Russia to compete for ASEAN market with China and United States

Source: Reuters

Source: Reuters

The sanctions imposed on Russia by the EU and the U.S. over Moscow’s role in the Ukrainian crisis has led to Russia starting to diversify its investment risks and expanding trade ties with Southeast Asia. Statements made during Russian Prime Minister Dmitry Medvedev’s recent visit to the region underlined Russia’s intentions to fight for a share of the ASEAN market with the U.S. and China.

Russia is aiming to double trade with three countries in Southeast Asia by 2020 – with Thailand and Indonesia to $10 and $5 billion, respectively, in 2016; and with Vietnam to $10 billion, according to statements made during a recent official visit to the region by Russian Prime Minister Dmitry Medvedev.

However, trade partnership with Russia is interesting not only to nations belonging to the Association of Southeast Asian Nations (ASEAN). According to the news agency Yonhap, South Korea intends to participate, along with Russia, in a consortium project in the North Korean special economic zone of Rajin-Sonbong in late April.

"The conflict between Russia and the West in the context of the Ukrainian crisis raises yet another ambitious goal for Korean diplomacy," said South Korean Vice Foreign Minister Cho Tae-yul in Seoul on April 13.

April ambitions

In the course of the visit by the Russian delegation, agreements were signed to upgrade Vietnamese power plants as well as to supply Hanoi with Sukhoi Superjet 100 aircraft and railroad cars. Russian companies are also in negotiations on the construction of Vietnam's first nuclear power plant Ninh Thuận I, the acquisition of the Dung Quat oil refinery, and the assembly of Russian KAMAZ trucks in the region.

From Vietnam, the Russian prime minister went to Thailand, where on April 7-8 he signed agreements with the government of Thai Prime Minister Prayut Chan-o-cha, which again featured cooperation in the energy sector and the supply of Sukhoi Superjet 100 planes and KAMAZ trucks, as well as the use of Thai capital for the construction by Russia of a railway in the Kalimantan region of Indonesia. In turn, the Thais have managed to negotiate the expansion of the supply of their agricultural products to Russia.

Competing alliances

One of the key statements during Medvedev’s tour was made by Prime Minister Nguyen Tan Dung, who said that the negotiations on the establishment of a free trade zone between his country and the Russia-led Eurasian Economic Union (EAEU) may be completed in the coming months.

"Vietnam is a great base for entering the dynamic ASEAN region and making contracts with other countries of the alliance," says Yaroslav Lisovolik, head of the analytical department of Deutsche Bank.

Apart from ASEAN, the U.S.-led Trans-Pacific Partnership (TPP) is trying to enter the region, while a local free trade zone between China and ASEAN is also in operation.

"Russian business is often inferior in terms of competitive ability to businesses from the EU, the U.S., Australia and China that are already working in Vietnam and Thailand," said Yury Zaitsev from the Institute of Applied Economic Studies at the Russian Presidential Academy of National Economy and Public Administration (RPANEPA). According to Zaitsev, the peculiarities of state regulation in Asia are also a barrier to Russian business.

However, according to Lisovolik, Russia still has a few advantages in foreign trade in alliance with ASEAN: "First, we can open the entire EAEU market to our partners. Secondly, offer of fuel and energy cooperation with Russia will be interesting for many countries," he said. 

Viktor Sumsky, director of ASEAN Centre in MGIMO-University, says that in addition, Russia will try to step up cooperation between regions. "The emphasis is on attracting investment to the Russian Far East," he said.

As its relations with Europe and the U.S. freeze over after the fall-out in relations over the Ukrainian crisis, Russia is following a policy of actively developing trade cooperation with Asian countries. "For us, Vietnam and Thailand are the diversification of export-import and investment risks," Zaitsev says.

On the whole, Russia has chosen the correct vector to pursue, says Lisovolik: "ASEAN is the most dynamic and fast-growing market in the world today."

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