President Putin is shortly to visit China. Expectations are high in China that game changing announcements may be made, opening large parts of the Russian economy up to Chinese investment for the first time.
What might be on the wish list? Could there be benefits for both countries as a result?
Below are a few thoughts on areas that might be on the table for discussion.
Energy and Basic Materials
Any opportunity to increase energy security with long term, large scale contracts will be seized aggressively, supported by capital commitments to build the infrastructure to bring the energy to China. Reduced dependence on Middle East supplies is an explicit goal.
Moving one step up the value chain, China Inc (and in these sectors it is very much China Inc, almost entirely state-owned enterprises) would take opportunities to undertake value added processing in Russia. Russia has the cheap energy and abundant water that China lacks to do this cost effectively.
Accessing mining opportunities in Siberia directly, under a more attractive foreign investment scheme than exists today. After all, some of these minerals are never going to be cost effectively extracted if they are targeted at Western markets. Chinese miners see the need, have the capital and the skills to operate there. There are international precedents – Russia can learn from the experiences of Australia and Latin America in allowing Chinese investment in mining.
Free trade zones to simplify manufacturing in Russia. Maybe on the border, maybe around Vladivostok, create a “mini Shenzhen” with unique degrees of flexibility to create manufacturing operations in Russia. Almost uniformly, Chinese manufacturers find operating in Russia today incredibly challenging. This holds back investments that could create tens if not hundreds of thousands of jobs.
China’s builders of railways and other infrastructure would be delighted to have the opportunity to work in Russia and it is hard to argue that they are not well equipped to do so, having built more high speed and conventional rail capacity in the last 2 decades than the rest of the world combined, often in very challenging terrain.
China is on track to need to import more than 50 million tons of cereal within a few years. Can more of Eastern Russia be opened up to Chinese investment in large scale cereal production? Alternatives to having to ship cereal around the world would be attractive.
Article by: Gordon Orr
Image credit: Ryan Hyde / Flickr