Andrey Gubin: New Dimension of the "Chinese threat" for the Russian Far East

Even under the regime of the strategic partnership China can hardly be named the true advocate of the Russian interests on the Far East and North East Asia. The dynamic of the regional cooperation witnesses on poor development of local cooperation mechanisms – investment activity and amount of the implemented projects aren’t covering mutual demands. Also we have a trade misbalance – 76% of the Russian export consists of minerals, raw materials, hydrocarbons, timber, fish.

Since 1990s Russian Far East including Primorye has been developing collaboration with Chinese border provinces: Heilongjiang and Jilin. Nevertheless in spite of the geographical vicinity and all the positive intentions, real condition is far from the ideal one.

Trade turnover of Primorsky region with China now exceeds 4.5 billion USD however we import 4 times more than export. Furthermore there’s an evident lack of Chinese investment, they fund not much than 30-35 million USD annually mostly in revolving trade credits. Actually Korea and Japan today are more significant financial donors for the Russian Far East.

There were established 2 joint industrial zones in Primorye by companies from Zhejiang and Guangdong provinces. Initial plans presumed up to 8 billion USD annually in total outlet producing furniture, construction materials, garments, electronics and house appliances by small producers from border China areas. Today both projects are frozen due to reorientation of Chinese contractors for covering domestic demands and extensive Russian bureaucracy, respectively. Strong competition between Heilongjiang and Jilin is feasible as well and handicaps implementation of initiatives often setting all negotiations of Primorsky authorities with Chinese investors in a mess.

There should be stressed that Russian Far Eastern regions have advantageous proposals from Japanese, Korean, US, Canadian, European contractors including creating technological parks, innovative industrial complexes in our territory. Chinese initiatives aimed to producing consumer goods can be obsolete and uncompetitive in this context.

The economic environment also suffers badly from underdeveloped logistic circle with North-East China. Chinese pretentions are partly true as they do not offer something valuable and requesting Russian demands. There is a progress in Jewish Autonomous district where Railway Bridge is resumed in construction from Chinese side. As for Primorsky region, we put sincere expectations in railway corridor Zarubino – Hunchun (Jilin) which has initial transport capacity 3 million tons of general cargo and 50 000 TEU annually and can be broadened to 8 million tons in several years. The railroad is connected to TSR that opens generous prospects for cooperation involving both Koreas and China.

         North-East Chinese provincial authorities promote the idea of exploiting transport mega-corridor Shengyang – Harbing – Zarubino – Sokcho – Niigata to provide continental centers of growth with access to sea ports and prospective markets. However Chinese companies are excessively cautious and cunning in elaborating the investment intentions with Russian side; they simultaneously conduct some separate negotiations with Koreans and Japanese partners.

         Considering National Program on social and economic development of the Russian Far East it’s more convenient for Moscow to use cluster patterns in transport sector proposed by South Korean, Japanese and European partners. The top priority is the Arctic route and its infrastructure development.

         Tourism traditionally was the main sphere of the Russian-Chinese border cooperation. The structure for a decade was misbalanced and stipulated by Chinese speculative motives for enrichment. For instance annual amount of Russian tourists to border China is 600 000 people, 90% are so-called ‘helpers’ who carry Chinese payload of consumer goods to Russia to fit customs regulations. Number of Chinese tourists floats near 60 000 annually, however we had extra 100 000 as season workers. Nowadays more Chinese are coming as tourists – 160 000 in 2013 due to APEC propaganda and new attractive image of Vladivostok.

         There has been sustaining reciprocal plans to allow crossing the border in personal car, not in a tour bus, without visa or form a tourist group of minimum 5 people. Initial agreement was made in 1999 and since 2015 China may start this experiment to facilitate border cooperation in Suifenghe and Hunchun areas. Chinese companies opened several recreational complexes in Jilin, Yanbian and border Heilongjiang so Russian side should develop national recreational projects more rapidly, specifically “Primorye” gambling and entertainment zone adjacent to the international airport.

The sensible drawback of the tourist branch is the visible lack of passenger routes. Regular railway transportation between Vladivostok and Harbing still is absent. Flights from Vladivostok to North-East China cities are very rare – actually we have irregular season flights to Mudanjiang, Changchun and ski-resort Yanji. Furthermore Mudanjiang pretends to the role of the regional aero-hub and cost of the tickets to southern China, Korea, Japan and ASEAN countries can be less than directly from Vladivostok. Local authorities are very reluctant to note that Mudanjiang airport tends to be Vladivostok’s competitor but uphold the project strongly.

Apparently the growth of the tourists flux can be achieved by easing regime of the mutual visits and developing recreational facilities in the Russian Far East. The most effective is establishing of extra passenger routes including railway, air and ferry connecting Russian, Chinese, Korean and Japanese coastal and continental territories.

We should reckon that development of the border infrastructure is lagging behind actual needs determined by rates of bilateral passenger and cargo transportation. Current Russian custom and security facilities are not enough to operate all the volumes properly. Russian authorities in 2012 stated programs of modernization border infrastructure to triple transport capacity however due to bureaucracy, embezzlement and mismanagement they is still a long way to go.

 Structure of the trans-regional cooperation could be enriched with timber and agricultural projects but the situation is disappointing. Chinese border provinces are strongly interested in increasing Russian export of raw materials to process it and gain profits exporting back to Russia. Therefore Chinese businessmen don’t fond of establishing hi-tech timber industries on the Russian territory. Authorities of the Far Eastern regions always pay attention to foreign investment initiatives in timber industry and we have some successful examples, for instance Japanese financed plant in Terney area.

In agricultural sector Sino-Russian cooperation in the Far East mostly is delegated to municipal authorities; those rent the land to Chinese companies directly or to false Russian residents. Nobody knows how much land is possessed by Chinese farmers even in comparatively small Primorsky krai as clandestine shifts are very difficult to control. Nature securing bodies regularly note extremely rough attitude of Chinese to soil and water, especially in lake Hanka area. Today agricultural cooperation is getting better as Primorye authorities made an agreement with Heilongjiang and Jilin colleagues to rent officially for a long term 120 000 hectares for growing and processing rice, corn, soya. Such measures should encourage Chinese business to be more responsible and fund into long term projects.

Within APEC-2012 agenda there was claimed a significant interest from ROK and Japan to invest into joint agricultural projects in the Russian Far East. Such activities are aimed to providing food security for Seoul and Tokyo and they actually are ready for advantageous proposals and can press Chinese companies out from the Russian market. Furthermore Chinese (especially Hong Kong) business is notoriously known as the owner of the bulk of the Russian fishing boats in the Pacific that makes sea food hardly available for local residents as it goes for export mostly. Today Russian federal government tries to set full control and even nationalize fishery and is opened for better offers from investors.

There must be remarked that business model elaborated by Chinese presumes processing Russian raw materials in PRC and exporting products back with general investment only in transportation facilitating those operations doesn’t meet Russian demands. This pattern cannot assist massive programs of developing Russian Far East and Chinese North-East claimed by Presidents Putin and Xi, respectively. In terms of rising activities of the ROK, Japan, India, EU and ASEAN countries and their readiness to develop long term energy, transport, industrial projects there appears a possibility of re-orientation of the Russian side from political reasons to economic effectiveness. Even today we can witness successful Korean policy of the ‘substituting competition’ in Russian Far East.

Generally, official Beijing access highly Russian initiatives in developing far Eastern regions but number of large scale projects and volumes of investment aren’t enough yet. We still cannot see actual readiness of the Chinese businessmen to reject principle of ‘easy and fast money’ by all means. This situation can be overcome only with direct intervention of central Chinese government into provincial and private deals as well as leverage of bigger companies, e.g. state owned enterprises. China traditionally requests special terms and conditions for cooperation and are slightly scared of Russian vice Prime Minister Shuvalov’s idea of ‘greenfield’ schemes within entire Russian Far East for national companies and competitive environment for others.

Unfortunately, today Far Eastern regions themselves don’t possess effective model and fruitful examples of reciprocal beneficial cooperation with China. It can be explained both by Moscow’s unwillingness of being too much dependent from Beijing economically and reluctance of Chinese investors to fund into projects in Russia those are seemed to be competitive and harmful for domestic market. Obviously, Far Eastern regions tend to diversify international contacts and are totally opened for all foreign initiatives worked out thoroughly so it’s a good time for joint initiatives.

Andrey Gubin, Associate Professor, School of Regional and International Studies, Far Eastern Federal University, Research Director, Russia Institute for Strategic Studies, Vladivostok office

E-mail: Andrey.gubin@mail.ru