Fears of a Chinese economic slowdown are leading to new thinking about the trade and investment partnership between Russia and China, according to participants at the Gaidar Economic Forum.
A security guard looks out near a display showing the security features of the new 100 Yuan note in Beijing, China, Thursday, Jan. 7, 2016. Photo: AP
A sharp drop on the Chinese stock market in early 2016 has launched a new wave of debate about the slowdown of the Chinese economy and the negative consequences of this phenomenon for global trade. The Chinese agenda has become one of the key points at the Gaidar Economic Forum, which is taking place Jan. 13-15 in Moscow at the Russian Academy of National Economy and Public Administration under the President of the Russian Federation (RANEPA).
According to Michael Pettis, a senior associate in the Carnegie Asia Program based in Beijing, the Chinese economy is facing an overinvestment crisis. Huge amounts of investment result in the expansion of the national debt, as the country can't absorb this investment productively.
Thus, the forecast for the Chinese economy slowing to 6.3 percent in 2016 (compared to 7 percent in 2015) seems to be realistic to Pettis. "The only solution for China is growth in the household sector," the economist summed up.
The opposite view was expressed by Justin Yifu Lin, former World Bank chief economist, who believes that China can maintain the growth rate at 7 percent.
"Everyone thinks that China's slowdown is due to its internal structural problems. I believe that the reason is the external problems of the country's numerous trading partners," the economist explains. According to him, the developing economies of Russia, India and Brazil, as well as the export-oriented economies of Singapore, South Korea and Taiwan, consistently lower their growth rates year to year, causing a drag on China’s economic growth.
China has chances to maintain its high growth rate by means of domestic consumption, which increases by 8-9 percent a year, said Lin. In addition, China will continue to invest in developing the major segments of its economy, in areas such as infrastructure, the environment and urbanization (since only 55 percent of Chinese live in cities).
Russia's role in the Chinese economy
Russian-Chinese trade turnover declined by 27 percent in 2015, Alex Klepach, a former Deputy Minister of Economic Development of Russia said, quoting statistics. "So far we have failed to achieve a major breakthrough in the investment partnership with China, our agreements with it are not so successful as the ones with Germany and Japan," says the official.
According to him, the model of commodity exchange between Russia and China should be replaced by a new one. To make this happen, Russia must re-think its export strategy so that it is not just based around commodities, Klepach summed up.
Stanislav Voskresensky, Deputy Minister of Economic Development of Russia, disagrees: "In the long run, energy consumption in China is anticipated to increase by more than 30 percent, while the share of gas in the consumption structure will continue to grow."
In addition, the structure of Russian exports to China is already changing, with the share of goods rising, the official said. This trend is strengthened by the launch of two Chinese e-commerce giants, Alibaba and JD.com, on the Russian market. Both platforms began to sell Russian goods to the Chinese at the last quarter of 2015. E-commerce contributes to the removal of trading barriers between the two countries, Voskresensky said.
One of the areas of cooperation could be agriculture, as China has a limited amount of arable land and an aging rural population, forcing it to increase imports of agricultural commodities, says Justin Yifu Lin. "Potentially Russia can be one of the largest sources of agricultural imports to China. It is a win-win situation for both China and Russia.”