[BRIEF NOTE] Russia as Canada

From RIA Novosti's press roundup, translated from the Russian from the journal Business and Financial Markets:

Russia turning into China's trade colony

The "big leap" in Chinese exports has enabled China - for the first time since the breakdown of the Soviet Union - to end the year with a trade surplus of $8.8 billion. Russian exporters have to admit that the Chinese market has practically been lost for goods with high added value.

Russian supplies to China are mainly crude oil and timber. The only exception is the chemicals that are still required in China.

On the other hand, engineering products have come to dominate Chinese supplies to Russia - last year they rose almost 90%, up to $8.7 billion. Supplies of vehicles from China to Russia have almost doubled, and the export of Chinese consumer goods has grown by 278%.

Experts said that in the past few years the trade and economic relations between Moscow and Beijing have undergone irreversible changes.

"Today a typically colonial structure prevails in trade between Russia and China. We supply raw materials to them, and they export engineering products to us," said Dmitry Sorokin, first deputy director of the Russian Academy of Sciences' Economics Institute.

He said that 10 years ago engineering products made up about one quarter of Russian exports. Raw materials and energy resources accounted for 5% of the total amount exported.

Now the picture is entirely different. Only 1.5% of Russian exports to China are engineering products, while two-thirds are energy and timber.

Chinese partners are in fact dictating to Russian exporting companies the prices at which they agree to buy hydrocarbons.

"China is energy-independent and in a position to substitute Russian gas and fuel oil with coal, reserves of which are vast in China. We, however, have no choice. Without Chinese contracts we will not be able to diversify our energy exports in order not to be tied exclusively to the European market," Sorokin said.

In the past, following Will Baird, I've blogged about Russia's potential future as a Chinese client state. This news item makes me think that Russia's relationship with China might rather be quite similar to that of Canada and the United States, exporting natural resources in exchange for high-value added goods.

The Watkins Commission, chaired by economist Mel Watkins was set up by the Liberal government and made its report in 1968. Watkins is an economics professor at the University of Toronto, and carried on the tradition of Innis and Easterbrook, connecting the staple model with a form of Marxist class analysis. Watkins, along with Jim Laxer, became influential in the NDP and were leaders of the Waffle in Ontario, a group that argued that Canada was dominated by the United States, and that Canadian nationalism was progressive and could lead in the direction of socialism. The Watkins Commission showed the extent of foreign ownership and argued that this hurt Canada. The arguments from this Commission and the Committee for an Independent Canada (set up by Walter Gordon) were influential in setting up the Foreign Investment Review Agency, Petro Canada and various other attempts that would allow Canadians to exercise more control over their economy.

Tom Naylor, in an influential article in the early 1970s, combined the Canadian historical approaches of Creighton and Innis with the Marxian categories of mercantile and industrial capital. Naylor, a professor of Economics at McGill University, argued that the colonial ruling and business class in Canada was essentially a mercantile class that made profits by marketing and transportation. According to Naylor, these Canadian capitalists were not interested in developing Canadian industry, with the result that Canadian industrial development has lagged and Canadian industry became dominated by United States capital.

This fear of being marginalized by a much more populous and wealth neighbour has played a major role in Canadian politics, making Canada's 1988 free trade agreement with the United States very controversial. I have no idea how this sort of tension could translate into a situation where the weaker power is also a regional superpower of note, but if the Russian leadership does think that it's interests have to be solidly intertwined with those of China some sort of tension is bound to arise.

[BRIEF NOTE] Vojvodina Notes

A new article at Balkan Insight, Neil MacDonald's "Serbia Luring ‘Brownfield’ Investors", caught my eye the other day. In the autonomous Serbian province of Vojvodina, "brownfield" investments in an idle and decayed industrial economy seem to be taking off.

Strong economic growth forecasts, continued flows of remittances from Serbs working abroad--often used to finance homebuilding--and Serbia’s gradual progress toward membership in the European Union all make Windisch optimistic about the domestic building materials market.

While Serbian economic officials talk frequently about attracting "greenfield" investors, many foreign investors have opted for a less dramatic entry into the southeast European market of 8 million.

"Brownfield" investment in existing factories, warehouses or other industrial assets is a faster, lower-cost way to seek earnings from the former Yugoslavia’s massive, if decayed, industrial capacity.

Weinerberger first set up a Serbian sales office at the end of 2006 and last month purchased 100 percent of IGM Backa Nova, the local private company behind the Mali Idjos brick factory. The price, though undisclosed, was right for a "mid-sized old plant" with "a reliable basis for development," Windisch says.

Far from crumbling or moth-balled, the Mali Idjos plant with 50 workers reported revenues of 2 million euros last year. Weinerberger intends to hire 100 more workers.

Nowhere is successful "brownfield" investment more prevalent in Serbia than in Vojvodina. Weinerberger’s investment is one of countless examples in the northern autonomous province, traditionally the country’s strongest industrial area.

Since October 2000, Vojvodina has regained fiscal autonomy from Belgrade. More recently, since May 2004 when the EU launched its waves of enlargement into post-communist Europe, Vojvodina has gained common borders with two EU countries, Hungary and Romania.

"Vojvodina is from our point of view a market with prospects of good development in the future," Windisch says.

Vojvodina has always been a region with experiences diverging from that of Serbia proper, these experiences rooted in a particularly complex local history as described in Brian J Pozun's 2000 "A New Sky Over Serbia".

For a long time, there has been an academic controversy over whether the Serbs or the Hungarians were the land's original inhabitants. In 1918, the region became part of the Kingdom of the Serbs, Croats and Slovenes, later Yugoslavia, but until then it had been part of the Hapsburgs' Austrian Empire.

Proud of their Hapsburg, Central European culture, the residents of Vojvodina distance themselves from the rest of Serbia, feeling closer cultural affinity to Croatia, Slovenia, Hungary and other former Hapsburg areas. One ethnologist found the Vojvodinian ideal to be fini ljudi, in other words, cultured and civilized. Vojvodinians put their fini ljudi concept in diametric opposition to their prejudice of the uncivilized "Balkan" types to the south.

Vojvodina became an autonomous province of Serbia under the terms of the 1974 constitution, together with Kosovo and Metohija. De jure, it was still part of the republic of Serbia, but de facto, it functioned as a full-fledged republic. Five nationalities were accorded the status of "titular nationality:" Serbs, Hungarians, Slovaks, Romanians and Rusyns.

This autonomy was eventually revoked under pressure from Milosevic in the late 1980s, and Vojvodina effectively subsumed Republic of Serbia. At the beginning of the Yugoslav wars, as outlined in a CSIS commentary from 1991, Vojvodina had prospered quite nicely: GDP per capita in the richest Yugoslav republic, Slovenia, was $US 12 618, Croatia ranked second at $7 179, Vojvodina came a close third to Croatia at $6 949, GDP per capita in Serbia proper was $4 870, and GDP per capita in Yugoslavia as a whole was $5 434.

This prosperity soon came to an end. As Vladimir Gligorov notes in his essay "Southeast Europe: A History of Divergence" (PDF format), the stresses of war and sanctions created a massive economic collapse in Vojvodina, with gross social product per capita slipping from 60% of Slovenia's at the beginning of the 1990s to a mere quarter at the decade's end. Multiethnic Vojvodina was fortunate to avoid the warfare that hit other Yugoslav territories, and many ethnic Serb refugees from the lost wars were resettled in Vojvodina, perhaps attracted by an average level of income perhaps a quarter higher than that of Serbia proper.

A Vojvodina that borders directly onto the European Union member-states of Romania and Hungary, and the prospective European Union member-state of Croatia, has obvious potential. Before 1991, Vojvodina was one of the wealthiest regions in that part of Europe. Assuming a stable political environment, quite a lot of catch-up growth could be possible. That, unfortunately, is a big assumption: Tomislav Nikolic might be in the lead in the next round of Serbia's presidential elections.

[URBAN NOTE] Disenchantment

Back in summer, I passed a restaurant once. It was, and is, the sort of restaurant that has tastefully dim lighting and modern slim-legged Scandinavian tables and floor-to-ceiling plate glass windows separating the customers from the hoi polloi. The plate glass windows had been taken out because it was summer, and the planters had been filled to a decent level with greenery to compensate.

I was in a hurry that day and only saw the couple for a few seconds. From what I saw, I could tell that she was beautiful, a long-legged blonde in a body-clinging dressed with manicured fingernails and blonde hair set in an impeccable hairstyle, seductive body language and a politely interested face. He wasn't as good a sight--overweight, with badly-cut hair, leaning forward too much at the table--but he certainly looked happy.

- Business has been good, he said.

And that's when, for just a fraction of a second, I saw her look so terribly bored.

I walked on.