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Modern Russia and Reformed China – Is Mutually Advantageous Cooperation Possible in Agriculture?
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  • A good adviser is better than any wealth Socrates (469 – 399 BC.)

Modern Russia and Reformed China – Is Mutually Advantageous Cooperation Possible in Agriculture?

Karen Ovsepyan Senior Partner

As I am not a sinologist, I was not a keen follower of this country, and all of my knowledge was limited to traditional or rather stereotypical (for the majority of people) study of some translated works of Lao Tzu, Confucius, Mo Tzu, and others as well as to the limited study of Daoistic and so-called popular mythology. In fact, our Company has thus borrowed the name YUYDI (Yu-de) or Yu Huang (Jade Emperor).

It was relatively late, when I came to China for the first time in 2006 and at that time the country has stunned me with its progress and prominence. Not with its historical and cultural distinction about which I read, but with its industrial and economic growth. These are the scale and pace that were stunning, especially when compared to the pace of development, to be more precise, attempts to catch up with the recession (after the economic collapse in the late 80's and 90's) in our country.

* The path, which China treaded along never very much reminded about the formalized (but about which many talked and still talking) “Plan of Andropov.” Which (if anything like actually existed) could be implemented only in that Country and only by a charismatic leader (but Yuri Vladimirovich led the country for little more than a year). Why “this State” - because the adoption of these “plans” can happen only by eliminating the need for its "public debate" and by shunning “not to go over it”" It's always the implementation of unpopular reforms, even those that may, in the medium term, provide a huge positive impact “for all” will never be accepted by the society (I can talk more about the reasons, but it is not the subject of this article). And the so-called “the Chinese model of transformation” fully endorses this.

Although it is worth noting that in the face of the destruction of "global systems" (e.g. the European Union), the democratic norms are defied even in the so-called “bulwarks of democracy”, as the democratic decision-making machinery and the crisis management are not harmonious.

Since that first visit to China, I was interested in the path, which this country has gone along and the pace of its development - and they are amazing with each passing year.

Further it seems to me that the slowdown in the pace was triggered by so many factors, including not only the international crisis that ran wild and the fall in world consumption, but the state of affairs that started emerging with the elites and the range of commodities in the country - I was reminded of the period, so-called “Brezhnev’s stagnation” that developed in the USSR. When the elite begins to rest on the laurels of the greatness of the country, consumption and narcissism increase, which cannot flourish without the unprecedented growth of corruption.

And instantly, I note that the course, proclaimed by the new “fifth generation” Leaders of PRC, is very much impressive, as it is aimed at combating development of sluggishness in the minds and souls of the elites, and in conjunction with the launch of a new phase of urbanization in China, the result may actually be significant and bring China into the path of planned growth (but as it is said – the times will testify, for the “devil is hidden in the details”).

 

However let’s come back to the main subject i.e. assessing the prospects of mutually beneficial cooperation between Russia and China in agriculture. To be honest, the relationship between the two countries since the collapse of the Soviet Union, at least formally, and reckoned as “very friendly”, but in fact they are not, in favor of which, there are many facts, but generally there is a low (the lowest possible) level of economic cooperation between our two countries. Since the China has aggressively used the volumes of hydrocarbon procurement as an educational tool (not buying more than it considered as necessary), and for almost 15 years, the ban on the import of Russian grain to China was actually in force, but we certainly did not lag behind the neighbor in the creation of barriers (cause-effect relationships are omitted).

* On the other hand, a number of stable stereotypes are formed over the years on both sides. Since the majority of our fellow citizens associate China with the space shuttle and consumer goods, and also with the illegal farming in the Far East, and they, in turn do not have flattering opinion about the decency of our business. But all this is a small or half-criminal business that does not reflect the real opportunities for collaboration and the business culture of large and medium-sized enterprises in the two countries. Today the China is the world's largest investor (to a large extent, spoiled by their own demand), a country with a developed infrastructure and, in my opinion, with good-established (for this scale) state governance. To see all this, one must go to the developed industrial and agricultural provinces of China, and of course, to the Capital, and most importantly communicate with the representatives of the civilized business community and government agencies responsible for the development.

Nevertheless the relationship between our two countries has undergone major changes since the landmark (in June 2012) visit of VV Putin to China and the subsequent APEC summit in autumn, in which the shift in the relationship between the two countries was demonstrated to the world.

Moreover the visit of the Chinese President Xi Jinping to Russia and the statements made and documents signed during the visit has made it clear that the relationship between our two countries is reaching out to a new, strategic level.

So, more than thirty documents were signed as part of the visit and the meetings of the leaders and delegations of the two countries. Nearly all can be termed as important and crucial. The special "signs" of the strategic agreements include - signing long-term (for decades ahead) Energy Contracts in the gas and oil sectors. Signing of the so-called “Phytosanitary Agreement” (the parties confirmed that China would lift the restrictions on imports of Russian grain in 2013.) And there were many other documents.

Perhaps I'm too optimistic, but within the reality “of the modern world,” large-scale cooperation between our two countries is inevitable (it can yield tremendous synergies in all areas of such cooperation, from economics to geopolitics). And of course, the most looked-for (in the medium term) will be the collaboration in Siberia and the Far East, including in agriculture.

I will begin with the obvious, not for all, but adequate public figures, which themselves are suggestive and characterize the problems of China associated with the primary agricultural production and therefore indicate the areas of cooperation in agriculture. Problems that have been prevalent for 10 to 15 years pose strategic threats to China, including those related to food security, given the size of the population, and to the stability of the system as a whole:

- One of the main problems for the decline in the primary agricultural production is the substantial annual loss of arable land, which is about 10 to 12%. The reasons are many - desertification, salting and different soil contamination, land acquisition as part of the large-scale urbanization projects and even unavailability of water (China, along with Australia after the Middle Eastern countries are actively expanding their facilities for desalination of sea water). And of course, many problems are associated with intense (at the same time not well-thought-out) cultivation for decades, which is done away today, as they say “the land is a product that is no longer produced.”

- Including in connection with the share of imported grain in the feed reaches: according to official statistics - 30%, informal records - 50%.

- As a consequence, the high cost of feed and the cost of production of meat, for example, the cost of pork in live weight is almost two times higher than in similar farms in the Russian Federation.

- An individual story of the Chinese people with average and above-average income (estimated at 7 to 10% of the population), who do not want to consume meat and vegetables (and products thereof) made in China, because they are concerned about their ecological properties, quality, and as a result, their health. A new market segment of imported food products and the whole chain retailers that sell imported products is being formed.

- Certainly, there is no point in overlooking the new phase of urbanization, as part of which, with the active support of the state, more than 100 to 140 million people (the population of the Russian Federation) will become urban residents. And these are the people, who, in the recent past, were self-sufficient in basic foodstuffs - after moving to the city, they would go to the store for food.

And these are some statistics, which it is even pointless to comment upon.

I'm not trying to say that everything will be easy and trouble-free in the dealings between our countries, and especially in business cooperation, as we are talking about the need to address a large number of stereotypes, both from the sides of Russian and Chinese participants in the process. Moreover, overcoming the cultural differences (special attention is being paid to overcome intercultural barriers in the business schools) and major historical differences between the business cultures and the practices of international business.

Many would say - how will the “farmers” (in the traditional sense, they are engaged in agriculture) be able to overcome all this? And I would say that today, agricultural companies in China, are the business sharks with multi-billion dollar (in U.S. dollars) revenues, listed on the world's major stock exchanges and investment experience around the world. And they are often owned by large diversified holding companies, in which, agriculture and food production are successfully combined with the financial investment, innovation and other fields.

And when the high-tech companies are engaged in agriculture, it conveys many things - for example, the food production is the best way to diversify the business and one of the most promising and steadily growing sectors of the market. In addition, the high technology (especially organizational) and the funds for innovation are allocated to agriculture and the results will not keep you waiting. I cannot talk about it without concern; as such a transition took place in the same year i.e. in 2006.

* Subsequently Joyvio Co., Ltd, a subsidiary of a major Chinese Holding Company Legend Holdings, the main business of which was and is ICT (Information and Communication Technologies) – LENOVO brand, which was established "from scratch" and within a year, became the leader in a number of fields, stormed into the agricultural market in China. Of course such a launch of Joyvio Co., Ltd (according to the Company’s head) was preceded by a significant period of study (selection) and the preparation for expansion through implementation of a large and aggressive M & A programmes.

In conclusion, I would like to mention that the development of the agricultural exports is the fastest of the first steps towards diversification of the export revenue and the Russian economy as a whole, and most importantly access to such markets will give a new impetus to the development of agriculture and rural areas (which are still continuing to deteriorate despite the best efforts of the authorities). And it is open secret that the small population of the Russian Federation is a serious factor limiting the development of the agricultural and food production (number of consumers determines the market size), if it focuses exclusively on the domestic market and self-sufficiency.

*All examples, figures and hypotheses do not claim to be the ultimate truth, but certainly not the product of an internet search. This is the result of work with the primary sources in China (Business and the State structures of China – the Ministry of Commerce and the National Development and Reform Commission (NDRC) etc.), as part of the project to build a large-scale joint farming enterprise in Siberia.

And I conclude my thoughts with the words of Seneca – “Viam supervadet vadens” or the path will be overcome by one, who walks over it, and I think the result is worth it for to traverse the path.

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