About the author:
Artyom Lukin, Associate Professor, Deputy Director for Research, Oriental Institute - School of Regional and International Studies, Far Eastern Federal University in Vladivostok
In October 2021, I attended a friend’s birthday party. Among the guests was a guy who was a great fan of travelling to China. Prior to the pandemic, a lot of people in the Russian Far East had been in the habit of making regular cross-border trips to China, mainly as tourists, for the purposes of recreation, entertainment, and shopping. Anton (this is the name of the guy) expressed confidence he would soon be able to go to China again. “No way you are returning to China as a tourist,” I told Anton. “China’s borders are closed – and will remain so for a long time. Even if they allow some foreigners into the country, those will not be tourists but people who visit on important business.” I offered a bet (of US $100) that Anton would not be able to travel to China for at least five years.
It now seems I will lose the bet to Anton. On January 8, China resumed cross-border passenger travel with the Russian Far East, which had been shut for almost three years. Tourist trips are not yet possible, but it is very likely restrictions on two-way tourism travel between China and Russia may be lifted after the Chinese New Year festivities.
The abrupt reversal of the zero-COVID policy, something that few analysts, myself included, anticipated, has served as yet another illustration that predictions are extremely difficult with respect to China. The American economist Tyler Cowen may be right when he says China is one of the hardest countries to predict.1
The failure to foresee China’s re-opening may be a blow to my hubris as a political analyst. However, the opening of China’s borders is very good news for me as a Russian – and a resident in the Russian Far East. China accounts for more than 50% of the external trade of my home region – Primorsky Territory in the Russian Far East. Also, in-bound international tourism, with a significant share of visitors coming from China, had been the main driver of Vladivostok’s economy in the pre-pandemic years. A whole ecosystem catering to Chinese tourists had formed, employing thousands of people in the capital of the Russian Far East. It remains to be seen if, and how quickly, this industry will rebound to the pre-pandemic situation.
The owners of shops, hotels and restaurants in Vladivostok can’t wait to see Chinese guests returning to the city. And most of them don’t care if guests from the neighboring country call the place the Chinese name of Haishenwai, rather than Vladivostok, as long as they bring money. The first post-COVID delegation from China to visit Vladivostok after the border re-opening consisted of officials and business people from the province of Jilin, led by the head of the Eurasia Division of Jilin Provincial Department of Commerce.2 Symbolism cannot be missed. Vladivostok is the nexus where Russia’s immense Eurasian landmass meets the Pacific Ocean.
It’s not only the Russian Far East that needs China and is interested in China’s comeback. Russia as a whole is increasingly dependent on China’s economic health. Roughly one fifth of Russia’s foreign trade is now with China. In 2022, the Russia-China trade surged by 29.3%, reaching an all-time record of $190.3 billion. Russia’s exports to China grew by 44%, while Chinese shipments to Russia increased by 13%.
The growth of China’s share in Russia’s foreign trade has been a long-time trend since the 2008-09 global financial crisis. Russia’s economic shift toward China has noticeably accelerated since the first Ukraine crisis of 2014, when Moscow’s relations with the West spiraled down into an irreversible decline. The second Ukraine crisis, which culminated in Russia’s special military operation in February 2022, triggered an unprecedented decoupling between Russia and Europe, which has for decades, even centuries, served as Moscow’s main economic partner.
By refusing to join the Western blockade of Russia, China and other major non-Western economies have effectively provided a lifeline to Moscow. Russian companies have been able to literally re-orient a significant part of their businesses from Europe to Asia and the Middle East, which was a major reason why Russia’s economy proved so resilient in 2022. Contrary to initial expectations (in the West) and fears (in Russia itself), the Russian economy, having been hit with unprecedented sanctions, has so far fared relatively well, losing just 2.5% of the GDP.3
It is far from certain that Russia-China trade will sustain momentum in 2023. Last year’s record volume of Russian exports to China was, to a significant extent, thanks to a surge in global oil prices in the first half of the year. Since then, the prices of oil and other commodities that constitute the bulk of Russia’s exports have been decreasing.
In 2023, one major indicator to watch in the Russia-China relationship will be a possible signing of the contract to supply gas from Western Siberia to China. Could this contract be signed during President Xi’s expected visit to Russia in spring? We will see. Russia’s Gazprom is already designing a pipeline that will traverse Mongolia before entering China. The natural gas that will be supplied to China through this pipeline is gas from the same deposits that had previously fed Europe’s energy needs.
As Russia’s rift with the West widens, many fixtures of life in Russia are changing too. For example, Vladivostok has always been Japan’s domain in terms of cars. Now Chinese brands, such as Haval, are more and more common on Vladivostok’s roads. According to some estimates, 70% of Russia’s car market will soon be held by Chinese autos. Perhaps even more consequentially, yuanization of the Russian financial system continues apace, with the renminbi rapidly supplanting the dollar and the euro as Russia’s foreign currency of choice – or of necessity.
A few weeks prior to the start of Russia’s special military operation in Ukraine, I liquidated my dollar bank deposits, deeming it risky to keep my money in the US currency. I exchanged a part of my former dollar holdings for yuan and opened a yuan-denominated deposit with Sberbank. I think I am going to pay my lost $100 bet to Anton in yuan. He should make good use of the renminbi when he soon goes across the border to China.
Please note: The above contents only represent the views of the author, and do not necessarily represent the views or positions of Taihe Institute.
This article is from the December issue of TI Observer (TIO), which is a monthly publication devoted to bringing China and the rest of the world closer together by facilitating mutual understanding and promoting exchanges of views. If you are interested in knowing more about the October issue, please click here:
http://www.taiheinstitute.org/Content/2023/01-31/1406041512.html
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