As the first major bilateral event after the Sino-Russian relations entered a new era, the 6th China-Russia Expo is held at the Harbin International Convention Exhibition and Sports Center from June 15 to 19, 2019.
At the same time, another important event is happening in the same city: The 30th Harbin International Economic and Trade Fair (HTF) with the theme of "Sino-Russian Local Cooperation: Opportunities, Potential and Future." As an essential part of the top design made by the two heads of state, the Sino-Russian years of regional cooperation in 2018 and 2019 have played a crucial role in upgrading the relationship between the two countries.
The Sino-Russian regional cooperation mechanisms have become full-fledged. In particular, the two countries have built two regional cooperation mechanisms. Regional cooperation mechanisms have covered almost all sectors and areas of both countries.
During President Xi Jinping's state visit to Russia in June 2019, the two heads of state agreed to establish two more local cooperation mechanisms: One between North China and Russia's Central Federal District, and the other between the maritime provinces of southeast China and Russia's Northwestern Federal District.
At present, the Sino-Russian relationship is at its best in history. The leadership and frequent interaction between the two heads of state have played a vital role in the continuous development of bilateral relations. However, although Sino-Russian regional cooperation has achieved gratifying results, those results can not fully represent the rapid development of relations between the two countries, as some limits still exist. Among them, a lack of understanding, investment barriers, and economic slowdown are the main constraints for regional cooperation.
Limits to regional cooperation
There is an apparent chasm between the two early regional cooperation mechanisms. The Russian Far East and northeast China have long-running trade relations. As a key development area of Russia, the Far East also enjoys many favorable policies. There are numerous cooperation programs in critical areas with a lengthy trade history such as agriculture and energy.
The development outlook is very promising for both sides. By contrast, the Yangtze River Basin and the Volga Federal District were never involved in any trade or cooperation historically, which results in a weak basis for cooperation today. The two regions have similar development status, as both are relatively developed regions with limited scales of investment.
Moreover, a lack of understanding between regions and weak information exchange has added to the difficulties in cooperation. Geographically, both areas are in the hinterland, leading to a high cost of transportation.
Currently, the whole Russian society thirsts greatly for investment. The economic situation of different parts of the Russian Federation is very complicated. The small central government budget causes a reduction in local subsidies. Some regions are very bent on trade protectionism, which is not conducive to attracting foreign investment.
The differences in mutual perception, thinking paradigm and legal framework in economy and trade may also adversely affect bilateral trade. In some parts of Russia, people remain suspicious of Chinese capital. Local activists are very resistant to Chinese investment.
Given the improved but far from perfect business climate in Russia, Chinese investors have certain reservations about investing in Russia. After large Chinese companies set foot in Russia, they often lost growth momentum because they failed to forge a stable partnership with local players. Even though small and medium-sized enterprises can make profits under regional cooperation mechanisms, their operations are often subject to uncertainties and are highly speculative.
Russia's macroeconomic situation is unstable, while China's economy slows down as its reform and opening-up have entered a deep-water zone. Chinese investors of the conventional real economy will exercise more caution about investing in Russia due to its economic uncertainties. Affected by the devaluation of the rouble, cross-border e-commerce, which is boasting rapid development, will also face uncontrollable risks.
Breakthroughs and prospects of regional cooperation
In order to put the development of the Sino-Russian regional cooperation on the right track, the first thing to do is to further improve the level of interconnectivity and establish regional cooperation frameworks that are in line with international standards.
Specifically, both countries should work on increasing the speed of transportation at border crossings by building better infrastructure; speed up the Sino-Russian land transport network so that the transport routes can stretch deep into the areas of production, and step up the development of overseas economic and trade cooperation zones to boost the efficiency of transportation.
Second is to promote mutual understanding among regions. The underlying obstacle to regional cooperation between China and Russia is mutual perception bias. Russian local governments need to introduce more effective facilitation policies to promote trade and investment while learning about the needs of Chinese enterprises and shoring up the confidence of Chinese investors.
On the other hand, Chinese local governments should be engaged in joint training programs with Russia on language, law and national realities to enhance mutual understanding, encourage large Chinese enterprises to invest in Russia, create a good investment climate, and provide a stable business environment for small and medium-sized enterprises.
2019 marks the 70th anniversary of the establishment of diplomatic relations between China and Russia. The two countries have redefined the role and nature of bilateral relations and jointly ushered in a new era of bilateral relations characterized by stronger development at a higher level.
In this context, Sino-Russian regional cooperation is expected to feature broader scope, more robust mechanisms, greater diversity in forms and platforms, all of which combined will inject new dynamism into the development of bilateral relations.