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Russia: Beyond oil & gas

‘What do you find on the last six pages of a Lada instruction manual?

Bus and train timetables’

Popular Russian joke

 

A piece which caught my eye in the Financial Times this week contains a message which has been doing the rounds lately: that Russia’s worsening relations with the EU and US are pushing it into a relationship with China in which it will inevitably be the inferior partner. As I have previously discussed in “Russia’s East I: An Introduction”, Sino-Russian cooperation is longstanding and therefore the surprise which many commentators have expressed at recent deals between ‘the bear and the dragon’ is misplaced.

In this post I wish to take exception to another suggestion made by Guy Chazan in the FT piece, that all Russia has to offer to a country like China – or anywhere else – is natural resources. The technical competence of Russian industry gives it an advantage in its business partnerships, and leads to much more balanced relationships than many realise.

Chazan is of course right to suggest that Russia’s resource sector is a key industry resulting in partnerships with foreign investors. However, Chazan does acknowledge that Sino-Russian business ties go back further than just the last few months. But to paint a picture of Russia as a country only capable of being exploited for its resources ignores the wealth of mutually beneficial deals which have been struck between Russia and China lately.

Several recent pieces of news from the automotive industry provide perfect illustrations of this.

Thanks to greater technical expertise, Russian auto manufacturing has progressed a long way from the days of the Lada joke. As Xinhua reported last month, China’s Great Wall Motors (GWM) has become one of the first firms to move into Tula region’s Uzlovaya Industrial Park with a $520 million investment in a new factory. According to the article, GWM will be building their cars from scratch in Tula, going beyond mere assembling of pre-made components. This represents clear recognition of the Russian industry’s technical skills in providing an end-to-end manufacturing service.

SimilarlyITAR-TASS recently reported on the plans of another Chinese car company – Lifan – to construct a $150 million plant in Kaluga region’s Lyudinovo special economic zone. A glance at the original Chinese report in Beijing Youth Daily shows that it was precisely because of the Kaluga region’s automotive expertise that Lifan decided to make this investment. Kaluga, like Tula, is a region that boasts highly developed supply networks and modern automotive training and production facilities.

Both of these examples come as a contradiction to the recent announcements made by VW and Ford (here), stating that both of them are looking to reduce output of their local production facilities. Such circumstances only make one wonder how the Chinese investors see an opportunity where the established global players seem to face constant challenges and a contracting market.

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