08.05.2006
Russia, China and India in the World Economy
№2 2006 April/June
Vladimir Portyakov

Deputy Director of the Institute of Far Eastern Studies, Russian Academy of Sciences. He holds a Doctorate in Economics.

Interaction among Russia, China and India on the international
scene largely depends on what place the three countries occupy in
the world economy, as well as on the nature and degree of their
involvement in the processes of globalization and regionalization.
To identify the areas where the interests of these countries may
coincide or come into conflict, it is necessary to analyze their
development in the context of the global economy. This is also
imperative for building mechanisms for tripartite
cooperation.
 
CONVINCING STATISTICS

China’s and Russia’s shares in the global economy, approximately
comparable some 15 years ago, show considerable dissimilarity now
due to differences in development dynamics in the 1990s. China’s
Gross Domestic Product (GDP) grew 9.3 percent on average between
1990 and 2003. In Russia, GDP witnessed some growth between 1999
and 2003, but the GDP level registered in 1990 has not been
repeated to date. According to the International Monetary Fund,
China’s GDP totaled $1,412.3 billion (at the official rate of 8.28
yuans per 1 U.S. dollar) in 2003. As the dollar fell against the
euro, China slid from the world’s number six position in 2002 to
the seventh position in 2003, with the six top places being
occupied by the U.S., Japan, Germany, Britain, France, and Italy.
In 2004, China’s GDP rose 9.5 percent in comparable prices and
reached $1.64 trillion, while its total share in the global economy
rose to 4.1 percent. At this time, China’s share in global GDP
growth stood at 16 percent. Finally, it accounted for about 25
percent of global consumption of steel, 30 percent of coal and 50
percent of cement.

China’s status as a leading economy continues through its
leadership in the production of a number of manufactured and
agricultural commodities: steel, coal, cement, chemical
fertilizers, cotton fabrics, TV sets, grain, meat, raw cotton, and
peanut. China is the second largest producer of electricity in the
world.

Due to the country’s enormous population, its position in world
rankings in terms of per capita GDP ranks 110th ($1,089 in 2003
against the average global per capita GDP of $5,080 in 2002).

Russia’s GDP was estimated by the IMF at $432.8 billion (using a
ruble to dollar exchange calculation) in 2003, which accounted for
1.19 percent of the global index, while its per capita GDP totaled
$3,020.

Early assessments indicate that Russia’s GDP reached $582.3
billion in 2004, although the steep increase in that parameter,
calculated in U.S. dollars, was due to a noticeable rise of the
ruble-to-dollar exchange rate.

Russia leads the world in the production of natural gas and
rough diamonds and occupies the second position in the production
of crude oil, potatoes, construction bricks; it ranks third in the
production of iron and milk, and fourth in the production of steel,
chemical fertilizers, cotton fabrics, grain, and electricity
generation.

India’s GDP totaled $579.7 billion in 2003, or 1.6 percent of
the world’s total. Against this background, its per capita GDP
stood at $542.5. India has a global reputation as a producer of
jewelry, tea, medicines, fabrics, and prêt-a-porter clothes.
In recent years, it has moved to the forefront of software
production and has gained a leading place on the outsourced
information and business services market.

On the basis of the Purchasing Power Parity (PPP), the
international GDP ranking of the Chinese, Russian and Indian
positions greatly improves.
The IMF says that Russia’s GDP, if computed on the PPP basis,
totaled $1.29 trillion, or $9,000 per capita in 2003, giving Russia
the tenth position on the world list. China’s GDP reached $6,353.8
billion (second only to the U.S.) and $4,890 per capita. India had
a GDP amounting to $2,889.8 billion (the fourth place) and $2,704
per capita. Additionally, China accounted for 12.58 percent of the
global GDP, Russia for 2.55 percent, and India for 5.72
percent.
This means that the three countries have a 20.85 percent share in
the global GDP calculated through PPP, as compared to the 6.7
percent computed through the official exchange rate of their
national currencies to the U.S. dollar.

The data on China’s GDP growth has long been the subject of
debate by world economic experts and mass media. GDP/PPP
computations have prompted predictions that the Chinese economy
will surpass, in absolute parameters, the American economy by 2015
or 2020. The same data also suggests that since the mid-1990s China
has had the second largest economy in the world (making up 60
percent of the U.S. economy).

In this context, it is worth noting China’s reserved reaction to
the IMF’s and the World Bank’s forecasts in 1992 and 1993,
suggesting that the Chinese were moving to leading positions due to
the abovementioned factors. Beijing seemed uncomfortable with the
prospect of being the main political opponent of the U.S. on the
international stage. Economists criticized the application of the
PPP-based methodology to China, arguing that it automatically
equates China’s entire basket of commodities and services with
those commodities and services that have withstood the ordeal of
international sales. This methodology leads to overstating the
quality and international competitiveness of Chinese products,
which for a large part are overexaggerated. Although the situation
has improved over the last decade, the argument still remains an
issue today.

Compared with India, which flaunts the GDP at purchasing power
model to substantiate the thesis that “India has the world’s fourth
largest economy,” China prefers to avoid focusing too much on this
parameter. Today, only a handful of Chinese scholars, including
macroeconomics expert Hu Angang of Qinghua University, use it in
preparing economic development forecasts.

In the global economy, the GPD/PPP versus GDP at official
exchange rates shows a much greater volume and share of less
developed countries, where people’s earnings and purchasing power
are modest. This applies to China, Russia and India to practically
an equal degree. Russia’s and China’s GDP indices differed from a
ratio of 4.92 to 1 under the GDP/PPP system in 2003, to 3.26 to 1
when converted to U.S. dollars at official exchange rates. For
India and Russia, the correlations were 2.24 to 1 and 1.34 to 1,
respectively; and for China and India, 2.20 to 1 and 2.43 to 1,
respectively.

China outstrips both Russia and India by a large margin in the
volume of foreign trade and in terms of its share of global trade.
China’s policy of economic openness that it proclaimed at the end
of the 1970s helped it to build up its trade volume from $20.6
billion in 1978 to $851 billion in 2003 (of that amount, exports
stood at $438.23 billion and imports, at $412.76 billion);
eventually it rose to fourth position after the U.S., Germany and
Japan. Both exports and imports witnessed an especially dynamic
growth after 2001 when China received membership in the World Trade
Organization. Its share in global commodity exports went up to 5.9
percent and in imports, to 5.3 percent. Russia’s share in global
exports showed about 1.8 percent ($133.7 billion) and in global
imports, around 0.8 percent ($57.4 billion).

Concerning the global trade of services, China holds somewhat
weaker positions: in 2003, it accounted for 2.5 percent of the
world’s total exports and 3.1 percent of imports. Russia’s
percentage of global exports was 0.9 percent, while that of global
imports reached 1.5 percent.

IMF calculations based on aggregate volumes of commodity and
service trade indicate that China accounted for 5.26 percent ($485
billion) in global exports and 4.91 percent ($448 billion) in
global imports in 2003. Russia’s percentage was 1.65 percent ($152
billion) in exports and 1.12 percent ($102 billion) in imports.

In 2004, Chinese foreign trade volume grew 35.7 percent and
reached $1,154.79 billion, accounting for $593.37 billion in
exports and $561.42 billion in imports. With these impressive
figures, China became the third largest trading power in the world.
Russia’s customs department statistics showed that its foreign
trade amounted to $257.1 billion in 2004, accounting for $181.5
billion in exports and $75.6 billion in imports.

As regards India, between April 2003 and March 2004 its foreign
trade stood at $142 billion, with exports accounting for $63.85
billion of this amount and imports adding an additional $78.15
billion. Indian commodity exports totaled around 0.85 percent of
the world’s total, while imports made up 1 percent. In terms of the
aggregate sales/purchases of commodities and services (the export
of services is an economic sphere that India has considerably
consolidated of late), India’s share amounted to 0.89 percent in
global exports ($82 billion) and 0.92 percent ($84 billion) in
global imports.
 
ROLE IN THE INTERNATIONAL DIVISION OF LABOR

Each country’s specific role in the international division of
labor depends on the size as much as the structure of its economy
and availability of industries that have obvious advantages on the
world market. Among Chinese industries falling into this category
are labor-intensive sectors of the economy: production of clothes,
textiles, footwear, toys, household appliances, and
electronics.

China’s medium-term economic development strategy envisions a
dramatic improvement, with heavy emphasis on processing,
science-intensive and high-tech industries. One of the nation’s
goals is to increase its annual growth rate in the processing
industries by one percentage point than the GDP growth rate, and
the annual growth rate in machine-building industries one
percentage point higher than in the processing sector. China
contributed 29 percent to the overall increase of the global
processing industry in 2002, while its national share in the global
processing sector totaled 5 percent. This means that the country’s
rise to the status of a “worldwide factory” – realistic enough a
prospect – will proceed simultaneously with the gaining of new
niches in the world economy. The most obvious areas of the “Chinese
breakthrough” are in shipbuilding, automobile building, and
biotechnologies.

 China’s development strategy is bolstered by persistently
growing allocations for R&D projects. They increased to 1.3
percent of the GDP in 2003 from 0.6 percent in 1995. Meanwhile, the
number of researchers and engineers employed in those projects
soared to 821,000 from 470,000, illustrated by China’s share of
high-tech exports that reached 25 percent in 2003.

Another important factor contributing to China’s positions in
the global economy is the growing demand for oil and various types
of raw materials. Chinese experts say the country will possess only
21 out of the 45 most important types of natural resources to meet
its demand in 2010, and for only six types in 2020. For example,
China was forced to import 122.7 million tons of crude oil, 26.3
million cubic meters of wood, and 208 million tons of iron ore in
2004 alone.

The imminence of these problems has prompted the Chinese
government to modify foreign trade strategies in recent years. In
2000, for the first time ever, it promoted the concept of zouchuqu
(“exiting the gate of one’s own house”) that calls for the active
expansion of Chinese products to foreign markets. In contrast to
the twenty years before the enforcement of this new policy, when
state corporations specializing in foreign trade drove
export-oriented development, factories and companies of various
forms of ownership are to become the driving force of export
expansionism.

The forms and methods of commodity promotion onto external
markets are being variegated, and an increased number of networks
and centers for marketing Chinese manufacture are being established
abroad. The government encourages the creation of daughter
companies abroad, as well as the export of capital – such
activities were previously restricted. In 2003 alone, Chinese
business investment in projects abroad reached $2 billion, that is,
up 100 percent from 2002. The UN Conference on Trade and
Development (UNCTAD) released data that China’s foreign direct
investment stood above $35 billion in 2003.

Taking into account the experience of multinational corporations
that have penetrated into the Chinese market, a special role is
given to the establishment of enterprises processing customer’s raw
materials and to factories engaged in the “screw-driver” assembly
of household appliances, which often makes it possible to bypass
internal quantitative restrictions and big import fees. China is
becoming noticeably more active on the world market of labor, above
all in the areas of contractual, engineering and construction work.
A total of 489,600 people were employed under such contracts abroad
at the end of 2002, versus 380,000 workers in 1999.

The government is considering the construction of new deepwater
ports in Shanghai and Shenzhen to host new-generation container
ships, a measure destined to make the country more competitive in
the field of international transportation. The production of
high-demand export commodities (such as ships for transporting
liquefied gas) receives strong support in the form of
state-controlled Exim Bank loans.

Russia’s position in the international division of labor is
currently pegged to the export of natural gas, crude oil and oil
products. Their sales brought in more than a half of export
revenues in 2003 – $73.7 billion ($20 billion, $39.7 billion and
$14 billion, respectively). In 2004, the total figure jumped to
$94.9 billion, which was accounted for by $55 billion in crude oil,
$19 billion in oil products, and $20.9 billion in gas. While the
expert community is divided on the prospects for consistent
high-level production of crude oil, it unanimously predicts
Russia’s long-term world leadership on global gas markets.

The list of Russia’s other competitive export items includes
timber, ferrous and some non-ferrous metals, chemical (mostly
potassium-based) fertilizers, and seafood products.

The mass export of machine-building products consists of defense
technologies and equipment for nuclear power plants. However, tense
competition on the market for weapons and nuclear power equipment,
together with the heavy dependence of that trade on political
factors, make it doubtful that Russia will keep its present
position in that sphere over the long term (although Russia’s
capabilities make such a possibility quite feasible).

Russia does not have an articulate strategy of improving the
structure of its exports. There has been much speculation of late
about a possible breakthrough in innovations, yet the situation
with Russian research personnel and financing of R&D projects
leaves much to be desired. The number of people engaged in research
fell from 804,000 in 1992 to 411,000 in 2003. Many researchers have
reached retirement age, and government spending for R&D
projects has been stuck in the bracket of 0.23 percent to 0.30
percent of the GDP in recent years. Allocations for R&D related
to space exploration stand apart (they totaled $0.53 billion in
2004), yet they do not affect the overall picture dramatically. Not
surprising, therefore, that Russia’s current share on the global
innovations market stands at 0.5 percent versus China’s share of 6
percent.

As for India’s participation in the international division of
labor, this is conditioned by three major factors. First, the
country continues to rely on such advantageous factors as a
relatively inexpensive workforce, rich deposits of some minerals
(iron ore, bauxite, precious stones), and a climate favorable for
production of many crops – tea, nuts, spices, etc. Second, the
growing dependence of India’s economy on imports of crude oil
(according to some forecasts, 85 percent over the medium term
against 70 percent at present) compels it to look for reliable
sources of oil and gas, including through extensive investment
activity abroad. Third, the Indians have carved a niche for
themselves in the global outsourcing of services and business
processes based on information technologies. In 2003, India’s
exports in this sphere stood above $12 billion.

For the time being, however, experts regard the structure of
India’s foreign trade far less modernized than China’s: machines,
equipment and electronics make up less than 10 percent of Indian
exports, while in China this figure is above 40 percent. In
imports, crude oil and oil products accounted for 28.1 percent
between April and December 2004, and this figure was also much
greater than machinery and equipment imports (9.78 percent).

INVESTMENT AND FINANCE

In recent years, China has been ahead of Russia in international
rankings of competitiveness drawn up by the International Institute
for Management Development in Lausanne (Switzerland); out of the 60
countries and territories on the list, China continues to outrank
Russia by fifteen to twenty points. According to a report on global
competitiveness in 2004, China ranked in the 24th position, five
places up from its 29th position in the previous year.
Concerning its country risk rating, Russia has made some
improvements; however, as calculated by Euromoney and Institutional
Investor magazines, it is still behind China. Euromoney placed
Russia in the 76th position and China in the 56th position in its
March 2003 listing. A year later, the two countries rose to the
66th and 45th positions respectively out of 185 rated countries and
territories. Institutional Investor compiled a rating for 172
countries and territories. It moved Russia from the 64th position
to 59th, while China retained its previously held 38th
position.
The general conviction that investing in Russia implies heavy risks
has rather negative consequences

First, it denies this country an opportunity to put into force
the full extent of its huge transit and transportation potential,
especially in the transit of cargoes between Europe and Asia (e.g.,
along the traditional container corridor provided by the
Trans-Siberian railroad, which is certainly not the only
option).
Second, it results in a broad gap between volumes of foreign direct
investment. In 2003, China had direct foreign investment worth
$53.5 billion, or 8 percent of the world’s total direct investment
(amounting to $653 billion). It was second only to the U.S. ($86.6
billion). In 2004, the country assimilated $60.6 billion of direct
foreign investment. From the start of reforms through to 2004, the
Chinese used foreign direct investment amounting to $562.1 billion
and opened 509,000 joint ventures together with foreigners and
compatriot investors from Hong Kong, Macao, and Taiwan.

It is noteworthy, however, that in the last few months the
Chinese have begun using a new term, “the balance of assimilated
foreign direct investment.” This term reflects the depreciation of
equipment, repatriation of capital, and closure of companies having
foreign investors. This balance amounted to $260 billion at the end
of 2003, while there was a total of 230,000 active companies with
foreign investment.

Official statistics in Russia shows that its foreign direct
investment stood at $4 billion in 2001 and 2002, and $6.8 billion
in 2003. These figures are inclusive of loans from companies’
co-owners ($2.1 billion in 2001 and 2003, each, and $1.3 billion in
2002). In 2004, foreign direct investment in Russia rose to $9.4
billion.

The third consequence of this general negativity involves
Russian capital fleeing abroad. China also faces this problem to
some degree, although the more apparent underlying reason there is
the difficulty of legalizing corrupt or other illicit earnings, as
opposed to the risks of investing in the national economy.
In India, foreign investment has not moved to any significant
positions thus far. It stands at less than one percent of annual
GDP and exerts influence on a handful of sectors only, like the
automobile industry or the outsourcing of business services.

Both Russia and China have weak positions in the global
financial system. Although a number of leading Chinese companies
are represented directly or indirectly on the Hong Kong Stock
Exchange, integration of the Chinese financial system with the
international stock market is in the early stages. The Russian
stock market communicates with international markets through the
shares of a select group of big fuel, energy and metallurgy
corporations. The insufficient strength of Russian and Chinese
corporate business, where only a few companies from both countries
are listed among the world’s top 500 businesses, is the primary
root of this situation.

In recent years, China and Russia alike have been successful in
paying back their large foreign debts. China’s debt increased
considerably following the recalculation of these figures along
international standards after the country joined the World Trade
Organization. At the end of 2004, China’s debt amounted to $228.6
billion. Of that amount, short-term liabilities subject to
repayment over a twelve-month period totaled $104.3 billion, or 45
percent of the debt load. Russia repaid its sovereign foreign debts
intensively and eventually reduced them to $119.7 billion at the
beginning of 2005 from $143.4 billion at the beginning of 2002.

India’s external debt totaled $120.9 billion at the end of 2004,
including short-term debts that made up only 5.7 percent of the
total. The World Bank said India’s external debt to GDP ratio was
19 percent in 2003, while China’s debt to GDP ratio equaled 14
percent.

A steadfast surplus in the balance of payments, together with
stringent currency regulation rules (like the demand that exporters
sell all of their hard currency revenues to authorized banks)
predestined the huge growth of China’s foreign exchange reserves.
This figure reached $609.9 billion by the beginning of 2005, second
largest only to Japan (in Russia, an influx of oil revenues
propelled its foreign exchange reserves to over $120 billion from
around $40 billion).

China’s large foreign exchange reserve (and a number of Chinese
economic experts believe $150 billion to $180 billion would
suffice) prompts the country to revalue its national currency
against leading convertible currencies. The Russian government made
a step in that direction, too, deliberately or under the pressure
of circumstances. As the U.S. dollar fell against the euro, the
internal ruble-to-dollar rate decreased to RUR 29.45: $1 at the end
of 2003 from RUR 31.78: $1 at the end of the previous year, i.e.
the ruble gained 7.3 percent in value. This measure helped avert a
further fall of the ruble versus the euro (the ruble lost 25
percent in 2002 and another 11.2 percent in 2003 against the euro),
which is significant in a situation where much of Russia’s trade
and tourism is concentrated in the euro zone.

In 2004, the ruble went on strengthening versus the dollar and
hit RUR 27.75 by the yearend. Meanwhile, China kept its yuan
tightly pegged to the U.S. dollar despite pressure from the U.S. –
until the second half of the year 2005 (starting from July 21, yuan
was revalued by 2 percent, to the ratio 8.11 yuan for $1).

Both China and Russia seek to make their national currencies
fully convertible and are gradually moving toward this goal,
although neither country has a specific timeframe to meet it. The
yuan is gaining grounds as a currency for transborder trade with
neighboring countries, primarily in Vietnam, Cambodia, Myanmar, and
Russia. Although the Chinese themselves take a cautious stance
about the prospects for the yuan’s internationalization, this idea
is not ruled out in a distant future.

MUTUAL COMPATIBILITY AND COMPETITION

China’s banking and insurance sectors were increasingly opened
to foreign capitals following its pledges to the WTO, the most
authoritative international institution that sets the rules for the
world economy. One can expect the same will happen in Russia after
it joins the WTO.

Formally, WTO membership gives China indisputable advantages in
global trade as compared with Russia, but in reality the conditions
under which Beijing joined the WTO were far from ideal (certain
political considerations prompted the Chinese to artificially speed
up the final phase of the accession negotiations.) First and
foremost, China will be considered as a non-market economy during
the first 15 years of its membership. Second, WTO member-states
have the power to take protectionist measures against certain
Chinese exports during the initial twelve years of its membership,
while some member-states will be able to enact such measures
against Chinese textiles until 2008. Thus, Chinese experts surmise
that the space the WTO offers for China’s export expansionism is
actually rather limited in reality.

Russia, a member of the Group of Eight Industrialized Nations,
does not seem to have any advantages as compared to China either.
The Chinese are still sizing up the Group and only in 2004 did they
take part for the first time in a conference of G8 finance
ministers.

At the same time, Russia’s and China’s membership in the
Asia-Pacific Economic Cooperation forum (APEC) and the Shanghai
Cooperation Organization (SCO) enables their leaders to have
regular exchanges of information on pressing economic and other
issues. Both organizations, and the SCO in particular, offer a
solid institutional base for Russian-Chinese collaboration in the
phase of developing and implementing regional economic partnership
programs.

On the whole, China shows more activity in Asia as it calls for
the comprehensive development of regional cooperation, including in
the free trade zones.
Asian countries and territories top the list of China’s trading
partners. They accounted for 57.6 percent of its foreign trade in
2004, or more exactly, for 52.5 percent of its exports and 65.8
percent of imports. Its main partners in the region are Japan (14.5
percent), South Korea (7.8 percent), Taiwan (6.8 percent), Hong
Kong (9.8 percent), and ASEAN countries (9.2 percent). The same
nations are leading in terms of foreign direct investment in
China’s economy.  Hong Kong’s investment stood at 45.73
percent at the end of 2002, Japanese investment, at 8.11 percent,
and Taiwanese investment, at 7.39 percent. At the same time,
American investment in China amounted to 8.9 percent, while
European investment stood at 7.6 percent.

The European Union is gaining ever more importance for China as
both an economic and political partner. Beijing appreciates it as a
major player in the international arena, especially after the EU’s
enlargement on May 1, 2004. Chinese-EU trade rose to $177.28
billion in 2004, making up 15.3 percent of China’s foreign trade,
which means that it was bigger than trade with Japan ($167.88
billion) and with the U.S. ($169.62 billion).

Beijing regards the U.S. as a guideline for and benchmark of
economic development, as well as a priority counterpart in
international affairs – an opponent in some areas and a partner in
others. Washington looks at China very much the same way. After
all, the latter’s share in U.S. imports stands at 11 percent,
compared with Japan’s 10 percent and South Korea’s 3 percent.

Trade and economic relations between China and its main partners
– Japan, the EU and the U.S. – are far from idyllic. The EU has
launched a range of anti-dumping investigations against Chinese
goods and is putting up technical barriers against some types of
Chinese technologies. Furthermore, it is scrapping privileged fees
for imports on an increasing number of Chinese goods. The list of
American claims against China as a trading partner (for example,
the increasing trade imbalance, poor ecological standards of
Chinese goods, etc.) is also extensive. Beijing, for its part,
initiated similar anti-dumping actions against some U.S.
exports.

The zone of competition between China and Japan on the
international market is much more narrow than the zone of mutual
compatibility. This factor, as some experts in Beijing believe,
helps form an East-Asian regional economic coalition that embraces
both countries. This fact, however, does not rule out the
possibility of competition between the two nations for leadership
on the Asian continent.

For Russia, the republics constituting the Commonwealth of
Independent States offer the most natural space for integration
processes. Their share totaled 17.9 percent in Russia’s foreign
trade in 2003, or 15.3 percent in exports and 23.7 percent in
imports.

Europe (minus Estonia, Latvia and Lithuania) remains the major
trading partner for Russia. Russian trade with the Europeans
amounted to $92.9 billion in 2003 (48.6 percent). Russian exports
to Europe stood at 49.7 percent ($66.5 billion) and imports from
Europe, at 46 percent ($26.4 billion). The Europeans are also
leading in terms of investment in Russia. And yet close integration
between Russia and the United Europe remains a bit of a fantasy.
Europe is unwilling to see Russia become a full-fledged EU member
under any circumstances, although some Russian quarters admit to
the possibility nevertheless and continue to speak about Russia’s
belonging to European civilization.

Russian-U.S. trade is stable, with exports staying at about $4
billion and imports, at $3 billion. This stability may, among other
things, indicate that bilateral relations have attained a maximum
level of some kind. This casts doubts over the possibility of
expanding them further.

In contrast, Asia – and East Asia in particular – may turn into
a priority zone for Russia’s participation in regional integration
processes. The underlying factors for such a venture are the
compatibility of economies and the objective importance for Russia
of joining the now forming East-Asian center of global economy, a
third after the U.S. and Europe. That region offers considerably
more opportunities for Russia than does Europe or North
America.
India gives priority in its trade relations to the U.S. (17.5
percent in exports and 6 percent in imports from April through
December 2004) and the European Union (21.6 percent in exports and
16.7 percent in imports). Next on the list of partners is the
United Arab Emirates (4 percent in imports and 8.7 percent in
exports).

Bilateral trade relations between Russia and India, and Russia
and China are growing rather steadily. In 2004, Chinese-Russian
trade reached $21.2 billion, while Chinese-Indian trade stood at
$13.6 billion. Trade relations between Russia and India are much
weaker, with Russian statistics putting the volume at $3.3 billion
in 2003; Russian exports accounted for $2.7 billion of the total
figure.

A CRUCIAL PARTNERSHIP

The abovementioned statistics and commentary leads us to the
following conclusions.

First, China is well ahead of Russia and India
as to the degree of its engagement in the global economy, including
the realm of trade and investment flows. Thus, it understandably
desires to play the role as the engine of the Asian economy, as
well as becoming an “active growth factor” in the global economy on
the whole. At the same time, however, China may experience problems
in the future as it tries to consolidate positions in global
economic relations. It has vulnerable areas, like a scanty resource
base, together with a lack of affiliation with any
integration-minded regional groups. Thus, one may expect to see a
marked increase in China’s efforts to eliminate or minimize those
problems.

Second, the respectable positions Russia has
gained in the global economy largely proceed from its ability to
maintain and develop strong elements of its Soviet heritage, which
made it possible to engage in the international division of labor.
This proved to be profitable in the realm of particular sectors,
such as natural gas, crude oil, ferrous and non-ferrous metallurgy,
seafood products, defense technologies, atomic energy, and, partly,
space technologies and some classes of chemical products. Owing to
objective factors, Russia retains a high potential in international
transit transportation, while its role on the international oil and
gas markets may grow in the future, too. Also, Russia could
rejuvenate the still existing Soviet-era intellectual resources
(primarily in innovations, atomic energy, defense and space
technologies) on the Asian markets, provided the government and
private investors support these efforts.

Third, the rapid upgrading of services in
software and outsourcing of IT-based business services alters
India’s role in the international division of labor, yet the
latter’s relative advantages in traditional industries will play a
dominant role over the long-term.

Fourth, the zone of the three countries’
overlapping interests and mutual compatibility in terms of the
global economy is broader than the zone of their potential
conflicting interests. This lays a solid foundation for increasing
the scale of trilateral cooperation and ramifying its forms, as
well as for working together in the format of Asian integration.
However, economic orientation of the Chinese and Indian markets
(and Russian as well, to some degree) to the U.S., European and
Asian markets restricts opportunities for trilateral economic
cooperation on other markets, and thwarts efforts to improve the
terms of international trade.

Finally, although the political and economic
foundations of Russian-Chinese-Indian cooperation are
strengthening, it would be wrong to overestimate the actual
progress. At this point, each of the three countries views
relationships within the Moscow-Beijing-New Delhi triangle as a
matter of secondary importance, as something hypothetical rather
than realistic, or as a future project of the “reserve airport”
type – not really necessary. It may become a convenient plan should
complications emerge in other directions; otherwise these economic
blueprints will continue to gather dust.

But the benefits of more active trilateral cooperation outweigh
the possible handicaps. Reinvigorated cooperation will furnish each
country with levers for beefing up their individual and collective
positions within the global economic system.

Naturally, a Russian-Chinese-Indian partnership will not advance
further on its own. Continued efforts on the part of each country
are necessary to achieve progress that will serve their individual
interests, while consolidating their positions in the world.