First Eurasian Congress Meeting Calls For Increased Connectivity With China

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Op/Ed by Chris Devonshire-Ellis

  • Formation of ‘Greater Eurasia’ region
  • Development of the Eurasian Economic Union
  • Increased infrastructure connectivity with China 
  • Increased collaboration between regional Development Banks 

The first Eurasian Congress meeting has been held in Moscow, organized by the Eurasian Development Bank (EDB). The main topics of the congress were the prospects for the formation of Greater Eurasia, an assessment of the potential for economic integration, the possibility of equalizing the levels of economic development and the welfare of citizens of the Eurasian Economic Union (EAEU) countries.

The EDB is an international development bank established by Russia and Kazakhstan in 2006 to promote the development of market economies in its member-states. The member countries of the bank are Armenia, Belarus, Kazakhstan, Kyrgyzstan, Russia and Tajikistan. The Eurasian Economic Union currently includes Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia; Moldova has observer status, while the EAEU has signed Free Trade Agreements with China (non preferential), Iran, Serbia, Singapore and Vietnam. Others, including with India and several ASEAN nations are currently under negotiation.

Discussions and developments arising as a result of the Eurasian Congress meeting were as follows:

Increasing Attention Towards EAEU-China Infrastructure Development

Special attention was devoted to investments in infrastructure, with the Congress noting that China’s trade turnout with the EU has increased six times during the past 20 years. The EAEU is hoping to take around 6% of that amount by 2030 by earnings from transit and its strategic geographic location.

Benefits could also come from a common energy market for the nations not sitting on large oil and gas reserves. This could significantly reduce the cost of lighting and heating homes. The formation of a common gas market that was agreed upon in 2016 and is due in 2025 was discussed.

China is increasingly being seen as the market on which the EAEU is pinning its long-term trade-diversification hopes. For instance, last year, a subsidiary of Russia Railways and the Chinese company Yu Xin Ou jointly arranged to expand the Agroexpress service to manage transportation of Russian food products on high-speed refrigerated container trains to the Chinese city of Chongqing.

EAEU members have been investing in constructing major highways to connect western China with the EU (See also: Key Logistics Hubs Along The Meridian Road) and has recently announced the integration of digital services into transportation projects. Although the EAEU has been increasing its investments into infrastructure, however, many problems remain.

In February, Kazakhstan’s Ministry of Industry and Infrastructure announced that almost all of the countries’ 51 border-crossing checkpoints required modernization. Kazakh Senate Chairwoman Dariga Nazarbayeva noted that the bloc currently recognizes 66 obstacles to trade, up from 60 when the organization was launched in January 2015. By all estimates, that is far from any significant level of improvement.

These obstacles consist mostly of non-tariff barriers, including conflicting regulations and procurement structures that put EAEU companies at a disadvantage compared with domestic ones.

In addition to infrastructure, the EAEU aims to implement its version of a region-wide import-substitution agenda. The agreed document consists of three sections, the first one listing 178 “large projects” in 18 areas requiring investments of around US$200 billion to support domestic manufactures.

This industrialization map is scheduled to be posted on the official website of the EAEU, with the proposed projects being coordinated through the offices of the EAEU to avoid overlap and duplication.

EAEU 2020 Economic Decline Smaller Than The EU

Andrei Klepach, chief economist at the Russian state development corporation VEB commented that “The decline in the EAEU countries in 2020, according to our estimates, will be significantly smaller than in the eurozone, around 3.8% at the end of the year. The eurozone is projected to fall by about 8%. It is clear that this is the result not only of the effective measures but also of different structure of the economy. The interconnectedness of the EAEU economies and the integration worked.”

He also noted that one of the risks facing the EAEU will be slower economic growth than that in the rest of the world. “In many ways, this is a challenge for Russia. Therefore accelerating the growth is important.” he said.

Klepach stressed that unlike the European Union, the EAEU has not yet implemented its major projects, which would give a tangible effect for all Eurasian countries. “In this regard, the role of the EDB and the role of VEB, other development banks is very important. If we can work together and create an effective co-lending mechanism, then the integration will have a real economic meaning.” he concluded.

Settlement In National Currencies & Ruble Bonds For EAEU

The EAEU member countries need to create a single payment space with settlements in national currencies, Russia’s VTB bank CEO Andrei Kostin said. “We see that the ruble is gradually becoming the main means of payment, and this is the task that is on the agenda today – the creation of a single payment space with settlements in national currencies.” said Kostin.

According to him, one should not wait for the complete construction of the architecture in the field of legislation. He noted that banks can largely act as a locomotive for economic development and integration. He also noted that a single borrowing market is gradually being formed between the EAEU member states. “More and more companies and EAEU countries are interested in placing their bonds in rubles. Of all the EAEU countries, ruble rates are the lowest  today. We are also preparing the issue of ruble bonds for the Food Contract Corporation of Kazakhstan.”

National Development Bank Cooperation

The EDB, in addition to Russia’s VEB, the Development Bank of Belarus and the Development Bank of Kazakhstan signed a memorandum on cooperation among development banks of the EAEU. The document is intended to stimulate the investment activities of development banks, further strengthening the integration process of the EAEU.

Russian Nationals Investing More

Investments held in the total savings of Russians will reach 19% by the end of 2020 and will exceed 40% by 2023, Chief Executive Officer of VTB Capital Investments Vladimir Potapov  forecast. This is approximately plus about 7 trillion rubles (US$9 billion) of new inflows to the investment market by the end of 2023. Potapov added that in the current situation with low rates, as well as access to placement platforms, Russian nationals are looking at diversifying their portfolios.

Better EAEU Cross Border Mail Agreements

Belarus’s Belpochta, Russian Post and Kazpost have signed an agreement at the Congress on long-term cooperation in securing and developing the transit of international mail, according to the Communications and Informatization Ministry of Belarus.

“The trilateral agreement envisages the development of logistics services to deliver international mail between the countries, the development of products to organize their transit en-route Asia-Europe, Europe-EAEU countries and the neighboring markets, USA-EAEU countries and others. The parties are set to develop united technologies for international mail processing and the appropriate tariff policy.” the ministry said.

Summary

With the Eurasian Congress organised by the Eurasian Development Bank, the event managed to avoid the political issues that sometimes mar other regional summits. Consequently it was more focused on regional finance, infrastructure and trade. Of note was the leaning towards China rather than the EU, of particular notice in terms of the positioning of Belarus and  Caucasian Armenia, both of which are in European orbits.

It was also of interest to note the effective competitiveness between the EAEU and the EU, mentioned several times during panel sessions – both as a standard to be judged against but possibly also displaying some insecurity. Nevertheless the First Eurasian Congress bought some attention to the region and issues such as closer Development Bank coordination and the Mapping of regional infrastructure developments are great initiatives – as long as they are acted upon and put into place.

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About Us

Silk Road Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Asia, and assists foreign investors into the region. For strategic advisory and business intelligence issues please contact the firm at silkroad@dezshira.com or visit www.dezshira.com

 

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