China Calls For Improving Bilateral Trade & Investment Legislation With Russia

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By Chris Devonshire-Ellis 

Lack of progress is impeding trade and infrastructure development

China’s Li Zhanshu, the head of the National People’s Congress and a member of the seven-strong Communist Party Politburo Standing Committee, has called for increased legislative support and better integration with Russia in a virtual meeting last week attended by Valentina Ivanovna Matviyenko, chairwoman of Russia’s Federation Council, and Ivan Melnikov, deputy chairman of the State Duma. The move comes as Beijing views Moscow’s progress on certain aspects of bilateral ties as being rather slow.

An example of this is the lack of progress in agreeing tariff reductions as part of the China-Eurasian Economic Union Free Trade Agreement, which was signed in 2018 to much acclaim, but is yet to be effective because no tariff changes have been implemented.

Li stressed that there needed to be improved collaboration and that China and Russia needed to “work closely within the international multilateral framework, oppose the West starting a new cold war, bullying and interference in domestic affairs.” and that there needed to be stronger legal support for cooperation between China’s Belt and Road Initiative and the Russia supported Eurasian Economic Union, which also includes Armenia, Belarus, Kazakhstan and Kyrgyzstan. That bloc effectively sits between China and the European Union and gives access to Central Asia – all markets that China wishes to develop, but Russia is more cautious to opening to China at the expense of its own trade.

During Xi Jinping’s visit to Russia in 2015, the two countries agreed to connect the belt and road with the EAEU, committing to ease the way for cooperation on investment, trade, infrastructure, and finance, yet progress has been slow.

Beijing and Moscow have common ground on issues such as Iran’s nuclear programme, while Russian President Vladimir Putin was the first foreign state leader to accept an invitation to attend the Beijing Winter Olympics in February, a major coup as it would be his first trip overseas since the outbreak of Covid. However, Moscow and Beijing have focused more on defence and infrastructure cooperation, particularly on energy projects such as gas pipelines and coal deposits.

Bilateral trade in non-energy goods has been neglected – an issue the China-EAEU FTA was designed to solve. Although trade remains brisk, it needs to expand and develop, with Li viewing that a key setback has been the lack of a coherent Russian organisational body to facilitate trade and investment in Belt and Road projects. That would certainly help in the Russian Far East, which has its own development agenda but is not aligned with Chinese investment, infrastructure, or trade plans. What Beijing is therefore looking for, and Li’s words will carry weight in Moscow, is a mutually agreed legal framework to integrate the procedural and administrative customs processes to facilitate trade and economic cooperation.

Russian concerns will be the extent of Chinese migration to the Far East and how to manage that – a future loss of sovereignty in the region would damage Russian potential to be equally Asian and European, a status it wishes to pursue given its relations with the West. The ball will now be in Russia’s court as how to maximise the China trade and infrastructure investments benefits while minimising Chinese integration.

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Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact Maria Kotova at russia@dezshira.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.

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