BY LI XIN
THE US has started removing furniture and equipment from a diplomatic property in Moscow, according to Reuters, after Russia ordered the US to cut diplomatic staff in the country as retaliation for newly proposed US sanctions. People see little chance of an improvement in US-Russia relations in the near future. This creates a chance for Beijing and Moscow to enhance interaction and communication with each other. China can consider providing assistance to Russia to help the country cope with the impact of the proposed US sanctions.
Holding negotiations for a bilateral investment treaty (BIT) with Russia is one available option for China, a move that will help turn this potential for cooperation into reality. The time is ripe for negotiations. Bilateral ties are enjoying their best time ever in history. US sanctions on Russia could serve as a catalyst for further enhancing relations between China and Russia. People in Chinese and Russian educational circles have called for the establishment of a free trade area (FTA) via bilateral or multilateral talks, but Moscow has reacted slowly due to its concerns about strategic competition. However, Russia in recent years started gradually to take a relaxed attitude toward developing a strategic relationship with China in the fields of economics and trade, in the context of a tense relationship with the West. Although the conditions are not mature enough to start FTA negotiations right now, the two countries should consider engaging in BIT talks, which could be viewed as a good warm-up exercise for FTA negotiations.
The Russian economy has been undergoing hard times in recent years as a result of Western-imposed sanctions as well as problems with Russia’s economic structure.
In a bid to revive the economy, what is urgently needed in Russia is the growth of investment. China can consider providing assistance in this regard. Chinese firms could focus on Russia’s economic zones that have a special legal status in the country and adopt preferential policies for foreign-owned enterprises. With a vast potential for cooperation over the “Ice Silk Road,” a trade route to be jointly built by the two countries along the northern sea route in the Arctic, China could shore up investment in Russia in the field of infrastructure.
Additionally, against the background of Western-imposed sanctions, Russia’s economy is oriented toward import substitution, aimed at reducing imports and meeting domestic demand by increasing the localization of production. The policy of import substitution adopted by Moscow creates demand for Chinese investment, offering a window for creating the sound atmosphere needed for BIT negotiations.
Third, economic cooperation will be shored up by business deals rather than government wishes. However, many Chinese companies remain hesitant about investing in Russia due to factors like policy uncertainty and an unfavorable investment climate for foreign investors. Many Chinese investors hope governments can offer credit guarantees to their investments in a bid to offset risks brought by Russia’s policy uncertainty, but these guarantees are unrealistic in a market economy country. The most fundamental solution is signing a BIT that can clearly define and enforce rules on issues regarding Chinese investment into Russia, providing a legitimate basis for settling economic disputes.
Bilateral investment agreements signed by the two countries in the past are unable to meet the present needs of increasing investment. The situation calls for a new BIT. The China-Asean Investment Agreement could be used as reference. In 2009, China and the 10-nation Association of Southeast Asian Nations (Asean) signed the agreement, together with deals for free trade in goods and services, forming the basis of the China-Asean FTA. The investment agreement, including items regarding the treatment and protection of foreign investment and dispute settlement, helps protect the interests of all sides of a transaction. This deal could serve as a good model for any agreement between China and Russia.
However, we will not be able to make a deal that exactly follows the model of the China-Asean Investment Agreement. Russia’s trade with China is based mainly on its exports of energy and raw materials. The specific nature of the two countries’ trade ties must be taken into account when the two engage in BIT talks.
The author is the director of Russia and Central Asian studies at the Shanghai Institutes for International Studies.