Who’s Afraid of Chinese Colonization?

The Deal

But the reality is not as scary as most Russian observers think.  A statement on the website of the Zabaikalsky region indicates that the deal is so far just a letter of intent. Furthermore, the region’s Minister of Foreign Trade Bair Galsanov explained that, with this document, the Zabaikalsky government is doing nothing more than giving theoretical permission to lease 115,000 hectares of land that the region does not actually own.  “The Chinese company will have to sign lease agreements with the owners of the land, both private parties and municipal administrations.  Public hearings will be held where local residents, district officials, environmentalists, and social activists can participate," said Galsanov. It needs to be added that the words of a retired general printed in an ultra-patriotic, populist Chinese newspaper merit no more attention than a similar publication in a comparable Russian tabloid might.

Nevertheless, the hubbub about the possible arrival of the Chinese in the Zabaikalsky region is the second time within a month that news of China’s potential investment in Russian land has caused a commotion.  In May, the Russian Direct Investment Fund and the government of China’s Heilongjiang province, which shares a border with Russia, signed an agreement to establish a $2 billion joint investment fund for agricultural projects in Russia and China.

“They poisoned the land in China using prohibited technologies, and the food grown on that land absorbed toxic substances.  No one knows whether they might do the same thing in Russia,” Pavel Grudinin, Deputy Chairman of the Agriculture Development Committee at the Chamber of Commerce and Industry and Director of the Lenin State Farm, said in the wake of the first news story.  “Agricultural chemicals used by the Chinese are known to be very detrimental to the soil.  Most of the soil in China is so polluted that it cannot be used for farming.  Bees have disappeared in many areas of China, poisoned by pesticides.  How do we know that they won’t poison our land if they come to farm here?” echoed Oleg Lebedev, member of the parliamentary Committee for Natural Resources, Nature Management, and Ecology. “Every thinking person understands that investment is the precursor to expansion,” he added. “The Soviet Union did it, the United States is doing it and now China is doing it.”

This kind of reaction is common not only among ardent newspaper readers and Russian agribusiness lobbyists, but also among high-ranking officials.  Despite the marked rapprochement with China that followed the crisis in Ukraine, Chinese investment in agriculture remains a highly charged subject.  A Russian official involved in the development of Russia’s Far East once told me in Beijing:  “I see no problem with giving the Chinese access to strategic deposits and infrastructure projects.  But not land.  I have major doubts about [giving Chinese investors access to land].  We inherited the land from our grandfathers and we must leave it untarnished for our grandchildren.” 

The Facts

Do Chinese investors really pose such a threat to Russian land or even to its bees?  What lessons can we draw from the experience that Russia has already acquired?

Oddly enough, despite the importance of the subject, there is a dearth of field research on Chinese investment in Russian agriculture.  Vladivostok-based sinologists Sergei Ivanov and Ivan Zuenko just recently began this kind of analysis in the south of Russia’s Primorsky region.  A tiny grant from the Russian Humanities Research Foundation was enough for several case studies.  Their results have yet to be published, but the researchers say they are quite interesting:  for example, in some ways Chinese agricultural investors have a better reputation with local residents and officials than investors from more developed countries, such as South Korea. 

Without reliable and extensive research, discussions of the risks and benefits of Chinese investment in Russian land can only rely on isolated facts.

Fact 1:  There are Chinese agricultural investors in Russia, and quite a few of them, though it is difficult to name a concrete number.  I have personally seen many Chinese farms in the Oktyabrsky district of the Primorsky region, along the road from Ussuriisk (Russia) to Suifenhe (China).  Some former Soviet collective farms are now flying Chinese flags, and from morning until night their fields are dotted with the silhouettes of Chinese farmers. Officials and businessmen say that the Chinese control 75% of agricultural operations in the neighboring Jewish Autonomous Oblast. That number is difficult to verify, but local residents speak favorably about the Chinese. They say that if it weren’t for them, there would be no affordable vegetables at the region’s markets. Asian investors even work in the harsh climate of far northern Yakutia: the best vegetables in Yakutsk come from a local Korean farm.

Fact 2:  It appears that the Chinese really do use harmful fertilizers.  Everyone says this, though yet again there are no reliable statistics. Certain officials in the Far East say that the Federal Security Service (FSB) has data, but it is unclear whether this is true and, if so, how reliable their numbers are.  Local FSB bosses are a bit hawkish about their neighbors, as is usually the case in border regions, in part because the existence of a threat creates a reason for them to receive money from the budget for threat prevention. And that’s about it when it comes to publicly available facts in Russia.

The Prospects

There is a lot more to be gleaned from examining Chinese investment in the agriculture of other countries. This is a rapidly developing sector of international sinology, and new field data emerges with every year. Statistics are available on developing markets such as Africa, as well as developed markets such as Australia and Canada.

The conclusions are fairly straightforward.  Deborah Brautigam, a professor at Johns Hopkins University and a leading expert on Chinese investment in Africa, argues convincingly that the negative image of Chinese agribusiness in Africa presented in the Western media is greatly exaggerated.  She emphasizes that Chinese investors are driven solely by the market, and therefore the quality of investment (including the level of soil pollution) depends on a key factor – the state of the regulatory system in a given country.

The Chinese are on their best behavior in markets where local governments create clear rules of the game and closely monitor the quality of fertilizers used.  This has been the case in Australia, where the government has made it a priority to attract Chinese investment in agriculture.  As the middle class in China grows and becomes increasingly concerned about the quality of domestic food, organic produce from Australia, New Zealand and Canada is becoming wildly popular.

Research by the consulting company KPMG and Australia’s University of Sydney shows that Chinese businessmen like predictability – clear rules of the game and the potential for a long planning horizon.  This makes long-term contracts, such as the one that the Zabaikalsky government wants to sign, the optimal approach:  If he’s not afraid his acreage can be taken away at any time, an investor will be motivated to take care of his land rather than exploit it.  The cornerstone of success is control over land, and produce quality that is strict but not an insurmountable burden to the investor. 

Thus federal officials who worry about Chinese investment in Russian land should be less worried about potential investors, and more worried about their corrupt colleagues in local administrations.