Russian trade is rapidly shifting to booming Asia from troubled Europe, the head of the railroad monopoly Russian Railways said, challenging European leaders to adapt to change.

Vladimir Yakunin, a long-time friend of Prime Minister Vladimir Putin, said neither the company—which is often seen as a barometer for the economy as a whole—nor the government had anticipated the sudden change.

“In the end of 2008, beginning 2009 our cargo flows shifted. The main volumes went to Far Eastern ports because shippers have reoriented towards South-East Asian markets,” Yakunin told the Reuters Russia Investment Summit. He said that shipping volumes of steel, coking coal, petrochemical products and fertilisers have grown by up to 30 percent in the Far East, and the existing infrastructure had no excess capacity to cope with the rising trade.

China has overtaken Germany this year as Russia’s largest trade partner, accounting for 9.2 percent of the total trade turnover, while South Korea has overtaken Great Britain.

Yakunin said he regretted the lack of investment in infrastructure in the last 20 years and added that if not for the new $2 billion Kuznetsov tunnel being built in the Far East the situation would be critical in 2015.

“Asia says it is ready to buy and is buying. While there is a fall in demand in the traditional European markets,” Yakunin said, forecasting the trend will persist in the next 2-3 years.

“I think that cooperation, if not an economic integration with Europe, is more in the interest of the European states than of Russia… Russia has an option of developing cooperation with the South and East as well,” Yakunin said.

Step Forward
Yakunin, one of the most prominent advocates of a stronger state role in the economy, said the privatisation of Russian state assets announced earlier this year was a “reasonable” thing given the right market conditions and completion of reforms necessary to get a good price.

Finance Minister Alexei Kudrin said Russia plans to earn $50 billion from privatisation over the next five years [ID:nLDE68E0R4] but Yakunin said Russian Railways subsidiaries were not ready to be part of the sale yet.

“We have not yet completed the third stage of reform. Until this stage is completed we should not come forward with any sale ideas because unfinished reform translates into lower market capitalisation,” Yakunin said.

Yakunin, who at the height of the crisis spooked foreign investors with a call for an introduction of capital movement controls, said the liberal macroeconomic policy of recent years should change to allow more investment.

Taking a snipe at Kudrin, an architect of conservative fiscal policy during the economic boom, Yakunin said his statements that infrastructure investment fuel inflation were groundless and welcomed more state spending. “I believe that industrial and social policy measures that we are seeing today are certainly a step forward compared with the neo-liberal model that dominated (the Russian policy) only three years ago,” Yakunin said. (Reuters)