Impact of Russian-Chinese trade on Russian economic competitiveness
Krzysztof Falkowski,
Assistant Professor,
World Economy Research Institute,
Warsaw School of Economics,
Poland
Over the recent years, the importance of China as Russia’s trading partner has been steadily rising. While in 2007 China’s share in Russian foreign trade amounted to 7.2% (or USD 39.6 billion), in 2017, that is 10 years later, it grew to 12.5%, with the trade volume soaring to USD 87.3 billion (i.e. up by 120.5% between 2007 and 2017). Thus, China has become Russia’s leading trading partner, both in imports (22%) and exports (11%). Noteworthily, between 2007 and 2017 China’s share in Russian imports almost doubled, rising from 12.2% to 22%, while in exports it increased even more, from 4.3% to 11% (according to United Nations Commodity Trade Statistics Database). This resulted not only from the dynamic development of the Chinese economy, but also from the cooling of political relations between Russia and the EU after the introduction of EU economic sanctions in 2014, as well as from a significant rise in sales of Russian petroleum to China.
In view of the above, it is worth considering whether, and if so how, such a high and year-by-year steadily growing position of China as Russia’s leading trading partner affects the international competitiveness of the Russian economy.
Apart from petroleum, a major role in Russian exports to China was played by low-technology goods.
Apart from petroleum, a major role in Russian exports to China was played by low-technology goods. Although – due to the growing importance of petroleum – their share in total Russian exports to China decreased over the years 2007-2017, it still remained relatively high, ranging from 23.7% in 2007 to 13.9% in 2017. Within this goods category, Russia’s leading export products represented the subcategories ‘wood, paper and paper products’ and, to a much lesser extent, ‘food and beverages’. As far as Russian imports from China are concerned, high, medium-high and low technology goods were of similar importance. Their share in the years 2007-2017 oscillated between the low of 24.3% (2013), 26.1% (2011), 22.6% (2015) and the high of 31.8% (2015), 33.2% (2013) and 30.2% (2009), respectively. The most significant subcategories were: ‘radio, television and telecommunication equipment and devices’ (for high technology goods); ‘machinery and equipment’ (for medium-high technology goods) and ‘textile, leather and footwear products’ (for low technology goods).
Now, what does is say about the international competitiveness of the Russian economy? Generally speaking, Russia’s competitiveness in international trade is very low and is in fact limited to natural resources and their derivatives only. Traditionally, the country’s largest relative comparative advantages have been, and still are, in trade in non-ferrous metals (mainly copper, tin, zinc, and aluminium), refined petroleum products, non-metallic mineral raw materials and ferrous metals. These represent mainly natural resources and low added-value goods, which reflects the real competitive profile of the modern Russian economy. In contrast, Russia possesses few, if any, comparative advantages with respect to the remaining goods, i.e. from the high, medium-high and medium-low technology categories (according to the relevant OECD classification). A particularly difficult, or even dramatic, situation is observed in the category of high-technology goods, which does not mean that Russia has no competitive advantages whatsoever in respect of this category. On the contrary, worldwide it is a valued and competitive exporter of ‘aviation equipment and aircraft, including spacecraft’, as well as certain types of weapons.
Russian exports to China are predominantly the goods in respect of which the country has strong competitive advantages, that is natural resources, especially petroleum and its derivatives, which are low added-value goods with low technological advancement.
In conclusion, the existing structure of trade between Russia and China has been found to reflect closely the international competitive profile of the Russian economy; additionally, it has been shown that due to this structure Russia’s traditional competitive advantages in trade in medium-low technology goods and oil for many years tend to be preserved. Russian exports to China are predominantly the goods in respect of which the country has strong competitive advantages, that is natural resources, especially petroleum and its derivatives, which are low added-value goods with low technological advancement. In turn, Russia imports those goods in respect of which it possesses no competitive advantages, that is high, medium-high and low technology goods (in 2017, these three categories accounted for 86.4% of the total value of Russian imports from China).
However, the persistence of that situation does not bode well – and has not done so for many years – from the point of view of Russia’s further economic development and, indirectly, its place in the international division of labour within the world economy. The present structure of Russia’s trade with China, which has remained almost unchanged for years, reinforces even further the existing resources-based profile of the Russian economy, which, as a consequence, may lead to regress in other sectors of the country’s economy and its strong dependence on fluctuations in the prices of natural resources on world markets.
Expert article 2543