Research on Trade Effect to Establish Sino-Russian Free Trade Area (FTA) on the Basis of the Partial Equilibrium Model

Abstract

On the background of new economic normality, the regional cooperation between China and Russia has got rapidly developed. Russia is the important country of the “one belt and one road” line, and to establish free trade area is the main propulsive forms of “one belt and one road”. The paper analyzes the trade effect of setting up Sino-Russian Free Trade Area (FTA). It includes trade create effect and trade transfer effect between China and Russia in partial equilibrium analysis, SinoRussia trade intensity index calculation, for the purpose of setting up Sino-Russia FTA to governments. It can get the following conclusions: in terms of trade intensity index, Russia is more dependent on the Chinese market; Russia achieves more trade creation effect from Sino-Russian Free Trade Area than that China obtain; the comprehensive trade effect of Sino-Russian FTA is positive. Introduction of Sino-Russian Trade Situation As the success of Russia accessing to WTO in 2011, the economic and trade cooperation between China and Russia will launch on more standardized platform. According to China customs data, 2014, Sino-Russian bilateral imports and exports of goods amounted to 95.28 billion dollars, rose 6.8%. Russian exports to China $41.60 billion and Russian imports to China $53.68 billion, we were balance of $12.08 billion. China has become Russia’s secondlargest export market and the largest source of imports in 2014. Under the strong advocates of China and Russia leaders, “the two multi-billion dollar” goal will be accomplish, that is the trade volume between China and Russia will reach $100 billion in 2015, to the year of 2020 trade volume will exceed $200 billion. In May of 2014, Russia President Putin’s visit to China strengthened the comprehensive strategic partnership of cooperation into a new level between two countries. On 21 of May, Sino-Russia signed a bill of $400 billion in natural gas sales-purchase agreement. These all have laid a solid foundation for the establishment of Sino-Russian FTA. In 2014, after the crisis of Ukraine broke out, Russian economy was hit by the sanctions of United States or European countries. It’s necessary to speed up the development of the Far East and expand economic cooperation with Asia-Pacific countries. Therefore, China and Russia establish FTA accords with the long-term interests and mutual interest of both sides. International Conference on Humanities and Social Science (HSS 2016) © 2016. The authors Published by Atlantis Press 584 Sino-Russian Trade Intensity Index Analysis Bilateral trade intensity between China and Russia is stable and showed a trend of increase. In order to measure the importance of the bilateral trade relationship, Brown (1949) and KeJiMa (1964) for the first time, puts forward the concept of trade intensity, Lars and Dyer who (1982) on the basis of the derived a formula, i to j countries’ export trade intensity index are as follows: )] /( /[ ) / ( i w i M M X M X I j ij ij   . (1) Among equation 1, Xij means the country of i to j export; Xi means the country i to j total export; Mj means country j total imports; Mw means the world's total imports; Mi means country i total imports. The formula showed i to j’s export on the proportion of total imports and besides i country, the rest countries’ import on the proportion of total import. Table 1 shows the foreign trade turnover between China and Russia in the five past years from 2010~2014. On the whole, Sino-Russian trade increased from $55.45 billion in 2010 to $95.28 billion in 2014 with the rate of 71.8%. In 2011, the trade volume was $79.25 billion, which Russia exported to China was $40.35 billion and grown by 73.3%. Sino-Russian trade volume became more stable in 2012. In 2013, due to the global economic downturn, Europe’s debt unknown, the global oversupply of oil and other factors, Russian economy was depressed. So Sino-Russian bilateral trade volume rose less, especially for Russian imports decreased by 10.1%, we were balance of $9.97 billion. Table 1. 2010~2014 Sino-Russia Foreign Trade Volume Unit : [million dollars; %] Year Trade volume Increase percent Export volume Increase percent Import volume Increase percent Trade balance 2010 554.5 43.1 296.1 69.0 258.4 21.7 27.7 2011 792.5 40.8 389.0 23.9 403.5 73.3 -14.5 2012 881.6 11.2 441.1 13.4 440.5 9.9 -2.3 2013 892.1 1.1 495.9 12.6 396.2 -10.1 99.7 2014 952.8 6.8 436.8 8.2 416.0 4.9 120.8 Data sources: China's min istry of commerce website. Based on the relevant data to formula 1, we can calculate Russia to China and China to Russia trade intensity index. The figures can be seen from Table 2. Table 2. Trade intensity index between China and Russia during 2009-2014 Trade intensity index 2009 201