Border town pins hopes on booming trade with Russia

PUBLISHED : Thursday, 16 November, 2006, 12:00am
UPDATED : Thursday, 16 November, 2006, 12:00am

In Suifenhe, a mountain city in China's northeast corner, cross-border trade is the most exciting game in town.

Starting at dawn, busloads of Russians wait at the border checkpoint. At sunset they drag home big blue-and-white-striped nylon bags holding their allotted 35kg of duty-free goods - everything from shirts, trousers, shoes, fur coats and watches to electronic appliances and food.

'I bought a microwave, a juicer, many plates and cups for my new kitchen, and some decorative paintings,' said Lena Poliankova, 29, who lives in Pogranichny, a border town just 26km from Suifenhe.

As many as 5,000 Russians cross the border each day on shopping trips to the city in eastern Heilongjiang . They spent at least 10 billion yuan last year, double the amount in 2003.

Trade goes the other way too, with China buying timber, fertiliser, cement, rubber, steel and frozen fish from the Russian side.

As Russia undergoes wrenching economic changes, its domestic market is often short of food, and household and consumer goods. Up to 70 per cent of vegetables and fruits, 60 per cent of household products and 50 per cent of its meat has to be imported, according to the statistics from Heilongjiang's Investment Promotion Bureau.

'This scarcity, which is structural by nature, cannot be resolved in a short time, which makes their dependence on the Chinese market a long-term issue,' said Li Zhongbin , the bureau's deputy head.

The situation in Russia's Far East is especially dire. The rising cost of rail transport makes it unprofitable for eastern Russia to bring in daily food from places such as Ukraine. At the same time, it is expensive for the Far East region to send its timber, fish and other goods to western Russia.

And Russia's Far East, especially Siberia, is home to vast natural resources, including oil, gas, timber and steel, that China is eager to use to feed its roaring economy.

Mr Gao, the manager of Shenmu Group, a wood processing company started only last year, said its business was expanding rapidly because of the vast virgin forests in Siberia, just across the border.

The company has already opened a plant in Russia to process logs freshly cut from Siberian forests. Its 1,000-plus employees in the eastern part of Suifenhe turn the lumber into flooring and decorative items sought after in coastal areas of the mainland and overseas markets such as Japan and Europe.

'We've also developed a business in building cottage-style residences,' he said, adding the firm had just shipped a consignment of logs to a cottage project in the Netherlands and had another order coming in from the affluent eastern province of Zhejiang .

Chi Qingjian , Suifenhe's deputy Communist Party secretary, said Sino-Russian trade, especially between border regions, had a solid foundation and held strong prospects for growth because the two nations' economies were extraordinarily complementary.

This presented her city with a 'historic opportunity' to further upgrade its already booming economy and become a 'Shenzhen in the north' some day, she said.

That might be a little difficult to pull off, at least in the near term. Last year, Suifenhe's trade volume ran at about US$3 billion, compared with Shenzhen's daunting US$77.8 billion. Suifenhe's per capita gross domestic product, standing at US$5,300, ranks near the top for northeastern China but still lags far behind Shenzhen, which is more than US$7,000.

But there are comparisons. As much as Shenzhen has been transformed by economic reforms, especially open trade, from a fishing village 30 years ago, Suifenhe is also a town that almost owes its entire existence to trade.

In the early 20th century, Suifenhe was a cosmopolitan Chinese city and an important trading centre, with a population of 60,000 and merchants from 18 countries, according to Ms Chi. But the city's population had fallen to about 20,000 in the early 1990s, when Sino-Russian relations began to normalise after years of mutual mistrust. The population has since increased to 150,000.

The port of Suifenhe, which is only 230km from Vladivostok - Russia's largest Asian port - handled 7.6 million tonnes of goods last year, about 70 per cent of the total volume that passed through Heilongjiang province.

As much as 70 per cent of the city's economic activity deals with cross-border exchanges and more than one out of four local people earn their daily bread from trade.

Ms Ni, a woman in her early 30s, trades in Russian dolls, vodka, caviar, and former Soviet army uniforms, knives and binoculars at her small store on 'Russian Street' in the inner city. She exchanges her stock for clothes, lamps, mobile phones and televisions.

But such personal barter trade, which was the main game in town in the first half of the 1990s, has found itself unable to keep up with the growing need for expanded bilateral exchange.

The volume of trade between Heilongjiang and Russia reached US$5.7 billion last year, up 49 per cent from 2004. Trade through the port of Suifenhe exceeded US$2.5 billion, making it China's busiest Russia-oriented trade port. Its trade with Russia has increased 75-fold since 1987. And the once-fraught China-Russia borders, which saw skirmishes break out in the 1960s, will only get even busier on the economic front.

Sino-Russian trade hit US$29 billion last year, a 37 per cent jump on 2004, despite the headache of coping with rail systems built with two different gauges - an attempt to impede any military invasion. Nearly 20 per cent of that trade came from Heilongjiang province.

Betting on the business potential of the two giants, Hong Kong-listed property developer Shimao Group, whose investments are mainly luxury residences, spent 10 billion yuan in 2004 in the free-trade zone that links Suifenhe with Pogranichny.

The Suifenhe-Pogranichny Comprehensive Trade Complex, as the free zone is officially titled, covers 4.53 sq km - 1.53 sq km in Suifenhe and 3 sq km in Pogranichny. Chinese and Russians will be able to enter the complex without visas and there will also be simplified customs procedures.

A five-star Holiday Inn, a trade exhibition centre and a shopping arcade opened in August on the Chinese side, while a business centre and an entertainment district - including a skiing resort, a theme park and a casino - are expected on the other side. The entire project is to be completed in 2010. The casino plan raised some concerns on the Chinese side. Gambling is outlawed on the mainland, because of fears that corrupt government officials will gamble away public money, but legal in Russia.

Leaders in Suifenhe have gone south to Beijing 'more than 20 times' to try to lobby the Ministry of Public Security into giving some leeway to the free zone, according to the city's deputy party chief. 'Tourism suffers due to this outdated idea,' Ms Chi said. 'Actually many people just want to check it out as part of a sightseeing tour.'

The cultural gap does not stop here. But Suifenhe has been quick in using its position to its advantage. The city that shares a 27.5km border with Russia is developing a role as a key matchmaker in cross-border trade, and Ms Chi says that without the expertise it has developed, encounters between enterprises from other parts of China and their Russian counterparts 'could have been a lot rougher'.

'They'll run up against much difficulty if they go to Russia by themselves, and Suifenhe's experience in dealing with Russians can prove to be a much-needed help.'

In what seems to be a reversal of fortune between the two powers, the Chinese side, with more than two decades of capitalist experience, often complains its 'old communist brother' does not yet understand enough about how free trade works.

'China joined the World Trade Organisation in 2001 but Russia hasn't become a member yet, which makes their business systems unstable and sometimes untrustworthy,' said Ms Chi, whose name card is printed in both Chinese and Russian, like many road signs, building names and even menus in Suifenhe.