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Russia/China: Potential Partnership Faces Obstacles

Moscow, 23 April 1997 (RFE/RL) - China's President Jiang Zemin and Russia's President Boris Yeltsin are holding talks this week in Moscow aimed at furthering plans to create a Sino-Russian "strategic partnership." Boosting commercial links is clearly central to this new "partnership," but plans to nearly triple trade by the end of the century face numerous obstacles.

At a summit in Beijing last year, Yeltsin and Jiang announced they would work to increase annual bi-lateral trade to $20 billion, from low levels during the chilly period following the Sino-Soviet split in the early 1960s. Last year, bi-lateral trade turnover reached $6.9 billion, up 25 percent over 1995. But it is still far from the ambitious targets, and a small portion of China's overall trade, which is estimated to stand at $300 billion.

Many analysts believe pledges to triple trade between the two countries are mere wishful thinking. Sherman Garnett, senior associate at the Carnegie Endowment for International Peace has said the growing arms trade between Russia and China could boost levels, but at the moment "suit case traders" -- individual entrepreneurs involved in small trade -- tend to dominate commercial links between the two countries.

However, Russian and Chinese leaders want to push economic ties beyond the level of the shuttle trade. Trade turnover between the two countries peaked in 1993, due to the bustling sales of cheap Chinese goods in Russia. Since then, demand for Chinese goods has dropped off as Russian consumers voiced complaints that traders were dumping low-quality products on to the market.

Recently, Russian exports have driven trade between the two countries, led by the sale of advanced military technology to China. Some estimates say China accounts for more than one third of all Russian arms exports, worth about $1 billion a year.

Moscow has supplied Beijing with a squadron of (Sukhoi Su-27) fighter jets, under a major contract, and has agreed to let the Chinese produce the aircraft domestically.

Western bans on arms sales to China following the 1989 Tiananmen Square massacre have opened up opportunities for Russia's ailing defense industry. While Russia has been eager to supply weapons to China to help Moscow's own economy, the Kremlin is also waking up to the strategic implications of the growing trade.

In addition to arms, Russia mostly exports chemicals, fertilizers, metals and machinery to China, while it imports mainly food and clothing. Russia is anxious to gain a foothold in China's vast market, but it is also increasingly wary of being overshadowed by its populous and economically powerful neighbor, analysts said.

Some analysts say there are growing concerns that Russia may become China's "natural resource appendage." China's rapidly expanding economy could feul demand for Russian exports, especially energy. China's economy grew last year by a whopping ten percent, while the Russian economy contracted by six percent.

Bi-lateral trade is also limited because both countries are hungry for outside capital and access to Western technology. Moreover, Chinese and Russian banks have not yet set up representative offices in each other's capitals. Vladimir Portyakov, Deputy Director of the Institute on the Far East, says many trading companies are experiencing problems with payments for goods. Indeed, Chinese trading companies in Moscow say they are experiencing the brunt of Russia's non-payments crisis.

Several major joint projects which have been on the drawing board for several years now could help bi-lateral trade take off. Russia is contracting to help build a $4 billion nuclear power plant near China's Liaoning province, but the project is still in the planning stage. Moscow also is bidding to take part in the construciton of China's Three Gorges Dam, which is said to be the largest water-control project in the world. There have also been proposals to build an oil pipeline and a gas pipeline from Irkutsk, through Mongolia, to China, which could open up new markets for Russian energy in southeast Asia.

Analysts say that if these projects get off the ground, commercial links between China and Russia could at last follow the grand pronouncements of a "strategic partnership" between the neighborning giants.