Russia's far eastern promise awaits

PUBLISHED : Thursday, 18 September, 2003, 12:00am
UPDATED : Thursday, 18 September, 2003, 12:00am

The incessant rattle of jackhammers is shattering the peace along the meandering border with Russia as Chinese workers lay new rail tracks and build factories.

Driving the frantic pace of construction is the resolve by the Heilongjiang government to boost cross-border trade and transform the country's industrial rust belt into an economic powerhouse.

'Russia is a country that nobody can afford to overlook,' said Liu Donghui, deputy party secretary of Heilongjiang.

'It has vast natural and technological resources and is the world's last untapped major market. If we can establish a successful border trade, it will become a key to revitalising the northeast's old industrial base.'

The province shares a border of more than 3,000km with Russia. There are 25 checkpoints and railways connecting to main Russian cities such as Vladivostok, Chita and Blagoveshchensk.

Heilongjiang's trade with Russia hit US$2.33 billion last year, up 30 per cent on a year earlier. Russia accounts for more than half of the province's export and import volume, according to Heilongjiang's Department of Foreign Trade and Economic Co-operation. The cross-border activity accounts for about 7 per cent of the economy; the plan is to raise it to 30 per cent.

Each year, China imports huge amount of timber, oil, natural gas, minerals and machinery from Russia and exports vegetables, electricity, textiles, clothing and labour to the Russian far east.

Heilongjiang is not the only regional economy with an eye on increasing links with the Russians. The advantages it used to enjoy through traditional links with Russia have been eroded by more competitive products from the coastal regions in southern China. It also faces stiff competition from Japan and South Korea, which are eager to get a foothold in the market.

Poor-quality goods from China flooded the Russian market in the early 1990s and damaged the reputation of Chinese manufacturers in the region. Heilongjiang leaders know they can ill afford to make the same mistake again.

'Our trade with the Russians still remains at a very basic stage. We are just trading in raw materials and simple daily products. We have to provide the Russians with better-quality goods of a greater variety to fully penetrate their market,' said Wang Dawei, deputy mayor of Harbin, the provincial capital.

Heilongjiang is now building several industrial parks along the border to attract investors to set up modern factories.

Sun Yongxian, mayor of the border town of Dongnin, said: 'The Pearl River Delta is an important manufacturing centre of clothing, footwear and textiles. If we can bring some investors from there to set up factories here, we can produce cheap and high-quality products to export to Russia.'

The central government has offered financial incentives to help Heilongjiang develop export-related industries. Factories in the province receive a 50 per cent reduction on customs duty when importing raw materials from Russia and have no export quota restrictions.

Ma Xiaolin, mayor of Mudanjiang, said: 'The labour cost here is just one-third of that in the Pearl River Delta, while the profit margin is very high. A TV set which sells at 2,000 yuan [HK$1,880] in southern China can fetch twice that price in Russia.'

Apart from developing modern manufacturing, Heilongjiang also wants to establish itself as a regional financial and trade centre.

Provincial leaders have been lobbying Beijing to move the economic events of the Shanghai Co-operation Organisation (SCO), which groups China, Russia and four other former Soviet republics together, to Harbin. They hope the move can help to turn Harbin into a major trade exhibition centre and boost Sino-Russia trade.

'We would like to see the economic co-operation events of the SCO moving to Harbin. But this is the central government's decision. Besides, we [China] have to negotiate with the other five members as well,' said Heilongjiang deputy party boss Liu Donghui.

Ji Qingfu, chairman of the China Consul for the Promotion of International Trade, Heilongjiang Office, was confident the proposal would get central government backing.

'Heilongjiang has been Chinese companies' springboard to enter Russia and other former Soviet Union republics in the past 16 years. It's logical to move some of the SCO's economic conferences to Harbin,' he said 'If everything goes well, maybe the trade ministers' conference of next year's SCO will be held in Heilongjiang.'

The SCO comprises China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan and Uzbekistan. The organisation was formed in June 2001.

Heilongjiang is also seeking the central government's approval to let Russia set up a consulate office in Harbin. The city has just built a 5 billion yuan multi-purpose convention and exhibition centre, which is said to be the best in the northeast. Mr Ji said this would become the venue for the annual Harbin Exhibition - a major trade event attracting hundreds of Russian merchants a year.

Despite these vigorous efforts, the future of Heilongjiang's border trade with Russia lies in the hands of its northern neighbour. And so far the reaction of the Russians has been lukewarm.

Some fear the influx of Chinese products and hundreds of thousands of labourers into sparsely populated Siberia. The Mudanjiang mayor admitted that 'such voices will always exist'.

'Inside Russia there are conflicting views. Some are not willing to let in more Chinese labourers and goods as they see this as a threat. But there are more realistic ones who realise Russia's far east cannot do without us,' said Mr Ma.

'We believe the force of the market economy will eventually dominate the discussion. Russians need us as much as we need them in economic development.'

Another challenge is the highly unstable nature of life and business in Russia. Irregular market rules, whimsical trade policies and poor security have led to the bankruptcy of many investors. 'We have paid tears and blood to learn how to do business in Russia,' said Mr Ma. 'To deal with Russians, you have to be patient and have to always be ready for sudden changes.'

Harbin's deputy mayor, Wang Dawei, recalled how on a recent trip to Russia he and other Chinese delegates were unable to check into their hotel because of the chaotic management.

'I and my entourage went to this hotel to check in. There were a lot of staff workers at that hotel but nobody was clear about their responsibility,' he said.

'We stood outside for three hours while they were reading newspapers and drinking tea. No one took any initiative to help us just because they could not find out who should do the check-in work.

'It reminded me so much of the earlier days when China was just opening up. People in the south say we are awkward; Russians are even worse.'

Mr Ma warns investors going to Russia that they must bear in mind the risks they will face.

'I dare not promise investors that it will be perfectly safe. I can only promise if anything bad happens, we will give them full support,' he said.

But Mr Ma said the uncertainties of the Russia market worked to Heilongjiang's advantage. 'If we wait until the Russia market becomes stable and sophisticated, we will play against big-league players from western countries, Japan and South Korea. What advantage do we have against these competitors? That's why I say now is the best time,' he said.