ definitely has a Chinese equivalent. When the European believes that the decision is already made, the Chinese see but a platform for the beginning of the next stage of negotiations.” 

Finding a common language with Eastern partners, however, is possible as practice shows. The state corporation Rosneft managed to do this. The company signed a memorandum on understanding and cooperation on the project of the Eastern Petrochemical Company with one of the largest chemical companies in the World, the Chinese National Chemical Corporation. Rosneft also gained a partner in India, where the Indian ONGC Videsh Ltd signed an agreement with our state corporation on purchasing from Rosneft 15% of its subsidiarity, Vankorneft.

Some Russian businessmen and officials complain that the Chinese, by taking advantage of our difficult situation, are trading and driving down the prices of Russian products while investing capital and demanding control over enterprises according to the principle of “50% plus 1 share.” On the other hand, the economic situation in the People’s Republic of China is not so easy, and it is Russian entrepreneurs who should be negotiating in their own favor. We managed to sell the Chinese 9.9% of the Yamal SPG NOVATEK project and 10% of SIBUR. 

On this note, the Russian ambassador to China, Andrey Denisov, stressed that Russia’s trade with China is changing. Instead of a simple exchange of goods, what is being promoted are investment projects in the most different fields. He said:

“This is a pledge that we are establishing a base for the future, because investment projects are realized over the course of a number of years.” 

International experts are talking about the long-term perspective. International law firm Berwin Leighton Paisner’s partner Ian Ivory is sure that:

“It’s important to remember that both china and Russia are playing a long game. From the point of view of many Western experts, Russia’s striving to re-orient itself towards the East looks like a failure or, at best, a disappointment. However, longterm trends allow us to speak of the validity of the Russian ‘pivot.’”

Without any hat-tipping, Chairman of the State Duma Sergey Naryshkin fully positively assessed Russia’s striving towards the East:

“It is very important to assess the situation systematically and approach all problems realistically. Optimistic views on the development of economic cooperation with the Asian-Pacific region’s states prevail among public sentiments and in the business environment.”

In short, Russia is increasingly “unfolding” itself towards the East, but still trades more with the West. How long this bias will last depends on several factors. Firstly, our “Western partners” could accelerate the process of the “pivot” at their own peril by inserting sticks into the wheels of developing our relations with the European Union. Secondly, much depends on the efforts of the Russian political elite and their genuine interest in strengthening ties with the East. Thirdly, we need a positive response and reaction from the countries of the Asian-Pacific region. When this happens, trade statistics will change. 

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