FREE ESSAY ON SINO-RUSSIAN FORUM

SINO-RUSSIAN FORUM

Chapter1. Historical Retrospection of Sino-USSR Trade
Sino-R.S.S.R trade started even before the establishment of the People's Republic of
China. In August 1946, the Chinese Communist Party Northeast Bureau reached an agreement
with the Soviet Union to exchange clothes, medicine and other daily necessities with
foodstuff. At the end of the year, a small-scale trade began. The trade relation between
China and USSR had experienced great changes since the establishment of the People's
Republic of China. From the moment in 1949 to the disintegration of the USSR in 1991,
there are several stages in the development of the Sino-USSR trade relation: the "golden
times" in the 50s, the decline in the 60s, the stagnation in the 60s and the rapid growth
in the 80s.
?1. The "golden times" in the 1950s
The1950s is the period that Sino-USSR trade grew quickly.
In the second day after the People's Republic of China announced her establishment
(October 2,1949) , the Soviet government officially admitted the Chinese government and
established an ambassadorial diplomatic relations with china. 
In April 19,1950, the two governments signed the first trade agreement -The Trade
Agreement Between The People's Republic Of China Government and The Union Of Soviet
Socialist Republics Government. It was the first trade agreement that China signed with a
foreign country. It established a solid foundation for the development of the trade
between the two countries.
In 1957 and 1958, another two agreement was signed. They included items about
transportation and most-favored-treatment clause in economics. They had great meanings in
promoting the economic and trade relations between China and USSR
The large-scale economic cooperation between China and USSR brought the quick growth of
the trade amount between the two countries. In 1950, the total Sino-R.S.S.R trade amount
was 3338.4 million dollars and ranked first in the foreign trade partners of the China.
In 1955, the total trade amount was 1789.9 million dollars, which was two-third of the
amount of the Chinese foreign trade. It was the year that Sino-USSR trade amount took the
biggest proportion in the total Chinese foreign trade amount. In 1959, the trade amount
reached 2097 million dollars which was the 5.2 times of that in 1950. USSR was the
biggest trade partner of China. Her proportion in the foreign trade of China kept at
40%-50percentage except in 1950.
Table of sino-USSR trade amount in the 1950s
(unit: ten thousand dollars)
Year Total trade amount Exports Imports Proportion to Chinese foreign trade (%)
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960 33 844
80 860
106 142
125 823
129 124
178 985
152 377
136 470
153 857
209 700
166 394 15 325
31 129
41 204
48 061
58 663
67 021
76 168
74 697
89 887
111 794
81 878 18 519
49 731
65 217
77 762
70 461
111 64
76 209
61 773
63 970
97 906
84 516 29.8
41.4
54.8
53.1
53.1
56.9
47.5
44.0
39.8
47.9
43.7
Original sources: Chinese Foreign Economics and Trade Annual
What China mainly exported to USSR were agricultural products and by-products like rice,
soy bean, tea, meat and vegetable oil; light industrial products; mineral resources and
rare metals. What China imported were mainly equipment and military orders. From 1953 to
1957, the proportion of machines imported from USSR to the total Sino-USSR imports was
34%, 33% were machines in sets. To 1959, the proportions respectively rose to 62.2%and
41.9%. China also imported petrologic products like petrol, lubricant and kerosene; raw
materials like steal and cotton.
?2. The Decline in the 60s
The Chinese Communist Party and the Soviet Communist Party had diverged in ideology since
1956. Their divergence became bigger and bigger which deteriorated the relation between
the two countries, produced direct and serious effects on the development of economic,
and trade relations between the two countries. Bilateral trade sharply decreased and
economic cooperation entirely stopped. In 1960, USSR tore up 12 agreements, recalled all
the experts in China, stopped 257 technological cooperation items, and refused to supply
mineral resources like cobalt and nickel that China needed urgently and greatly decreased
the export of machines and important accessories. All these brought great destruction to
the economy of China.
The trade amount sharply decreased to 827.9 million dollars in 1961,which was just half
of the amount in 1960 and one third of the amount in 1959. In 1970, sino-USSR trade
amount dropped to the lowest point in the history-only 4.723 million dollars which was
2.25% of the amount of 1959. This number was only 1% of the total Chinese foreign trade
and 0.2% of the USSR foreign trade. USSR's rank in foreign trade partners of China fell
from the first one in the 50s to the fourteenth. To pay back the loans borrowed from
USSR, China decreased import as well as increased export. From 1961 to 1965, the trade
surplus of China to USSR added up to 950 million dollars.
Table of Sino-USSR trade amount in the 60s
(unit: ten thousand dollars)
Year
Total trade amount
Export
Import
Proportion to Chinese
foreign trade (%)
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970 82 791
70 158
60 106
44 522
40 744
30 514
11 141
9 214
5 422
4 723 53 626
49 066
40 678
31 164
22 167
14 041
5 547
3 293
2 724
2 317 29 165
21 092
19 428
13 358
18 577
16 473
5 594
5 921
2 698
2 406 28.2
26.4
20.6
12.9
9.6
6.6
2.7
2.3
1.3
1.03
Original resources: Chinese Foreign Economics and Trade Annual
There were also some changes in goods structure in the 1960s. Since China had petrolic
products form USSR since 1966. Machines were still the body of Chinese import from USSR,
but the quantities greatly reduced. For example, in 1960 USSR exported machines worth of
450 million rubles, which was only four percent of the total machine export when it came
to 1965.
China stopped to export rice and soybean to USSR because the reduction in agricultural
production in the early 60s. However, the main exports were still agricultural production
and mineral resources.
?3. The stagnation period in the 70s
The 70s were the period that China and USSR kept opposing each other, so the trade
between the two countries remained in a low level. However, their trade relation revealed
a tendency of slow increasement because of the necessity compared with that of the late
60s.
The Sino-USSR trade amount of 1971 was 149 million dollars which was the 3.17 times of
that of 1970.It increased another 50% in 1972 .The amount kept rising at a low speed
after that. Still the Sino-USSR trade remained low and didn't recover to the level of the
late 50s .The proportion of Sino-USSR trade to Chinese foreign trade was only 1.3%. The
proportion of Sino-USSR trade to USSR's foreign trade was even less, only 0.2%, which was
the thirty-third in USSR's trade partners.
The Sino-USSR Trade Amount in the 70s
(unit: ten thousand dollars)
Year
Total trade amount
Export
Import
Proportion to the
Chinese foreign trade (%)
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980 14 927
25 033
26 177
29 999
29 725
41 473
32 904
4 3 653
49 262
49 242 8 093
13 350
13 343
15 495
15 130
16 838
17 645
22 966
24 223
22 830 6 834
11 683
12 834
14 504
14 595
24 635
15 259
20 678
25 039
26 412 3.08
3.97
2.39
2.06
2.01
3.09
2.22
2.12
1.68
1.30
Original resources: Chinese Foreign Economics and Trade Annual
The Sino-USSR goods structure in the 70s was this: USSR exported machines, transportation
and steel. USSR also exported wood to China since 1972. China exported industrial
consumer good, food and its ingredients, mineral resources and metals, etc to China.
?4. Rapid development in the 80s
The Sino-USSR relation has moderated since 1980. In May 1989, the USSR president
Gorbachev visited China, which normalized the relationship between the two countries. The
both governments took an active attitude towards trade, which cause a rapid development.
In the 80s, Sino-USSR trade developed at a rather high speed except one or two years. The
average growth rate from 1981 to 1986 was 68%. The trade amount in 1990 was 4380 million
4380 million dollars which was the 18.5 times of that of 1981. The rank of USSR in the
foreign partners of China rose to the fifth after HongKong and Macao, Japan, US and
Germany. The rank of China in the foreign trade partners of USSR rose to the fifteenth in
the 80s from the thirty-third in the 70s. However, the trade amount was quite low
considering the potentiality of the two countries.
Table of the Sino-USSR Trade Amount in the 80s
(Unit: ten thousand dollars)
Year
Total trade amount
exports
imports
Proportion to Chinese
Foreign trade (%)
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991* 22 490
27 590
67 386
118 307
188 140
263 766
230 339
290 151
367 725
437 911
390 426 11 648
13 889
32 815
61 539
96 837
120 800
117 197
149 507
176 063
223 919
182 338 10 842
13 701
34 571
56 768
97 303
142 966
113 142
140 644
191 662
213 992
208 087 0.6
0.7
1.7
2.4
3.1
4.4
3.4
3.6
4.5
3.8
2.9
Original resources: Chinese Foreign Economic and Trade Annual
* 80% accomplished by RSFSR
?5. Conclusions
Take a wide view of the Sino-USSR trade history, the following specialties can be seen:
First, Sino-USSR political relation directly restricted the Sino-USSR economic and trades
relations. The trade relation experiences dramatic changes during the forty years. It
became the tool and victim of the political struggles, which was especially clearly
revealed in the 60s and the 70s. It brought great losses both to China and Russia.
Second, the Sino-USSR trade was carried out yearly by the official plans. Government
administrated and regulated the trade between the two countries and market did not work
here. It was opposed the economic regulations. This environment restrained the enthusiasm
of the manufacturers and limited the development of Sino-USSR trade.
Third, China and USSR could have complementaried each other very well in economics.
However, the export structures of the two countries were single. This kind of structure
was a disadvantage in bringing the potentiality of the Sino-USSR trade into full play. It
became an outstanding problem in the late 80s and the following years.
Fourth, having experienced a stagnation of twenty years, the development of Sino-USSR
(Sino-Russia) trade many problems. The hardware including bank system, transportation,
communication system and the software like opinions, political policy are two old or even
not existed, which can hardly be suitable to the development of the Sino-Russia trade
under the open policy. These problems must be solved from the beginning. It will surely
lay a negative effect on the development of the Sino-Russia trade relation.
Chapter2. Present Situation of Sino-Russia International Trade
?1. MAIN CHANNELS AND FORMS OF SINO-RUSSIA INTERNATIONAL TRADE
Nowadays some of the channels and forms of Sino-Russia International Trade are
traditional, yet some are new-born with the development of economic situation. Certainly,
some new changes also took place in some traditional channels and forms during the period
of practice.
1.1 Main Channels 
Since Sino-Russia International Trade is the continuation of Sino-Soviet Union
International Trade, it is inevitable to begin this part from the Sino-Soviet Union
International Trade/
＊Conventional Trade Between Governments
Conventional Trade between governments is usually called Trade of States or Big Trade,
which is the main channel adopted by governments of China and Soviet Union to develop the
economic relations. Conventional Trade between governments is a traditional way and it
adopted the way of keeping accounts according to the trade between governments by means
of one-year goods exchange and payments agreements. That means that after every
specialized company concludes a transaction according to the regulations of agreement
between two governments, the head office of foreign trade will assign the detailed
account of exported goods as a mandatory planning to local imports and exports
corporations. Because of the reform in respective trade system, the proportion of this
kind of trade gradually comes down. At the same time, the frontier trade and the local
trade play a more and more important role. For example, from 1987 to 1989,the volume of
trade between the Chinese government and the government of Soviet Union dropped
300,000,000 francs, however, the frontier trade between the Chinese coastal provinces and
Siberia of Russia has risen to 900,000,000 francs. In1991, conventional trade between two
governments has been replaced by the Xianhui Trade ,at that time , the conventional trade
makes up 43％of the total volume of trade. In 1993, 80％of Sino-Russia
international trade depends on frontier trade and direct trade between enterprises of two
countries .
＊ Frontier Trade Frontier trade as a channel of trade has lasted for a long time.
Frontier trade always regards barter trade as the main form of trade. Till the early
90's, barter trade makes up about 80％of Sino-Soviet Union trade and Sino-Russia
frontier trade. Later the relations of economic trade in frontier region have been
developing from the primitive simple exchange of goods to the establishment of jointly
owned enterprises. A detailed description about the frontier trade will be discussed
later.
＊Local Trade At the end of 80's , with the rapid development of trade especially
local trade between China and Soviet Union, the necessity of establishing economic
relations directly between localities and the departments of two countries is steadily on
the increase. Under that situation, after heated discussion, China and Soviet Union
reached an agreement about the direct establishment of economic trade relations between
respective localities. Sino-Russia international trade has inherited this channel of
trade. The local trade means that each province, autonomous region, municipality directly
under the central government and other authorized enterprises in China develop the
relations of foreign trade directly with Russian departments concerned. It is not
restricted in the barter trade and it includes all kinds of forms of economic
collaborations such as export of labor services, contracts for projects and so on. The
direct economic trade relations between departments of China and Russia also belong to
local trade. No doubt, sometimes it is difficult to draw a clear line between frontier
trade and local trade. Frontier provinces can make use of the advantages of in geography
to develop frontier trade extensively. Those inland provinces also can develop various
economic relations with Russia by way of frontier trade. It is initiative in the history
of Sino-Russia international trade to establish the relations of economic trade directly
between two countries ' localities (frontier provinces are excluded). Because of the
appearance of local trade, Sino-Russia trade has formed a new aspect which includes
conventional trade, local trade and frontier trade. After Soviet Union disintegrated, the
contact between two countries' localities has been further developed. In order to
legalize such a contact, China and Russia signed an agreement about this point, which
gave definite regulations on a series of legal problems concerning the relations of
frontier trade between two countries.
1.2 Main Forms 
※Barter Trade 
Barter trade is a traditional way in Sino-Soviet Union and Sino-Russia trade, which
occupies a special position in Sino-Russia economic collaboration. No matter it is
keeping-account conventional trade or local trade, both is underway by means of barter
trade. Every year two sides will sign a protocol about exchange of goods and payment
agreement between two countries . Such a protocol makes a detailed regulation on
assortment of goods, quality, amount of money and so on. According to the manifest
regulated by two countries, barter trade requires that import and export corporations
belonged to two countries' ministries of foreign trade concretely. Barter trade belongs
to visible trade, in which both sides don't need to put to use foreign exchange. Instead
of defraying cash and cashing the payment for goods, two sides settle accounts on the
delivery check by means of banks. By respectively adding up the total of exchanged goods,
both sides can keep the balance between import and export. If one side decays delivery,
after being confirmed by two sides, this delivery will be carried out in the next year.
Barter trade is a primitive and traditional form of trade, which is inevitable in the
poor developed system of foreign exchange. As we all know, both China and Russia are
countries without capacity to earn foreign exchange through export and insufficient
foreign exchange reserve. What's more, China and Russia can't use hard currency to import
urgent goods required by domestic market. The form of barter trade is in keeping with the
necessity and interests of two sides. For example, China can export advantageous products
such as textile, products of light industry and food so as to get those short-supplied
means of productions such as steels, wood, etc and some durable goods like piano and
refrigerator. It's the same with Russia.
※Xianhui Trade
It is a modern and standard form of trade and consequently the most promising one.
According to the agreement signed in October2nd, 1990, the conventional trade between
China and Soviet Union was replace by Xianhui Trade from the year of 1991. Unlike the
traditional barter trade, the Xianhui Trade needs to draw on hard currencey, which is
difficult to China and Russia, two countries without sufficient foreign exchange reserve.
Thus the volume of trade between China and Russia in 1991 came down obviously to only
$390,000.000.
In the early 90's,it was still very difficult for China and Russia to develop Xianhui
Trade since both countries had not sufficient foreign exchange and necessary financial
setup. However, with the adjustment of the relations in trade between two countries, such
a modernized and normal Xianhui Trade will play a more and more important role in
Sino-Russia trade.
※Frontier trade 
Usually it means that those inhabitants living in the frontier regions go to the
designated place to make a deal in the means of barter trade . According to the
agreement, infrastructures and places of trade are built in designated place. Inhabitants
of the border area and travelling traders can display and sell goods in the business
district without using passports and visas.
※Trade of Tourism
Trade of tourism means doing business by the means of tourism. Merchants of China and
Russia can carry their own countries' commodities to sell in the places of tourism. The
character of this form of trade is :〖a〗The quick circulation of fund
〖b〗Simple way of doing business 〖c〗Sensitive reactions to the
ever-changing market
※Air-business Corridor
After the disintegration of Soviet Union, China and Russia started this new form of
trade. When merchants in China and Russia have paid some expense to the Russian airline
companies, airline companies will not only guarantee to transport the products to the
designated place, but also pay for the customs duty for merchants. Thus, Tianjing, Jinan,
Shengyang in China and many cities in Russia have formed this special Air-business
corridor.
?2. NEW DEVELOPMENTS IN SINO-RUSSIA INTERNATIONAL TRADE
After the cold war, people emphasized the economic factor all over the world. In
Sino-Russia relationship, the relation in trade has been paid much attention to by both
governments.
Δ The course of development in Sino-Russia trade
Generally speaking, in the period of six years (from 1992 to 1997), rapid progress has
been made in Sino-Russia trade relationship although the Sino-Russia trade relationship
was not so steady.
.Volume of Sino-Russia Trade From 1991 To 1997 (unit :$10,000)
Year Total volume of import and export trade Decrease compared with last year(%)
1991 390425 -10.8
1992 586240 +50.2
1993 767966 +31.0
1994 507599 -33.9
1995 546332 +7.6
1996 684612 +25.3
1997 612000 -10.0
According to the diagram, the Sino-Russia trade relationship had gone through three
periods: rapid development, great decline and adjustment for improvement
＃1992～1993 The Period of Rapid Development
At the end of 1991, after the negotiation, China and Russia reached a series of
agreements, which successfully realized the transition from the relationship of the
Sino-Soviet Union to that of the Sino-Russia. The government of Russia showed that Russia
would acknowledge and inherit all the agreements and contracts signed between China and
Soviet Union, hoping that Russia could extend mutual economic and technological
cooperation with China. After President Yeltsin and Premier Li Peng met in New York in
January31, 1992, all the departments of external economy in Russia were required to enter
the practical work at once in order to fulfil those contracts. What's more, all the
enterprises were called on to take an active participation in the economic cooperation
with China. The president of Russia also extended a warm welcome to any suggestion
proposed by China to develop the economic relations.
After Deng Xiaoping made important statements in the south of China in the spring of
1992, China opened the trading port to Russia and provided all kinds of preferential
policies to enterprises and companies in frontier region as well. At that time, Russia
experienced economic crisis, which caused the great shortage of commodities especially
food and daily necessities. Russia was in great need of Chinese commodities through
import. In order to promote trade, Russia also decided to rescind the rigid rules about
that both countries must use foreign exchange in trade. Under the encouragement from both
sides, Sino-Russia trade took on a new look.
The disintegration of Soviet Union produced the turbulent Russian political situation.
The economy of Russia fell into the crisis with the year after year of decrease in the
production and foreign trade. However, during that period, Sino-Russia trade increased by
a big margin instead of decreasing and the turnover reached 58.62 hundred million dollars
which was 52.2% higher than that of Sino-Soviet Union trade in 1991.And the volume of
Chinese export was 23.3 hundred million dollars, the volume of import was35.3 hundred
million dollars. China ranked third among the trade partners of Russia, only after
Germany and Italy. Russia ranked fifth among the trade partners of China after Hongkong,
Japan, U.S.A and Germany.
Sino-Russia trade from 1992 to 1993 had broken through the former pattern in which the
focus was conventional trade between the governments. Furthermore, frontier trade
occupied a more and more important proportion. A considerable part of Sino-Russia trade
(1992～1993)was barter trade. In 1993,China mainly imported steel products,
chemical fertilizer, wood etc. While food, products of light industry, daily necessities
are exported to Russia .In the Chinese export ,products for civil use occupied 45%of
total export .During that period ,China and Russia also had a new development on the
cooperation in other aspects .
If people make a general survey of Sino-Russia trade from1992 to 193, they may draw
following conclusions:
☆Most of the factors which promoted the increase of Sino-Russia trade are
accidental and temporary such as the severe shortage in Russia market ,the lack of
foreign exchange in Russia trade partners and so on.
☆The principal part of trade was intermingled with the good and the bad. Many units
and individuals that participated in the trade were not qualified for dealing with
international trade
☆The improper regulations from the countries caused the disorder in the market.
☆ The forms of trade were primitive for most of them were barter trade. 
?3. 1994～1995 Big Decline
After two years of development in Sino-Russia trade from 1992 to 1993, there was a big
decrease in the volume of the trade in 1994. In 1994, China ranked seventh among Russia
trade partners. Actually, the tendency of decline had shown the sign at the end of 1993.
The occurrence of this decline is not accidental. In the past, Sino-Russia trade was
carried out mainly between the governments. The disintegration of the Soviet Union
indirectly influenced the reforms of both sides' systems of trade. 80% of Sino-Russia
trade were realized by the means of frontier trade and local trade. Profiteers and
enterprises were main force. What's more, most of the trade were barter trade. Without
the general guidance and efficient preparation, it was impossible for such a popularity
of frontier trade and local trade to last for a long time. Thus, the negative influence
from the spontaneous market was soon exposed. During that period, many Chinese products
of inferior quality entered Russian market, as well as a few poorly qualified people.
They not only destroyed the prestige of Chinese products but also erected barriers for
the Chinese products' entrance into Russian Market .All that raised doubts held by some
Russians toward China, which is sure to be harmful to China.
The following are the reasons of that decline:
From the late 1993, the government of Russia began to restrict barter trade.
- China and Russia began to carry out the system of transit visa from the January,
28,1994.Surely it is necessary to carry out that system to improve the system of entry
(exit) visa, however, it also brings a lot of inconvenience to those enterprises that
want to do business directly in spite of the lack of modern means of communication.
The decline of Russian economy and shortage of export sources had a great
influence on Russian ability to export. Russian reform in price and customs duty caused
the rise of products' rise.
 The open policy of Russia and various channels of import produced the abundance
of products in the market. Chinese traditional structure of export products had been used
to the change in the consumer market in Russia.
 In order to prevent the economy from being too "hot", China adopted the policy
of retrench, which influenced the Chinese demands for raw materials and machine equipment
from Russia. 
 The instability of Russian domestic economic and political situation affected
Russian ability to carry out the resolutions, at the same time, it also affected the
interest and confidence held by big enterprises and companies in China to invest in
Russia in large scale.
Besides those economic factors, some political factors are included, especially those
so-called the problem of "commercial immigrants" in China. The considerable influence was
exerted by that problem on Sino-Russia trade, especially frontier trade and local trade.
The governments and foreign ministries of both sides took a calm and realistic attitude
toward it. Both sides have reached a series of agreements on the construction of systems
and laws in frontier region so as to develop ties of peace , friendship and prosperity
between China and Russia.
＃The Adjustment and Improvement Period since 1996
Since 1996, China and Russia have taken some measures to try to solve the problems in the
both sides' cooperation in economy and trade.
Propose the objective of a struggle to increase the volume of Sino-Russia trade
From April ,24 to 26 in 1996, President Yeltsin paid an official visit to China . Both
sides determined to take the advantages of neighboring regions and mutually complementary
economy and take some strong measures to further enlarge and develop bilateral trade.
President Yeltsin pointed out that present's volume of bilateral trade 55 hundred million
dollars should be raised to 220 hundred million dollars .China and Russia signed over ten
documents about cooperation.
During Li Peng's official visit to Russia from December26to 28 ,1996,both sides further
discussed measures to strengthen cooperation. They agreed that China and Russia should
try best to raise the volume of Sino-Russia trade to 80 hundred million dollars in 1997.
What's more, both sides thought it possible to realize the objective of the struggle in
the year of 2000---200 hundred million dollars. When premiers of two countries met, they
signed an agreement about the construction of Li Yungang Nuclear Power Plant and an
agreement about the cooperation between Chinese People's Bank and Russian Central Bank.
Jiang Zemin paid an official visit to Russia from April 22 to 26 in 1997 and he stressed
that in order to realize the objective of 200 hundred million dollars at the end of that
century, both sides should try to raise the volume of bilateral trade to 80 or 100
hundred million dollars in 1997 first.
Recognition of the Importance of Bilateral Relations in Economy and Trade
The governments of China and Russia have paid attention to the development of cooperative
relationship in economy and trade. They all regarded it as an important part in two
countries' strategic cooperative partnership.
On the November 9, 1997, China and Russia emphasized the cooperation in the following
fields:
The production of natural gases, petroleum, nuclear, energy equipment and
cooperation in civil aviation, chemistry, food industry, electrical household appliances
etc.
Cooperation in banks, insurance and arbitration, the improvement in the quality
of products mutually provided, measures are to be taken to adjust the export of labor
services.
The encouragement of turning the high technology into production.
Chapter3. Problems existing in the Sino-Russia trade relations:
?1. Problems existing
1.1 Chinese commodities continue to be synonymous with the cheap and low quality goods,
despite the efforts of trade officials to improve quality. This is due to many reasons.
Firstly, the border trade communication lacks the effective supervision, so this
communication is just in disorder. Many small trade companies of both sides are eager for
quick success and instant benefits, so China's many counterfeit goods pour into Russia
market. It is reported that Some Russian cities has even held some "China's counterfeit
goods" shows, which shows the "paper jacket", "chicken leather outwear", and so on. More
seriously, now more and more Russian consumers also begin to distrust many Chinese
companies with good reputation. However, now Korean and Japanese competitors also try
their best to enter the vast Russia market with their high-quality goods. Russian shuttle
traders have shifted their attention to these developing countries like Indonesian as the
market in Chinese goods has reached its limit. In 1997 and 1998 the devaluation in
Southeast Asian economies as a result of the financial crisis will make their exports
much more competitive. Thus Chinese goods are just losing a lot of the Russian market
share. Secondly, the illegal "traveling trade" is still rampant. Sino-Russian border and
local trade now constituted one-third of the total bilateral trade volume, it was
revealed at a symposium of Sino-Russian border and local trade held here recently. Many
pedlars make use of the traveling trade to transport counterfeit goods into Russian
market and thus destroy the overall image of Chinese goods. These pedlars have many
advantages over big trade companies with good credit, for example, they have fewer
management links and more flexible trade tricks, and they could provide much cheaper
goods. More important, they cannot be easily supervised, so sometimes they dare to sell
seconds at best quality prices and mix the spurious with the genuine. Thirdly, the border
trade authorities have not paid enough attention to the commodity quality. Some Chinese
trade units regard Russia market as the so-called "parallel market", which can absorb
low-grade commodities even like some African countries. Therefore, the production, trade
and commodity inspection units, to some degree, acquiesce in the overflow of counterfeit
goods. Fourthly, after so many years of foreign goods pouring into the Russian market,
Russians are accustomed to high-quality commodities. More important, the renaissance of
Russia's economics, the rapid growth of China's economy, and the allied strategic
interests really remind us of the complementary need between each other. The guarantee of
the retirement pay and the increase of the salary could help improve the purchasing power
and arise higher claims of Chinese commodities.
1.2 Many Chinese tourists almost send all their profits back to China and cause the
discontent of Russians. The Russia migration service reported "on any given day, about
30,000 Chinese tourists are in Russia's Far East. In Ussuriysk, just north of
Vladivostok, they've congregated in a small Chinatown, with its own hotels, casinos and
restaurants." Russian officials complain that while the Chinese are engaged in successful
trade in Russia, none of their profits find their way into the local economy. Instead,
they say, the money ends up back in China. "Such economic expansion is observed
throughout the entire Russian Far East," said Sergei Pushkaryov, chief of the region's
migration service branch. "All the profit is theirs." More important, as Pavel Gladkikh,
a migration service official said, "besides selling cheap clothing, toys and other
consumer goods, Chinese tourists are increasingly involved in illegal timber and scrap
metal exports through elaborate trading networks. Chinese businessmen hire unemployed
countrymen and send them to Russia as tourists. Afterward, they ship containers of goods
for the tourists to sell. Receipts from the sales go to firms that the same businessmen
establish in Russia. The money is then used to buy timber and scrap metal. They then
create Russian shell companies to send the shipments across the border to China.
1.3 The bilateral trade volume is small and the cooperation level is low. Firstly,
according to the China Trade, in 1998 the trade volume covers only 5% of the total
importing and exporting volume of Russia. On the other hand, the trade volume only covers
2.4% of the total importing and exporting volume of China, or 20.1% of Sino-Japan trade
volume. Secondly, the low level of trade cooperation is also showed on the trade form. In
1995, the barter trade covers 61.2% of the whole Sino-Russia trade. Later bilateral
governments reach an agreement that bilateral trade should be transformed from the barter
trade to spot transaction, and thus the proportion of the barter trade falls down.
However, at the same time the bilateral volume also decreases with the falling of small
"barters". In fact, Sino-Russia trade relations lack the form of big global standard
trade cooperation; therefore, this cooperation still remains at a very small level.
Thirdly, the bilateral direct investment has remained at a low standard until now. Until
1998 Russia has only invested 0.2 billion US dollars in China, while from 1993 to 1997
the direct foreign investment amount in China is almost 185.8 billion US dollars. On the
other hand, until 1997 China has only invest 0.18 billion US dollars in Russia, while
from 1993 to 1997 Russia has absorbed 9.7 billion US dollars. Therefore, the trade
cooperation is not in line with the large potential of both countries, and also not in
line with the rapid increasing Sino-Russia political and military relationship.
1.4 The bilateral trade volume is not stable and in line with the good bilateral
political relationship. Firstly, Big rise and fall of the turnover often strike the
normal bilateral trade relationship. For example, according to China's trade yearbook, in
1993 the total import and export trade volume between China and Russia is almost 7.5
billion US dollars, while in 1994 the volume is only 4.9 billion US dollars. In 1998, the
total trade amount between China and Russia was 5.48 billion USD, 10.5% lower than that
of 1997. Secondly, China's trade deficit becomes larger and larger during the past years.
This disequilibrium of bilateral trade seriously influences the normal development of
Sino-Russia trade relationship. From 1992 to 1998 China's total trade deficit adds up to
over 12 billion US dollars. More important, the trade structure is not fit for the stable
growth of Sino-Russia trade relations. According to China's 1999 economic report, until
now what Russia exports to China are still mainly so-called "four main commodities",
which are machines, ferrous metal, chemical fertilizer and timber. What Russia import
from China are mainly foodstuff and some household electrical appliances. The present
Sino-Russia trade structure cannot spur the further and steady trade development, and
cannot make the full use of the present trade complementary potentials.
1.5 The high risks existing in bilateral trade relations. Many Chinese and Russian
companies have to run high risks to go on the bilateral transactions because of three
reasons:
(1) Two countries have never established trade relation mechanism system conformed to the
world standard until now. Their trade system reforms have not been accomplished. In
China's respect, the SOEs have not transformed the past planned system. In the trade
relations with Russian companies, many big trade companies lack the trade flexibility,
and cannot adapt themselves to the moving market. On the other hand, most of private
companies have no adequate capitals to run big bargains with Russian companies. In
Russia's respect, the trade policies are not stable and effective; as a result, Chinese
companies that are accustomed to trading with Western corporations are full of worries
when they trade with Russian companies. What affects the Sino-Russia trade relationship
is that these two countries have never established trade relation mechanism system
conformed to the world standard until now.
(2) Problems of the bank setting accounts system. According to the statistics of China
trade, spot transaction is becoming more and more important. However, after Russia's
radical economic reform, few Russian banks have the adequate strength and credit. More
important, the agency system between Chinese and Russian banks is not mature, so there
are few spot transaction accounts between Chinese and Russian companies. Until now almost
420 banks in 33 countries have established representative units in China, however, Russia
has only established the Russian International Business Bank and the Russian Credit Bank
have established branch banks in China. On the other hand, only the Bank of China
established branches in Russia. Therefore, the cash settlements through L/C (letter of
credit) have not been widely used by corporations of both sides. Therefore, the bilateral
trade relationship is seriously influenced by the trade settlement.
(3) The arbitration system is not mature. There is no denying that many trade disputes
often emerge in the Sino-Russia trade relations, but they cannot be easily settled,
because no just, reasonable and effective arbitration systems have been built up until
now. In this situation, the irregular trade actions such as illegal speculations,
defaulting and the low rate of discharging contracts emerge and prevail between Chinese
and Russian traders. Therefore, Chinese and Russian corporations' legitimate rights and
interests cannot be effectively guaranteed. Therefore, the intentional swindles and some
other unlawful activities begin to run rampant.
(4) Exporting insurance problems. Now Russia is still distinguished by WTO as the
"high-risk country". When Chinese companies export commodities to Russian, Chinese
companies are often required to get payment until Russian companies get receipts of
goods. However, when Chinese companies want to import commodities from Russia, Russian
companies send goods upon receipt of payment. In this situation, Chinese companies always
have to bear all risks no matter whether they are exporters or importers. More important,
because China and Russia have not established an efficient good exporting insurance
system, many big Chinese trade companies have no end of misgivings when they want to
enter the Russian market.
(5) Because of the mentioned risks, Chinese leading trade corporations are still cautious
of Russian investment conditions, though Chinese government has tried best to encourage
them to invest in Russia. Recently Russia's Yukos oil company agreed to a symbolic deal
with China. Yukos oil company head Mikhail Khodorkovsky recently signed an agreement on
increasing next year's oil supply to China by 1.5 million tons. Not a big contract by
world standards, but it is expected to become a milestone in Russian-Chinese relations.
The contract has symbolic value - 1.5 million tons of oil is exactly the amount the
limited capacity railway link to China can handle. Building a pipeline from the Irkutsk
region through Mongolia and into China would be the only way to further increase
supplies. The pipeline would have a capacity of 25 million tons to 30 million tons a year
and would cost $1.7 billion. However, neither Yukos nor the Russian government has the
money to finance such an ambitious project. The project will be realized only if the
Chinese themselves can come up with funds. Indeed, if the ever-cautious Chinese do agree
to invest in the project, it would signal the end of all the talk about a Russian-Chinese
strategic partnership and the beginning of action. 
1.6 Transportation and other basic infrastructures fall behind the great development of
Sino-Russia trade relations. According to the statistics of China Trade, the Chinese
ports' transporting capacity is very limited in the present trade situation. Our
important international trade port Manzhouli can only transport 3,000,000 tons per year;
the port Suifeng River port can only transport 900,000 tons per year; the port
Ernianhaote can only allow freight of 300,000 tons to pass. Because the poor port
transporting capacity, it is estimated by China Trade that almost 2000 railway freight
carriages were detained on the railway in 1999. In 1999, the transportation units only
finish 84% of the volume of rail freights. Because of the limited transporting capacity,
almost 25% of the contract assignments have not been fulfilled. On the other hand, Rail
lines continue to be the main means of freight transport between China and Russia,
however, the Russian railways in Siberia of Russia are all single-track railways, and the
air transporting is still too expensive and inconvenient, therefore, the Russian
transporting capacity also hinders the normal development of the Sino-Russia trade
relations. The Far East Railway Network, in a statement via Grodekovo (near Ussurysk),
isn't able to handle the increased turnover of goods between the countries. The line,
near the small Russian cities of Khasan and Posyet, is the second Chinese-Russian railway
line crossing the countries' Far Eastern border. The other line is about 100 km north on
the border with the Chinese province of Heilongjiang. Another rail link, part of the
original Trans-Siberian railroad completed in the 1890s, connects Russia to China near
Mongolia. Therefore, China and Russia have to spend a lot in forming a comprehensive
transporting system of railway, highway, water and air transporting forms. Andrei
Ostrovsky of the Far East Institute said Russia itself still has issues to take care of
before trade can be expanded. "We shouldn't forget that we still have to improve our
border passages, services, capacity and customs processing," he said. "The bad conditions
on our side of the border impede all efforts to increase cross-border trade."
1.7 The nationalism in Russia and other political trends may seriously affect the
Sino-Russia relationship. Firstly, the pouring of Chinese traders and immigrants make
many Russians feel disturbed and even panicked. It is estimated by the Russian government
that the Russian Far East comprises a territory of 36.4 percent of the entire Russian
Federation. However, its population is only 7.6million and 5.4% of the total population
of the Russian Federation. The Far East is a large area, endowed with rich natural
resources, and a very small population. More important, it is remote from Moscow.
Therefore, the so-called "Chinese Expansionism" also affects the bilateral understanding
and trade relationship. Secondly, many Chinese media still denounce Russia because it had
taken away almost 1.5 million square-kilometers fertile land from China and bullied on
Chinese there. In the Russian Far East Programme composed by Russian government, it is
said, "The decline of Russian geopolitical positions has spurred Japan and China to
directly arise their territorial claims to Russia." Therefore, Russian government has
taken some precaution measures to control the so-called "China's economic infiltration".
Thirdly, the good Sino-Russia political relationship is based on the common suspicion
against the Western countries. If Russia has improved its relationship with the Western
countries, the Sino-Russia political and trade relationship will be inevitably affected.
These are favorable conditions for expanding trade. However, the total amount of two-way
trade is quite small, and by the year 2000, it is expected to reach no more than $20
billion. 
?2. How to tackle these problems
Facing the mentioned problems, China and Russia must try their best to overcome the
difficulties existing in the developing Sino-Russia trade relationship.
1.China and Russia must sternly strike the illegal tourist trade, more important, they
should support big trade companies as the main Sino-Russia traders. For example, they may
levy heavy penalty against those tourist traders and counterfeit commodity producers.
Fortunately, two Chinese state-run business centers selling Chinese-made goods opened in
Moscow this spring. Assembly of Chinese TCL televisions in Russia is also planned. China
could also provide funding for the manufacture of the Be-200 100-seat passenger aircraft
that can land on water, and for a new generation fighter plane. China is also studying
possible participation in development of the Russian Far East port of Zarubino.
2.Chinese and Russian traders must transform their original views of mutual markets.
Chinese traders should notice the great changes of Russian market. Now many western
competitors have made use of their technique and quality advantages to push Chinese
traders out of the Russian market. China should not take Russian market as the so-called
"parallel market", which can absorb low-grade commodities even like some African
countries.
3.China and Russia must help the mutual media form the correct and comprehensive views of
each other. On Boundary Question, in April 1994, both sides completed the protocol on the
description of the national boundary and its appendices on the eastern and western
sections of the Sino-Russian Boundary, which marked the successful conclusion of the
demarcation of the boundary line in the sections unanimously agreed upon through
consultations. In this way, the Sino-Russian boundary for the first time in the relations
between two countries has been accurately indicated on the spot. Chinese and Russian
media thus should comprehensively reconsider and try their best to preserve the
Sino-Russia relationship.
4.China and Russia should diversify the importing and exporting commodities. Now Main
products exported through border and local trade are cereals, oils and food, vegetables
and fruits, garments, shoes, general merchandise, construction materials, electronics and
computer equipment, medicines, oil tar, asphalt, refractory materials, ceramics,
cigarettes and tobacco, and cotton. China-made electrical household appliances and
electrical products are also entering Russian market. Chinese and Russian traders should
analyze mutual markets thoroughly and then pursue a great variety of commodities.
5.China and Russia must continue to provide good policies for the Sino-Russia trade
relationship. Fortunately, the Russian government has announced on September 4th, 2000
that Russia is going to have a better control the custom duty. From 2001 Russia will
decrease the kinds of custom duties from 7 to 4, and the highest duty decrease from 30%
to 29%. On the other hand, the undersecretary of China's Foreign-trade Department, Long
Yongtu announced that any enterprises could directly take part in foreign trade after the
registration in business branches, in no need of the government's permission. These all
show the determination of mutual governments, however, they still need go on the
preferential policies, more important, they should struggle against corruption and
malfeasance in order that mutual traders can really enjoy these policies.
6.Chinese and Russian governments should strengthen the cooperation in the scientific
resources, energy and capital field. Now China still tries its best to finish a program
"Russia-China Energy Bridge". United Energy Systems of Russia has signed a co-operation
agreement with China and is proposing the development of this project that provides for
volume electricity exports from Russia to China. Existing power plants in Siberia have
sufficient capacity to export up to 15 billion to 18 billion kW/h of electricity to
China. UES is presently able to supply electricity to China from the Amur region using
existing cables. The Chinese side has agreed to consider the question of Chinese
participation in the efforts to complete the construction of Bureya hydroelectric plant
in Russia's Far East. This is a good example, however, such big cooperation projects by
mutual governments still fall behind the rapid developing Sino-Russia political
relationship, therefore, the high officials of both governments still need spur the
relative units to carry these important projects.
Overall, effective economic cooperation will help cement the foundations for a
Sino-Russia strategic partnership. The people in both countries should seriously value
the hard-earned Sino-Russia relationship, and spend all their intelligence, wisdom and
courage to overcome all odds on the way to a prosperous Sino-Russia trade relationship.
Chapter4. Putin's Economic Reform
?1. Russian Economic Environment
Everybody who does business in Russia knows that problematic laws and weak legal
enforcement, corruption, high taxes, and Mafia (organized criminal) activity make it an
ordeal. Improving the financial and legal environment must be high on Putin's agenda,
because Russia's economic behavior of regional leaders. If this plan works, Russia may
substantially improve tax collection and management of public property. However, Putin's
success is not certain, because the governors tacitly but stubbornly resist the plan.
?2. Putin's Economic Reform
Russian economic background
Putin's historical duty is to build Russia into a strong nation, make it an influential
part of the world, but Putin's present target is to stabilize the Russian economy. Putin
says, although Russia is a resource abundant country, it would still be subject to other
countries that are without an advanced economy and powerful arm forces. He emphasizes
that the stabilization of economy is the nation's most important target; the economic
growth must reach 7% to 10%. Now the Strategic Research Center, Which Putin has
constructed, is setting up the development plan in medium and long run. Although this
plan has not been revealed, we can still acknowledge the primary ideas of Russia's
economic construction from Putin's recent words and actions. 
First, perfect the role of the market and strengthen the government's macroscopic control
over the economy at the same time, Putin asserts that the government should not give up
its necessary control over the economy, while the market's adjusting function should be
respected. Russia should strictly control the war industries and those enterprises of
strategic resources, and posses the dominant part in main industries so that a radical
economic development plan could be carried out under administration.
Russia must support competition. Russia is not yet a truly open and competitive economy
because of high barriers to entry for investors. The government must establish simple and
uniform terns for establishing new companies and put an end to the arbitrary rule of
regional officials as well as to criminal pressures on businesses. Second, the role of
markets must be substantially enhanced. Introducing private ownership of land will
benefit the agrarian sector and also bolster financial markets, because land could serve
as collateral for mortgages. No less important is enacting more flexible policies for
wages and working conditions in the private sector. Third, a reform of the judicial
system like that mentioned by German Gref os badly needed to ensure that independent
courts can enforce contracts (replacing criminal groups as enforcers) and resist pressure
from high-ranking officials.
Second, develop high-tech industries-especially information industries-and complete the
industrial construction adjustment systematically.
Having established and strengthened basic market and democratic institutions during the
1990s, Russia became an emerging market country that badly needs a modernization
breakthrough. How can the government of President Vladimir Putin attain this goal?
The urge for modernization in Russia is stronger than in any other emerging market
country. This former superpower lags further and further behind world leaders: Russia's
GDP now ranks only fourteenth in the world, and its social indicators are close to those
of medium-income developing countries.
Putin begins his rule during a strong economic recovery that follows a fourfold
devaluation of the ruble in 1998 and a sharp rise in world oil prices. Throughout 2000,
macroeconomic and industrial indicators are likely to remain favorable, with GDP expected
to rise by 4-5 percent if oil prices stay close to $30 a barrel.
In view of this good economic mews, is achieving a modernization breakthrough really that
important for Russia? The answer is definitely yes, because, during 2003-05, Russia may
experience shortages of natural resources, and its efforts to boost economic growth may
be hampered by the continued decay of its industries. The more an economic takeoff is
delayed, the more difficult it will be for Russia to catch up with the advanced nations.
Leading experts estimate that $2 trillion will be required in the next 20 years to
modernize Russia's production facilities, infrastructure, and labor force. If
modernization efforts begin today, it will take from 15 to 30 years for Russia t catch up
with the West-and that is if the Russian economy grows at 6-8 percent annually.
Putin thinks the backwardness in information industry will lead to the lag in all other
industries, so Russia should push up the development of information technology.
Presently, resource and war industries are still the leading parts of national economy,
so the government should show adequate emphasis upon these industries and increase the
export of these products so as to accumulate enough capital for the industrial
constriction adjustment.
Third, administrate financial orders, reform tax system and improve the investment
environment. What hamper business in Russia most of all are taxes. If entrepreneurs paid
all the taxes they owed, they would pay more than they earned. Therefore the "shadow
economy" amounts to about 25 percent of GDP. Tax evasion is one of the main reasons-along
with control of mediators over resource and output flows, schemes designed for managers'
personal benefit, and the high price of money-behind the wide use of money surrogates
(for example, promissory notes-veksel) and barter.
Over the years, there has been much talk in Russia about reducing the tax burden, but
only Putin's government has tackled the issue. It intends to improve the general rules of
the game for taxation and lower taxes on producers and ordinary citizens. Tax officials
plan to eliminate all preferences and seek to establish equal conditions for all. This
approach signals a radical shift in the government's economic philosophy. The government
seems to understand the significance of improving the economic environment. Legal experts
are working on protecting minority stockholders' interests, introducing transparent
accounting techniques, and implementing other reform measures. But carrying out some
important reforms requires consistent policy rather than isolated initiatives.
Putin requires that the banking system strictly control the exclusive use of national
loans in order to stop the abuse of the budget and preferment loans. In order to relieve
the burden of enterprises, Putin continues the policies of cutting tax types, lowering
tax rates while widening tax sources. He is going to cut the tax sorts from 35 to 5 only,
and lower the income tax rate from 45% to 30%.
Fourth, decrease the gap between the rich and the poor; improve citizens' living
standard. Nowadays, the rate of the income of richest 10% citizens and that of the
poorest 10% citizens is 1:15, far beyond the warring line of social stability, which is
1:10. More than 1/3 citizen live under the poverty line. In order to conquer the
impoverishment of citizens, the government has decided to impose luxury consumption tax
upon the rich and constantly enhance the lowest wage and welfare standard according to
the price index.
The government set up a system to redistribute money through Moscow to support poorer
regions. Although net redistribution accounts for only 1 percent of GDP, it arouses
considerable conflict. There are only 10 "donor" regions- that is, regions that
contribute more to the federal budget than they receive from it -and they are unhappy
that their payments make up more than half the federal budget. Some regions pursue
policies of "glocalization" by establishing direct links with foreign partners, which
often makes them more dependent on international markets than on decrees signed in
Moscow.
But one should also bear in mind that Russia's real economic course is strongly
influenced by businesspeople who are accustomed to lobbying, corruption, and paternalism.
Influential industrial groups want the government to protect them from rival foreign
investments by allowing only selected "friendly" companies to operate in Russia (the
stance labeled "hammerization" after U.S. oil tycoon Armand Hmmer's strategy of relying
on his friendships with Kremlin leaders to make business deals in the former Soviet
Union). So Putin's policy must be pragmatic in responding to various challenges and
vested interests. Nonetheless, it is likely, though not inevitable, that his economic
policy will have a liberal bias, because the government currently controls a very small
share of the national economy. Federal budget revenues in 1999 were only about 14 percent
of GDP, and those of all levels of government combined were only 36 percent of GDP.
Existing government financial and economic institutions lack the power and the resources
to intervene effectively in the Russian economy, so it will be difficult for the
government to be an active player in Russian markets in the years to come.
The first few months of Putin's rule show that he is quite serious about the
comprehensive modernization of Russia. If her continues to pursue this objective, his
economic achievements will depend on progress being made in four areas: bringing down
foreign debt, creating a market-friendly environment, restructuring the real sector, and
bringing order to economic federalism.
After several months' reform, Russia's economy has abundant natural resources, apparent
technical advantages and fine economical foundations, it will have a brilliant future
with an effective macroscopic policy and social stabilization.
?3. The Future of Putin's modernizing Policy
Putin has already shown himself to be a resolute and efficient leader. The economic
problems he faces are very serious, However. It will be difficult to deliver Russia
quickly from foreign indebtedness. Debts will press on the economy throughout Putin's
rule, although the government can ease this burden somewhat if it comes to an agreement
with creditors. In any case, paying Russia's debts may entail austerity measures, and
living standards are not going to improve. The money flowing into the country now,
following political and financial stabilization will be spent on technological
modernization. 
But prospects in other economic fields are less gloomy. Putin has sufficient power to
carry out badly needed reforms. Muddy depends on whether he will persist in seeking
profound changes in economic institutions despite the reluctance of Russian
businesspeople to adjust to a liberal economy and competitive markets.
Still, if a pro-market policy is pursued, Russia can enjoy sustained growth. The most
plausible economic growth projections based on this assumption, calculated by the CSR,
are in the range of improvement in Russia's international positions, because the world
economy is expected to grow at almost the same rate. Even if a pro-market strategy is
pursued, Russia will not be able to meet the modernization breakthrough.
Ⅳ.Problems in the Real Sector
Putin will need to force companies to undertake "adjustment with restructuring."
Companies should be pressed to separate into viable and nonviable divisions and to sell
off the latter, thereby reducing overemployment. By now, companies have stopped providing
social safety nets for their equipment has been used for an average of 16 years and has
depreciated to only 30 percent of its original value. The government has been unable to
finance modernization (companies have enjoyed tacit subsidies, however, because the
government did not press them to pay their taxes), so companies must rely primarily on
their own resources and private loans.
The government must help companies get rid of arrears that arose from a discrepancy
between a restrictive macroeconomic policy and a soft microeconomic policy that has
tolerated tax arrears and interenterprise debts, and from the government's failure to
meet its commitments. The first step should be arranging mutual settlements between
companies. But this must be followed by development and implementation of a consistent
policy of gradually strengthening budget constraints in various types of settlements,
including payments for energy supplies, interenterprise payments, and tax payments.
Chapter5 Prospects and Suggestions for Sino-Russian Economic and Trade Relationship
People may care about the prospect of Sino-Russian economic and trade relationship very
much after reading the previous chapters. Here, first, let us have a look at the tendency
of Russian economic and trade policy, then discuss the prospect of the Sino-Russian
Trade.
?1.Changes in Russian Foreign Economic and Trade Policy
In the recent several years, Russia has adjusted its foreign economic and trade policy
continuously. On one hand, the government manages to make its foreign trade adjusting
system step closer to the international standard; on the other hand, the government made
its foreign trade policy fit the demand of national security more. Especially in Putin's
reform, many new policies and strategies have been made.
1.1 The Open Policy and the struggle for a Favorable International Environment
The Open Policy is the basic national policy after Russia's Independence. Here are some
observations on the policy.
First, after the disintegration of USSR, Russia got its international position as its
legal successor.
Second, Russia set up a flourish trade relationship with the countries around. Based on
geo-economics, Russia strengthened its international position.
Third, in Russian foreign policies, Russia reconsidered its relationship with the eastern
and western.
1.2 Improvements in the Investment Environment and Encouragement of Foreign Investment
Russian government pays great attention to encourage foreign investment. Now the scale of
Russian foreign investment is in a rather low position. The distribution of Russian
foreign investment is like this:
Investment Total:
Table 1.2-1
Time Sum (Billion)
1989-1990
1991-1992
1993-1994
1995
1996
1997 $1.2
$1.5
$2.0
$2.8
$6.5
$9.3
Total 238
. Till January 1998
Capital Structure of Investment
Table 1.2-2
1996-1997 Foreign Investment Structure in Russia
Investment 
Category 1996 1997
USD(billion) Ruble(billion) USD(billion) Ruble(billion)
Total 6.506 2380.7 10.498 10397.4
Direct Investment 2.09 1793.5 3.897 8310.2
Bond Investment 0.045 425.6 0.342 1952.8
Other Investment 4.37 161.6 6.257 134.4
Source: Economic Status of Russian Society, National Statistics Committee of Russian
Federation, Jan 1998, P112
Sector Structure of Investment 
Table 1.2-3
Sector Structure of Foreign Investment in Russia (%)
Sectors 1994 1995 1996
Total Direct Others Total Direct Others Total Direct Others
All Foreign Investment 100.0 52.1 47.8 100.0 67.1 31.8 100.0 32.1 67.2
Non-Production Sector 5.7 9.7 1.3 19.6 15.9 27.9 31.4 15.4 39.4
Production Sector 94.3 90.3 98.7 80.4 84.1 72.1 68.6 84.6 60.6
Industry 70.7 52.8 90.4 43.0 37.6 52.9 33.3 59.3 20.5
Agriculture 1.2 1.8 0.5 0.1 0.1 0.1 0.1 0.3 0.0
Building Industry 9.8 16.6 2.4 7.1 10.0 1.2 0.8 1.5 0.5
Transportation 4.1 7.7 0.1 3.7 3.8 3.6 4.0 7.1 2.4
Source: Russian government Economic Information Center, June 1997
The Distribution of Investing Countries
The foreign investments in Russia mainly come from USA and European Union countries.
According to the investment amount, the first three countries are USA, Britain and
Germany.
It is estimated that, before the year 2000, Russia intends to attract 20 billion dollars
foreign investment per year, including 10 billion direct investment.
1.3 Joint-Owned Enterprises
From 1960's, USSR began to set up some joint-owned enterprises outside its boundaries.
Till the end of 1980's, joint-owned enterprises came our within the Russian boundaries.
Till 1996, 24168 joint-owned enterprises registered within the Russian boundaries. Till
Jan1, 1997, all the registered capital of the joint-owned companies in Russia was 239,ooo
billion(old) rubles, and 75% is foreign capital.
Table 1.3-1
The proportion of Industry Production Made by Joint-Owned Companies in All the Industry
Production in Russia (%)
Department Proportion
Energy Industry
Nonferrous Metal
Ferrous Metal
Timber Processing and Pulp Industry
Food Industry
Machine Manufacturing and Metal Processing
Other Industry 27.1
1.9
5.9
8.6
22.2
17.7
16.6
Source: Russian Economy & Life, July 1997, Issue 29
Table 1.3-2
The Sector structure of the Output Value of Joint-Owned & Foreign-Owned Enterprises
Department The Number of Joint-Owned and Foreign-Owned Enterprises Value of Output
( billion rubles)
Total
Industry
Business and Service
Building Industry
Transportation
Communication
Science and Science Services
Others 16079
3424
6983
1182
475
200
813
2045 72076
41127
7077
4078
4081
3899
1667
6950
Source: Russian Economy & Life, July 1997, Issue 29
1.4 The Abolition of the Foreign Trade Monopoly and Market Adjustment in Place of
administrative Methods
Adjusting foreign economic policy and reforming foreign trade system is a most important
part in the economic system reforming in Russia.
Following the agreement of IMF and the demand of Russia's WTO bid, from 1996, Russia has
gradually decreased its tariff. According to the Standardized Principle of Importing and
Exporting Tariff designed in 1995, the highest importing tariff is 30%, and the lowest is
5%. It makes the liberalization of economy come true.
1.5 Measures for Stimulating Exports of State Industrial and High-tech Products 
After 1991, compared with the period of then USSR, Russia's proportion in the world trade
decreases, and it is less than 1.5% now. However, the foreign trade is still the only
department that continues to increase. From 1993-1997, Russian foreign trade increased
continuously. It increased 10.8% in 1994, 20% in 1995,15.8% in 1996. Now, the proportion
of export in GNP is about 20%.
Table 1.5-1
Foreign Trade of Russia
(with foreign countries which are not the members of the CIS in billion US dollars ($))
1992 1993 1994 1995 1996 1997 1998 1999
Russian Export (F.O.B) 42.4 44.3 49.2 63.7 69.2 68.4 57.3 61.1
Russian Import (C.I.F) 37.0 26.8 28.3 33.2 31.5 38.8 32.3 21.8
Trade Turnover 79.4 71.1 77.5 96.9 100.7 107.2 89.6 82.9
Balance ＋5.4 ＋17.5 ＋20.9 ＋30.5 ＋37.7 ＋29.6
＋25.0 ＋39.3
Sources: Official Russian State Customs Committee Statistics,1999-2000; "Foreign Trade:
Change of Time", Moscow, 1996
CIS-12 Former USSR Republics: Russia, Ukraine, Belarus, Kazakhstan, Armenia,
Georgia, Azerbaijan, Moldova, Uzbekistan, Kirgizstan, Turkmenistan, Tadjikistan 
In order to exploit the exporting potentiality and improve the export structure, Russian
government made some adjustment. In the Outline of Russian Federation's Export Strategy
1996-2005, it contains the following content:
(1). The Structure of Export: From the reality, Russia Government admits that the main
export still comes from energy, but emphasize the principle of saving energy. It is
believed that, the increase of Russian export mainly lies in the export of machine
manufacturing product.
(2). The Development Strategy of Export: It particularly emphasize the cooperation with
the eastern European countries and the third world countries.
(3). The Taxing Policy: The Russian Federation resumes the returning tax system of
export
(4). Foreign Trade Export Agent: 
(5). Government Advocate the Network Construction: 
(6). Export Transportation:
(8). Perfect the Legal Basis of Export
On a whole, the changes of Russian foreign trade policy bring about a brand-new prospect
of Sino-Russian trade.
?2 .The Outlook
2.1 The Goal of Increasing Trade to US$ 20 Billion
From the independence of Russia, China keeps a good relationship with Russian government.
The good relationship exists in many aspects, such as politics, trade, technology,
culture and military. Meanwhile, there are also some problems existing in the development
of the good relationship, it mainly dues to the unbalance between the development of
political relationship and economic relationship. In order encourage the tow countries'
trade development, the leaders form two countries discussed this problem seriously and
raised the goal that the trade sum per year should reach 20 US$.
In April, 1996, Russian President Boris Yelsin visited China and said in the journalist
conference, " The two countries unanimously agree that great efforts should be made to
encourage the development of bilateral trade, including to increase the present trade sum
5.5 billion US$ to 20 Billion US$."
The Goal of increasing Trade to US$ 20 billion indicates the hope of China and Russia is
to let economic relationship keep up with the political relationship.
2.2 Potential Development
From the present situation, in order to reach the goal of increasing Trade to US$ 20
billion, the two countries still face many difficulties. Although the difficulties still
exist, in a long run, the potential development is large and the prospect is broad, and
here are some observations:
Firstly, tow countries both have the desire to strengthen the trade relationship, and
this kind of desire increases through the years. Now, the unbalance between political
relationship and trade relationship attracts the great attention of leaders, and to
construct a new economic and trade relationship has become the main task in the near
future.
Secondly, the problems and contradicts exists indicates that, to a reforming countries
like China and Russia, the interference of governments is very essential to develop the
national economy and foreign trade. As a result, the bilateral trade is under the
macro-control of the two governments, and cooperation is mainly between large
corporations or administrations of two countries.
Thirdly, from the whole, the basis of Sino-Russia trade still lies in the mutual aid and
coordinate, especially in the fields like energy, nuclear-electricity, and aeronautics.
Meanwhile, the two governments also realize that there are still many new fields for
Sino-Russia trade, so some new styles, such as mutual benefit, should be applied to
practice.
Fourthly, In Feb 1998, the Sino-Russian Regional Cooperation Committee was founded, which
set up a solid base to develop Sino-Russian local and border trade. 
The situations above indicates that, through the efforts made by the two governments, and
based on the experience of the past ten years, China and Russia are constructing a new
type of trade relationship.
?3. Policies Recommendations
3.1 The Strategic Approach
The importance of the Sino-Russian trade relationship should be fully realized and
understood as a strategic problem. The past bilateral trade relationship should be
appropriately estimated and the problem that the unbalance of the political and trade
relationship leads to should be paid great attention to. 
In the nowadays world, the tendency of the world to become a whole is obvious. In such a
big tendency, the relationship between countries is even closer, especially the economic
and trade relationship. China and Russia are large countries and neighbors, so their
bilateral trade has great potentiality. 
The bilateral trade relationship is very important to China. In the following long
period, Chinese national economy will develop very quickly, and it needs large foreign
markets. Namely, a quarter of the goods in China should be exported. Russia is a large
market with great potentiality, so it is very important to China. 
The bilateral trade relationship is the same important to Russia. First, China is a large
market. Till 2000, Chinese import and export total will reach 400 billion US dollars per
year, and the neighbor cannot neglect this large market. Second, if Russia wants to enter
the Asian-Pacific region, it should cooperate with the countries in this region, and
first it should keep a good relationship with China.
3.2 Some Concrete Problems to Be Solved
Though the Sino-Russian trade relationship is more and more prosperous, there still exist
many serious problems. These have already been mentioned in the previous chapter, so no
more will be discussed here.
3.3 The Correction of Wrong Understanding and the Coordination of Policy Adjustment
In the past eight years, the Sino-Russian trade relationship is not that stable, so the
correction of wrong understanding and the coordination of the policy adjustment is very
important.
First, reconsider the Russian market. Now the Russian market changes much compared with
the previous years.
1) The violent competition. Many western countries enter the Russian market with their
advanced technology, which is a great challenge to China.
2) Russian demand to improve the commodity quality is severe. Now the Russian residents
are accustomed to using the foreign products, and they generally require good quality and
services.
3) The appearing of two consuming markets. 
As a result, China should take Russian changes into consideration, and try to do well in
the Russian market.
Second, the mutual aids problem. 
Third, the main parts of Sino-Russian trade relationship. In 1988-1993, the bilateral
local and border trade is very prosperous, and the border trade is very important to the
whole bilateral trade relationship. Many people may think that the trade between local
people will play the most important part in the future, however, the main parts of the
bilateral trade still exists between the large corporations between China and Russia.
As a result, only when the changes above have been fully realized and understood, the
bilateral trade relationship between China and Russia can be improved.
3.4 Full Development of Potentials in Bilateral Science and Technical Cooperation
Though Russian science and technology decreases greatly since the disruption of the
former USSR, there are still vast fields for China and Russia to cooperate and trade.
Here are some observations and suggestions. 
First, have a positive view on the Sino-Russian trade relationship and make its
development under the control of the governments.
Second, set up some Sino-Russian technology cooperation institution and let them play an
important role in the bilateral trade.
Third, grasp the opportunities.
In a word, as we develop the commodity trade with the Russia, we should still develop the
bilateral trade in the fields of technology, services, and international investments,
which can help to improve the Sino-Russian Trade level.
3.5 Strengthen the Government's Role of Participation and Adjustment of Cooperation
Because the Sino-Russian Trade is generally in a rather low level compared with the
bilateral political relationship, the government's role is extremely important. A large
part of Sino-Russian trade cooperation is between the large corporations or the
state-owned corporations, so the government's control and coordination is extremely
important. What's more, in the military field, there are also good cooperation
perspectives, and it also greatly needs government's participation.
Finally, it should be pointed out that though the suggestions of the Sino-Russian Forum
may be of great help to improve the bilateral trade between China and Russia, whether
they can work or not depends on the governments' policy. Based on the principle of mutual
aid and mutual benefit, the prospect of the Sino-Russian Trade will be much brighter in
the future.
Bibliography
Source: ?中俄贸易关系?
薛君度、陆南泉 主编
中国社会科学出版社出版
www.imf.org 
www.sino-russia .com
www.russiajournal.com
www.ru