Irkutsk
Ulan-Ude

Blagoveshchensk
Chita
Yakutsk

Birobidzhan
Vladivostok
Khabarovsk

Magadan
Yuzhno-Sakhalinsk

Anadyr
Petropavlovsk-
Kamchatsky
Moscow

This text is translated into Russian by google automatic human level neural machine.
EastRussia is not responsible for any mistakes in the translated text. Sorry for the inconvinience.
Please refer to the text in Russian as a source.

"The turn to the East should be understood more broadly"

"The turn to the East should be understood more broadly"

Nikita Maslennikov

Head of Finance and Economics, INSOR

How to build relations with China, why geo-economics is as round as the Earth, and when Vladivostok can become the second Russian capital, the head of the "Finance and Economics" department of the Institute of Contemporary Development (INSOR) Nikita Maslennikov told about all this EastRussia.

- Today, Russia is trying to turn its face to the East. Do you think it is possible that because of poorly developed ties with neighbors and the infrastructure of the Far East and Eastern Siberia, hopes for a flow of investment from the countries of the Asia-Pacific region may not be fully justified?

- There is such a risk. Moreover, it is not only intensifying, but in part has already begun to be realized. According to some expert estimates, our share in global GDP even in 2013 was almost 2,8%, in 2015, 1,5% is expected. The main reason is lower than in the world as a whole, and, moreover, slowing economic growth as a result of stricter structural constraints and depletion of the existing development model in fact.

Therefore, the turn to the East, in my opinion, should be understood more broadly than simply (unfortunately, largely belatedly) the development of a new economic-geographical direction. Behind this metaphor there are, in fact, the first steps in the search for a new Russian positioning in the global economy as a whole that goes far beyond the raw materials and mining frameworks.

All long-term forecasts of structural changes that will reveal themselves in the pax economica in the next two or three decades, assume that its center of gravity will be in the APR. At least because this region is the habitat for all three major economies of the world on this temporary track - China, the USA and India. But there are still Japan, South Korea, Australia, Indonesia and many other national market economies - flexible, fast, able to compete aggressively. This means that if we are not there (now we are present, in fact, at the level of statistical error), then it is difficult, if not impossible, to find ourselves in the future geo-economy. It is also important to understand that, like the Earth, it is also round in principle. Therefore, going to the East, you will come to the West and vice versa. And on all routes the same structural limitations. By the way, Sir Rudyard Kipling, speaking of his East and West “they don’t come together,” he actually wrote about something else. In this famous ballad, the main characters eventually became blood brothers. This is exactly what happens in the real world of competition, trade, investment, financial instruments, etc.

In many markets of complex end products (aircraft construction, mechanical engineering, production of cars, ships, not to mention electronics in all types), its share, created in global value chains, reaches 50-70%. On average, in such chains 35-40 participants (sometimes up to 70-ti) - companies from different countries. Often attributed the final product to the western or eastern origin can only be very conditional, only by geographic linking the headquarters of a particular brand.

It is in this new global economy (I called only one sign of it) that we have to find our place. Now we are standing in front of the eastern facade. Understand where the door is, let's go to the others.

- Can the state investment allocated for the development of infrastructure and territories of advanced development (TOR) give an opportunity to develop a sufficient number of projects to raise the economy of the East of Russia? What non-primary sectors and projects can be developed in the Far East?

- Take, for example, Primorye. There are quite good prospects for at least six TORs. "Mikhailovsky" - agroproduction (first of all, meat cattle breeding) with a full cycle of processing, storage and efficient logistics. The volume of investments is more than 4,5 billion rubles. "Nadezhdinsky" is a multidisciplinary trade and production site with a multimodal transport and logistics complex (the planned volume of investments is about 9,3 billion rubles). We go further. "Pearl in the Crown" - petrochemical cluster of Rosneft "VNHK". Two phases of the project require almost 660 billion rubles, one more (if all goes well) is also quite a lot - 661-662 billion rubles.

TOP "Russian Island" is, understandably, a research university and innovations. The volume of investment in a number of promising areas is still determined and specified. But at least 3 billion rubles have already been collected, for which there is clarity. TOR "Zarubino" is a universal sea terminal (grain, container, alumina, etc.), estimated need for 60 billion rubles. Finally, "Sukhodol" - the construction of a fishing industry complex with the subsequent development into a similar cluster. Here the declared interests of investors reached to the planks of 44-45 billion rubles. Apparently, this is not the limit.

As you can see, there is a rather wide non-raw variety. If we add intentions to advance in shipbuilding, the aviation industry and the automobile industry, we get a very promising development model, built in the very early approaches into the APR. Somewhat worse with readiness. As you know, in 2016-2017 years in the Far East region is expected to launch 14 territories of advanced development. So far only three have been selected, for which there is all the agreed design and estimate documentation, anchor investors, etc., and, consequently, the volume of state investments are clear. In Primorye, this is the TOR "Nadezhdinsky", plus the "Khabarovsk" (transport and logistics complex) and "Komsomolsk" (aircraft construction). Investeconomy is as follows: 23 billion rubles of state funds should correspond to 180 billion rubles of private investments.

However, there is a risk that the next steps in the current year will be more modest. Anti-crisis budget adjustments-2015 cut a number of areas of the Far East development program by 40-50%. In addition, Alexander Galushka, head of the Ministry of Eastern and Eastern Development, recalled this at the March 12 government meeting in March. It turns out that in order to get ahead of the development, you first need to go through the overtaking phase. There is a feeling that the speed of the latter is decreasing. The promised public investment is rather the factor of 2016-2017. But at the same time, and the incentive to quickly bring to the mind with the appropriate (preferably independent) financial examination of the remaining Torahs with their projects.

- What priority measures, in your opinion, should the state take to keep the population of the Far East and attract young people from other regions of the country?

- In my opinion, any measures that would not reduce, as is the case with current state financing, but, on the contrary, would increase confidence in economic policy in the eastern direction, are good. People, especially young ones, have a crucial sense of a strong sense of sustainability in their life perspective: work and career growth, comfortable “living environment” for the family, social services, ecology, transport accessibility of the region, etc. There will be convincing answers to these questions, there will be adequate motivation for some to remain, others to come.

- What should be done to make Vladivostok or Khabarovsk become the second or third capital of Russia? Why did the plan to move the main offices of government departments and large state-owned companies to the Far East failed?

- Here again, the trust factor is essential. In fact, many even top managers in both departments and companies think to themselves, is it another regular fashion campaign? If you really come seriously and for a long time, you have to understand where, and most importantly - why. The investment climate is worse than the average Russian one. According to surveys conducted by the Russian Union of Industrialists and Entrepreneurs, more than half of respondents in the Far Eastern Federal District noted, for example, "very poor" state of the exchange infrastructure and access to it. More than 40% lower estimates put the availability of real estate and land. According to these indicators, business sensations in the Far Eastern Federal District are the worst in Russia.

Therefore, the formation of an investment environment that is adequate to its state in the leading economies of the Asia-Pacific region is an important priority. Without this framework, not only the advance, in general, there will be no development. A fundamental component is the support for the export of medium-sized businesses that can create new market niches around their "product lines". And of course, such a landmark on the eastern vector, as the return of Vladivostok (for the first time since 1909) the status of a free port with a simplified tax regime. After all these actions, probably, it will be possible to arrange new capital ordinal numbers.

- What do the strategic interests of Russia look like in the Eastern direction today? How do you see the role of the SCO in the near and long term?

"Briefly, this is our route to a new global economy, which literally appears before our eyes in the course of structural transformations that began even before the crisis of 2008-2009, but they were greatly accelerated. Naturally, without the development of Eastern Siberia, we simply stuck at the start.

As for the SCO (Shanghai Cooperation Organization - Ed.), This is a useful tool, already quite influential in foreign policy scenarios (especially in terms of developing responses to new challenges to international security in the region). In the economic field, the use of its potential is not yet entirely optimal. The situation, I believe, will change as our own strategy becomes overgrown with details that turn it into a proposal for partners, from which it is difficult to refuse.

- Do the relations with China have real chances for success, and under what conditions?

- There are chances, and considerable. Now, in my opinion, the time of their positive reassessment begins. I will explain what I mean. At the beginning of the year, a call-warning sounded: in January, the Russian-Chinese mutual trade declined by a third. The reason - the structural barriers associated with a high proportion of energy, market prices for which have sharply gone down. And this is the first challenge. If the spheres of economic interaction are not diversified, the risk of reproduction of hydrocarbon dependence may be realized, but already in the eastern direction.

Large-scale gas projects (including the expected signing of an agreement on the so-called “Western route” in May) are, of course, great. In addition to solid revenues, we also get a powerful driver for the development of our territories. The Power of Siberia is already seriously supporting the domestic industry. Without it, the recession (in February by 1,6%) would be steeper. But what will be the gas market in the Asia-Pacific through 10 years? Projections show an increase in the share of LNG and a reduction in premiums to the markets of America and Europe. On the other hand, "pipe" gas provides the basis for the formation of petrochemical clusters in the DFO. And this is a different order of added value and a new level of partnership with a neighbor, for example, in the same chemical complex, the creation and production of new materials, etc.

The second challenge (in terms of opening opportunities) - the course of China to replace the economic model, oriented ultimately to a multiple expansion of domestic demand. The growth rates of the main indicators are slowing down. This year, GDP can add about 7% or even slightly less. But there is a structural agenda for the reforms and a course for its implementation, although everything happens rather slowly and not without the accumulation of new imbalances. The Chinese economy will increasingly open up. The liberalization of the financial market has already begun, restrictions on the share of participation of foreign investors in construction, engineering, electronics, etc. are being lifted. The privatization of state assets, the wider use of mixed forms of ownership are ahead.

The expected result of such a strategy is a multiple increase in the capacity of the intra-Chinese market. This means that our businesses need to be already there - enter assets, participate in privatization, work in the Finnish market, use (for example, through currency swaps) the internationalization of the yuan, etc. It is clear that with this approach, investment cooperation should become a two-way street. Here, and construction, and infrastructure initiatives, and automotive industry, and much more.

The third challenge is connected with all this - an in-depth understanding of the logic of each other's development with a long-range vision. It is often said that the average horizon of forecasting in Chinese is the life span of at least one generation. We need a comparable strategy, and a global one.

I am sure that the partnership with China will be the more successful, the more understandable (first of all, for ourselves) will be our own long-term positioning strategy in the world economy. I repeat, it is radically rebalanced and we need to find our function in these processes. After a couple of decades, in economic terms, the current polarity of the West and the East in general may be indistinguishable. But the role of one of their system integrators will always be in demand. It would be worth thinking about it.

Text: Taras Frumin, photo: MEDIAMAX