The implementation of Belt & Road Initiative need a centralized decision-making mechanism, the search for new model can be based on China, Mongolia and Russia Economic Corridor, and Russia will move towards a more mature system.
Vladimir Yakunin, former President of Russia Railway, known as the eight Guardian Deities of Russian President Vladimir Putin, has his own view on reforms of Russian politics and economy, and on regional cooperation as well as global economic order.
Caixin: President Putin has made a long speech at the SPIEF, what’s the key message he tried to deliver?
Yakunin: For me, this should be the first time that the speech fully focuses on the Russia’s domestic development, on economy and politics. Geopolitics, and the relationship between Russia and the United States, were all raised by the host, Putin himself did not talk about these. This reflects that he is very concerned about the actual situation today, concerned about the economic development model.
This is not only because of the 2018 general election, because it’s crucial to stabilize Russia’s economy, which recently has seen relatively low inflation; but what’s also very important is how to maintain this trend, and make economic growth more powerful. He gave a series of important decisions to the Government, including improving business environment and protecting interests of investors. One important rule is that the conditions for investors from the beginning to the end of business operations do not change, it is very important.
Second, for the US-Russian relations, he is very sincere and open. First of all, he wanted to be more friendly to the United States, meanwhile remain objective. He did not take the bait from the host, but instead criticized Trump’s action to pull out of the Paris climate agreement. In my view, this is the stance he takes when he hopes improve relations, which respects mutual interests, and maintains objectivity and sustainability
He also said a lot of good things about China, and talked about Russia and India relations. He has given a clear signal: we are open to cooperation with other countries, especially in the Eurasian continent. What’s worth mentioning is that Prime Minister Modi also agreed that India’s relations with China, except for border issues, have no simple solution to everything.
Caixin: Has Russia befriended with China and India to counterbalance the US?
Yakunin: I don’t think he is trying to balance anything here, he only mentioned the US when the host asked about it. His focus is on the high expectation on China and India.
Caixin: China’s current strategy is to enter international economic and financial system, and carry out reforms from within. However, do you think we should change or even re-establish an international order?
Yakunin: I think it is “refreshed”. We need to be more realistic. We live in a world of diversity. In my view, there are only a small number of global governance institutions in the world, the World Bank, the International Monetary Fund (IMF), of course the US Federal Reserve is virtually everywhere. We are all in this system, we cannot immediately change them.
To me, the Belt & Road Initiative is not a simple economic plan. For example, what we are considering, is to make infrastructure the foundation of a new and possible social economic model. The development of these programs, a large number of cooperation between countries, will provide the world with an opportunity to conduct a test for some kind of new global socio-economic model. In this context, I think the leaders of the three countries, Xi Jinping, Putin and the Mongolian president on the establishment of China, Russia & Mongolia “Economic Corridor”, is a very good first test, to see whether these three countries can walk a different path, and whether new economic model will emerge.
There is not only cooperation on the national level, there are very pragmatic projects, and what’s important is that a new type of commercial management may appear on such a scale. In terms of project management, the core decisions of any business should be made from an entity.
For example, we discuss how to build and improve the infrastructure of the Eurasian continent through the Belt & Road Initiative, then why do we not lead through the Sino-Russian “economic corridor”? For example, there is a “North Railway” project, starts from China, goes across the Mongolian plateau, to the Russian cities. This means an additional 10 million tons of cargo for freight, which is very great possibility.
I would also like to stress once again that the Belt & Road is not just a global infrastructure investment plan. I also see it as an opportunity to build a new management system.
Caixin: But how can we reduce waste and ineffective investment, as concerned by some of the guests this morning?
Yakunin: Political parties, political leadership, can become the “umbrella” of the actual operation. The idea is great and the plan is recognized, and people around the world believe that infrastructure projects of that size are needed, but these cannot be achieved by China, our Siberia or West Africa alone. The question is how to build such a system in the end. Should the highest decision come from the actual operation, or should there be a project office, the only highest command?
In addition, the financial management system also needs to be different, with the incentives coming from the perspective of people, rather than how much profit banks can make. For example, when I saw a Russian bank make a profit of 300 billion rubles during economic downturn, you can’t help but ask, where did the money come from? If the answer is that it came from industrial enterprises, from people, or agriculture, it certainly cannot be satisfying. President Putin said the poverty rate should be reduced from 40% to 20%. Therefore, I hope that the banks can earn less profit, so that the money can flow to the “real” economy, to industrial production and service industry.
Caixin: As the former president of Russia Railway, I want to hear your view about railways, sea-shipping seems to be a cheaper way?
Yakunin: Yes, there is always a debate about which way. Shipping is cheaper, but longer, it takes 40 days from China to Europe. If the goods we are talking about have relatively high value-added tax, then you have to consider if the capital frozen in this 40 days should be taxed. I think it should. In fact, I am advocating for such an idea.
Now travelling across the Euroasian continent through land transportation would take about 14 days, with a possibility to decrease to 12 days, including delivery to customers’ doors. But of course, sometimes there are some accidents on the railway, but we do not operate depending on climate or season. Railway is safer. Some political factors should also be taken into account. For example, Somali pirates, tensions between countries. Therefore, I think the competitiveness is still there, and not being replaced by sea or road transportation. With the progress of scientific and technology, we do not know what will happen in 20 years.
Caixin: IMF said in its spring meeting that Russia’s economy has rebounded. The economy is expected to grow by 1.1% from last year’s recession, and is expected to grow by 1.2% next year. Has the Russian economy bottomed out?
Yakunin: I agree with objective indicators, but there will not be a strong recovery. The economy as a whole is still declining. The agricultural sector has grown for three consecutive years. Industrial and manufacturing sectors have also started recovering. These are positive. But the question is, is that enough? The answer is not so optimistic. We have had no cheap financing, inflation is about 3%, and we have to pay 11% interest rate for bank loans. The other thing is diplomatic challenge, how do we engage with other countries, which affects technology transfer and access to international capital market. These difficulties are still there.
In my view, what Russia Railway has done in 2008 reflects a strategic layout aiming for 20 years in the future. I do not have much sense of ideology, such as where our direction is in the next 20 years. If you engage in a three-year plan, it will affect the Russian business and investment environment, but three years is too short. When we discuss long-term economic development plans, we have to ensure that infrastructure is adequate and perfect. If we are talking about all-round development, we should understand what people’s needs really are. The core is not just GDP, but people’s living standards.
Caixin: We’ve seen Russia is making effort to diversify its economy, what’s the biggest different this time?
Yakunin: After 1991, our main political process has become different. We should understand that it was a period of restructuring, not just modernization, but a complete overhaul of political system. So today, in the face of sanctions, we see this system survived. This means that we should move to the next stage, that is, a more mature system.
Now, the country should go further, should take full advantage of the knowledge we accumulated in the past 20 years, including geopolitical aspects, from Ukraine, Syria and lessons learnt from other global issues.
This is not just about Russia, but also for China. This is very essential. I guess before the general election, the president will introduce a more detailed plan for the future, including economic and social development.
Caixin: What should we expect for the 2018 election?
Yakunin: I think Putin will participate in the election, and is very likely to win. Then we shall see sustainability of policies, in terms of geopolitics, strategic cooperative partnership with China, and the implementation of the objective that has already been reached on projects in Eurasian continent. I think what’s the most crucial, for the China-Russia-India, are Eurasian projects. President Xi Jinping supports globalization, and thinks that the globalization process is irreversible. We, as political scientists, believed that globalization will be achieved based on science and technology, communications, trade. Globalization is different from “globalism”. Globalism is an ideology, is the interpretation of neo-liberalism. It contains a universal standard of value in it. It is impossible to achieve.
You can discover the beauty of the world based on the extent of difference, but globalization does not mean a homogeneous world, rather it should promote diversification more, including alternative development path. In a globalization framework, I think there is huge room for interregional cooperation. I do not agree with the “regionalization” because this is part of globalization. Eurasia is a very good place for experimental site. We will see very strong cooperation, including fighting against terrorism, protecting of national sovereignty and so on.
Caixin: What’s China-Russia relations like, is it hot in politics and cold in economy?
Yakunin: I have a lot of Chinese friends, and what I hear the most is that they do not understand the Russian system. Chinese rules are very structured: you know what the rules are, and then you follow the rules. In Russia, they are easy to get confused. They get permission from one department or institution and thought they are welcomed and go to another department and feel like they are not welcomed. Doing business in another country is never easy, especially in Russia. We need to bridge these gaps.
The most important is the consistency between federal and local laws, and reach special inter-governmental agreements in specific areas through implementing long-term development plans. This is the only way to paint a clearer picture for entrepreneurs, ie, what is the law, what are the conditions, who are responsible.
Caixin: What are the areas that have the largest potential in China-Russia cooperation.
Yakunin: We have reached agreement on helicopter production. Also in Russia and Mongolia, including infrastructure between Russia and China. In addition, China is interested in getting some facilities along the Far East coast. It is reasonable to get more protection for the shipping line while the Yellow Sea sees tension. The other thing is to discuss exports of resources and energy to China from Russia, via Mongolia. Finally, the infrastructure projects should be aligned. For example, in northeastern China, cross-Siberian rail transport is a better way which should be better designed. There is also a lot of cooperation in industrial sectors.
