Since the fall of the Soviet Union, millions of poor Russians have relied on Chinese traders for cheap clothes, shoes and household necessities which they buy at street markets in major cities. This commerce, which has accounted for up to half the trade between the two countries, has been jeopardised by the sudden closure in July of the Cherkizovsky market in Moscow, the largest of its kind, employing about 80,000 people, of whom 60,000 were Chinese, and with a daily turnover of millions of dollars. 'Such an unexpected attack on normal trade has made the Russian trading environment even more complicated,' said Ye Quanlian, the vice-chairman of the Zhejiang Business Association in Russia. 'It is completely unpredictable.' He said members had suffered heavy losses from the closure. 'They have been able to recover some of the goods that were confiscated but not all. Most other markets have been closed to them. 'The ones that are open have increased their rents, making their profits very small. Many members will leave Russia.' An official with a Wenzhou shoe firm which sold goods at the Cherkizovsky market said the business environment in Russia was worsening. 'We are uncertain about the future; our traders have been offered new places, but at much higher rents.' Chinese trade associations estimate the losses from the closure at 40 billion yuan (HK$45.39 billion), affecting 20,000 firms directly and a further 30,000 indirectly. Yu Anlin, chairman of the Wenzhou Business Association of Moscow, said nearly 10,000 members of his association worked at the market and had lost US$800 million from the closure. The sudden closure and confiscation of goods frightened the thousands of private Chinese firms who worked at the market, making them uncertain about the future. Work on a giant new market elsewhere in the Russian capital to replace Cherkizovsky has just started. It is being built by two major state firms, one Russian and one Chinese, but will not be fully operational for two years. This is the third time that Cherkizovsky has been 'closed'. The official reason this time was 'improper hygiene and environmental standards'. But there were other factors behind the decision of Prime Minister Vladimir Putin and Moscow Mayor Yury Luzhkov. One was rising unemployment due to the financial crisis and an attempt to protect Russian manufacturers against cheap Chinese imports. Another was anger against the market's owner, Telman Ismailov, the Azerbaijani chairman of the AST Group, whose net worth last year was estimated at US$7 billion. In May this year, Ismailov opened the Mardan Palace Hotel in Antalya, on the Mediterranean coast of Turkey. Built at a cost of US$1.5 billion, it is one of the most luxurious in Europe and opened with a bevy of film stars and pop singers. Putin and Luzhkov were enraged that Ismailov invested so much money outside Russia and flaunted his wealth to the world, while millions of Russians are suffering during the global economic crisis. Another factor is xenophobia. 'Our country must not be allowed to turn into an open house where hordes of migrants come and go and we have no idea what they are doing,' said Alexander Bastrykin, Russia's chief investigator, in May. Since the start of the year, Russia has expelled tens of thousands of foreign workers. The Cherkizovsky market opened in the early 1990s on a 200-hectare site. It was the largest wholesale market for clothes, shoes, hats and daily necessities and the biggest market for Chinese traders in the country. Punning the name of the owner, the Chinese called the market 'just an ant' (yizhi mayi). Chinese goods accounted for 98 per cent of the products on sale; Vietnamese and Central Asians worked there with the Chinese. It is one of many such markets in leading cities in Russia that were established after the sudden collapse of the Soviet Union in 1991. Russia and Central Asian countries had a chronic shortage of light industrial and consumer goods and China a surplus of them. Thousands of private businessmen, mostly from Zhejiang, Fujian, Guangdong and Hebei, delivered and sold the goods. To avoid onerous customs and administrative procedures, the traders got involved in what became known as 'grey imports', paying middlemen and customs officials to facilitate the trade. This kept prices down and delivery fast. Traders say if they had gone through the official channels, their profit would be too small and the approval time too long. Because the trade was semi-legal, it was the subject of frequent raids and confiscation. The Cherkizovsky market was 'closed' twice between 2001 and its shutting down this year. The trade provided millions of Russians living on low and middle incomes with cheap consumer goods they could afford. In 2000, these exports by private traders accounted for half of China's total exports to Russia that year of US$2.23 billion. The Chinese businessmen persisted because the trade offered a profit margin of up to 200 per cent, several times what they could obtain at home. This made them endure the legal uncertainty, seizures, police identity searches and freezing winters. On July 24, China Everbright International Construction and Engineering held a joint news conference in Beijing with AFI Public Development, one of Russia's biggest developers, to announce construction of a US$700 million 'China City' market in northern Moscow. The first phase will contain space for 5,000 traders, the second will have a bonded warehouse, storage and distribution centre and offices for immigration and customs, and the third a giant wholesale market with one million square metres of floor space and a maximum capacity of 80,000 to 100,000 traders. The project has the support of the Russian government, the two companies said. The first 2,000 stalls will be available by the end of the year and the project is due for completion by 2011. Zhang Yansheng, the head of the Foreign Trade Research Centre of the State Development and Reform Commission, said: 'In the short term, the closure of Cherkizovsky would hurt Sino-Russian trade, but in the long term, the economies of the two countries complement each other. Chinese businessmen will not easily give up the Russian market.' He said the new market would help to combat 'grey imports'. Last year, China's Ministry of Commerce issued a scathing report about Russia's trading and investment environment. 'Its customs rules are over-elaborate and procedures complicated, needing about six weeks; this often leads to losses to companies exporting products that need immediate delivery. Firms should pay attention to the commercial risk and losses resulting from such a regime. It takes more than nine months to get a licence to import a car.' Last year, the ministry approved US$238 million worth of non-financial investments in Russia, a fraction of the overseas investment by Chinese firms. Russian companies invested US$60 million in 95 projects in China last year, a fraction of overall foreign investment. The report set out the barriers which Russia uses to limit trade and investment. It said that, in theory, while foreign firms were given equal treatment to their Russian counterparts under the Foreign Investment Law of 1999, in practice government departments used many unreasonable methods to deny this. 'They can use reasons like protecting the constitution, morality, protecting public health and human rights, protecting national security to deny foreign firms equal treatment. This gives them great freedom to ban and restrict foreign-invested firms and harm their interests,' it said. It remains to be seen how appealing the 'China City' market will be to the traders of Wenzhou, Fujian and Guangdong and if it will offer enough profit for them to stay in Russia.