One year after being sanctioned, how is Russia’s economy?

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Source: Lukewen Studio (ID: lukewen 1982)

After a year of sanctions, how is Russia’s economy?

Some time ago, the Russian official released the 2022 GDP data, with a negative growth of 2.1%, which is not less than expected. Putin originally expected a negative growth of 2.5%, the IMF expected a negative growth of 3.0%, and institutions expected to be more than 15% negative are everywhere.

It can be seen that the sanctions imposed by the West have indeed inflicted heavy losses on Russia, but they are not as powerful as expected. The IMF even predicts that Russia’s GDP will return to positive growth in 2023.

Specifically, the wholesale and retail industry, logistics industry and manufacturing industry declined, while the demand for agriculture, aquaculture, forestry, fishery, construction, mining, information industry and national defense increased.

Among the declining industries, the manufacturing industry is the most typical. For example, the sales of new cars in Russia in 2022 was 680000, down nearly 1 million from 1.66 million in 2021. If the sales amount was calculated, it would be 139 billion yuan less. If only the domestic production of Russia was calculated in the sales of new cars, it would be only 450000, falling back to the level of 1991.

However, it is interesting that the sales of used cars in Russia increased by 14% last year, in sharp contrast to the sharp decline in the sales of new cars, which shows that the wallet of Russians is not bottoming out, but the uncertainty of the situation, which makes people hesitate and dare not spend large amounts.

The sluggish manufacturing industry caused by the withdrawal of western capital, together with the drag on logistics and wholesale, has become the main cause of negative GDP growth in Russia.

In the growing industry, agriculture is a bright spot. In 2022, Russia’s grain output will increase by 24%, more than 150 million tons, exports will increase by 12%, more than 70 million tons, and exports will exceed 20 billion dollars.

Agriculture is a rare highlight in Russia in recent years. We know that the Soviet Union was a food importer during the cold war, and it needed to import food with half of the foreign exchange at most. The food problem was taken by the West and became one of the reasons for the disintegration of the Soviet Union.

After the collapse of the Soviet Union, Russia’s agricultural situation was not much better, and it also needed to import grain for a long time. In 2010, the grain output was only 60 million tons, while Russia’s domestic demand was at least 70 million tons per year. You know, Russia’s arable land area is more than China’s, although due to the high cold, the quality is relatively average.

Sitting on more arable land than China, the grain output was too low to meet domestic demand, until after the Crimean incident, Russia suddenly woke up and began to work hard on the grain issue. It invested no less than US $3 billion a year in subsidies to encourage grain production, while encouraging the purchase of domestic agricultural machinery, and introduced a tax reduction policy.

With a series of efforts, since 2016, Russia’s grain output has entered a state of high speed, and it can maintain a good growth every year, from a grain importer to a grain exporter.

By 2021, the amount of grain exports has exceeded that of arms, becoming the second largest export category after oil and gas.

In addition, the completed area of the construction industry exceeded 100 million square meters for the first time, which was a little unexpected to me, but I did not find the specific reason for the growth.

Despite the mixed results, there are still hidden dangers. From the second half of the year, Russia’s oil and gas production and income began to decline, and the oil export volume fell to an average of 4.95 million barrels per day in the third quarter, a decrease of 3.9% on a month-on-month basis, which is mainly due to the reduction of imports by the European Union.

By January this year, the oil and gas revenue had decreased by 46% year on year, and the increase in fiscal expenditure directly led to Russia’s unprecedented fiscal deficit, reaching 20 billion US dollars.

Oil and gas export revenue accounts for 40% of Russia’s fiscal revenue, which is the largest source of revenue. If this sector is unstable and the fiscal deficit continues, it will be difficult to manage.

Of course, the share that the EU can reduce has decreased. The share of other countries, especially China and India, is probably stable, so the oil and gas revenue is unlikely to decrease significantly.

Finally, inflation, which was 11.9% in Russia last year, was as high as 20% at the beginning of the sanctions, and then gradually decreased. It is expected that this year it will fall back to the single digits.

Because most countries do not have sufficient resources, most goods and resources have to be imported, so when inflation rises, they have to spend more foreign exchange to buy, resulting in a decrease in foreign exchange, which further hit the import and export trade, resulting in higher inflation, which is a vicious cycle.

However, unlike other countries, Russia has sufficient resources, so it does not need to import much resources. In addition, the next door is the world’s largest industrial country, and the supply of most goods is not worried, so it is expected that inflation will return to normal in the future.

Last year’s inflation in Russia was mainly caused by the panic at the beginning of the sanctions. I saw a lot of videos taken by students studying in Russia. In March last year, due to the withdrawal of a large number of western brands, the shopping malls were indeed empty for a time, but it has gradually improved. In the end, we have all these things, and Russia can also produce some of them.

Like Coca-Cola and McDonald’s, not long after the withdrawal last year, there were a lot of fake versions in Russia. After all, making hamburgers is not a cutting-edge technology. If the Russians think that the fake version in China is not delicious and mature enough, we have a number of mature fast food brands in China.

To sum up, Russia’s economic performance in the past year has been mixed. The biggest hidden danger is the decline of oil and gas revenue. Because of the large amount of oil and gas exports, it is difficult for both agriculture and other industries to make up for it in the short term. In theory, Russia has two ways to open up resources: one is to open up resources to a greater extent in the short term.

There are many resources in Russia, not only oil and gas, but also the proven reserves of many mineral resources are the first in the world. As I said in the First Anniversary of Russia and Ukraine, China and Russia have great complementarity in industry.

Besides, there is more than one customer in China. The resources are hard currency. In fact, it depends on whether Russia is willing to sell.

Second, in the long run, we should restructure the manufacturing system and create jobs and taxes.

The problem with Russian industry is that it is still trying to maintain a complete industrial system, but everyone can see that Russia is not the Soviet Union, and it has no such ability. Forcible maintenance will only make money.

For example, Russia has been trying to maintain the production capacity of passenger aircraft over the years, and has spent a lot of money to develop the Sukhoi-100, but it can’t sell at all.

The correct way is to integrate into another industrial system, play a comparative advantage in this system, find a suitable position of its own, and act as a supplier, just like Japan’s integration into the American system.

Although this will defeat Russia’s ambition as a big country, it is the right path.

In the current situation, Russia’s economic fundamentals can be stabilized, but the problem is also obvious. Relying on resources rather than manufacturing will let Russia be abandoned in the wave of technological revolution. The Soviet Union can still fight with the West in the 1970s. After entering the 1980s, the computer industry revolution broke out in the West, which completely opened the gap between the productivity of the Soviet Union and became the key to the failure of the Soviet Union.

Now the next wave of scientific and technological revolution represented by AI is not far away. If Russia cannot catch up, it will face the same fate as the Soviet Union. But it is obviously impossible for Russia itself to lead a scientific and technological revolution. The only way is to embed it in another system.

In the future, Russia will probably become a part of China’s economic system, which is good for both sides.

I think there are many rumors on the Internet that Russia will become China’s Canada if it turns to China, that is, the role of simply selling resources. I feel that this is too short of Russia. Russia is also an industrial country, and can not produce large aircraft, but it is always possible to concentrate resources and produce some parts.

If we understand the relationship between the United States and Canada from another dimension, we may have a clearer understanding of the future of China-Russia relations. Canada has resources, but it does not mean that you can exploit them. Exploitation does not mean that you can sell them, sell them at a high price. There are many examples of holding the golden rice bowl.

It is true that Canada has resources, but the exploitation of resources requires financing to buy equipment, technology, and market after exploitation. It does not have these resources. It happens that the United States has all these resources. The United States provides financing and technology for Canada, and then sells the resources to the United States market after exploitation.

China and Russia may be the same in the future. We inject financing, technology and market into Russia, and we will obtain the security of resources. At the same time, Russia will also produce some industrial products as a supplement to this system, just like Canada, which mainly sells resources, also has Bombardier and other scientific and technological enterprises.

Russia’s accession will be historic, even for ordinary people. China’s economy has developed in the past few decades, but most of its development achievements are in the coastal areas. In the inland, except for a few cities, the overall improvement is not significant.

Among them, the development of the Northeast and the Northwest cannot be achieved, which has a direct relationship with Russia. This has been discussed by many parties, and will not be carried out here. As long as Russia is willing to integrate into the Chinese economic system, the revitalization of the Northeast and the Northwest will be possible.

Previously, we proposed the development of the west and the revitalization of the northeast. This idea is very good. But the environment is not good. If Russia does not open Central Asia and the Far East, it will be useless for us to make any unilateral efforts.

In the past many years, whether in the west or in the northeast, a large number of people have flowed out to work in developed coastal cities. Sometimes I will see some people who stand and talk without waist pain. What do you say? Why do you not love your hometown so much? Why do you have to go to other places to develop?

Some things can be solved without our internal efforts.

Because Russia did not loosen its grip on the Far East, the Northeast economy was thus locked up. In the past, many people said that the environment in Northeast China is too bad to invest in Shanhaiguan. In short, it is impossible to eliminate the people and environment in Northeast China.

This is actually the reverse of the problem. The northeast is the development environment, and the ceiling is locked by Mao Zi, which leads to the vicious circle of society.

If you want to develop economy, you must have a window that can be opened, right? Russia maliciously built a bridge to block the estuary of the Tumen River. You don’t even have a window. How can you open it?

In the same way, in the west, the planning of the China-Kyrgyzstan-Uzbekistan railway began very early, but it has never been possible to start. Who is blocking this? Central Asian countries have always been willing to make friends with China, but if Mao Zi disagrees, they will have no courage. After all, Russia controls the lifeblood of Central Asian countries.

If the ceilings developed in these places are not locked externally, even if the business environment is poor, even if the local customs are backward, these can be changed.

It is only because the ceiling of development was locked in the past that all parties have no motivation to change. This is the fundamental reason.

Marxism-Leninism said well that the economic foundation determines the superstructure. It’s not that people in the northeast or northwest can’t do it, nor is it that local people can’t do it, but because of the environment.

No matter how hard we tried, we didn’t see any progress. With the sound of the Russian-Uzbekistan war, there was hope of a solution. Maybe this is the real trend.

Biden provoked the Russian-Uzbekistan conflict, one of which was to interrupt the economic integration process of the Eurasian continent. Unexpectedly, after pushing Russia to the corner, it also accelerated unintentionally. Perhaps this is the wonder of the great change that has not happened in a century.

In the future, the economic relationship between Russia and China is likely to be similar to that between Japan and the United States.

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