Tuesday, February 18, 2014

21st Century Sino-Russian Relations: Economic Complementarity and Demographic Disparity




21st Century Sino-Russian Relations: Economic Complementarity and Demographic Disparity

 

By: Donna Welles

Dec 3, 2012

 

 

 

Foreign Policy of China

Professor John Garver

Sam Nunn School of International Affairs

Georgia Institute of Technology

 


The problem investigated by this paper is the relationship between Russia and China looking forward into the 21st Century. My hypothesis about this problem is that developments over the past few decades have resulted in both a strong macro-complimentarity between the two economies as well as Russian anxieties rooted in demographic issues affecting the Russian Far East. In order to illustrate the complementarity of the two economies, this paper will present direction of trade statistics and explore variables relating to bilateral trade including consumer goods, food stuffs, energy, and natural resources. Regarding Russian anxieties, this paper will explore demographic trends on both the Russian and Chinese sides of the border.  

Since Deng Xiaoping's initiation of economic reforms in 1978, China's economy has grown at an unprecedented rate given its large population. In recent decades it has emerged as a major manufacturing center and recent projections estimate that China's economy will surpass the United States by 2016 when it will be the world's biggest economy. A Chinese expression, "crossing the river by feeling the stones" illustrates that this growth has occurred in stages. In 1993 China began to import more oil than it exported and this trend has increased. Russia, China's neighbor to the north, holds vast quantities of the natural resources China's burgeoning economy so desperately needs. Russia’s economy is also growing and with it its demand for Chinese goods. Recent years have seen increased cooperation between the nations in virtually every economic sphere.             On the other hand, anxieties rooted in demographic issues have arisen on the Russian side of the border, particularly in the Russian Far East due to the region’s yield of natural resource and sparse population. Eighty million people live on the Chinese side of the Amur and Ussuri Rivers while population figures on the Russian side of the border are at five million and falling.  

Part I. Macro-complementarities         

Sino-Russian economic complimentary is evidenced by recent efforts to formalize ties between the nations as Prime Ministers from both countries have met annually to discuss mutual concerns and interests since 1996. An October 2009 meeting resulted in a signed joint communiqué outlining short term goals that would maximize long term economic growth and political stability in both nations. These included efforts to (1) enhance political trust, (2) deepen economic and trade cooperation, (3) expand energy cooperation, (4) enhance cooperation in science, (5) enhance cooperation between localities, and (6) promote humanities cooperation. (Ding 15)

Direction of Trade Statistics

            Tables 1 and 2 illustrate the major role China plays in Russia’s economy as both an import partner and export partner. In 2011, China was Russia’s second highest export partner as well as Russia’s highest import partner. By contrast, China’s direction of trade statistics found in Tables 3 and 4 reveal that in the same year Russia ranked ninth as both an import and export partner. Given China’s role in the world economy as a cheap source for manufacturing, it makes sense that China would trade with a diverse group of nations. Russia, on the other hand, appears to trade primarily with bordering Asian and Eastern European nations as well as European Union states, perhaps due to ease of shipping oil through pipelines. Although these rankings could suggest that China plays a more important role in Russia’s economy than Russia does in China’s, it is unclear where China would acquire its energy needs if not for Russian pipelines.

 

Table 1

Russian Federation, Top 10 Export Partners in 2011 (US Dollars, Millions) 
 

Table 2

Russian Federation, Top 10 Import Partners in 2011 (US Dollars, Millions)


 

Table 3

China: People’s Republic, Mainland, Top 10 Export Partners in 2011 (US Dollars, Millions)



Table 4

China: People’s Republic, Mainland, Top 10 Import Partners in 2011 (US Dollars, Millions)


 

Bilateral Trade

Bilateral trade figures between the nations provide great insight into the complimentarity of the two economies. Russia buys consumer goods and food stuffs from China while China buys energy and natural resources from Russia. Known as the 'gift swap that launched a thousand deals', in 1987 the Chinese city of Heihe gave 208 tons of watermelons to its Russian neighbor across the Amur River, Blagoveshchensk, in exchange for 306 tons of fertilizer. Border trade spread rapidly into all areas of commerce and Chinese businesses moved closer to the Russian border so as to have access to cheap energy. (Fan 81) In the 1990’s a free-trade zone was established between the cities and now residents enjoy vise-free day trips across the Amur River. (Kamalakaran) By 2001, Sino-Russian bilateral trade exceeded US$10 billion and was expected to surpass US$12 billion in 2002. (Cheng 480)

Looking further into the 21st C, Sino-Russian bilateral trade has increased dramatically. In August 2010, the Beijing Review published “Numbers of the Week” which included “$30.7 billion” and “389.6 billion (kwh)”.  The former figure referred to the amount of bilateral trade between China and Russia in the first seven months of 2010, a 49.6% year on year increase according to the Ministry of Commerce. The second figure referred to China’s electric power consumption during the month of July, up 13.94% from the previous year according to the National Energy Administration. (Numbers 37) There is every reason to believe that Sino-Russian bilateral trade will continue along this trajectory, both in magnitude and character.  

Consumer Goods

            Russian incomes are rising along with demand for consumer goods, especially high quality consumer goods, as well as consumer durables. In the first 11 months of 2005, China’s exports of machinery and electronic goods to Russia grew 70%. (Wikipedia “Economy of China”) According to the 2011 Consumer Goods Industry Report on Russia, imports will continue to account for a large share of this market as Russian-made products are characterized by relatively poor quality. For example, only 20-25% of footwear sold in Russia is domestically produced. (Consumer 12) In 2009, China overtook Germany as the world’s leading exporter of merchandise and that same year more than half of Asian exports stayed within the continent (52%). (World 4) China serves as a major provider of high quality products and thus it is likely that Russian demand for these goods will increase over time. Figure 1 illustrates the positive trend in Russia’s retail sales projected through 2015.

Fig. 1. Retail sales, International Comparison (US$bn).
Note: Anyone interested in this figure, email me and I'll send it along: DonnaWelles@gmail.com


Source: 2011 Consumer Goods Industry Report on Russia

Food Stuffs



 
            Again, the Russian economy has grown in the past decade and along with it the wealth of many Russians and their demand for foodstuffs. Russia’s geography makes it difficult for domestic farmers to grow much variety in produce or meat. Table 5 shows that only 5.6% of Russia’s GDP in 2005 came from agriculture and that 17.7% of its principle imports were food and agricultural products. On the Chinese side of the border, the Table 6 illustrates that the role of agriculture in China’s GDP increased every year between 2003 and 2009.

In addition, the changing global economy has increased the pressure on the Russian government to find solutions for the increasing food prices. Sino-Russian interaction regarding foodstuffs is evidenced by a 2007 piece of legislation when the Russian government took measures to freeze the price of foodstuffs so as to combat inflation. A Business Source Complete article characterized the Sino-Russian foodstuffs relationship, “With world food prices continuing to rise on the back of poor harvests and increased demand from China and biotech industries, Russia has therefore imported inflation.” (Russia 1)

Energy


            Yulia Grama described in an article published in Asian Social Science how the Sino-Russian energy relationship has developed since the fall of the Soviet Union. She divided it into three stages, including (1) the Yeltsin Era of the 1990's when Russia, in the midst of a dramatic transition to a capitalist economy, was more enthusiastic than China about energy cooperation, (2) the end of the 1990's through 2005 when China, aware of its newfound need for energy, pursued energy cooperation with Russia, and (3) 2006 and after as energy and dollars had begun to flow, pipelines had been laid, and agreements continue to be formalized. (Grama 46-47) Looking further into the 21st C, the nations have solidified their energy cooperation. In early 2009, Russia agreed to export crude oil to China over the next 20 years in exchange for a loan of $25 billion. In addition, the nations have entered into numerous joint pipeline construction projects. (Ding 15)

Natural Resources

            As the Chinese economy continues to grow at a rate of more than 10 percent annually, China has become both the world’s largest importer of logs and the world’s largest exporter of wood products. Chinese forests had largely been harvested to extinction centuries ago. Compounding this lack of supply, in 1998, after massive flooding caused by soil erosion along the Yangtze River killed several thousand people, the Chinese government banned logging in 17 provinces. This ban marked the beginning of Russia's timber boom. Today, more than 5 billion lbs of wood from Russia's Maritime region enters China every year. (Federman 40)

 Part II. Apprehension on the Russian Side of the Border

             While the previous section illustrated the economic complementarity shared by China and Russia, this section will discuss the apprehensions found on the Russian side of the border rooted in demographic trends in the Russian Far East. First, Russia’s long term demographic concerns will be analyzed followed by demographic figures on the Chinese side of the border. Vladimir Kantorovich contextualized these fears in a paper published in 2000 titled, Can Russia Resettle the Far East? when he said, “Since the early 1990s Russian scholars, politicians and media have been alarmed by ‘Chinese demographic pressure’ on the Far East. Their concerns over the eventual loss of the region to China are little different from those aired in Russia more than a century ago.” (Kontorovich 365)

Russian Demographic Trends


 

Russia is experiencing a nation-wide demographic crisis, one which prompted former Chief of General Staff, Nikolai Makarov to say, “There’s no one left to draft” as quoted in November 2011 by RIA Novosti. (Vyatkin) Russian leaders are concerned that there are simply not enough capable young people to defend their homeland against their Chinese neighbors to the south. Indeed, some Chinese maps still label the Russian Far East as part of China with the implication that it will be again someday. Demographic degeneration is especially evident in the Russian Far East. Table 8 shows the relative population densities in the Far East and in Russia as a whole near the end of the 20thC, the former figure being 1.2 people per square kilometer and the latter being 8.6. While the Far East comprises 36.4% of Russia’s acreage, in 1998 it was home to only 5% of Russia’s populace.

Kontorovich asserted that Russia has little cause for alarm from ‘Chinese demographic pressure’ in the short term and focused his analysis on long-term trends. He separated the Russian Far East into Northern and Southern components and naturally asserted that the Southern region, consisting of the Amur, Khabarovsk, and Maritime provinces, is more vulnerable to Chinese aggression. The Far East population actually grew quickly in the 1980’s and when the article was published in 2000, all of the Southern provinces were still above their 1979 levels. Table 9 illustrates that the Southern Far East provinces grew by 19.1% from 1959-1970, by 16.1% from 1970-1979, and by 16.6% from 1979-1991. Fears rooted in the Far East’s demographic trends date back to the early 1990’s when the region’s population shrunk by 4.5% from 1991-1997.   
      






Regarding long-term forecasting, Kontorovich identified four demographic changes that took place in the early 1990’s including, when (1) the number of departures from the Far East exceeded that of arrivals, (2) the number of deaths in the region exceeded that of births, (3) the fall of the Soviet Union led those who had originated from other republics to return home, and (4) the region saw large scale military withdrawal. Specifically, ground forces in the Far Eastern Military District shrank from 24 to 10 armored and motorized divisions, the number of submarines dropped from 120 to 43, and that of principle surface combat ships went from 77 to 45. (Kontorovich 368) Kontorovich continued, “[In order to] assess whether the decline in the Far Eastern population will turn out to be a relatively short-lived reaction to the systemic change or a reversal of a 150-year old trend, we need to understand the reasons for the net outflow of people from the region, and for the excess of deaths over births.” (Kontorovich 369) Essentially Kontorovich isolated the first two demographic changes listed which could be interpreted as trends from the events surrounding the fall of the Soviet Union which have directly led to population decline.

Net Outflow of People

As for the net outflow of people, Kontorovich looked at the relative satisfaction of living in the Russian Far East as well as the disutility of moving. First he analyzed at how difficult life is in the Far East and argued that in terms of weather indicators such as temperature, wind speed, humidity, permafrost, etc., the region is one of the most hazardous in Russia. In addition, residents of the Russian Far East do not enjoy the same level of public goods and services found in European Russia as evidenced by both the region’s crime rate which was 50% higher than the national average in 1996 and low life-expectancy figures. (Kontorovich 370) Table 11 shows that in 1997, the life expectancy in the Far East was 64.5 years as compared with the national average of 66.6 years.

Second, Kontorovich argued that salaries in the Russian Far East do not compensate for such difficult working conditions. For example, Maritime province ranked 45th among Russian provinces in terms of price-adjusted monetary income per capita in 1994, 51st in 1995, and 36th in 1996. (Kontorovich 371) “Moreover, the real income in the Russian Far East is even lower relative to the rest of the country than monetary income and price data suggest.” (Kontorovich 371) These figures suggest that rational people might migrate out of the Russian Far East rather than to the region and therefore it is likely the net outflow of people will continue.





Excess of Deaths over Births

Beginning in 1993, the excess of deaths over births in the Russian Far East has been caused by “the drop in age-specific birth rates, an increase in death rates, and the ageing of the population.” (Kontorovich 376) In the past, the population of the Far East was younger than the rest of Russia as people immigrated there specifically to find employment. The region enjoyed the lowest crude death rate among Russia’s 11 economic regions as well as one of the highest crude birth rates.  Tables 13 and 14 illustrate how the population of the Far East has aged. In January 1991, 11% of the Far East where above working age as compared to 14.1% in 1998. In addition, the Far East showed a greater rate of change than Russia has a whole as the number of those above working age grew 15.8% in the region compared with 8.5% nation-wide. This data suggests that the region will continue to see an excess of deaths over births moving into the 21st C.


        
     Summarizing these arguments, Kontorovich concluded, "This article shows that one element of the Russian fears about the fate of the Far East, the progressive depopulation of the region, is grounded in reality.” (Kontorovich 379) Indeed this data suggests that both demographic trends that began in the early 1990’s, including net outflow of people and excess of death over births, indicate long term population decline in the Russian Far East. However, he went on to say, “Other elements - the region's inundation with Chinese immigrants and eventual domination by Chinese government - do not necessarily follow. These cannot result from demographic factors but only from political events. And the political implications of uneven depopulation are not well understood." (Kontorovich 380)

Demographics on the Chinese Side of the Border

Fig. 2. Permanent Population of China from 1949-2011 (10,000 persons).


Source: ProQuest Statistical Database, Georgia Tech Library

Unlike Russia which has introduced monetary incentives for its citizens to produce more children, China’s rapid population increase in the past several decades has prompted legislation permitting only single child households.  Perhaps this legislation aimed at curtailing population growth has been effective as the permanent population of China’s Heilongjiang Province has leveled off in recent years. Figure 3 shows that in 2000, the region was home to 38,070,000 permanent residents and the figure had only risen slightly to 38,340,000 by 2011. In fact, the first decade of the 21st C has shown a remarkable consistency in permanent residents in China’s province that shares the longest border with the Far East. Jilin, another Chinese province that borders the Russian Far East, was home to 26,860,000 permanent residents in 2000 and 27,490,000 in 2011 according to Figure 4. That shows an increase of less than 1 million people in Jilin province during the first decade of the 21st C. It is difficult to predict population trends for a country that has experienced such a rapid economic boom, but this data seems to indicate that the population growth of the Chinese provinces bordering the Russian Far East has largely been curtailed during the first decade of the 21st C.

Fig. 3. Permanent Population of Heilongjiang Province, 1952-2011 (10,000 persons).




Fig.4. Permanent Population of Jilin Province 1989-2011 (10,000 persons).


Source: ProQuest Statistical Database, Georgia Tech Library

Conclusion

            In conclusion, my hypothesis has been supported in that the Russian and Chinese economies are profoundly linked looking forward into the 21st C. Direction of trade figures reveal that Russia trades with China more than they trade with anyone else. Although China trades with a more diverse group, it is difficult to imagine how they would fuel their manufacturing industry if not for Russian pipeline. Bilateral trade indicators reveal an increased interdependency between the nations in all four variables explored in this paper including consumer goods, food stuffs, energy, and natural resources. As Russia’s demand for agricultural products has increased, so has the role of agriculture in China’s economy. The nations are not just meeting the needs of the other; they’re molding their own country’s economic plans around the future needs of the other. These trends are far reaching in nature as oil agreements have been formalized for at least the next 20 years. It is likely that Russian and Chinese leaders will continue to conceive of new ways to collaborate.

            Indeed, the possibilities of Sino-Russian cooperation might appear to be limitless if not for deep seeded insecurities in both nations.  21st Century anxieties are most pronounced on the Russian side of the border for demographic reasons. However, as Konotorovich pointed out, demographic incongruence does not necessarily precede hostility and territorial expansion. We cannot know how literally China views its own maps that label the Far East as Chinese territory but it seems unlikely they would jeopardize their energy supply with an overt effort to retake the territory. Although the Russian military is in a transitional period, as evidenced by the recent sacking of Chief of General Staff Nikolai Makarov and others, Russia is still a nuclear state and would presumably defend their territory by any means necessary as they have through the course of their 1,000 year history. For now, all signs seem to point toward cooperation rather than hostility.


 

Works Cited

 

"Annual Indicators." Country Report. Russia 10.6 (2006): 5. Business Source Complete. Web. 3 Dec. 2012.

 

"Consumer Goods And Retail Report." Consumer Goods Industry Report: Russia 4 (2011): 3-15. Business Source Complete. Web. 10 Nov. 2012. 

"Data And Charts: Annual Data And Forecast." Country Report. China 2 (2008): 17-22. Business Source Complete. Web. 29 Nov. 2012. 

DING, YING. "Sino-Russian Ties Strengthened By Economic Bonds." Beijing Review 52.42 (2009): 14-15. Academic Search Complete. Web. 10 Nov. 2012. 

"Economy of the People's Republic of China." Wikipedia: The Free Encyclopedia. Wikimedia Foundation, Inc. 22 July 2004. Web. July 2012.
 

Federman, Adam. "Border Lands." Earth Island Journal 23.4 (2009): 39-43. Academic Search Complete. Web. 12 Nov. 2012.
 

Joseph Y.S., Cheng. "Challenges To China's Russian Policy In Early 21St Century." Journal Of Contemporary Asia 34.4 (2004): 480-502.Academic Search Complete. Web. 11 Nov. 2012.

Kamalakaran, Ajay. "Where Amur connects Russia and China." Russia and India Report 16 Dec. 2011.

Kontorovich, Vladimir. "Can Russia Resettle The Far East?." Post-Communist Economies 12.3 (2000): 365-384. Business Source Complete. Web. 3 Dec. 2012.

"Numbers Of The Week." Beijing Review 53.34 (2010): 37. Academic Search Complete. Web. 3 Dec. 2012.

"Russia: Paying The Price." Business Eastern Europe 36.40 (2007): 1-2. Business Source Complete. Web. 10 Nov. 2012.
 

Vyatkin, Vladimir. “Russian Military Has ‘No One Left to Draft.” RIA Novosti. Nov. 17, 2011.  

Yi, Fan. "Heihe: The Pioneer Of Sino-Russian Trade." China Today 56.2 (2007): 81. Academic Search Complete. Web. 11 Nov. 2012.

World Trade Organization. International Trade Statistics 2010. Centre William Rappard. http://www.wto.org/english/res_e/statis_e/its2010_e/its2010_e.pdf.

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