Is there potential for creating a Eurasian value zone or Greater Eurasia as an economic pole?
Three cost zones
In the previous material “What do economic poles look like in facts and figures”, the state of foreign trade relations was examined in some detail, which allows us to say that today we have three full-fledged cost zones.
Chinese: the economy of China and the countries of Southeast Asia, with a foreign trade turnover of 13,37 trillion or 42% of global trade. At the same time, the depth of penetration of countries into trade with each other is 48%.
American: the economy of the USA, Canada and Mexico, with a foreign trade turnover of 7,44 trillion or 23% of global trade. The depth of penetration of countries into trade with each other is 65%.
European: European Union, Southern Balkans, Britain, Norway, Switzerland and Turkey, with a foreign trade turnover of 8,76 trillion or 27% of global trade. At the same time, the depth of penetration of countries into trade with each other is 50%.
There are no analogues of such trading systems in the world yet, and here we, in fact, see the very “poles” that are discussed by different authors on different platforms.
The United States, having cross-trade turnover between the European and its own value zones of 12%, almost completely controls the military and political sphere of Europe, which allows them to count on a potential merger into one supercluster. Actually, this is discussed directly and openly, officially and expertly.
China, on the contrary, from the point of view of military-political control, does not have such a base in the Southeast Asian countries, but has a trade dominance in trade with the Southeast Asian countries (from 22% and higher by country). Beijing is trying to compensate for its military-political influence through the conceptual ideas of the “Community of Shared Destiny” and the network of “One Belt, One Road” projects.
There is little doubt that with complete Tolstoyan “non-resistance” on the part of Europe, its political elites will come to the creation of a single value cluster with the United States. This will ultimately give, and IMF forecasts here only provide additional argumentation, two cost macroeconomic zones, controlling 52% (American-European) and 42% (Chinese) of world trade.
At the same time, the penetration depth of the Chinese will still be the same 48%, while that of the Euro-Americans will decrease slightly - to 43%, since the US has higher trade diversification than the backbone of the economies of old Europe.
Each side sees the development of these structures differently.
China aims to include Russia, Central Asia, Azerbaijan, Iran and the northern part of the Middle East (Iraq - Syria - Lebanon) into its value zone, while having Africa as an additional resource base and potential sales market.
The United States aims to decouple the entire Middle East from Iran, connecting it with the Indian markets into a third macrocluster, a balancer. Prevent China from completely including the Central Asian economy in its zone, and join the Transcaucasus to the European trading system, preserving the position of North Africa as the EU's raw materials sector and strengthening the import of raw materials from South American countries.
Everyone is paying attention to the issues of Ukraine and Taiwan, now Israel has been added, but in reality, the United States and Taiwan have reduced trade turnover by almost 40% and continue to reduce it even in the field of high technology. The base is trade and value, and foreign policy maneuvers do not always directly correlate with these processes.
Pole of Russia
Knowing the positions outlined above, let’s try to describe our Russian position at this “celebration of life.” Judging by the “One Belt, One Road” summit in Beijing, Moscow intends to work vectorially not to the East, but to the South. We don’t want to go to the Chinese macrocluster (or we don’t want to yet). The question arises about what model of creating your own separate “pole” between two cost “monsters” is possible and realistic. We see that China is not the United States; Beijing does not put pressure on Moscow like the United States does on Europe, allowing everything to take its natural course.
Let's see how trade relations are built between Central Asia, Iran and Russia. We don’t have that many countries, so the indicators don’t need to be compiled to the same extent as in the previous material.
And here it is necessary to make an obligatory remark that the cost zone does not necessarily have to be described by mega-indicators. For example, the United States has a common “own” value zone - this is about 20% of world trade turnover; we and Belarus also have a common value zone - very small, but our own. Another question is how this value zone feels between large millstones, what are the development strategies and reserves.
It is also important that Russia still trades hydrocarbon raw materials as its base. This is a “raw materials curse,” but in some cases it’s not really a curse, since the value of 1 dollar spent on oil is higher than 1 dollar spent on an iPhone. Water in general also costs pennies, but what happens if you remove water from sale?
Foreign trade of the countries of Central Asia (or in the old fashioned way - Central Asia) fluctuates around a value of 0,205 trillion. dollars. At the same time, trade within the region is less than 5% of the total - 0,010 trillion, trade with Russia: ±0,041 trillion (20%), with Turkey and Arab countries - 7,3% each (0,015 trillion), China - 0,052 trillion (25 %) and the European cluster 0,047 trillion or 27%.
Due to sanctions and falling prices, Russia’s foreign trade has decreased to 0,758 trillion from the record year (and apparently the last record-breaking year) of 2022 – 0,850 trillion. Structurally, it looks like this so far: European trade - 0,260 trillion (30,6%), Turkey - 0,063 trillion (7,4%), India - Pakistan - Bangladesh: 0,026 trillion (3,1%), China - 0,190 trillion ( 22,4%), Southeast Asia - 0,094 trillion (11%), Africa and Latin America - 0,020 trillion and 0,025 trillion (2,4% and 2,9%), Middle East and Israel - 0,029 or 3,4%. Trade with Belarus is growing decently - 0,50 trillion and 5,9%, and quite indecently with Iran - 0,004 trillion and 0,5%.
If it were not for sanctions, then we could even be happy about 20% of mutual trade with Central Asia, since in 2018–2021. the numbers were 30% lower. But the problem is that if with Belarus we are based on trade turnover of domestically produced products (by the way, in 2010–2018, a third there was “re-export”; now it is based on production), then growth in Central Asia is associated with parallel imports.
On the one hand, in theory, we can simply issue targeted loans worth $45 billion to residents in Central Asia in order to increase the level of trade turnover within these countries with Russia to 50%. However, this will not be a value zone, but a Central Asian trade hub for remaking nameplates, re-gluing boxes and re-stuffing packing lists. Actually, we will not increase our foreign trade turnover either, since we will be covering the shortfall in turnover from European trade.
The second bottleneck of our mutual trade is that the entire total trade turnover of the Central Asian countries relative to the total Russian one is 5%. For Southeast Asian countries, relative to China, this is above 25%; for Mexico and Canada, relative to the United States, this is above 23%.
It cannot be said that the situation with the creation of the Eurasian value zone looks hopeless. If we take average statistics, then to obtain a result in a 7-year cycle in the form of production (and trade) of products in joint ventures, taking into account the growth of the Central Asian economies of 6% per year, to increase domestic turnover to 50% or +45 billion dollars (t i.e. increase in trade in own products) capital investments of 92 billion and a subsequent system of revolving credits are required. That is, it does not look like something overwhelming and unbearable. It will even be possible to send some migrants back to work there later.
But China is going to build exactly the same thing there, and partially sell what it produces to us in our own markets. The Central Asian countries themselves will not refuse to deal with either the European zone and Turkey, or even less so with China. And other players wouldn’t refuse. Europe buys the most and has the most luck (27%), but does not seek to increase its share, China gives 25% of turnover and is ready to increase its share to 50%, Russia has 20% of turnover, but does not provide programs similar to Xi’an the summit in May of this year.
Then capital investments must somehow be included in the overall growth of consumption in the region and, above all, in our country. Moreover, such indirect, and in some cases direct competition with China will inevitably raise the question of additional investments in infrastructure, since you are building and electrifying the route more for yourself than for your good neighbor.
Now China offers approximately the following in the region: China invests in logistics, industrial production and consumption, Russia provides this with additional raw materials and generation, creating additional and stable income for itself. But in trade we will receive imports from the region that are in fact Chinese.
Which option is better?
Create your own cost zone by getting involved in competition with China, or go for the Chinese option. In fact, based on the current negotiations and contracts, it looks like we have agreed to the Chinese option. If we take an analysis of the speeches in Beijing at the “One Belt, One Road” forum, then we are talking about the option of “gnawing through” the construction of a common cost zone “Greater Eurasia”.
If we talk about the poles and cost zones, then Iran is asking to enter our markets; its market is almost 90 million people. The total trade turnover in foreign trade is $100 billion, of which 60% are the markets of China and Southeast Asia, 20% are the Middle East, 4% are Russia and 2,5% each are the countries of Central Asia and India. Iran plans to increase trade turnover with India to $30 billion, but these are raw materials supplies that are more competitive with us than vice versa.
Taking into account the Central Asian countries, at the current sad 6,5 billion dollars, the total trade turnover with Iran will have to be raised not just significantly, but very seriously - to 47-48 billion dollars. This requires a corresponding addition to Central Asian capital investments of $96 billion and similar reserves for working loans. It should be noted that Iran is a unique food hub in the Middle East. Through the grain deal, Turkey filled its entire north with flour, and the flour could have been ground both in Iran and here.
Does it seem unrealistic to create your own “northern” or “central” value zone, which will work between the millstones of the trading megasystems of the West and the East?
In money, this is $27–30 billion per year in capital investments for five to six years and $23–25 billion in revolving loans annually from the third to fourth years of the program. No, it doesn’t look like it, especially if you look at the projects that were financed by us for years and for years disappeared somewhere. It doesn’t look like it will be financed on even a minimal share basis. The corridor “to India” with a turnover of hundreds of billions looks unrealistic and incomprehensible, but its own cost zone does not.
Your own zone of value is stability and independence, which, on occasion, can be converted into geopolitics. This is not synonymous with sovereignty in a world that is divided into large clusters, but an important support for independent decisions. And it is very important that the calculated potential for this still exists. It is even surprising that it is possible based on the indicators. Usually in our time it is just the opposite.
But what’s sad is the passing of time. Such initiatives should be accompanied by the elaboration of issues like the Chinese declaration at the Xi'an Forum, as well as a value and conceptual framework akin to the Chinese ideas of the “Community of Shared Destiny.”
The author recently with interest analyzed the results of the “One Belt, One Road” forum in Beijing, where Moscow not only did not follow the ideas of the “Community of Shared Destiny”, but directly stated that it was returning to the concept of “Greater Eurasia”. And taking into account the millstones this concept falls between, it was very interesting to look at both the millstones themselves and the potential of the value of the Eurasian zone in numbers. Strange as it may seem at first glance, the potential of the project is not illusory even between the millstones of such a scale.
How much time we have to provide our neighbors with a program of this kind will most likely be determined in the coming days at the APEC summit. The summit will be devoted not so much to regional issues as to a discussion of the principles of coexistence of the American-European and Chinese clusters.
If the parties come to a framework agreement, which is not predetermined, then China will become more active in Central Asia, and we will simply face the fact that the Chinese cluster has become “Chinese-Russian.” This option is prescribed in the IMF analytical documents.
If such agreements or prototype agreements are not concluded, then the next six months can be tried, among other things, to be spent on a program like the “Russian Xi’an”.
If it doesn’t work out, and again everything traditionally moves “to the right,” then you will have to forget about your cost zone and build their concept together with the Chinese, and pragmatically put aside your ambitions.
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