Source: Global Times    Published: 2019-5-29

Russia and China could establish a free trade zone (FTZ) of a limited size in the initial phase, as an answer to a rising tide of protectionism around the world, Chinese analysts said on Wednesday.

The comments came as China's Ministry of Foreign Affairs announced on Wednesday that Chinese President Xi Jinping will make a state visit to Russia from June 5 to 7 at the invitation of Russian President Vladimir Putin. Xi will attend the 23rd St Petersburg International Economic Forum during his visit.

Russia has for years been the target of sanctions by the West and China is currently being targeted in a trade war waged by the US. The time is nigh for the two countries, which have great strategic and political relationships, to further their trade and economic ties to break the tide of protectionism and add a new driver to boost trade volume and investment, experts said.

Bilateral trade passed the $100 billion threshold in 2018 and maintained strong momentum in the first four months of the year. According to data from China's Ministry of Commerce (MOFCOM) on May 21, bilateral trade grew 5.8 percent year-on-year to $33.17 billion from January to April.

However, to realize a more ambitious target of $200 billion by 2024, more growth drivers are needed to increase and diversify the trade structure, which is now driven by energy deals.

"There have been some concerns from the Russian side over a free trade agreement (FTA), but now the timing could not be better," said Zhang Jianrong, a senior expert on Russia at the Shanghai Academy of Social Sciences.

The US recently raised tariffs on $200 billion worth of Chinese goods and used long-arm jurisdiction to target specific Chinese industrial champions such as Huawei Technologies Co. China will retaliate with tariffs on US imports starting on Saturday. Some believe that the trade war will become white hot this summer.

Economic cooperation between China and Russia, the two countries in the world that have the capacity to stand against US hegemony, bears special meaning at such a juncture.  

According to a statement released by MOFCOM in November 2018, China has signed 17 FTAs with 25 countries and regions around the world. Russia was not among them.

The absence of such a deal isn't in line with the state of bilateral ties, which are best in history, experts said.

Countries entering into FTAs with China, such as Australia and Chile, have reportedly seen great boosts in their exports to China.

"Things could begin bit by bit, and a free trade zone of an appropriate size could serve that purpose," Zhang noted.

Efforts have been made under the framework of the China-proposed Belt and Road Initiative and the Eurasian Economic Union (EAEU).

An agreement on trade and economic cooperation between the EAEU and China came into force in December 2018. The agreement made improvements to reduce non-tariff barriers and improve trade facilitation between China and EAEU members.

Trade between China and these countries reached $109.4 billion in 2017. However, the agreement did not have any provision for reducing tariffs.

Chinese Premier Li Keqiang proposed at the Shanghai Cooperation Organization (SCO) meeting in Tajikistan in October 2018 to begin a feasibility study on building an FTZ among SCO member countries.

Going beyond FTA

Analysts said another effort to flesh out the $200 billion goal is to boost cooperation between localities of the two countries to bring in the energy of entities other than the central governments.

In terms of energy cooperation, an essential part of China-Russia economic and trade cooperation, experts said construction of a natural gas pipeline would be a highlight of the year.

Liu Ying, a research fellow at Renmin University of China's Chongyang Institute for Financial Studies, said that there are many financial arrangements between the two countries, such as currency swaps, cross-border payments and bond issues in domestic currencies under the framework of the BRICS (Brazil-Russia-India-China-South Africa) bloc.

"However, Russia's economic structure must be further improved as it is a bottleneck for further enhancing trade volume," Liu said.

Liu Ying is a research fellow of Chongyang Institute for Financial Studies at Renmin University of China.