Publication: Eurasia Daily Monitor Volume: 4 Issue: 184

Moscow is facing an increasing deficit in bilateral trade with China. Russian industries have found themselves hard-pressed by Chinese competition, and business leaders are calling for the introduction of anti-dumping measures, indicating a looming trade dispute between the two neighbors.

Russian officials have long recognized the need to tackle imbalances in bilateral commerce. On September 26, Sergei Mironov, speaker of the Federation Council, the upper house of the Russian parliament, called for measures to improve the structure of trade between Russia and China. Currently Chinese industrial goods are competitive in Russia, while Russian exports to China remain dominated by commodities (RIA-Novosti, September 26).

In the meantime, official Russian pledges to improve bilateral trade have not been backed by any concrete measures to support industrial exports to China. In contrast, Chinese industrial exports to Russia have been booming, apparently due to apparent government support.

In January-August 2007, Russia’s trade with China reached $30.46 billion or 41.2% higher than the same period in 2006. However, according to Russia’s trade representative in Beijing, Sergei Tsyplakov, this year, for the first time since the early 1990s, Russia is running a deficit — about $4 billion — in bilateral trade. China appears to be rapidly expanding into the Russian market and this trend will have long-term repercussions, Tsyplakov said (Interfax, September 24).

Until last year, Russia sold more goods to China than it bought there, but Russia’s trade surplus was up $1.8 billion in 2006, down from $2.68 billion in 2005 and $3.03 billion in 2004. Furthermore, in January-August 2007, Russian exports to China accounted for $13.46 billion or 9.7% up year-on-year, while Chinese imports to Russia totaled $17 billion or up 81.2%, according to official statistics.

While Russian exports of industrial good to China were falling, Chinese industrial exports to Russia skyrocketed. Notably, since earlier this year Chinese exports of ferrous metals to Russia are up 414% over the 2006 level, car exports are up 223%, and chemical exports are up 70%. According to Tsyplakov, China seem to be keen to re-orient some of its exports from the United States to the EU and other European countries, and Beijing views Russia as a bridge to European markets (Interfax, September 25).

The Kremlin used to tout high growth rates of Russo-Chinese commerce as an important factor in the countries’ bilateral partnership. In January 2006, Russian President Vladimir Putin announced plans to raise bilateral trade up to $60 billion per year by 2010. In 2006, Russia’s trade with China reached $33.4 billion or up 15% year-on-year. Russia’s trade turnover with China exceeded $29 billion in 2005, up 37.1% over 2004.

Yet despite optimistic official pronouncements, Russian experts and industrial lobbying groups have repeatedly voiced concerns about what they described as China’s economic expansion into the Russian markets. There were also calls in Russia to limit Chinese exports by introducing new trade barriers.

In July 2007, Russia’s Natural Monopolies Institute (IPEM) released a study warning of substantial economic and social risks in trade with China. The Chinese government subsidizes a number of the country’s export-oriented sectors, and subsidized exports could adversely affect Russia’s machine-building, steel-making, and petrochemical sectors, as well as other industries, the study said. The report suggested relying on anti-dumping and anti-subsidy investigations, as well as technical regulations in order to limit Chinese exports to Russia.

Some lobbying groups warned of direct losses for Russian producers. On September 17, Russia’s Fund to Develop the Pipe Industry (FDPI) warned that China’s pipe exports to Russia are expected to go up by 8.5 times over the 2006 figure in 2007. Subsequently, Russian pipe plants could suffer losses of some $360 million, the FDPI said.

FDPI head Alexander Deineko argued that Chinese pipe exports are heavily subsidized by the government, and he accused Chinese exporters of unfair competition. He also formally urged China to introduce voluntary measures to cut pipe exports to Russia (RIA-Novosti, Rosbalt, September 17).

Russia’s official media have embraced the arguments advanced by domestic producers. Russian manufacturers oppose China’s expansion, as Chinese exports at dumping prices adversely affect Russian industries, the official Rossiiskaya gazeta commented on September 26. Chinese authorities were never shy about relying on anti-dumping investigations, and Russia could respond with similar methods. With its large-scale system of oil and gas pipelines, Russia cannot afford to depend on foreign suppliers of pipes, the daily commented.

It remains to be seen whether the Russian government could opt to directly limit some Chinese industrial exports to Russia. Yet possible trade disputes and anti-dumping measures by Russia would mean that ties between the two countries, officially described as a “strategic partnership,” could soon face a reality check.