The Eurasian Economic Union & Russia Discuss Belt & Road Initiative Coordination & Investments With China
China-EAEU Trade Up 30% as Beijing and Moscow eye mutual BRI trade and infrastructure investments
Sergey Glazyiev, the Chairman of the Eurasian Economic Commission, the regulatory body for the Eurasian Economic Union (EAEU), has been holding several meetings with Chinese officials concerning cooperation and coordination between the EAEU and China. The EAEU includes Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia. China has a free trade agreement with the EAEU however this is non-preferential, and does not include specific tariff reductions. Instead, China-EAEU trade tariffs are adjusted and readjusted on an ‘as- need’ basis allowing for greater flexibility.
According to Andrey Slepnev, Trade Minister of the Eurasian Economic Commission, China-EAEU trade reached about US$200 billion in 2022, increasing by almost 30% over the year.
The largest share in imports from China among EAEU is taken by Russia, accounting for more than 80% of the total. This is followed by Kazakhstan at 10%, Kyrgyzstan with 4%, and Belarus with just over 3%. In terms of EAEU exports, Russia also accounts for the largest share with about 85%.
Coordination between the EAEU and China therefore is very much a China-Russia Belt and Road Initiative play – although both sides are keen to develop infrastructure links that involve the other EAEU partners.
Cooperation issues between the EAEU and China were discussed at a meeting of the Advisory Committee on International Activities at the Board of the Eurasian Economic Commission on September 4th and included decisions concerning the EAEU’s international activities for 2024.
This includes expanding the EAEU’s trade and economic cooperation with third countries, approaches to further dialogue with integration and interstate structures, including the SCO, ASEAN and BRICS, possible promising steps for interaction with observer states, and other relevant and fundamentally important issues for the development of the EAEU’s international activities.
In terms of China, the sessions included Chinese officials with discussions about interfacing the EAEU with China’s Belt and Road Initiative, which took place on September 6th. The meetings were coordinated by the Chinese Embassy in Moscow.
Vladimir Serpikov, the Director of the Department of Trade Policy at the EAEU, noted that the EAEU-BRI pairing is carried out within the framework of the implementation of the ‘Agreement on Trade and Economic Cooperation between the EAEU and China’ dated May 17 2018, as well as the subsequent EAEU-China ‘Roadmap for Expanding Trade and Economic Cooperation’.
Serpokov noted that “Projects implemented by the EAEU, such as the Eurasian Agro-Express and digitalisation of transport corridors, will contribute to increasing mutual trade volumes, simplifying trade procedures, enhancing intra-regional connectivity, and effectively pairing (Russia and the EAEU) with the Belt & Road Initiative.
In terms of the China-Russia dynamics, both sides introduced Government authorities, in addition to Russian and Chinese businesses, to discuss numerous infrastructure and trade initiatives. These discussions are continuing at the Far Eastern Economic Forum currently taking place in Vladivostok.
Previous coordination discussions had been brokered earlier in the year by the Russian Ministry of Economic Development, who stated in January this year that Russia and China were looking at Chinese involvement to help implement investment projects in Russia in transport infrastructure, construction, deep processing of oil and gas, tourism, agriculture and food industry, fishing industry, solid waste management, as well as in localisation of production in Russia.
Some of these are already underway. The huge Yamal LNG processing plant and shipping terminal tops the list of Chinese investments in Russia. 20% of the shares are owned by the China National Petroleum Corporation (CNPC), 9.9% by the Silk Road Fund. The total volume of investments is about US$20 billion.
10% of the Petrochemical MNC Sibur is owned by Sinopec, while it also owns 26% share of the Krasnoyarsk synthetic rubber plant, with most of the products being sold in China. Another 10% of Sibur was acquired by the Silk Road Fund in 2016 for approximately US$1.5 billion.
Another 10% of shares in the Arctic LNG-2 project were acquired in 2019 by China’s CNOOC and CNODC (subsidiaries of CNPC). The cost of the transactions is not specified, however, this is estimated at approximately US$25 billion.
Apart from capital markets, Russian consumer markets have seen a major influx of Chinese products of late. In July 2023, the share of imported cars on Russian roads increased to 52% of them being Chinese, while in 2022 it was 24%, according to Autostat. An example of this development as Western auto manufacturers pulled out is the Haval (Great Wall) auto manufacturing plant, located at the Tula industrial park in Uzlovaya. Today, five models of the brand are produced here at Tula: the crossovers F7 and F7x, Dargo and Jolion, and the SUV H9. Initial Chinese investments amounted to more than US$500 million.
As of June 2023, the share of Chinese phones sold on Russian markets was 70% compared to 55% in 2022. Meanwhile, in TV sets, in the second half of 2022, China’s Xiaomi increased its share from 4.8% to 11.7%, overtaking Korean LG (10.1%) and Samsung (7.6%) in sales.
The Chinese-Russian Angel yeast plant is located at Dankov, Lipetsk region. This plant produces 15,000 tons of dry yeast, 15,000 tons of pressed yeast, and 30,000 tons of organic fertilisers per year. Further investments in launching two more production facilities to be completed by the end of 2023 amount to a further US$27 million.
The industrial machine building plant DMTG Rus is located in the Leninsky district of the Moscow region. Chinese investments in the plant have reached about US$12.6 million.
Chinese Investments Bordering Russia
Chinese investments in Russia’s neighboring Primorye Krai region have also been accumulating. According to the Russian Far East and Arctic Development Corporation, in Primorye, 38 residents of the ASEZ and FPV zones have invested US$650 million in their projects, attracting Chinese investment and creating 7,300 jobs. The amount of Chinese funds currently invested in the regional economy is estimated at about US$73 million. Thirteen joint venture companies have already been set up in construction, agriculture, industry, woodworking, and automobile production.
In 2019, the Yubo-Sumotori production company (Artem, Primorsky Krai), a joint venture of the Russian Sumotori group and the Chinese automaker First Automobile Works, launched the assembly of FAW trucks.
In the Primorye ASEZ, in 2021, the Arnika company launched a high-tech enterprise, Cormbiosintez, for the production of feed vitamins, protected amino acids and products. Production capacity is 15,000 tons per year. The Chinese partner is a high-tech company for the development, production and marketing research of medicinal and food ingredients and animal products, with seven production facilities in China.
In 2021, the Yi Sen company opened a full production cycle wood processing factory as a resident of the free port of Vladivostok. The production capacity is 4,800 cubic meters of wood per year, while the output volume of finished products will be 1,300 cubic meters.
Other significant Russia-China JV and mutual SOE investments can be expected to be announced in future weeks as the two sides hammer out the financial and responsibilities of parties as relates to China BRI projects in Russia and the EAEU.
Dezan Shira & Associates assist foreign investors into China and have 32 years of experience of handling joint investments with Chinese companies. We can assist with understanding the Chinese legal, tax and operational implications and have 13 offices throughout the country. For assistance please contact Maria Kotova at email@example.com