论文总字数：47830字

Problems and Prospects of Trade-Economic Relations Development between Russia and China

by

Iskakova Diana

Under the Supervision of Xin Tian

School of Economics and Management

Nanjing University of Technology

May, 2019

Declaration

I hereby declare that this submission is my own work and that, to the best of my knowledge and belief, it contains no material previously published or written by another person or material which has to a substantial extent been accepted for the award of any other degree or diploma at any university or other institute of higher learning, except where due acknowledgment has been made in the text.

Signature: Iskakova Diana

Name: Iskakova Diana

Date: May 28, 2019

Table of Contents

Abstract i

1. Introduction 1

1.1 Research background 1

1.2 The objective of the study 2

2. Literature Review 3

2.1 Overview of trade-economic relation 3

2.1.1 Trade-economic relation 3

2.1.2 Globalization 3

2.1.3 Foreign trade 4

2.1.4 Investment 5

2.2 History of trade and economic relations between Russia and China 6

3. Analysis of trade-economic cooperation between Russia and China 9

3.1 Introduction 9

3.2 Analysis for trade between Russia and China 9

3.3 Analysis of investment cooperation between Russia and China 12

3.4 The main problems of trade-economic relations between Russia and China 14

3.4.1 The deterioration of the financial and economic situation in Russia 14

3.4.2 Shortage of specialists in China 15

3.4.3 The problem of trade restrictions 16

4. Proposals for Russia-China trade-economic relationship 17

5. Conclusion 18

References 19

Abstract

The most reason for this inquire about is that the world economy is changing at an inexorable pace. This work covers all later occasions related to exchange and financial relations between Russia and China. During the analysis of the work were used only official sources. The research consists of 5 chapters, each of them describes the basic concepts of trade and economic relations, the history of relations between the two countries, current analysis of the state of relations and the analysis of investment cooperation. The result of the research shows that cooperation is mutually beneficial, with pressure from Western countries, Russia and China successfully implement projects and find ways to improve their own economies.

1. Introduction

1.1 Research background

The history of Russian-Chinese trade and economic relations begins in the first decade of the XVII century and covers about four centuries. Although the current structure of economic trade is extremely different from the business of those years, and yet, the basic qualities such as equality, mutual respect and loyalty still play a significant role in the long-term cooperation perspective. The most important component of bilateral relations is trade and economic cooperation between Russia and China.

The problems and prospects of political development and interaction between the Russian Federation and the People's Republic of China are most relevant due to the coincidence of national interests. Russia and China understand that it is necessary to demonstrate to the entire world community the nature of modern and centuries-long cooperative relations, precluding military or another significant clash of national interests.

Russian-Chinese relations are undoubtedly characterized by high dynamics of development, a strong legal base, an extensive organizational structure, active ties at all levels and have a high value for both parties. Over the past few years, an unprecedented activity has been observed in bilateral dialogue in various areas of economic and political relations.

Besides, Russia and China are closely involved in the process of globalization, especially in the field of trade, which is largely due to their geographical proximity. China is the best partner for Russia, primarily due to the complementarity of the economies of both countries. Russia is rich in energy resources, heavy industry, knowledge-intensive industries and mining, China has a highly developed light industry, a high level of technology development, the presence of a large potential of labor, a significant amount of foreign exchange reserves.

Within the cutting edge world, globalization has as of now become the most slant within the improvement of the world economy, the lifting of trade restrictions, ensuring the free movement of capital and increasing international cooperation more than ever meet the requirements of the era and the aspirations of the population. However, lately, unilateralism and anti-globalism are gaining momentum. Trade protectionism, the imposition of sanctions, customs barriers, trade wars — all of this puts the world economy at risk, which at present has a direct bearing on these two countries. The differentiate of this circumstance is the exchange and financial participation between China and Russia, which proceeds to develop quickly and consistently. As important economies of the world, China and Russia at various world sites are closely coordinating the development of the regional economy, defending the economic order based on the rules and principles of the WTO, ready to play and play important roles in the "game" of the open world economy.

Undoubtedly, trade and economic cooperation between Russia and China is positive for the development of both countries, however, some of the advantages of this cooperation are not fully utilized. Thereby, this thesis is aimed at addressing the main problems and prospects for the development of bilateral relations between Russia and China in the trade sphere, as well as reasonable proposals for further alternatives to these countries in the context of the latest events of 2018 on the world stage. Based on the material presented, an analysis will be made of the problems and prospects of Russian-Chinese trade relations in the 21st century

1.2 The objective of the study

The object of the research is the trade and economic relations of the Russian Federation and China, foreign economic policy and foreign economic activity of the countries under consideration with their partners in the main integration groups and alliances in which they participate, and the current stage of strategic partnership between both countries.

2. Literature Review

2.1 Overview of trade-economic relation

2.1.1 Trade-economic relation

In the development of human society, trade and economic relations have played a decisive role, due to which intercommunal, inter-polity and interstate relations have become stronger. These connections have gotten to be one of the primary variables within the advancement of all ranges of human activity.

Trade and financial relations are one of the foremost powerfully creating circles of financial movement. In the course of evolution, foreign economic relations developed into foreign trade, and turned into a systemic set of international trade and economic relations; at the present time - the world economy. The processes taking place in it affect the interests of all states of the world, including the Russian Federation and the People's Republic of China. (Golovnin M.Y,2014,p.93)

The most figure for an effective trade and economic relationship may be a vital association. The strategic partnership is a new form of interstate political relations, caused by the need to move from simple coordination of current policies to the definition of promising and long-term areas of cooperation. Partnership facilitates the solution of economic problems of cooperation because it based on the principles of voluntariness, mutual benefit, joint responsibility and consensus in decision-making.

International trade-economic relations have gone a long evolutionary path from random individual trade deals to large-scale trade and economic cooperation in the framework of industrial cooperation, which is the result of the activities of modern transnational corporations and globalization.

2.1.2 Globalization

Traditional forms of business and entrepreneurial activity are increasingly being influenced by new trends in the global economy, one of which is globalization. Due to the huge spread of political bias in modern world science and politics does not exist a single universally accepted definition of globalization. Globalization is considered from different points of view (“Security of Eurasia”2003, p. 126): this is a process that integrates the world economic system in interaction with the natural-biological environment and giving new integrity (“Security of Eurasia”2003); this is the output of the process (phenomenon) to the universal level; it is a process of reproductive transformation of national economies and economic structures, securities, capital, etc., in which the world economy is considered as an integral population (Castells M., 2004).

In addition, globalization is understood as the process of increasing influence on the social reality of individual countries of various factors of international importance: economic and political ties, cultural and information exchange, etc.; the drift towards a worldwide speculation environment and the integration of national capital markets; the highest stage of integration; “Interaction and interpenetration of political, economic and cultural spheres of public life of various states and societies, i.e. association in the broad sense at the level of social institutions (groups) having different historical and cultural grounds” (Ponomareva E.S., 2000, p. 3); the process of forming a single economic space, gradually covering all spheres of human activity. This is a complex phenomenon of the modern world, giving a lot of material for reflection in various aspects: philosophical, political, economic, legal (Ponomareva E.S., 2000, p. 18).

Summing up these definitions, we can conclude that all points of view are unanimous in the understanding that globalization is the process of formation and subsequent development of a single global financial and economic space based on new technologies.

2.1.3 Foreign trade

In modern conditions, foreign trade is an important component of the functioning and development of each individual country and the world as a whole, since no state can develop without building an effective system of economic ties with the economies of other countries in the context of globalization processes. In the context of international economic relations, national economies are not viewed as separate economic systems, but as a systemic set of interrelations of business entities on the world market, therefore, the role of foreign trade in the development of the national economy of the country increases significantly. More recently the growth in trade has accelerated largely from the developing countries due to globalization and openness. Globally oriented economies tend to grow faster than in-ward looking economies This has been the general philosophy behind trade liberalization and globalization. This view is further supported by many studies over the past three decades, which show that open economies grew much faster than those with high protection levels. The study by Sachs and Waner (1995) show some economies that employed aggressive import substitution policies either suffered economic crisis or collapsed during the eighties and nineties. Other studies, which includes Edwards (1998), Coe and A. Hoffmaister (1997), also suggests, that trade liberalization has a positive impact on the long-run rate of growth of a country. In addition, studies by Grossman and Helpman (1991) have also shown that small and developing counties that are open to free trade to grow more rapidly by absorbing technologies from developed counties than economies which are less open. A more recent study by Hartono, et al (2007) shows that the Indonesian economy gains a significant benefit in terms of real GDP, output and welfare through its various bilateral, regional and multilateral FTAs. There are moreover negative cases on the effect of remote exchange on the country's economy. A study by Kumar and Prasad (2002 argue that trade of liberalization in Fiji has a negative effect on economic growth and national welfare. Based on the above, it can be concluded with certainty that in most cases open foreign trade policies contribute to the replenishment of capital and boost the country's economy, and based on current events, it can also be said that Russia and China have chosen the right path for the development of trade and economic relations, stabilizing these economies two countries.

2.1.4 Investment

An integral part of trade-economic relations is an investment. The development literature has long been concerned with investment, because of its importance for the rate of growth of per capita output in the economy (Dornbusch and Reynoso, 1989,p.204).

Most of these are related to the issue of instability and/or chance, which acts as a disincentive to private investment, since of the irreversible nature of most speculation consumptions.

Some researchers support the notion that foreign investment contributes to the productivity and growth of local enterprises. Blomstrom and Sjoholm( 1998) are of the opinion that the productivity and growth of local enterprises could be achieved through spillover effects/externalities from FDI.

Research shows that foreign investment affects the economy of a host country in a variety of ways. Firstly, it provides the required capital and state of the art technology that enhances economic growth in the host country (Blomstrom and Sjoholm, 1998; Akinkugbe, 2005).

Secondly, it augments the skills of the host nations and thus stimulates growth through the infusion of managerial, labor skills and training. Thirdly it promotes the technological upgrading, regarding start-up, marketing, and licensing arrangements. Foreign investment is thus seen as a catalyst to the host nation's economic growth and development as it enhances the technological process and promotes industrial development (Asheghian, 2004).

The major determinants of the have country’s financial improvement and development is the financial environment depicted by its rate of financial development, trade policy, political stability, legislation, domestic market size and balance of payments constraints the political economy of the nation. These factors may inevitably influence the decision of foreign investors on the possible choice of a viable investment location (Akinkugbe, 2005).

Like any country, China and Russia are trying to get the maximum benefit from the growth of foreign investment and their own investments in each other. So, entrepreneurs see direct benefits in investing in the economy, since the closest neighbor offers unique opportunities for the development of regions, and maintaining honest relations is proclaimed the basis of a good and fair partnership of countries (Wang Zhou, 2018).

Most often, investments do not come from private investors, but as a result of agreements between the two countries at the government level. (Mr.Zhen, 2017,p.60) Vice-President of the Russian-Asian Union of Industrialists and Entrepreneurs Timur Andreev connects this, including with the tightening of US sanctions: Western European partners have limited ability to supply equipment to Russia. In this respect, the Chinese accomplices have additional opportunities to enter the Russian market. “Russia and China “fully realize their potential at the economic and political level,” said Li Chaohui, first secretary of the Chinese Embassy in Russia, at a conference on the development of Russian-Chinese trade and economic relations, stressing that relations between countries are experiencing the best period of their development (14).

2.2 History of trade and economic relations between Russia and China

Undoubtedly, the historical past influences the specifics of relations between the two countries, and in order to fully understand the development of trade and economic relations between Russia and China, it is essential to construct a ladder of historical events that will help to figure out how quickly bilateral relations develop, how often problems are solved and whether they have improved. the economy of two countries.

The history of economic relations between Russia and China is divided into two phases, which are distinguished by the dynamics, scale, content of economic exchanges and operations, as well as the driving forces of their development. The first stage can be determined by the period from 1992, that is, from the beginning of direct trade and economic relations between Russia and China and until the end of the last century. The second phase began with the new millennium and continues today. (Ionichev N.P., 2001, p.399)

The starting point of the formation and development of modern Russian-Chinese relations were the collapse of the USSR and the subsequent positioning of the Russian Federation as an independent state. The main content of the first stage was determined by two multidirectional trends. On the one hand, in the 1990s, the political process of forming "Russian-Chinese relations of an equal, trusting partnership aimed at strategic interaction in the 21st century" was actively pursued, which created a favorable background for establishing trade and economic ties. On the other hand, the consequences of a severe crisis that the Russian economy was experiencing after the collapse of the USSR and the start of market reforms were manifested. The influence of the second tendency was decisive, which caused the stagnation of trade and economic exchanges, abrupt changes in their dynamics, the spread of such a phenomenon as "shuttle" trade. In the literal and figurative sense, in those years, "eating up" the reserves remaining from the USSR went on. Against this background, the value of Russia in China's foreign trade was declining. For the period 1993-2000. its share in foreign trade relations with the PRC decreased from 3.9 to 1.7%.

In recent years, starting from 2016 to the present day, trade and economic contacts between China and Russia are constantly intensifying. According to the statistics of the Russian customs, last year the volume of trade between China and Russia amounted to 87 billion us dollars, an annual growth of 31.5%. Last year, the volume of bilateral trade in agricultural products exceeded $ 4 billion, and due to this, China became the world's largest importer of Russian agricultural products.

According to Maslennikov S. (2018) The reasons for the significant growth were the following factors:

First, the political and administrative factor. The establishment of strategic partnerships, the signing of various kinds of agreements on trade and economic cooperation.

Secondly, the economic strategy of the PRC. Since the beginning of the XXI century. The country's leadership is implementing the concept of a global external economic offensive "to go outside", the key elements of which are product expansion in foreign markets, etc.

Thirdly, the growing demand of China for a number of Russian exports is due to the rapid growth of the Chinese economy.

Fourth, the improvement of the economic situation in Russia, the increase in the purchasing power of Russians led to an increase in demand for Chinese goods. (Maslennikov.S , 2018, p.32).

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