Russian Economic Reform

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What do Chinese trade/investment people think about Russia (and vice-versa)?

Published on November 25 2014
Posted by: jeff

During the first few weeks of November, I conducted two surveys regarding the attitudes of Chinese and Russians to closer economic and financial relations between their two countries. The surveys were conducted in Shanghai and Moscow, and showed an overwhelming desire — over 90% of respondents in both cases – for closer relations between China and Russia.

The Moscow and Shanghai responses to other questions in the surveys showed more divergence, and in particular seemed to point to the effect of the events in the Ukraine and of US led sanctions on Moscow attitudes.

Only 10% of the Moscow respondents nominated the US as the country with which Russia should have the closet economic and financial relations (the number was even lower for the UK, with London’s financial center activities often seen as “hurtful” to Russia). For China, over 90% of Shanghai respondents nominated the US as the country for closest relations.

This stark difference in the in attitudes toward the US was not repeated in the case of the EU. After the US, the Shanghai respondents nominated the EU and Russia (almost in equal numbers) for closest relations (followed by Japan, and with India and Australia a very distant last). The Moscow respondents ranked the EU and China almost equally.

So, it seems that the EU has basically managed to be the common second favoured area for relations, while China and Russia have quite favourable attitudes toward each other (basically ranking a little behind the EU).

Unless events in disputed parts of the South China Sea cause a rupture in China-US relations, those relations will be much better than Russia-US relations for quite a few years. Russia will not return the Crimea to the Ukraine, and Eastern Ukraine is unlikely to see real peace anytime soon.

This would seem to give China more options than Russia in dealing with the US and its allies (including the EU and Japan). Russia’s options are now not much more than China, but even this is not all good news as the Chinese probably feel that they are in the stronger bargaining position.

I asked the Shanghai respondents the following question: “When thinking about economic and financial relations, do you think that ‘Russia needs China’ more than ‘China needs Russia’”? The responses were equally divided between “yes” and “don’t know”. Hardly anyone thought that China needs Russia the most.

I lived and travelled in Russia for several years and always thought that Russians (apart from those living in the Far East regions) were paying insufficient attention to the Chinese economy and the possible trade benefits. That now seems to be changing, both at an official level and business level.

As well as turning to the East, more generally Russians are turning inward because of the US-led sanctions.

This may partially account for what I thought were surprising responses in the Moscow survey on the issue of Moscow becoming a true international financial center (IFC) by 2020. In my view, this has never been likely to happen for a variety of reasons, including corruption and the dominant role of state owned banks.

Two supposed advantages of Moscow as an IFC were as a center for CIS financing and (as a survey of financial market participants reported) Moscow is where “East meets West. It is a blend of different cultures and nationalities. It will be easy for everyone to come to do business.”

I have never really believed in either of these two advantages, and the events in the Ukraine should have killed-off the CIS idea. Yet, the idea of Moscow as an “IFC by 2020” was supported by nearly half the Moscow respondents in my survey.

I interpreted this as partly an emotional reaction to US-led sanctions and as a desire for more autonomy from US dominated world financial markets. Yet, there may be an element of rationality in the “East meets West” view if Russia can play on the desire of China for the RMB (or yuan) to become a more internationally used currency (ie like the $US) and work to make Moscow a major hub for this; on this I am doubtful, but it might be partially possible.

The Moscow survey covered a LinkedIn based sample of people who reported that they spend 50% or more of their work-time thinking about financial issues. The Shanghai sample covered students at the University of International Business and Economics (formerly called the Foreign Trade University), where the studies are concentrated on international issues. Neither survey was extremely large, but the respondents were people who understood economic and financial issues and were internationally orientated.