China Investing in Russian Far East More Than Russian Gov’t

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Apr. 19 – China has invested in the development of Russia’s Far East more than the Russian federal government, Xinhua news agency reports.

Relations between Russia and China, which fought a border war in 1969, have long been marked by mutual suspicion. In the past, that hampered cross-border economic co-operation. But the benefits of trade and investment are beginning to erode old enmities.

Chinese investors have already set up 34 special Chinese zones in the Amur Region and the Primorye and Khabarovsk territories, as well as in the Jewish Autonomous Region, investing about US$3 billion in total over the last year.

This compares with less than US$1 billion allocated for these regions by Moscow in 2010, reports.

In 2011, federal subsidies to the Amur Region are planned at US$170 million, with US$74 million allocated for the Jewish Autonomous Region, US$234 million for the Khabarovsk Territory, and US$344 million for the Primorye Territory. Clearly, these amounts in no way compare with the US$3 billion in Chinese investments.

China stresses that its economic expansion into Russia is natural. “The zones opened by Chinese investors in Russia benefit both sides,” Xinhua quotes Sung Kui, an expert from Heilongjiang’s Academy of Social Sciences, as saying.

The Russian government has said that it wants to invest US$100 billion to develop the region over the next five years, and that China will be a key partner in building roads, railways and ports.

“We know that Russia needs to co-operate with another country to open up the Far East and the natural partner is China, which has far more financial resources than either Japan or South Korea,” Boris Krasnojenov, metals and mining analyst at Renaissance Capital said to Business New Europe.

“China has never been interested in acquiring controlling stakes in Russian companies,” he says. “What they want is to secure a steady supply of the raw materials they need and build the infrastructure to get it back to the home market. That is their development model everywhere.”

Earlier, in May, 2009, Russian President Dmitry Medvedev admitted in a rare public acknowledgement that unless China invested in large-scale projects in the RFE, Moscow’s plans to develop the region could not materialize.

He also candidly stated that the economic development of the RFE depends on Russians ties with its main Asia-Pacific partners, and that the Russian regional development strategy must be coordinated in tandem with China’s regional strategy of rejuvenating its old industrial base in Northeast China (e.g. Heilongjiang Province).

Some experts believe that it’s likely to expect considerably more Chinese investment in Russia’s Far East as Moscow is in no position to object and desperately needs the capital that China can provide.

These investments demonstrate not just the failure of Russian policy in the RFE, but also China’s growing dominance, through its economic power, of Russian policy toward Asia situation facilitated by the Global Economic Crisis. Russia has seemingly renounced its autocratic dreams in the Far East and solicited Chinese investment, said Stephen Blank from Strategic Studies Institute of the U.S. Army War College.

At the same time Russians are afraid of Chinese influences growing in the region.

“The growth of China so close to our borders is really frightening. I know they want to invest, but many of us fear they will then want to control things here,” says Svetlana Ivanova, a local of Primorye city of Blagoveshchensk.

With thousands of miles of unexplored forest and tundra, Russia’s Far East is sparsely populated, with only 6.7 million people. But what it lacks in people it makes up for in natural resources, with rich seams of iron ore, rare earth metals, gold and coal, which China needs to feed its hurtling economic growth.