Russia and China: Economic Transformation and Development - Research Paper

Introduction

Russia and China are two countries that have significantly received a lot of media attention in the last decade. The two countries have significantly transformed both economically and politically hence impacting on their growth and development. It should be noted that for the decades before as well as after their transformation to the markets, the economic relations were noted to be geographically contiguous where both China and Russia were continually lagging behind regarding the commercial ties with the rest of the world.

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Economic Changes From 2000

Since 2000, the two countries have demonstrated a movement towards economic cooperation in various fields as demonstrated in the economic data. The nominal GDP in Russia and China in 2000 was $259.7 billion and $1211.0 billion respectively. However, the values demonstrated a steady increase for the next couple of years till 2017. The nominal GDP per capita in Russia was recorded as $989.9, $1300.0, and $1578.0 billion for 2006, 2007, and 2017 respectively. In the same way, the GDP values for China for the three years were $2099.2, $2695.4, and $8827.0 billion respectively. In this regard, the two countries demonstrate a steady growth in their economies per capita since 2000. The growth GDP per capita in the two countries can be attributed to increased work rate with both countries showing a steady reduction of unemployment since 2000. For example, Russia recorded a percentage unemployment of 10.6%, 7.1%, 6.0%, and 5.2% for the years 2000, 2006, 2007, and 2017 respectively.

On the other hand, China showed an increase from 3.3% in 2000 to 4.4% in 2006. However, there was a slight reduction in 2007 with 4.3% which increased slightly to 4.4% in 2017. Although the values of China were not consistently reducing, they were significantly lower than those of Russia in the same period. In both countries, the accounts balance demonstrates an increase from 2000 to 2006. China's current account balance in 2000 was 20.5 billion USD which increased to 231.8 in 2006, and a further increase to 353.2 in 2007. However, 2017 recorded a significant reduction to 164.9 billion USD. For Russia, the values recorded were 45.4, 92.3, 72.2, and 33.3 billion USD for the four years respectively. The significant changes could have been impacted by foreign exchange rates and FDI inflows. Fr example, showed a steady increase of FDI inflows from 124.1, 156.2, and 168.2 billion USD for 2006, 2007, and 2017 respectively. Similarly, Russia had 37.6, 55.9, and 28.6 billion USD respectively. The Chinese Yuan exchanged at $8.0, $7.6, and $6.8 for 2006, 2007, and 2017 respectively. Similarly, the Russian Ruble exchanged at $27.2, $25.6, and $58.3 respectively. The economic and trade values both countries indicate a significant economic development in both countries.

Ethical Framework of Russia and China

Both China and Russia demonstrate an economic risk regarding possible investment. However, the analysis demonstrates that there is a higher risk for a firm investing in Russia than in China. Some of the considerations for international firms regarding foreign securities has been demonstrated to be stock bonds and exchange-traded funds among others. It should be noted that China has a stronger and hence a more reliable economy for investment which offers stronger finances. For example, China has a total investment of 44.4% of the GDP while Russia has only 18.1% of GDP which is less than half of China for the year 2017. Regarding the corruption index, China has a rank 87 against Russia's 138 in 2018. Therefore, these economic indicators together with a higher FDI inflow in China at 2017 168.2 billion USD against 28.6 billion USD are a good indicator for investment in China hence less risk than Russia.

Comparative Advantages

The trade data for China in 2017 demonstrate that the major exports include non-agricultural products such as computers and broadcasting equipment at $147,000 and $232,000 respectively. However, China still imports integrated circuits worth $207,000 and crude petroleum worth $145,000. It can be suggested that the country makes use of its comparative advantage as the exports are maximized without importing similar items. For example, while the country exports dried vegetables and onions, it instead imports soybeans and other fruits that it cannot produce. However, in the agricultural sector, the imports value is higher than the export value showing they do not use the comparative advantage effectively. Conversely, Russia shows significant use of its comparative advantage with major exports being crude petroleum and refined petroleum at $96,600 and $58,400 respectively while the non-agricultural imports cars and packaged medicaments $7,690 and $8230 respectively. In this regard, it can be noted that Russia is using its comparative advantage more effectively than China.

Natural Trading Partners

The issue of natural trading partners has raised controversial debates among scholars who seek to debunk the hypothesis with favor on preferential trading partners (PTA). Based on the data presented, it can be argued that China has natural trading partners in the United States, Germany, South Korea, and Japan. The four countries form the list of major trading partners for both exports and imports in 2017. On the other hand, Russia also has four countries among the top five importers and exporters demonstrating a natural trading partner sequence. Among the major exporters and importers, Russia has China, Germany, Belarus, and the United States. In such scenarios, there is a high likelihood that both China and Russia are likely to develop regional trade agreements with their trading partners.

Restriction on Trade

The reports on the duties and tariffs in Russia and China demonstrate that both countries have a significant restriction on trade. On both countries, the coverage applied was 100 in 2017 for both the agricultural and non-agricultural products. However, Russia has a significantly higher number of distinct duty rates bound at 803 against 40 for China for the agricultural products. Similarly, the non-agricultural products demonstrate a higher rate in Russia at 644 to 55 in China. With a higher MFN applied, it can be established that Russia may be imposing more regulations than China for traders.

Distribution of Product

Both China and Russia seem good ventures and locations for distributing products based on their imports and regulations. Based on the economic indicators, it would be more considerate to invest and distribute products in China than in Russia. The analysis demonstrated that China has a stronger economy than Russia. This implies with the fewer restrictions noted in China compared to Russia, one is likely to generate more revenues by investing in China than in Russia. Besides, China has a stronger value of current than Russia against the US dollar. In this regard, there is a likelihood of better investment returns in the country. China has also demonstrated more stability regarding international trade based on the accounts balance and the inflows for Foreign Direct Investment. Therefore, an FDI would be more profitable in China compared to Russia hence I would more likely distribute products to China as opposed to Russia.

Conclusion

Both China and Russia are major economies globally that contribute to global economic development. The analysis demonstrates that both countries have been realizing steady economic development from 2000 to 2017, which is impacted by various economic and financial decisions undertaken by both countries. For example, it was noted that China has significantly reduced administrative barriers towards trade which has supported increased foreign investments in the country. With various changes taking place, the countries are predicted to continue growing their trading activities and hence their economies.