East side story: While Europe still buys the majority of Russia's resources, a risk of declining demand is spurring Russian firms to look to Asia for new customers

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East side story: While Europe still buys the majority of Russia
Published 22-08-2012, 04:18
One of the perennial questions in Russian history has been which political and cultural direction the country seeks to take: the democratic and enterprising European way, or the centralized and imperial Asian route. 
While the question has traditionally had a political tinge, it has assumed a new shape in recent decades, with mature "Western" democracies developing in such countries as Japan, South Korea, Taiwan and the Philippines, and even Communist states like China and Vietnam engaging with the free market.

The main issue now, however, is economics. While the European Union still takes on more than half of Russia's total exports, even strong countries are beginning to slow down.

"It seems logical that in these circumstances that Russia is trying to find alternative sources of demand for its exports, and Asian countries are the most obvious alternative," Anna Bogdyukevich, an economist at Aton investment bank, told The Moscow News by e-mail. "Facilitating trade in local currencies ­ for example, the yuan and the ruble ­ without converting them into dollars is one indicator of this process."

Looking east 

With 60 billion barrels in proved oil reserves and 47.6 trillion cubic meters in gas reserves, according to the U.S. Energy Information Agency, Russia is a natural place for other countries to turn to for energy. And upheavals in the Middle East are only making the case stronger.

Resources are not limited to oil and gas, however. With mineral deposits, extensive forests, and rivers providing power for hydroelectric plants, Russia and its eastern hinterlands have a lot to offer neighboring economies with high demands.

Russia's resource wealth has caused concern in some quarters at home, however, with fears arising that Siberia and the Far East will become a resource basin for Asian economies. Asahi Shimbun reported in June that most Russian investment in developing electricity supplies there was directed toward China.

Vertex for shipping 

Russia's reliance on commodity exports means that transportation routes, and especially shipping, are taking increasing precedence.

Transportation Minister Maxim Sokolov suggested at an Aug. 3 meeting with his APEC counterparts that the ports become an alternative transit route for Asian goods to travel to the EU, in conjunction with the Baikal-Amur Mainline and the Trans-Siberian Railroad, Kommersant reported. As much as 10 percent of the cargo that currently travels through the Suez Canal could be more cheaply carried through Russian Pacific ports, he argued.

While there was some agreement with the suggestion, especially from South Korea, questions were raised over the ability of Russia's infrastructure to fulfill the plans. Others recommended that the emphasis needed to be on updating bureaucratic procedures, such as customs clearance, and making the use of existing facilities more efficient.

But Aton's Bogdyukevich said that there are technical complications to Sokolov's proposal, such as the incompatible railway gauges between Russia and China, and Russia and Europe.

"But even more importantly, the overall cargo shipping capacity of the Trans-Siberian Railway is estimated at 100 million tons per year, and back in autumn 2010, then Transportation Minister Igor Levitin said that it was full," Bogdyukevich added.

IT and tourism 

Aiming at diversification of the economy and development of the high-tech sector, the government's Skolkovo venture has made overtures to similar Asian technology incubators for collaboration.

Skolkovo Foundation president Viktor Vekselberg met with Chinese Vice Premier Li Keqiang at the Sino-Russian Trade and Investment Forum in early June, in the wake of the Russian-Chinese summit in Beijing. Among the points discussed were partnerships with Beijing's Z-Park and Tsinghua University's Torch technopark.

President Vladimir Putin and Vietnamese President Truong Tan Sang also discussed the establishment of a joint technology university during Truong's visit to Moscow in late July, The Vietnam Investment Review reported.

Along with collaboration in IT, tourism has emerged as an important priority, as reflected in a meeting in July of APEC tourism officials in Khabarovsk.

Chaired by Alexander Radkov, the head of Russia's Federal Tourism Agency, the session discussed the significance of the industry, which they said represented 8.3 percent of APEC economies' GDP, or $3.22 trillion, the organization reported in a press release. Total employment in the industry among APEC countries accounts for more than 120 million people.

Three of Russia's six special economic zones for tourism are in Siberia and the Far East, the Irkutsk region, the Altai region and republic, and the Zabaikalsk region and the republic of Buryatia.


The tourism interests of Russia's APEC neighbors are not limited to those regions, however, with both China and South Korea announcing in the past year major investments in a fourth special economic zone for tourism, the Krasnodar region.

Last November saw Korea Western Power and CHT Korea join with the North Caucasus Resorts Company for provision of electricity and heating to the zone, in a deal that company head Akhmed Bilanov said could total $1 billion, Itar-Tass reported.

Further, following June's Russian- Chinese summit, Bilanov announced an investment from China's Dalian- Wanda Group of up to $3 billion in resort development, RIA Novosti reported.

The resort deal was accompanied by the establishment of the Russian-Chinese Investment Fund, a joint venture between the Chinese Investment Corporation and the Russian Direct Investment Fund worth up to $4 billion. Reuters reported in June that the first deal involving the fund was to be a $200 million investment in a Russian forestry company, but no details on progress are available.

Vietnam and Australia 

Vietnamese President Truong has shown his own country's interest in Siberia and the Far East. Apart from cooperation on oil and gas ­ which saw joint venture Rusvietpetro open its third well during Truong's visit in July ­ bilateral turnover between the two countries reached $918 million in the first five months of 2012, having amounted to $1.98 billion last year, Chinese state news agency Xinhua reported.

Australia, too, sees high potential for its products and services in Russia, especially in coal mining technology and safety procedures and devices, according to a May report by the Australian Department of Foreign Affairs and Trade, though Russian entities have expressed interest in agricultural products, too.

Exports from Australia reached 983 million Australian dollars ($1.03 billion) in 2011, the department reported, with imports from Russia hitting 1.001 billion Australian dollars ($1.06 billion). In a negative sign for Russian diversification, however, 917 million Australian dollars ($961.4 million) of these imports was in crude petroleum. 


By Nathan Gray

Moscow News


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