“Great Eurasian Partnership” Back On Track As Putin And Xi Commit

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Op/Ed by Chris Devonshire-Ellis

Belt & Road Initiative To Be Linked With Eurasian Economic Union

Speaking at the St. Petersburg International Economic Forum (SPIEF) on Friday, both Chinese President Xi Jinping and Russian President Putin stated they were committed to the concept of building the “Great Eurasian Partnership”. That took the form of President Xi stating that he had agreed with President Putin to link the Eurasian Economic Union with China’s Belt & Road Initiative. The Eurasian Economic Union is a free trade area that comprises Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia. It effectively forms a land bridge between the borders of the European Union and China.

EAEU At A Glance
Land Mass: 20,229,556 km2
Population: 183 million
GDP (US$, PPP): US$5 Trillion
GDP Per Capita (US$, PPP): US$27,000
Free Trade Agreements: Vietnam, China*
FTA Under Discussion: Egypt, India, Iran, Israel, Mongolia, Serbia, Singapore, Turkey
*China FTA is not yet product specific

Bringing together the Eurasian Economic Union with China’s Belt & Road Initiative today would create a Eurasian map together with Africa and the Pacific like this:

What isn’t entirely clear is how Presidents Xi and Putin intend to put this together. What could be done is that the Chinese free trade agreement that was signed off last year, but remains non-specific, be upgraded to include products and services. My understanding from both President Putin and Xi’s comments is that this is underway, Putin himself stating that they are “Discussing products and tariffs and that there are some sticking points, but we will find solutions”. This is highly indicative of a China-EAEU that is product specific coming down the pipe very soon, perhaps sometime next year. The implications of this are clear. If such a deal is done, it will bring Chinese manufactured products, duty free, to the borders of the European Union. That is not just an opportunity for Chinese businesses to sell product to Europe. If the EU can get its act together, it too can take advantage of the tax regime and routes and start to sell product to China. European businesses should be preparing for this; and looking at Ports both within Europe and countries such as Estonia and Finland, but also countries such as Belarus. Estonia and the Baltic States, despite their concerns about Russia, have made efforts at developing China trade. Estonia’s Tallinn Port has already cottoned onto this with consolidation agreements with Ikea in place as a hub to redirect Chinese made furniture across the rest of the EU. Tallinn is also a postal hub for China’s Alibaba. Belarus meanwhile lies just across the border from EU nations Poland, Latvia and Lithuania, as addition to the Ukraine to the south, which offers excellent IT skills and competitive manufacturing costs. Tying a city such as Minsk to the servicing of EU sales and supplies to China, while using the upcoming China-EAEU FTA to reduce costs should be on any fast eyed logistics and accountants list of “things to do.”

Russia’s trade with China has also been growing, and last year hit US$100 billion. It has been earmarked to double by 2025, with this year to date (January-May 2019) already showing trade at US$108 billion. Critics however have pointed to that trade being just an oil and gas play, and not indicative of any real development growth. Of that issue, President Putin had this to say “It is true that energy takes up most of our current trade. But technologies and new technologies are also being developed. A lot of new technology has been created in the energy sector with downstream benefits to others industries, such as space, aviation, atomic energies – all have spin off machinery, electrical engineering, and IT applications because of the energy sector, and these will filter down into other industries as well”.

Both Presidents Xi and Putin also remarked on A.I. and new technologies, with Xi mentioning that China will be rolling out the much anticipated 5G platform (click here for a list of countries and timeframes) and Putin stating that “Russia is building a platform for a new, technological-based economy. A.I is coming, and this and the digital networks are crucial to global growth, new products, new services, and we are investing in both this and the educational sector, to transform that to provide the new specialists we need”.

Concerning the Belt & Road Initiative, President Putin said that all the EAEU countries had attended the recent forum in Beijing, and that China was not forcing this upon anyone, it was proposing participation. Of the 100 projects Beijing had presented to Moscow, 70 have now been invested in. That included a major highway linking Russia to Kazakhstan, which Putin said in a somewhat embarrassed note, Kazakhstan had already completed their end but only now was Russia doing its part. That Russia-Kazakhstan road artery links through to China. He also mentioned that agri-business was developing in the Arctic region and that 13,000 new jobs had been created through the implementation of Belt & Road projects in the region. China has been invested heavily in opening up an Arctic, North Sea Passage and assisting with the development of Russian Ports all along that coast. While some is driven by energy needs, the Northern Sea Passage also offers a much more efficient and faster route for products to travel between China and Europe.

On an aside, the Bulgarian President Rumen Radev also announced that a European Centre for the Studying of China’s Belt & Road Initiative had been agreed upon between Bulgaria and China and that this would open soon, in Sofia. The city is also the base for the EU’s first “Smart City” concept a high-tech entertainment and business complex, the first of its kind in Europe, is expected to create an incremental 1 percent of GDP growth and add at least 5,000 new jobs to the country. Total investment for the three-year project is estimated to be around 1.2 billion euros ($1.36 billion) to 1.5 billion euros, while upon completion, it will house exhibition centers, hotels, an aqua park, office buildings, shopping malls and other entertainment areas. It is unlikely to be Europe’s last.

These developments all bring home the extent of the existing push to modernize Eurasia – including the EU, regardless of what Brussels does. If its remains aloof, Russia and China will merely build around it. The key driver however to the creation of the Greater Eurasian Partnership however is tax. As and when, as I suggest, the EAEU and China add a product tariff section to their existing FTA, supply chains and opportunities for distributors and manufacturers will shift and open up new corridors. What is being proposed is nothing less than a reimagination of the entire continent. The truly exciting part is that it is starting to take place right now. Is your business prepared?

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Silk Road Briefing is produced by Dezan Shira & Associates. Chris Devonshire-Ellis is the Practice Chairman. The firm provides business intelligence and professional services to foreign businesses investing in China, ASEAN, India and the rest of Asia and has done since 1992. We maintain 28 offices throughout the region. Please contact us at silkroad@dezshira.com or visit us at www.dezshira.com


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