Political aspects of China's investment in the Far Eastern Federal District and the impact of the COVID-19 pandemic on the successful implementation of ongoing projects
The article is devoted to the consideration of political and economic relations between Russia and China, the activities of Chinese investors in the Russian Far East and the real situation in this territory during the COVID-19 pandemic. Most of the planned Chinese projects in the Far Eastern Federal District were either suspended or completely closed due to the difficult situation with the coronavirus pandemic, but some projects, despite the difficulties encountered, are ready to be implemented. The article discusses specific examples of projects and the stages of their development, the results of Russian-Chinese cooperation in the development of the Far Eastern Federal District, as well as the reasons for China's difficulties in financing activities in this region.
Keywords: Russian-Chinese relations, Russian-Chinese treaty, bilateral relations, trade and economic relations, pandemic, coronavirus, COVID-19, export, import, cooperation, investment, financing, projects, implementation, problems.
The Far Eastern Federal District is now a new direction in the development of Russian domestic and foreign policy. The Russian Federation is looking for investors to implement projects in a poorly developed administrative unit and is meeting interest from the People's Republic of China.
The Far East is a promising Russian region, which has not previously been given such great importance and attention by the federal center, since all foreign policy was directed at Western countries. Now the vector of international influence and the center is shifting to the East. Unipolarity, led by the United States of America, is gradually turning into multipolarity. China, Russia's partner and ally, is rising in the world. The Far Eastern Federal District has the longest border with the People's Republic of China, compared with other Russian federal districts, which means that the "movement" of attention and investments towards the east is an urgent and timely move. In addition, the Russian Far East is extremely rich in natural resources: forests, coal reserves and hydro resources account for more than 30% of all Russian resources, as well as extremely rich in iron, gold, silver, platinum, copper, polymetals, oil and gas.
The region has everything to create fruitful cooperation, but in practice Chinese investors are in no hurry to invest their capital in the Russian Far East. There are now as many Chinese investments in the Far East as the current level of development can afford. Most of the region is focused on attracting subsidies from Moscow, not foreign investment. The exception can be considered cities such as Vladivostok and Ussuriysk <1>.
--------------------------------
<1>
In 1996, the federal target program "Economic and social development of the Far East and Transbaikalia until 2013" was developed, which can be considered the beginning of the development of this region. Later, this program was extended until 2018. <2>.
--------------------------------
<2>.
In 2009 The Presidents of the Russian Federation and the People's Republic of China approved a program of cooperation between the regions of the Far East and Eastern Siberia of the Russian Federation and Northeast China. In the same year, the Strategy for the Socio-economic Development of the Far East and the Baikal region for the period up to 2025 was approved.
With the coming to power of Vladimir Putin, special attention began to be paid to the Far East, new federal programs, regulatory legal acts, plans, joint agreements with China were adopted, and forums were held.
The history of foreign investments in the Russian Federation does not have a clearly defined line or perspective. Starting in 2014 and the imposition of sanctions against Russia by European countries and the United States, the policy of the Russian Federation finally decided to move its interests to the Asia-Pacific region, especially to China, with which relations since 2001 (with the conclusion of the treaty on good-neighborliness, friendship and cooperation) have been the most stable against the background of emerging situations on the world stage <3>.
--------------------------------
<3> Arefyeva Yu.A. Anniversary of the signing of the treaty on good-neighborliness, friendship and cooperation as the main event of international relations between Russia and China in 2021 // Russia - China: development of regional cooperation in the XXI century. 2021. pp. 21-28.
By sectors of foreign direct investment in the Russian economy, they are mainly invested in the mining industry, manufacturing, wholesale and retail trade, finance and insurance, science and technology <4>.
--------------------------------
<4>
The official representative of the Ministry of Commerce of China, Shu Jueting, said at a regular press conference on September 9 that economic and trade cooperation between China and the Russian Far East began early, with a solid foundation and great potential. China attaches great importance to strengthening trade and economic cooperation with the Russian Far East, the mechanism of cooperation between the two sides is constantly being improved, the participants are becoming more diverse, and the results of cooperation are becoming richer.
At an online meeting organized by the Far East and Arctic Development Corporation and the Chinese Embassy in the Russian Federation, prospects for investment cooperation in trade and economics were discussed for the first time. Li Jinyuan, Minister Plenipotentiary of the Embassy of the People's Republic of China in the Russian Federation, announced support for the implementation of the development of the Far East in bilateral relations with the joint efforts of the two states. He pointed out the possibility of development prospects in this area, because China is already Russia's largest partner in the development of the Far Eastern Federal District <5>.
--------------------------------
<5>
At the beginning of 2021, the number of Far Eastern projects with China's participation has increased from 29 to 59 over the past four years, which confirms the intention of Chinese investors to enter the Russian Far Eastern Federal District. China accounts for over 70% of the total volume of foreign investments in the Far East <6>.
--------------------------------
<6>
Trade and investment in the region continue to grow. According to statistics, in the first half of 2021, the volume of trade between the Russian Far East and China amounted to 5.82 billion US dollars, an increase of 24% compared to the same period last year. China continues to maintain its status as the largest trading partner and the largest source of foreign investment in the Russian Far East.
The mechanism of cooperation is constantly being improved. The Sino-Russian intergovernmental commission on cooperation "Northeast-Far East" is working effectively. The parties are modernizing, improving and actively implementing the Plan for the Development of Sino-Russian Cooperation in the Far East (2018 - 2024), as well as continuing to strengthen the guidelines for local and corporate cooperation between the two countries <7>.
--------------------------------
<7>
According to Chinese customs statistics, the main categories of China's exports to Russia are mechanical devices and parts, electrical equipment, fur, artificial fur and products, clothing and accessories, shoes and parts, vehicles and spare parts, plastics and products made of them, steel products, optical, photographic, medical and other equipment and accessories, toys, sporting goods, furniture, lamps, etc. <8>.
--------------------------------
<8>
The main categories of goods imported by China from Russia include mineral fuels, petroleum products and products of their processing, wood, wood pulp and products made from it, water products, nickel and products of its processing, ores, slag, ash, etc.
It should be emphasized that China's investments in Russia are generally small: according to statistics from the Ministry of Commerce of China, in 2018, China's direct investments in Russia amounted to 725 million US dollars. At the end of 2018, the volume of Chinese direct investments in the Russian Federation amounted to $14.208 billion. In 2019, China's investments in Russia recovered somewhat: in the first 10 months, investments increased by 10.7%. The number of investment projects in Russia for the whole year has reached 22. Compared to 2018, the number of projects increased by 16%.
Key cooperation projects are steadily moving forward. The Amur Gas Processing Plant and the Amur Gas Chemical Project, in which the Chinese side participated, are successfully developing. Both sides have achieved fruitful cooperation in the field of engineering contracts, including urban construction, infrastructure, port logistics and other areas.
The Amur Gas Processing Plant is one of the largest in the world for processing Gazprom's natural gas. It is not only a project that has no analogues in Russia, but also an important part of the supply of natural gas to China via the Power of Siberia gas pipeline. Construction began in October 2015, and the launch took place in June 2021. By 2025, the Amur Gas Processing Plant should reach a new level, increasing its design capacity by several times <9>.
--------------------------------
<9>
The Amur Gas Chemical Complex, which is being created with the cooperation of SIBUR and SINOPEC, will become the largest plant for the production of base polymers. The project is being implemented taking into account the best international standards in the field of ecology and in accordance with the principles of sustainable development, and the completion of construction is scheduled for 2024-2025. <10>.
--------------------------------
<10>
In the field of transport and logistics, the development of such international transport corridors as Primorye-1 and Primorye-2 is also partially carried out through investments from the People's Republic of China. The financial and economic model of the Primorsky MTK was prepared by McKinsey and approved by the Russian Government in December 2016. The problem faced by Russian and Chinese representatives is the difference in the width of the railway track, but, despite this, starting in 2018. The volume of traffic on the Primorye-1 and Primorye-2 MTS is only increasing every year (not counting the temporary reduction in traffic due to border closures and restrictions imposed due to the development of the coronavirus pandemic). In recent years, there has been a noticeable acceleration in the construction of cross-border transport facilities between China and Russia. As an example, the Heihe - Blagoveshchensk Highway Bridge. The project is completed and ready for the passage of goods <11>.
--------------------------------
<11>
In the field of the pulp industry, from 2016-2018, a project was created to build a pulp and paper mill in Khabarovsk, but it was not successful, as disputes arose between the Russian and Chinese sides. The Chinese were not satisfied with the quality of the wood, the Russians were not satisfied with the location and economic costs. This project of RFP Group and China Paper has remained unrealized <12>.
--------------------------------
<12>
There are a large number of projects that are under development and planned to be launched on the territory of the Far Eastern Federal District by 2030, but most of them have not yet begun their implementation and so far exist only on paper. The ambitions of both sides are high, but it is not known what the probability is that the projects will be implemented and launched. The ongoing COVID-19 pandemic and the unstable international situation are to blame for everything now, including a large number of sanctions against the Russian Federation due to a special military operation in Ukraine.
Among other things, Chinese companies that invest in projects in the Far East have some risk factors <13>: imperfection of Russian legislation compared to Chinese, corruption; high taxes and fees; complexity of procedures and long-term work of public administration; low infrastructure development in the Far East; uncertain production guarantees, etc
. --------------------------------
<13>
The coronavirus has plunged the global economy into a serious recession, and economic and trade cooperation between China and Russia is also facing unprecedented difficulties, with various Chinese projects in the Russian Far East particularly severely affected.
In order to prevent the cross-border spread of the virus, China and Russia have closed their borders, so the flow of people between the Far East and China has practically stopped. The restriction on the movement of people primarily affected the export of Chinese labor resources to Russia. The labor market of the Far East, especially in the agricultural sector, has a huge demand for foreign labor.
Harsh anti-epidemic measures and the economic downturn affected not only the supply in the market, but also had a greater inhibitory effect on demand: during the epidemic, demand in the markets of the Far East and China decreased.
The serious impact of the epidemic on economic cooperation between the Far East and China has directly affected the reduction in bilateral trade. According to the Russian customs, in the first quarter of 2020, the total volume of foreign trade of the Far East amounted to about 7.315 billion US dollars, which is 13.23% less than in the same period of 2019, 1.564 billion US dollars, an increase of 3.23%, exports of about 5.751 billion US dollars, a decrease of 16.83%. In the first quarter, the total volume of trade between the Far East and China amounted to about 1.898 billion US dollars, which is 20.52% less than in 2019. The total volume of imports from China in 2020 amounted to about 693 million US dollars, which is 20.16% less than in 2019, and exports to China amounted to about 1.205 billion US dollars, which is 20.72% less <14>.
--------------------------------
<14>
The total volume of imports and exports of Primorsky Krai in the first quarter of 2020 amounted to 1.778 billion US dollars, an increase of 2.3%. Among them, the total value of exports amounted to 771 million US dollars, a decrease of 1.15%, the total value of imports amounted to 1.007 billion US dollars, an increase of 5.51%. The total volume of trade between Primorsky Krai and China amounted to 896 million US dollars, which is 11.02% less than in the same period of 2019. Among them, the value of exports to China amounted to USD 400 million, an increase of 1.52%, and the value of imports from China amounted to USD 496 million, a decrease of 19.09%. China is the main trading partner of Primorsky Krai, accounting for 50.6% of the total volume of foreign trade of Primorsky Krai over the same period.
However, the epidemic is just a random factor, and the foundations of economic cooperation between China and the Russian Far East have not changed.
Both China and Russia are large economies, especially China, which is already one of the largest economies in the world. Strong economic strength and the systematic resumption of work and production in both countries have laid a solid foundation for the restoration and development of economic cooperation between the Far East and China. China has become the first country in the world to take control of the large-scale spread of the new coronavirus, and industrial production and residents' lives have mostly returned to pre-epidemic levels. Russia has also launched a plan to resume work and production, and the Russian Government has launched an economic recovery plan <15>.
--------------------------------
<15>
Despite the global economic downturn caused by the epidemic, China remains the second largest trading partner of the Russian Far East, the largest foreign investor and the largest enterprise in the most high-profile projects of the Far East - territories of advanced development and free ports. In addition, as the epidemic situation gradually improves, projects in China and the Far East that have temporarily suspended investments due to the epidemic will soon resume, which will be launched one after another in the near future. These include a project for the production of methanol with a capacity of 1.8 million tons per year jointly with the Nakhodka potash Company (for a total of 1.5 billion US dollars), an LNG project in Dahmayen (for a total of more than 2 billion US dollars), a granary in the Mikhailovsky district logistics center (the total amount of the project is 20 million US dollars). Large Chinese companies are also showing great investment interest in the development of the Baim super-large copper mine in Chukotka.
The way of life and work of Russian residents has changed dramatically during the pandemic, so many new areas are facing great opportunities. Online education, remote work and online consumption have created favorable conditions for the development and cooperation of information networks, e-commerce and 5G between China and Russia. China has accumulated a lot of experience in the development of the Internet industry in recent years, so the cooperation between the two countries in the field of the Internet deserves attention.
In addition to improving the efficiency of public affairs, the hardware base of the Far Eastern Port still needs to be updated. The infrastructure of the Far Eastern ports to China is outdated, which leads to low efficiency of customs clearance and significant restriction of the unhindered flow of Sino-Russian trade, and was especially evident during the epidemic. Economic cooperation between the two countries is gaining momentum in the post-pandemic era. For the economic development of the two countries and overcoming the economic difficulties of the Russian Far East, it is necessary to go by all means towards the mutual opening of doors between the two countries. With measures to prevent the epidemic, the flow of people will recover, major investment projects will resume, and the economic viability of the Far East will be revived.
Despite these difficulties, Chinese investors are ready to establish cooperation in the Far Eastern Federal District. They assume that the investment environment in Russia, including in the Far East, is constantly improving, and the protection of citizens' rights and corporate rights is being improved. In the future, with the further development of bilateral relations between China and Russia, the interests of Chinese enterprises in Russia will be better protected, and there will be more Chinese enterprises in the Russian Far East for investment and work. Therefore, now Russia and China need to establish cooperation in the field of investments, make concessions and implement the announced projects with all their might for the sake of joint benefit and prosperity.
