The cooperation plan of Japanese Prime Minister Shinzo Abe, backed by President Vladimir Putin in May 2016, and their talks in December 2016 in Japan have provided a basis for taking the economic relations between the two countries to a whole new level.
The economic relations between Russia and Japan have not seen any meaningful development for quite a long time. The absence of a peace treaty, and territorial disputes being the usual stumbling blocks between the parties were aggravated by geopolitical tensions and the economic crisis in 2014–2015.
Over the past three years, the trade turnover between the two countries more than halved – from USD 33.2 billion in 2013 to USD 16 billion in 2016. In 2015 and the first nine months of 2016, the decline was 31% and 40% respectively.
Japan’s investment in Russia decreased from USD 1.7 billion in 2013 to USD 300 million in the first three quarters of 2016, having fallen by 80% in just nine months of the year.
The trend reversed at the end of 2016. The trade turnover picked up bringing the annual decline down to 24%. In particular, Russian coal supplies to Japan increased, growing by 16% year-on-year.
During his visit to Sochi in May 2016, Shinzo Abe presented to Vladimir Putin an eight-point economic cooperation plan focusing on energy, industrial production, healthcare, agriculture, urban environment, small and medium-sized business cooperation, high technology, and humanitarian exchange. The Russian President supported the initiative and expressed a hope for a possible breakthrough in settling the territorial dispute and signing a peace treaty. From there on, the heads of states met four more times in the next twelve months – as many as in the previous three years.
At the meeting of Vladimir Putin and Shinzo Abe at the Eastern Economic Forum (EEF) in Vladivostok in September 2016, the parties defined joint economic activity in the Kuril Islands and Japan’s more active involvement in developing Russia’s Far East as the key areas to drive evolution of the bilateral relations.
At a sidelines meeting at the Asia-Pacific Economic Cooperation (APEC) summit in Peru in November 2016, all preliminary arrangements were confirmed.
During the official visit of Vladimir Putin to Japan in December 2016 – the first in 11 years – 12 intergovernmental and 68 commercial agreements were signed, including those on investment projects in the energy, automotive, chemical, healthcare, high technology, and other industries. The total investment from Japan was planned at about JPY 300 billion (ca. USD 2.54 billion). The key outcome was a proposal to pursue joint economic activity in the Kurils, including projects in healthcare, tourism, and the fishing industry.
When the two leaders met in April 2017, they decided that another set of agreements should be prepared for the EEF 2017. It also became known that the Japanese corporation Mitsui acquired a 10% stake in the Russian pharmaceutical company R-Pharm, which is expected to boost production of medicines in Russia and supply of Japanese medicines to the Russian market.
These contacts provided a basis for progress in economic relations between Russia and Japan.
The EEF 2016 saw the signing of approximately 20 agreements worth more than USD 1.3 billion.
In November 2016, a joint car-making project was signed off. The construction of an electric car plant named Prometheus will start in 2018 in the Nadezhdinskaya Advanced Development Territory. The project is being delivered by Russia’s Sumotori technical holding company and Japan’s Arai Shoji Corporation. The initial project capacity will be 5,000 cars per year with an increase in output going forward.
During the visit of Vladimir Putin to Japan, Russia’s Yamal LNG signed a EUR 200 million credit facility agreement with the Japan Bank for International Cooperation (JBIC), while JBIC and the Russian Direct Investment Fund decided to establish a joint investment fund worth USD 1 billion.
The construction of a waste recycling plant with a capacity of 72,000 tonnes per year began in Ulan-Ude, run by Japan’s governmental New Energy and Industrial Technology Development Organisation (NEDO) and JSC Mitsubishi Gasification & Ash-Melting System.
Saiko, a Russian-Japanese medical diagnostic centre opened in Khabarovsk in February 2017, became the first joint project in healthcare.
A joint project to improve the urban environment was launched in Voronezh, with Japanese companies involved in the metro system construction and installation of smart traffic lights in the streets of the city centre.
Japan shows great interest in Russia’s extensive sales markets, natural resources, and territories, as confirmed by the structure of the mutual trade (as at September 2016).
The Russian exports are dominated by energy (over 80%), with the remainder mostly represented by aluminium, wood, gemstones, precious and ferrous metals, natural and synthetic rubber, etc.
More than 50% of the Japanese exports to Russia are made up of vehicles and auto parts, while reactors, boilers, mechanical devices, electrical equipment, cameras and plastics account for another 19%.
The cooperation plan implies joint efforts within a broader range of focus areas. However, as Japan’s key priority is energy supplies, it takes a most active part in the Sakhalin-1 and Sakhalin-2 oil and gas projects development and the LNG plant construction in Yamal.