Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Trade Flourishes in a Far East Border Town

Itar-TassCars passing the history museum in the town of Blagoveshchensk, the only Russian city to share a border with China.
BLAGOVESHCHENSK -- In the casino of the Druzhba Hotel, gamblers chat in Mandarin as they place bets around the roulette wheel.

Upstairs, the hotel's Chinese restaurant is serving its last noodles of the night, while a clock in the lobby tells the time in Beijing.

But this is Russia.

Residents of Blagoveshchensk, six time zones east of Moscow and the only Russian city to share a border with China, have traded freely with their neighbors across the Amur River for more than a decade.

Now, Russia is using its natural resources to secure more bargaining power in a relationship that has so far seen most trade moving in the other direction. "Russia is the great gateway to China," said Peter Hambro, whose London-listed gold-mining firm contributes 5 percent of the budget of the Amur region, an area the size of Germany.

President Vladimir Putin is opening Russia's eastern borders as never before, replacing Cold War suspicion and post-Soviet chaos with a studied attempt to forge economic ties with Beijing and find an alternative to Western-leaning political alliances.

"Trade with China has been growing substantially under Putin's presidency," said Chris Weafer, chief strategist at Alfa Bank. "It will get bigger from a very low base."

Trade between Russia and China grew more than one third in value to $20 billion last year, accounting for 6 percent of Russia's total overseas trade, customs data shows. But this was dwarfed by the European Union's $177 billion slice of overseas trade, or 52 percent.

"The actual volumes of trade do not correspond to the potential there. We see this as an opportunity," said Glenn Waller, president of BHP Billiton Eurasia, a unit of the world's largest miner.

Blagoveshchensk is 2 1/2 times nearer Beijing than Moscow, yet the 150-year-old city, which takes its name from the Russian for the Annunciation of Christ, is unmistakably Russian.A statue of Lenin still stands in the city center, where beat-up Ladas splutter alongside Japanese cars on grid-patterned streets.

But couples strolling along the concrete riverfront path need only gaze across the Amur to see high-rises sprouting in Heihe, from where Mao Zedong's government piped propaganda to their Soviet neighbors during China's Cultural Revolution.

Enterprising Chinese businessmen have been the quickest to take advantage of the free-trade zone, set up between the two cities in the mid-1990s, by selling cheap consumer goods to Russians.

"You can't find a bicycle in Blagoveshchensk that was built in Russia," said Andrei Lushchei, a former vice governor of the Amur region and now executive director of Peter Hambro's Pokrovsky gold mine. He said around half of all new buildings in the Russian city were built with Chinese labor.

A two-bedroom apartment in Blagoveshchensk costs anywhere from 1.5 million rubles ($55,000) to 3 million rubles, while in Heihe a similar flat would cost only 500,000 rubles.

Trucks roll across the frozen Amur in winter, but Russian businessmen hope a long-promised bridge will give year-round access to the 58 million Chinese living opposite a mere 1.2 million Russians in the Amur region.

Energy could be Russia's trump card. The world's second-largest oil exporter has much of the fuel China needs to power the homes of its 1.3 billion people, as well as the metals used in cars, refrigerators and electrical wiring.

The relationship is not yet perfect. Even as Putin has welcomed growing trade with China, many Moscow policy-makers remain wary of China's long-term strength and regional sway, especially around the sparsely populated Russian Far East.

But it is this region's rich energy resources that could boost cross-border trade. Electricity from the Zeiskaya and Bureiskaya hydroelectric stations is the Amur region's main earner. Energy from Bureiskaya could also power a new aluminum smelter, a prospect being considered by Russia's second-largest producer of the metal, SUAL, and Norway's Norsk Hydro.

Mines are also being developed to supply nickel, copper, iron ore and titanium dioxide -- a pigment providing brightness in everything from paint to chocolate wrappers. And an industry web site has said Russia and China have agreed to invest 2 billion yuan ($250 million) in a joint-venture oil refinery.

Timber, for years the domain of illegal loggers in the forested Far East, also has potential to bring revenues on an industrial scale, especially as China taxes production of disposable wooden chopsticks to protect its own forests.