SLAVIC STUDIES No.44
An Analysis of
Machine Industries in Russia's Khabarovsky Krai and Primorsky Krai
(c) 1997 by
the Slavic Research Center( English
/ Japanese ) All rights reserved.
The machine industry in the Russian Far East was created in a
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
was created for repairing machinery used by the mining and fishery
industries, as well as for military purposes. Factories of the
complex were concentrated in this region.
Today, the machine industry in the Russian Far East is in a state of
finanoial distress. The decrease in production in this branch in the
Far East between 1991 and 1994 was much greater than the Russian
More over, it was by far bigger than the decrease in other key
sect ors of the Russian Far East.
The sluggishness of the machine industry in the Russian Far East is
to a number of fact ors unique to this region. One of the factors is
the role of machine-building did not start in a nat ural way. The
was created primarily for the purpose of defense of this frontier
The second factor is that in the industry's production the proportion
munitions is high. The big re duction in Russia's defense expenditure
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
capacity was decided by Gospl an in utter neglect of local economic
and demand. As a result, raw materials needed by the machinery industry
are brought in from outside the region, while finished products which
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
Krai where the tra nsportation network. is relatively well developed
the Far East, the natural and meteorological environme nt is relatively
favorable, and the populatioh is concentrated. Even in 1995, when the
of the machinery industry sagged relatively, 77.10/0 of the machinery
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
as 49.30/0. This is evidence th,at machine manufacturers are
in the Khabarovsky Krai. It was after the start of 1993 that the
of the machine industry in th.e Khabarovsky Krai began to decrease
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
much greater than the entire industry's decreases of 41.70/0 and
respectively. One of the outstanding characteristics of the machi ne
in the Khabarovsky Krai is that machine manufacturers are concentrated
the heavy industry sector and in the military-industrial complex.
products are technical engineering facilities to prod uce forged
diesel machines and apparatuses, gas turbines, metal cutting machines,
c ables, crop harvesting combines, batteries, ships and aircraft. An
of the Machine Industries in Russia's Khabarovsky Krai and Primorsky
In the Russian Far East, the machine industry in the Primorsky Krai is
after that in the Khabaro vsky Krai. The machine industry in the
Province, Iike that in the Khabarovsky Krai, is support ed by the
complex. A major difference is that whereas the machine industry in the
Kh abarovsky Krai consists mainly of heavy-industry, the share of
goods production of the machi ne industry in the Maritime Province is
The machine industry in the Russian Far East is almost synonymous with
military-industrial comp lex, and the Machine industry in this region
basically of military enterprises. Before the transfer of the munitions
industry to the civil sector, military-industrial complex enterprises
the Far East accou nted for about 100/0 of the gross industrial
of the region, 130/0 the industrial workforce, and 6010 of the fixed
of all industries in the region. The military-industrial complex was
in scal e to such leading specialized industries as fisheries and
metals. The military-industrial comple x in the Russian Far East
of 38 enterprises, of which four have their plants still unfinished. S
down of the military-industrial complex actually began in' 1989. Around
time, munitions produc tion in the Khabarovsky Krai and the Primorsky
accounted for about two-thirds of the machinery in dustrial production.
As of 1989, 900/0 of the total production of the military-industrial
in, the Rus sian Far East consisted of building of ships, their repair
manufacture of aircraft.
A characteristic of the military-industrial complex in the Far East is
it is weak in the research a nd development sector. Basic designing of
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
the munitions industry to a civilian industry was one of the impQrtant
of the Russian Government. What products' did the civilian industry
to produce in the Far East? The results from the industrial switchover
few. Small refrigeration ships, various types of guns for public use,
helicopters and "AN74aircraft are manufactured in the Primorsky Krai.
The slight progress made in the industry switchover is attributable to
shortage of funds. Ih 1992, in the case of the Primorsky Krai, a total
7,037 billion rubles (917 mil lion dollars) of 1991 prices was said to
required, according to the 19921995 industry switchover plan.
only 54.3 million rubles, amounting to only 0.80/0 of the amount
necessary, was allo oated to the Primorsky Krai by the Federal
The switchpver investment is virtually zero in the Far East.
The rapid rise in railway fares is often cited as the prime factor in
the machine and metal pr ocessing industries in the Far East to suffer
production decreases. During the Socialist period, d omestic fares of
railways were held at an extremely low level by Government policy.
rail way fares did not constitute a problem for enterprises in the Far
As a result of the liberalization of prices in early 1992, however,
fairs, though still somewhat regulated, skyrocketed. According to
Transport and Telecommunications Statistics" (1995, Moscow, p. 207),
fares ~nd freight charges fQr the public rose 4, 840 times during the
between December 1991 and December 1994, w hich was greater than the
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
rise in the produoer's prices of industrial products. As a matter of
in the Far East, which is located far from the supply sourc es of raw
and consumer markets, transportation costs weigh all the more heavily
the enterp rises.
The machine industry in the Far East is threatened with crises as a
of skyrocketing transportatio n costs, the loss of customers and the
of the military-industrial complex. Will the machine i ndustry in the
East be able to make a comeback? "The Developmbnt Program of the
Far E ast and Trans Baikal Region in 1996-2005" (popularly called the
East Long-Term Development Plan) a dopted in April 1996, outlines the
1.Stop the production decrease of the machine industry, stabilize
activities and increase produc tion of the industry in the region for
next two or three years, particularly the production of key secto rs .
2.Ensure production of machine industry products that are highly
and ecologically saf e, can be substituted for imports from other
and have a strong competitive edge both in and o utside the country.
3.Stabilize the social situation by creating employment at newly
enterprises and munitions-turn ed civil industrial facilities, maintain
the knowhow and labor potential of machine manufacturing enterprise s
utilize them effectively.
4.Extend the economic activities of machine manufacturing enterprises
the country, especially to th e Asia-Pacific region.
As regards structural reform of the machine industry in the Far East,
is placed on the fu ture development of the manufacture of apparatuses
equipment, electronics, and machine tools. Mor eover, efforts should be
made to reduce imports of machine products from remote areas by
pr oduction of machine and facilities necessary for agriculture and
of resources. Moreover, pow er transformers, small output transformers
batteries should be produced to replace imports.
If the above-mentioned objectives are attained even In a small way, the
Industry In the Far East will be resusoitated. The problem is how to
these objeptives and prooure necessary financial r esources. This
on how well the Far East's potential can be realized. Expectations can
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
entirely on State financial support could not realize the region's
effectively. The introd uction of foreign capital is essential for
funds necessary for developing resources. In order to i ntroduce
capital, it is essential to improve the investment environment. What
machine industr y in the Far East needs today is an industrial policy
attaches top priority to the development of reso urces in the Far East
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
human resources, funds, machi nery, facilities and technologies in the
and processing of resources.
Another big problem that the machine industry in the Far East must
is the conversion of the munitions industry to civilian production.
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
is gi ven in the "Long-Term Far East Development Program. " Integrated
thls program Is the "Plan to Conv ert the Military-Industrial Complexes
in the Far East and Traus Balkal Reglon Into Clvlllan Industnes " part
Russia's "I995-1997 Plan to convert the Military-industrial complexes
Civil Industries. " The plan to convert military-industrial factories
the Far East and Trans Baikal Region into civilian industries embodi es
plans to convert 22 specific military-industrial factories into
industries. These plans describe in detail what produots each
should manufacture, the size of investment eaoh enterprise will nee d,
what results can be anticipated. They cite as possible products to be
those produc ts which make best use of the oapabilities possessed by
military-industrial complexes: civil alrcraft, s hips and ship repair
commercial vessels and fishing boats) ; medical apparatuses and
instruments; and telecommunications equipment, consumer electronics and
to be manufaotured by the electronics industry, which should be able to
produce techno[ogy-intensive and ecologically safe p roducts to
imports from outside the Russian Far East. Considering the actual
of the mi litary-industrial complex in the Far East and the market
required by this region, this industry co nversion plan can be
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
of financial resources. Institution al measures to enable
enterprises themselves to promote investment must be implement ed. The
where the conversion of the munitions industry into civilian industry
expected to make pr ogress is the manufacture of machinery and
needed for the development of petroleum and nat ural gas resources in
Continental Shelf off Sakhalin. Investments totaling $27 billion, of
the m ajority are from foreign sources, are expected to be forthcoming
develop the oil and gas resources in the Continental Shelf. "Local
which makes it mandatory to utilize Russian enterprises to supply
and equipment needed for the development is a ~rerequisite. In
the Chairman of th e National Committee of Defence Industry is a member
of the Observer Committee which supervises this Continental Shelf
development project, and the military-industrial complex in the
K rai is scheduled to construct platforms for drilling petroleum and
gas reserves. Development cases like this are quite realistic, and
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