An Analysis of the Machine Industries in Russia's Khabarovsky Krai and Primorsky Krai


Copyright (c) 1997 by the Slavic Research Center( English / Japanese ) All rights reserved.

The machine industry in the Russian Far East was created in a unique environment. The Russian Far E ast had colonial characteristics since the early period of the region's industrial development. It was a bas e for nonferrous metals, such as gold and diamonds, and forest and fishery resources supplied to the o entral part of the former Soviet Union. The machine-building industry was created for repairing machinery used by the mining and fishery industries, as well as for military purposes. Factories of the military-ind ustrial complex were concentrated in this region.

Today, the machine industry in the Russian Far East is in a state of extreme finanoial distress. The decrease in production in this branch in the Russian Far East between 1991 and 1994 was much greater than the Russian average. More over, it was by far bigger than the decrease in other key industrial sect ors of the Russian Far East.

The sluggishness of the machine industry in the Russian Far East is attributable to a number of fact ors unique to this region. One of the factors is that the role of machine-building did not start in a nat ural way. The industry was created primarily for the purpose of defense of this frontier district.

The second factor is that in the industry's production the proportion of munitions is high. The big re duction in Russia's defense expenditure res'ulted in a sharp decrease in State orders for munitions on wh ich the machine-building industry in the Russian Far East depended heavily. This dealt a fatal blow to l ocal industry.

The third factor is that in the Soviet era the distribution of production capacity was decided by Gospl an in utter neglect of local economic structures and demand. As a result, raw materials needed by the machinery industry are brought in from outside the region, while finished products which do not meet reg ional needs are shipped out of the Russian Far East.

The fourth factor is the rise in production costs, including transportation, fuel and labor. Given the established patterns of producers and consumers, involving long-distance transport of raw materials and finished products, the sharp rise in railway fares dealt a heavy blow to the industrial enterprises in the F ar East. Consumption of energy in the cold region is great, and the cost of labor in the hinterland is high.

The machinery industry is concentrated in the Khabarovsky krai and the Primorsky Krai where the tra nsportation network. is relatively well developed for the Far East, the natural and meteorological environme nt is relatively favorable, and the populatioh is concentrated. Even in 1995, when the importance of the machinery industry sagged relatively, 77.10/0 of the machinery production in the Far East was in the Khaba rovsky Krai and the Primorsky Krai. In particular, Khabarovsky's share of ma6hinery production in 1995 was as high as 49.30/0. This is evidence th,at machine manufacturers are concentrated in the Khabarovsky Krai. It was after the start of 1993 that the production of the machine industry in th.e Khabarovsky Krai began to decrease sharply. In 1994, it debreased by as much as 510/0 compared with the preceding year and by 42.80/0 in 1995 (from the preceding year's leveD. The decreases were much greater than the entire industry's decreases of 41.70/0 and 23.20/0, respectively. One of the outstanding characteristics of the machi ne industry in the Khabarovsky Krai is that machine manufacturers are concentrated in the heavy industry sector and in the military-industrial complex. Principal products are technical engineering facilities to prod uce forged products, diesel machines and apparatuses, gas turbines, metal cutting machines, cranes, c ables, crop harvesting combines, batteries, ships and aircraft. An Analysis of the Machine Industries in Russia's Khabarovsky Krai and Primorsky Krai.

In the Russian Far East, the machine industry in the Primorsky Krai is second after that in the Khabaro vsky Krai. The machine industry in the Maritime Province, Iike that in the Khabarovsky Krai, is support ed by the military-industrial complex. A major difference is that whereas the machine industry in the Kh abarovsky Krai consists mainly of heavy-industry, the share of consumer goods production of the machi ne industry in the Maritime Province is great.

The machine industry in the Russian Far East is almost synonymous with the military-industrial comp lex, and the Machine industry in this region consists basically of military enterprises. Before the transfer of the munitions industry to the civil sector, military-industrial complex enterprises in the Far East accou nted for about 100/0 of the gross industrial production of the region, 130/0 the industrial workforce, and 6010 of the fixed capital of all industries in the region. The military-industrial complex was comparable in scal e to such leading specialized industries as fisheries and nonferrous metals. The military-industrial comple x in the Russian Far East consisted of 38 enterprises, of which four have their plants still unfinished. S caling down of the military-industrial complex actually began in' 1989. Around that time, munitions produc tion in the Khabarovsky Krai and the Primorsky Krai accounted for about two-thirds of the machinery in dustrial production. As of 1989, 900/0 of the total production of the military-industrial complex in, the Rus sian Far East consisted of building of ships, their repair and manufacture of aircraft.

A characteristic of the military-industrial complex in the Far East is that it is weak in the research a nd development sector. Basic designing of ships is done primarily in St. Petersburg, and the design rese aroh institute in the Far East plays only a supplementary role.

In the course of the Russian economy's shift to the market, conversion of the munitions industry to a civilian industry was one of the impQrtant policies of the Russian Government. What products' did the civilian industry begin to produce in the Far East? The results from the industrial switchover were few. Small refrigeration ships, various types of guns for public use, "K[]34" helicopters and "AN[]74aircraft are manufactured in the Primorsky Krai. The slight progress made in the industry switchover is attributable to the shortage of funds. Ih 1992, in the case of the Primorsky Krai, a total of 7,037 billion rubles (917 mil lion dollars) of 1991 prices was said to be required, according to the 1992[]1995 industry switchover plan. However, only 54.3 million rubles, amounting to only 0.80/0 of the amount considered necessary, was allo oated to the Primorsky Krai by the Federal Government. The switchpver investment is virtually zero in the Far East.

The rapid rise in railway fares is often cited as the prime factor in c~using the machine and metal pr ocessing industries in the Far East to suffer serious production decreases. During the Socialist period, d omestic fares of the railways were held at an extremely low level by Government policy. Accordingly, rail way fares did not constitute a problem for enterprises in the Far East. As a result of the liberalization of prices in early 1992, however, railway fairs, though still somewhat regulated, skyrocketed. According to "Russian Transport and Telecommunications Statistics" (1995, Moscow, p. 207), railway fares ~nd freight charges fQr the public rose 4, 840 times during the period between December 1991 and December 1994, w hich was greater than the average rise in the producer's prices of industrial products (they rose 3,800 tim es). Railway fares, in particular, rose 5,745 times, much greater than the rise in the produoer's prices of industrial products. As a matter of fact, in the Far East, which is located far from the supply sourc es of raw materials and consumer markets, transportation costs weigh all the more heavily on the enterp rises.

The machine industry in the Far East is threatened with crises as a result of skyrocketing transportatio n costs, the loss of customers and the dissolution of the military-industrial complex. Will the machine i ndustry in the Far East be able to make a comeback? "The Developmbnt Program of the Russian Far E ast and Trans Baikal Region in 1996-2005" (popularly called the Far East Long-Term Development Plan) a dopted in April 1996, outlines the following goals: '

1.Stop the production decrease of the machine industry, stabilize production activities and increase produc tion of the industry in the region for the next two or three years, particularly the production of key secto rs .
2.Ensure production of machine industry products that are highly technology-intensive and ecologically saf e, can be substituted for imports from other regions, and have a strong competitive edge both in and o utside the country.
3.Stabilize the social situation by creating employment at newly established enterprises and munitions-turn ed civil industrial facilities, maintain the knowhow and labor potential of machine manufacturing enterprise s and utilize them effectively.
4.Extend the economic activities of machine manufacturing enterprises outside the country, especially to th e Asia-Pacific region.

As regards structural reform of the machine industry in the Far East, importance is placed on the fu ture development of the manufacture of apparatuses and equipment, electronics, and machine tools. Mor eover, efforts should be made to reduce imports of machine products from remote areas by expanding pr oduction of machine and facilities necessary for agriculture and development of resources. Moreover, pow er transformers, small output transformers and batteries should be produced to replace imports.

If the above-mentioned objectives are attained even In a small way, the machlne Industry In the Far East will be resusoitated. The problem is how to attain these objeptives and prooure necessary financial r esources. This depends on how well the Far East's potential can be realized. Expectations can be place d on the resources in sectors like nonferrous metals, energy, and fisheries as well as the geopolitical fa ctor that the Far East borders on the Asia and Pacific Region. The former centralized economic system dependent entirely on State financial support could not realize the region's potential effectively. The introd uction of foreign capital is essential for procuring funds necessary for developing resources. In order to i ntroduce foreign capital, it is essential to improve the investment environment. What th~ machine industr y in the Far East needs today is an industrial policy that attaches top priority to the development of reso urces in the Far East and to raising the degree of processing of these resources, with Asia and Pacific region in mind as a major outlet for its produots, and that concentrates human resources, funds, machi nery, facilities and technologies in the development and processing of resources.

Another big problem that the machine industry in the Far East must solve is the conversion of the munitions industry to civilian production. What do the Russian Government and local governments of the Far East want to do with the military-industrial complex in the Far East hereafter? Some indication is gi ven in the "Long-Term Far East Development Program. " Integrated in thls program Is the "Plan to Conv ert the Military-Industrial Complexes in the Far East and Traus Balkal Reglon Into Clvlllan Industnes " part of Russia's "I995-1997 Plan to convert the Military-industrial complexes into Civil Industries. " The plan to convert military-industrial factories in the Far East and Trans Baikal Region into civilian industries embodi es plans to convert 22 specific military-industrial factories into civilian industries. These plans describe in detail what produots each enterprise should manufacture, the size of investment eaoh enterprise will nee d, and what results can be anticipated. They cite as possible products to be manufactured those produc ts which make best use of the oapabilities possessed by the military-industrial complexes: civil alrcraft, s hips and ship repair (both commercial vessels and fishing boats) ; medical apparatuses and instruments; and telecommunications equipment, consumer electronics and measuring instruments to be manufaotured by the electronics industry, which should be able to produce techno[ogy-intensive and ecologically safe p roducts to replace' imports from outside the Russian Far East. Considering the actual condition of the mi litary-industrial complex in the Far East and the market features required by this region, this industry co nversion plan can be evaluated as appropriate. The problem is the ability to implem'ent it. On the region al level, Iittle effect can be expected form this plan due to the shortage of financial resources. Institution al measures to enable military-industrial enterprises themselves to promote investment must be implement ed. The area where the conversion of the munitions industry into civilian industry is expected to make pr ogress is the manufacture of machinery and equipment needed for the development of petroleum and nat ural gas resources in the Continental Shelf off Sakhalin. Investments totaling $27 billion, of which the m ajority are from foreign sources, are expected to be forthcoming to develop the oil and gas resources in the Continental Shelf. "Local Content" which makes it mandatory to utilize Russian enterprises to supply machinery and equipment needed for the development is a ~rerequisite. In particular, the Chairman of th e National Committee of Defence Industry is a member of the Observer Committee which supervises this Continental Shelf resouroes development project, and the military-industrial complex in the Khabarovsky K rai is scheduled to construct platforms for drilling petroleum and natural gas reserves. Development cases like this are quite realistic, and already underway.

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