“It is quite clear and specific plan for Chinese construction and development around the world”
What is happening in recent years in different regions of the world events in all their contradictions and diversity, suggests that the world is entering a new era, a new approach to economic (and derivative political reality, which many call the “new economic normality”. This name is not accidental, because the basis of this reality systematically and purposefully creates China, guided by marked in October 2013 by Chinese President XI Jinping, the new principles of development of the country, dubbed the “new economic norm”.
In fact, it is quite clear and specific plan for Chinese construction and development around the world. The formation of a “new economic normality” implies the transition to the export of Chinese capital into real assets in the world market; the creation of a new global financial system with the direct participation backed by gold reserves of the Chinese yuan as one of the most important (and potentially important) world currencies; the reduction of volumes of purchases of securities, Federal reserve and other Western financial institutions; reducing the role of foreign investment in the Chinese economy; reorientation of economic development from exports to the domestic market; the decisive role played by the state banks as the basis for investment in major infrastructure projects; the development of infrastructure projects such as “one belt, one way” around the world.
The “new economic normality” identified very specific priorities of foreign policy, encouraging a sharp rise in investment activity and giving impetus to the implementation of global projects, which allowed some experts to speak about a new round of Chinese economic expansion. However, such statements are quite few and often not taken seriously because regarded as another attempt to “exaggeration of the thesis of a mythical Chinese threat” and a manifestation of anti-Chinese propaganda. Yes, we have to admit that some statements are true – talk about “China threat” are unlikely to be, especially because many projects have appeared because of the need to find effective use not popular and sometimes even excessive in the China financial and industrial capacities. This is not a “clear and present danger”, and the new reality – or the “new economic normality”. However, be that as it may, the fact remains – China is building new infrastructure in the world, including literally.
In a joint report by research firm Rhodium Group and the research Institute of China Mercator in Berlin argues that China will increase the volume of direct foreign investment from 744 billion. up to 2 trillion dollars. by the year 2020. China is stepping up investments in Europe. Amid downturn in relations between Brussels and Moscow, China’s investment in Europe last year jumped to $ 18 billion., and the bilateral trade exceeded $ 615 billion. Strengthening investment cooperation, the Chinese side gives a reason to expect the resumption of negotiations on the creation of an EU free trade zone. In terms of a British exit from the European Union enhanced cooperation with China and more active involvement of Chinese investment could be “life-saving straw” for the EU, facing the threat of economic slowdown. It is quite likely that a similar agreement China will advance with the UK, where the presence of Chinese capital is very significant. It is also worth considering that the UK is seen as the end point of the New silk road and it is no coincidence that the joint statement on deepening the China-European relations, published during XI Jinping’s visit to the headquarters of the EU in 2014, great attention was paid to the initiative “economic zone silk road”.
The scale of Chinese participation in infrastructure projects as global call. China to invest 42 billion dollars in the construction in Pakistan of high speed rail Kashgar to Gwadar, at the same time, financing the construction of high-speed highway, pipeline and upgrading the Pakistani port of Gwadar, Also in Pakistan built nuclear power plant with two new reactors of Chinese design with a capacity of 1 million kW. In Southeast Asia the Chinese are building a network of railway high-speed Railways that will connect China to Laos, Myanmar, Thailand, Vietnam and Singapore, while a member of the network line from China to the Laotian capital of Vientiane in the future, it is planned to extend to the coast of the Indian ocean. If you look at the other direction, you can see the project high-speed railway from China to Iran via Kazakhstan, Kyrgyzstan, Uzbekistan and Turkmenistan with the prospect of its extension to the Persian Gulf and a possible exit in the other direction on Turkey.
The Chinese do not remain without attention and other continents. So, China is actively helping the African Union in the construction of roads and Railways and airports, which should be connected by a single chain all 54 countries of Africa. Chinese investment has already received about two thousand African projects, including in agriculture, infrastructure construction, logistics development, the establishment of enterprises in the manufacturing industry. A distinctive feature of Chinese investments is the absence of any political demands, which distinguishes the Chinese from Westerners. In fact, this approach allows China to achieve military and political dividends, without asking anything – recipients of Chinese aid are providing Beijing a favour. In particular, China is building in Djibouti, its first overseas naval base on the shores of Bab-El-Mandeb, at the entrance to the Red sea. The strategic importance of this base can not be underestimated, because it is located on the main line of Maritime transport between the Indian ocean and Europe, which are hydrocarbons, container and other cargoes.
In addition, it is worth noting two projects that have global strategic importance. First of all, it’s a Nicaraguan canal, which will take place from the Pacific to the Atlantic via lake Nicaragua. Its length will be nearly 280 km, the depth is about 27 m, the width becomes within 226-530 m. the Construction will cost China $ 40 billion. It is expected that after opening, it will take 3.9% of international traffic sea freight. In addition, the noteworthy and the construction of a canal across the KRA isthmus in Thailand with a length of 100 km and a depth of 26 m. the Channel Edge to allow China to take control of the third marine transportation of oil and a quarter of all freight in the world.
No less significant projects in South America – in addition to the Grand canal in Nicaragua, it is worth noting also that China plans to allocate about $ 250 billion over 10 years for their projects in Peru and Brazil. In particular. We are talking about the construction of dams, development of mining projects in the agriculture, oil exploration, the development of rivers and the construction of high-speed railway stretching 5311 km across the continent.
It is noteworthy that one of the areas of Chinese investment activity in the US, which systematically integrate China in that it generates a “new economic normality”. In recent years, the Chinese have dramatically stepped up buying assets in the U.S. – their expenditures for these purposes increased from $ 100 million in 2009 to more than $ 5 billion spent in the first half of this year.
While the US increased its external debt and playing at exchanges, China has developed the real sector. Now the U.S. exports almost half of imports and their exports, the United States is already inferior not only to China but also to Germany. If earlier production gave 80% of the profits generated by the American economy, until recently, more than 50% of the profits were generated in the financial sector. The development of the real sector of the economy of the United States as a result of neoliberal reforms has slowed, although recently, again shows signs of recovery. As shown by the Senate investigation, China supplies more than a million different types of parts in the defense industry of the United States, and the first position in the list of articles of Chinese exports to the US came computer hardware, whereas the list of American exports to China, according to U. S. News & World Report, lead scrap and waste.
To complement this picture we must add that in 2040 the deadline for action by the international agreement of the extraterritorial status of Antarctica, and China heightened pace preparing to fight over the territory, the opening there is one permanent station for another. By 2016 China, opened in Antarctica five permanent stations in the coming years plans to increase that number to ten.
China’s development is limited primarily to the insufficient number of oil and natural gas and several types of minerals: bauxite, chromium, manganese, copper, Nickel and iron. China has become the largest importer of oil in the world: 6.1 million barrels. a day. The demand for oil China covers imports of 14 major countries, the first three places are Saudi Arabia (16%), Angola (13%) and Russia (11%). China has small reserves of natural gas, but has the world’s largest resources of shale gas at 36.1 trillion cubic meters), is actively expanding its production. In 2015, China produced 5 billion cubic meters, coming in second place in the world. The main suppliers of gas to China are Turkmenistan, Russia, Burma and Iran. More than 60% of Turkmen gas supplied to China via three pipelines. At the introductory stage the fourth. After entering Turkmenistan will supply China with 60 billion cubic meters of gas (now 40 billion).
China has the world’s largest reserves of a dozen minerals, producing them more than all the world, as the world’s only superpower a raw (not Russia!), but, nevertheless, forced to import multiple types of minerals. Therefore, it is likely that in the future the Russian place in the list of suppliers of raw materials for China will be to supply Nickel and maybe copper, since the issue with the oil to China may in the future be solved by the introduction of new technologies of production of shale oil, a resource which he is in fourth place in the world. In fact, China has already started to develop their shale gas resources, having produced in 2015, 5 billion cubic meters, and plans by 2025 to produce 100 billion cubic meters While the production of shale gas, the Chinese use their own equipment and technology. We can assume that in the next three years China will begin to produce and shale oil.
Emerged in recent years, the slowdown in economic growth of China, which allowed a number of economists to talk about the threat of a collapse of the Chinese economy, should not mislead – in real terms the growth of the economy, even with lower rates, higher than in the previous years, and especially, far exceeds that of other countries. China continues to reform, which can be considered unprecedented not only in scale, but in the first place, according to the task. The success of these reforms is largely due to financing from the state banks. under control of which there are 90% Finance of China, the presence of a single focal point, and a combination of strategic long-term state planning with the development of highly mobile private business.
The situation is the fact that the world can be divided into two parts: China and everyone else because in many sectors of the real economy, the share of China accounts for about 50 percent of world industrial production. For many years China has upgraded itself by building the world’s largest number of high-speed Railways and highways, the world’s largest bridges and dams, airports and railway stations, tripling the productivity of almost all agricultural products and creating a society of “average prosperity”. Now, following designated Jinping plan to build a “new economic normality”, China began the construction and development around the world.
In these conditions the special importance is the forming of a new strategy of Russia. The choice, frankly, is small, because the lesser of two evils, the only option is maneuvering between East China and West in the United States and, to a lesser extent, the EU.
The art of maneuvering urgently requires a realistic assessment of interests and perspectives. We need to look at the existing reality and the future of Russian-Chinese relations not through “rose-colored glasses” the declared strategic partnership and “pivot to the East”, and through the prism of Russian national interests and sober assessments of China’s interests, the US and the EU.
As everyone understands, our “pivot to the East” happened due to a sharp cooling of relations with the West. In fact, Russia had no choice. And we suddenly decided that relations with China has “reboot” and will lead to the flow of investment that the Chinese are happy to provide for implementation of megaprojects such as the gas pipeline “Power of Siberia” and a high-speed railway, which will entail the receipt of funds on the less ambitious but not less important projects. But the reality was somewhat different.
Head of the School of Oriental studies, Higher school of Economics Professor Alexey Maslov calculated: instead of investing $ 30 billion that was expected as a result of cooperation with China, we actually got 800 million. And the point here is not that the Chinese do not want to invest in Russia, and not even the fact that we are doing something wrong. It’s the difference in our approaches. We have assumed that the friends-allies-partners should help each other in everything, whereas the Chinese appreciate all without emotions and purely rational: beneficial or not beneficial. And it is not necessary, as we are sometimes accused China that it have something of the leads – in fact, the Chinese we do not promise and do not promise, we quite often just wishful thinking.
Russia should learn to work with China in the new conditions generated by the Beijing “new economic normality”, not to fit into it, and try to join in its construction. For this we need to understand and soberly assess based on what our cooperation with China and what are our real capabilities.
In fact, Russian-Chinese economic relations has always been based on trade resources. In 2014, the oil and gas resources and the forest was 70 percent of Russian exports to China, while at the same time we imported China machine products, textile end-products of deep chemical processing. To the greatest extent the situation in which Russia has supplied China with raw materials, and there produced products with high added value was characterized in the 1990s – early 2000-ies, but over time, this model was the exhaust itself, but not due to the fact that Russia has dramatically increased its own processing facilities, due to the fact that China has been reducing its dependence on Russian natural resources, increasing co-operation of raw materials, primarily hydrocarbons, in other countries. Moreover, from a simple oil purchases by the Chinese have moved to the acquisition of entire oil fields, for example, in Kazakhstan, Canada, Australia.
Sometimes I get the feeling that Russia is still perceived China as it was 20 years ago – technologically backward and are ready for any agreement, looking at the Chinese from top to bottom and hoping that they should only be happy that we finally paid attention to them and ready to cooperate with them. In fact, quite the opposite.
We expected that China will become the basis for our import substitution, but our offers were not for the Chinese, something exclusive. Many projects have been as attractive as ideas are poorly worked out in detail, in connection with which in recent years have managed to find quite a few of the major points of contact. As noted by Professor Maslov, China has shown who he really is: a very pragmatic country that believes good money. So last year, despite all our expectations, China did not seriously invest in Russia, but has begun negotiations about purchase of large enterprises, and oil and gas (for example, the share in “Yamal-SPG”). That is, the Chinese are, first and foremost, make an investment in the future. In General, the current economic development strategy of China is very similar to the old American, when the US seized the promising markets of raw materials and natural resources. So, Beijing is actively providing loans to other countries, which then become dependent on China. The same practiced by the United States in Latin America, putting the country in this dependence. The difference between Chinese strategy from the us that China is not aggressive in military terms, and does not link loans to political conditions. At the same time, Beijing works quite effectively in terms of creating a Pro-China lobby in different countries using, including the Chinese Diaspora and established overseas enterprises with Chinese capital.
One of the disadvantages of the Russian approach to the development of economic cooperation with China is that we believe that our strategic partnership in the political sphere are exclusive by nature and is automatically projected on the relations in the economic field. Meanwhile, this exclusivity is no more than a myth, which we ourselves have invented and which only we believe. Of course, political cooperation with Moscow is very important for Beijing, since it experiences a lot of problems in relations with the US and its allies. China’s actions in the South China sea has led to what many seen as an aggressive country. The situation is further complicated by the decision of the Hague court on the claim of the Philippines that China has no right to claim the territory in the South China sea, given that Beijing has already declared that does not recognize this decision. In these circumstances, China needs political support from Russia or, at least, a visual indication that such support is. In particular, as such, it is possible to imagine coming in September the Russian-Chinese naval exercises “Sea vibrational spectroscopy-2016”, which will take place just in the South China sea. That is, China, in an effort to show that he had a pretty broad front partnerships, plays the Russian card in the same way as we Chinese.
However, as shown by the results of the recent visit to China of Russian President Vladimir Putin, the developments in Russian-Chinese economic interaction is still there, and they are marked in the areas in which the interests of both parties coincide. After the visit was signed about 30 agreements, among which stands out the following:
1. Signed protocols on phytosanitary regulations for export to the PRC of Russian wheat, corn, rice, soybeans and rapeseed. China is in need of grain, the production of which a number of positions today cheaper in Russia has allowed the import of wheat from Altai, Krasnoyarsk territory, Novosibirsk and Omsk regions. Accordingly, major Chinese orders ensured the development of Russian industry and transport infrastructure of Siberia.
2. Russia proposes for the privatization of more than 19 percent of Rosneft’s shares and two seats on the Board of state-owned companies, and China is counting on preferential treatment in the struggle with India over these shares and place. So, between “Rosneft” and Chinese CNPC signed a contract for the supply of 325 million tons of oil within 25 years. “Rosneft”, according to Reuters, sell 20 percent of the company Verkhnechonskneftegaz Chinese Beijing Gas. In addition, the Chinese company Sinopec will buy 49 percent of shares of “Rosneft” in the development of Yurubcheno-Tokhomskoye and Russian fields. Will build a factory with capacity of 3 million tons of petrochemical products. The company also ChemChina will act as the investor in the “Eastern petrochemical company” (VNHK). In turn, Rosneft will continue the work on the Tianjin refinery and petrochemical complex, which the Russian Corporation owns 49 percent of the shares. In fact, in a sharp cooling of Russia’s relations with the West, the shift to China has become a permanent solution for the Russian oil industry, which is consistent with our interests and the interests of China in need of stable supplies of hydrocarbons on the terrestrial route, as marine supplies involve numerous risks, including the threat of military blockade. It is noteworthy that during his visit to China Russian President Vladimir Putin also emphasized that the construction of the gas pipeline “Power of Siberia” is on schedule and the first phase of Yamal LNG will be launched in 2017.
3. In the framework promoted by the China project “New silk road”, the parties agreed to work on the project of high-speed highway Moscow-Kazan worth about 1 trillion rubles, with the prospect of building a similar railway “Moscow-Beijing”.
4.The Bank of Russia and the people’s Bank of China signed a Memorandum on creation in Russia clearing and settlement centre for the Renminbi. Now the share of such transactions is nine percent, and set the task to increase it to 20 percent.
5. Initiated discussion on the establishment of a free trade zone between the Eurasian economic Union (Russia, Belarus, Kazakhstan, Armenia, Kyrgyzstan) and China in the framework of the EAEU and Chinese “New silk road”. It is assumed that initially the mission of China to the Commission of the EEU to work out the conditions for the formation of a free trade zone. However, this long-running theme, because any regulatory framework yet.
6. Agreements were reached on the development of wide-body long-haul aircraft and civilian advanced heavy-lift helicopter, and started the study of 58 different deals and contracts totaling about $ 50 billion.
But with all this, the agreements reached are, first and foremost, in addition to political relations, which in the case of Russia and China far exceed the level of economic cooperation. As noted by Nikolay Kotlyarov, Director of the Russian-Chinese center for Financial University under the Government of the Russian Federation, “it is impossible to say that the scope of our investment cooperation giant, and therefore the task is all.”
However, do not expect that on the basis of good political relations China will sharply begin to invest in the development of the Russian economy. China cares, but only about their national interests. It is quite natural that in the conditions of our political and economic interest in enhancing cooperation with China, he uses it to achieve his own goals.
Is, in particular, to pay attention to the latest Russian-Chinese agreements in the field of aviation. Well-known project to create a wide-body passenger liner to help businesses of both countries to compete with the air corporations, the EU and the USA. Originally this area we have with China are in different “weight categories” – Russia tries to restore its position in the international market of aircraft, and China only develops its own manufacturing base. But for all that our interests coincided, as both countries need the production of new modern aircraft. Thus the main problem of China is the production of aircraft engines, which leads to its explicit interest in cooperation with Russia. There is quite logical question: can the Chinese Corporation COMAC get access to Russian technologies in mechanical engineering, self build widebody airliner? Obviously, maybe, most likely, originally intended to address this. So are many Chinese companies and evidence of this is a lot – enough to remember how the Chinese copied the high-speed passenger trains Siemens, which, after slight modification, became a “uniquely Chinese product”. In the case of liner everyone understands what can happen the same story, but here, in fact, there is no choice – no bilateral cooperation new liner just not build.
Interesting and revealing also another project on design and construction of a new heavy helicopter AHL (Advanced Heavy Lifter), an agreement which was signed by the holding company “Helicopters of Russia” and the Chinese Corporation AVIC. China has never not independently developed helicopter from scratch, and its entire helicopter fleet consists of the export versions of Soviet and French helicopters built under license and modified the Chinese specialists. According to the signed agreement, Russian Helicopters will provide the technology and will also develop a technical proposal and a separate system of the new machine, and AVIC will deal with the organization and implementation of the program. It is noteworthy that the Russian side gave the Chinese rights to the design, building prototypes, carrying out testing, certification and manufacturing of the new helicopter. If to call things by their proper names, we can say that we just gave the Chinese perspective helicopter. You can, however, be expressed in another way, in the spirit that the agreement on joint construction of a helicopter AHL is a Russian act of good will towards the Chinese partners, gratitude for the economic support provided including in the form of oil purchases and to participate in ambitious transport projects on the territory of the Russian Federation.
Meanwhile, speaking about the prospects of attracting Chinese investments to Russia, you must clearly understand that the Chinese prefer to invest exclusively in projects implemented abroad established companies with participation of Chinese capital, and in many cases the recipients of the investment are companies established abroad by the Chinese investor. With regards to the provision of funds for projects with foreign companies, in this case usually it is not about investment per se, but about the allocation of funds, and in most cases with software. It is often the provision of loans is linked to a number of conditions – depending on scope, this could be the participation of Chinese suppliers of equipment or materials, the use of Chinese labor, involvement as subcontractors of companies with Chinese capital, etc. large-Scale investments in major infrastructure projects abroad, for example, the construction of Railways, usually carried out under a government guarantee and/or under the concession.
A typical example of this can be considered the project of creation of enterprises for processing of seafood in canadian British Columbia, which we intend to invest funds from China’s Zone of economic and technological development, Ringaudai (QETDZ), plans to acquire about 1,000 acres of land in local area development. A feature of this project is that the representatives of the QETDZ going to buy this land from the company Taisheng Investments, established in Canada Chinese capital. Taisheng Investments in 2014, purchased from city Terraces 2000 acres of land for CAD $ 12.4 million ( $ 9.5 million) and created on this territory an industrial development zone Skeena (Skeena Industrial Development Zone), planning to organize the processing of alfalfa and seafood. While Taisheng Investments is actually in Canada, the interests of the Zone of economic and technological development, Ringaudai, which at present has formed a group to promote the project and attract new Chinese investors.
These circumstances should be taken into account when discussing about the possibility of attracting Chinese investment to the development of fish processing in the far East of Russia. Now China is not profitable to invest in the Russian fish processing industry, thus creating another competitor. In China over the years has formed its base, enabling the production of Russian fish raw materials finished products with high added value, and it is not only economically profitable industry, but also socially significant. Even in the face of rising labor costs in China, making a seemingly profitable transfer of processing capacity to the far East of Russia, the Chinese prefer to transfer them to the border with Russia and the DPRK, Hunchun, aiming to reduce the cost of transportation of raw materials due to the proximity of the Russian border and the port of Zarubino, and also reduce labor costs by bringing North Korean labor.
However, in Russia many prefer not to notice and not consider China’s plans to develop its own processing on the basis of Russian raw materials threat to our plans of creating a fishery cluster in the far East. Moreover, some even claimed that the Chinese program is beneficial for Russia as it will help the development of domestic ports and transport infrastructure for the supply of Russian raw fish in China. It is noteworthy that there are allegations that any publication about the possible threat to Russia’s plans to develop its fish processing in connection with the implementation of these Chinese projects are politically motivated and detrimental to the development of Russian-Chinese relations. This position is, unfortunately, quite clearly characterizes the approach to the assessment of Russia’s relations with China, a significant part of the Russian expert community, looking at China through rose-coloured spectacles and stubbornly not wanting to see the surrounding clear lens, assessing what is happening through the prism of pragmatism.
We must finally get rid of illusions, to stop believing we create our own myths and to recognize that from an economic and largely from a technological point of view, the current position of Russia and China mirror the positions of China and the Soviet Union – we are now in the role of “Junior partner”. Only a clear and complete understanding of this will enable us to begin to gradually change the situation to their advantage, including using the Chinese “new economic normality”. In fact, it is not so much what we sell, and that where acquired resources. If they are going to create an industrial base in the far East, we are gradually going to reduce its dependence on Chinese supply and produce all themselves, supplying end products to the China. Now, given the devaluation of the ruble and the far East at cost of labor can compete with China, and many products are now more profitable to produce in Russia than in China.
The most common way in these circumstances is to encourage the Chinese to establish production in Russia, in the same way as before Western companies have established production in China. This requires that the conditions we were just not comparable to conditions in other countries in the region (for example in Vietnam where the Chinese are actively creating new production), and much more profitable – both from the point of view of cost of production and from the point of view of simplification of the numerous formal procedures, taxation, investment protection, logistics, etc.
This process, in fact, already begun – is, in particular, the discussion of the possibility of transferring some manufacturing from China to created in the far East of the territory of advancing socio-economic development. For us it is important not to chase the quantity, and to ensure that the production was environmentally friendly, and technologically advanced.
