China & Russia Propose Vast Eurasian Free Trade Zone & SCO Development Bank

October 31, 2016 Posted by China Briefing Reading Time: 4 minutes

By Marina Romanova and Chris Devonshire-Ellis

Both China and Russia have proposed to establish a free trade area between members of the Chinese and Russian-led Shanghai Cooperation Organization (SCO). The Chinese announcement came on Friday, following the successful conclusion of the first meeting of the Chinese Academy of International Trade and Economic Cooperation in Beijing. According to a statement made jointly by Qian Keming, the Chinese Vice Minister of Commerce, and Gu Xueming of the Academy, such a free trade area would facilitate regional economic cooperation and would enhance trade and economic cooperation between SCO members.

The proposal also called for the expedited establishment of an SCO development bank, which would provide funding for regional projects together with other multilateral funds and development banks.

The SCO includes China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan, with India, Iran and Pakistan poised to join. Dialogue partners include Armenia, Azerbaijan, Cambodia and Nepal, along with the existing dialogue partners of Sri Lanka and Turkey. In addition to these countries, Afghanistan, Belarus, Iran and Mongolia are observer nations, while guests include the trade blocs of ASEAN, the CIS and Turkmenistan.

The proposal therefore raises the potential of a Free Trade Zone with significant countries such as China, India, Iran, Pakistan and Russia, and possibly at a later stage, Turkey.

Qian also called for better coordination and more policy transparency in cross-border investment, noting that protectionism must be avoided. “Investment in infrastructure, industrial cooperation, agriculture, and high-tech areas should be expanded between SCO members,” he said.

Furthermore, Beijing also suggested that SCO members “should build an economic think tank alliance to offer long-term intelligence support for regional economic cooperation.”

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According to the Chinese media, Rashid Alimov, representative of Tajikistan and the current secretary-general of SCO, responded positively to Gu’s proposal. In the China Daily, he is reported as saying, “An alliance would be an important intelligence platform on which experts from different countries could discuss how to develop regional economic cooperation.”

Meanwhile, the Russian media has cited a more discreet passage of SCO’s secretary-general.

“Apparently, this proposal has its supporters and those who consider such suggestion a bit premature. I believe that the scientific study of this issue would help in the search for optimal models to fuel trade and economic cooperation,” Russian news agency TASS quoted Alimov as saying. Later in his interview with the TASS, when answering a question about China’s idea of a free trade zone, he called the issue a “very sensitive area due to the different production capabilities of the SCO members”.

This initiative is also supported by Russia, with President Vladimir Putin being quoted in the Russian Sputnik News Agency that Moscow has proposed integrating the Silk Road concept (One Road, One Belt initiative), the Eurasian Economic Union, the SCO and ASEAN into a “Big Eurasian Partnership”, subsuming most of the trade blocs in Asia and Europe.

Beijing and Moscow have not yet officially reacted to one another’s proposals. But both will undoubtedly do so at the SCO prime ministers council, which is scheduled to take place in the Kyrgyzstan capital city of Bishkek on November 2-3, 2016.

The proposals for a Shanghai Co-Operation Organisation Free Trade Zone or even a Big Eurasian Partnership are game-changers. Although details have yet to fully emerge, the fact that the highest authorities in both Beijing and Moscow have suggested this means it will almost certainly take place in some form. An FTA that involves China and India, let alone Russia, Pakistan and others is going to be of huge significance. It also absolutely determines where the bulk of China’s Overseas Direct Investment is going to be heading – to Eurasia.

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