Coordination of the EAEU and the Silk Road Ecomomic Belt: Implications for Siberia and the Russian Far East

_ Igor Makarov, Senior Research Fellow, CCEIS, HSE; Anna Sokolova, Intern Researcher, CCEIS, HSE. Moscow, 2016.

Joint statement on coaoperation on the construction of joint Eurasian Economic Union (EAEU) and the Silk Road Economic Belt (SREB) project was signed on May 8, 2015. It became a new milestone in Russia-China relations.

The EAEU is an integration project of Russia, Belarus, Kazakhstan, Kyrgyz Republic and, since 2016, Armenia. The SREB is a Chinese initiative, which implies primarily the expansion of the country investment activities in transport and logistics into Eurasian region. The EAEU-SREB coordination is not so much a transport project but a co-development initiative. The EAEU provides institutional framework of cooperation, while China provides funds for investment projects. This model would not only allow overcome potential differences in Central Asia, but also create preconditions for full-scale economic cooperation within the Greater Eurasia, that may become a new center of economic development in the coming decades.

Goals of the Silk Road Economic Belt

The idea if the Silk Road Economic Belt was initially announced in 2013 in China. During his visit to Astana in September 2013, Xi Jinping suggested “to forge closer economic ties, deepen cooperation and expand development space in the Eurasian region… The new corridor along the Silk Road differs from traditional models of regional cooperation, because it does not imply creation of a supranational governing structure”.1 In November 2014 the President of the PRC announced that China would provide USD 40 billion through the Silk Road Fund in order to finance construction and modernization of roads, railroads, and pipelines. The declared goal of creating this infrastructure was intended to increase trade volumes with Europe. Later the Silk Road Economic Belt was included into the “One Belt, One Road” project, implying a full-scale transformation of logistics network of Eurasia, including marine routes in the Indian ocean (Maritime Silk Road, “String of Pearls’), logistics projects in the South East Asia, in Mongolia, Russian Primorye, and, perhaps, even the development of the Northern Sea Route.

Since 2011 economic growth rates in China have been slowing down due to the structural transformation of its socio-economic development. Thus the priority was placed on stimulating domestic consumption and inclusive growth, intensive development of central and west Chinese provinces, increasing volumes of investment and trade with Japan, Korea, ASEAN, South and Central Asia. The whole Asian region started to pass from “Asia for the World” to “Asia for Asia” model. The balance shifted from traditional ties with developed countries to intraregional trade and development of intraregional value chains. Europe itself has not succeeded in recovering stable economic growth. As a result, after the compensation of the crisis collapse, since 2011 growth rates of Europe-Asia trade have slowed down to 5–6% annually. At the same time the opportunities for import substitution of European goods and equipment substantially expanded.2

In the mid-term perspective an increase in Europe-Asia trade is not expected, the decline is possible. This trend is now accompanied by an intensive expansion of container capacity, which will further reduce the tariffs for sailing through traditional routes. According to preliminary data, an increase in marine fleet capacity in 2015 was around 7%. There is a widening gap between supply and demand for transportation — the latter grew only by 1,5–2%. As a result, there is tariffs decline, which exceeds possible effect from oil price drop.

Therefore, currently there is no crucial commercial need in creating alternative routes in order to support Europe-Asia trade. But this need is defined by the political and strategic objectives. It is related to the necessity of reducing military and political risks which are typical for conventional marine routes. These risks include a decline in international security level in Asia Pacific and instability in the Middle East (and the corresponding threat to the Strait of Hormuz and the Suez Canal), China’s growing dependence on Singapore, which controls the Strait of Malacca, piracy, growing tensions in South China Sea. In this regard China is interested in transit routes, which are alternative to conventional routes. However, it is important not to overestimate the potential of such transit. Marine transportation is cheaper and the trade flows volume from inland Chinese regions to Europe is extremely limited. The idea of Silk Road Economic Belt goes far beyond transit options. It suggests a development project and has several mail goals:3

1) a combination of resources (especially oil, gas and coal) and production base of Central Asia, Kazakhstan and western Chinese provinces.

2) a reinforcement of Chinese economic power in Central Asia and Kazakhstan, more intensive inclusion into “Asia for Asia” model (which implies involvement of these countries in intraregional value chains as upstream elements). The region is interesting as a resource base, as a new market (taking the EAEU into account, the economic presence in Kazakhstan and Kyrgyz Republic means access to Russian market), and in the long term, even as a region for outsourcing of production facilities (primarily energy-intensive).4

3) securing relative stability in the Xinjiang-Uighur Autonomous region (XUAR), which requires strengthening its economic ties with other Chinese provinces and with the neighboring Muslim countries.

4) guaranteeing utilization of capacity of Chinese construction firms, which during economic contraction are cramped in domestic market, where the major infrastructure projects are already implemented.

The transit goal also exists, but from the strategic perspective it is a second order priority. The possibility of redirection of some trade flows to land routes is attractive taking into consideration increasing political risks associated with marine transportation. However, achieving really considerable volumes of transit requires much more investments in comparison to USD 40 billion, which China is ready to provide in order to support the project.

The interests of the EAEU countries in coordination with the SREB

Attainment of the SREB goals opens up simultaneously new opportunities for EAEU countries. SREB will be developed in cooperation with Asian Infrastructure Investment Bank (AIIB), New Development Bank of BRICS and the Silk Road Fund.

The main spheres of the Silk Road Fund investments are infrastructure, energy and high tech export support. SREB does not have clear geographical boundaries, which allows it to cover as many investment projects as possible.

The EAEU-SREB coordination would allow Russia to tie Russian regions, which are located along the SREB and have a high industrial and export potential, but have been isolated from the world markets due to their continental geographical position, to the new pole of growth. At the same time, SREB would create long-term infrastructure for profitable activities of many companies, interested in production and trade cooperation with foreign partners in this region and would mitigate a severe lack of viable investment projects in Russia.

The EAEU-SREB coordination will provide substantial benefits to Kazakhstan. Its central location in Eurasia opens up opportunities for a massive foreign investment, which would allow developing export-oriented production, modernizing transport infrastructure and extending political influence.5 The major opportunity is overcoming the continental curse, and in fact transforming it into an advantage.

The Eurasian Economic Union and the Silk Road Economic Belt should be coordinated through multilateral cooperation mechanisms. The creation of new working bodies, ensuring joint implementation of real transport infrastructure projects, is much needed.

The Shanghai Organization of Cooperation (SCO) may become a cooperation center in Greater Eurasia. The promotion of coordination initiative through the SOC will allow to turn other states, searching for their place in the world or not satisfied with it, towards the great Eurasian project. It refers primarily to Eastern European countries and Caucasus, possibly — a range of other partners (for example, Iran, Mongolia, potentially the Republic of Korea), to whom Russia could suggest beneficial cooperation within a large-scale economic project.

Finally, Europe could eventually join cooperation in Greater Eurasia. This will be beneficial for Russia and the EU, and this scenario is more viable than “integration of integrations’ (EU-EAEU).

The priority of EAEU-SREB multilateral coordination does not reject bilateral cooperation. Kazakhstan has already announced its intention to coordinate its national infrastructure development plan “Nurly Jol” with SREB. Furthermore similar activities are attractive for Belarus, Kyrgyz Republic and Tajik Republic.

EAEU intensifies these opportunities.6 Its common customs border is gradually being complemented by harmonization of norms and standards. The most urgent task now is to develop a common agenda of the EAEU in relations with China and enrich the ambitious plans of the coordination initiative with real projects.

Prospects for the Siberia and the Russian Far East involvement in coordination of the Eurasian Economic Union and Silk Road Economic Belt

Russian interests in joint implementation of the initiative include infrastructure development of Russian regions — Siberia and the Far East, which is partly possible through use of Russian territories transit potential. Transit of goods from China to Europe already exists, but it does not involve Siberia and the Far East. Currently the most convenient and cheapest transit route from China to Europe is the Lianyungang — Zhengzhou — Lanzhou — Urumqi — Khorgos — Almaty — Kyzylorda — Aktobe — Orenburg — Kazan — Nizhny Novgorod — Moscow — St. Petersburg route with access to the Baltic sea ports. An important advantage of this route is that on the way from China to Europe there are only two customs borders, between China and the EAEU and the EAEU and the EU.

More attractive option for Siberia and the Far East would be one of the two alternatives: route via Urumqi to Omsk and further to the European part of Russia via the Trans-Siberian railway or the route connecting China and Russia at the Eastern border, in the area of Khabarovsk.7

The first of these two alternatives is quite viable, but its implementation requires a significant expansion of the already overloaded area of the Omsk — Novosibirsk, as well as the development of logistics centres in these cities in order to increase domestic shipments and export. Silk Road turn into Western Siberia just to transport goods from China to Europe makes little sense, as this route is longer than the route through Orenburg.

The second alternative is hardly feasible in the mid-term perspective as it competes directly with marine transportation (focused on servicing the Northeastern provinces of China, which are located not too far from the sea), and Russian plans of developing export-oriented Far East. In addition, the transport route via Khabarovsk will be more expensive and time consuming.

In 2014, plans were announced to build a high-speed railway “Moscow — Beijing” via Ekaterinburg, Astana, Irkutsk, Ulan-Bator, and Khabarovsk with Chinese funding. This initiative is also mentioned in the text “Vision and actions on jointly building Belt and Road”, which is the only Chinese document revealing the content of the initiative “One Belt, One Road”.8 However, apparently, ultimately the route will follow from Astana to the northwestern provinces of China and not Eastern Siberia.

Presently, apart from the possibility of constructing a transit route through Omsk, there are two ways for Siberia and the Far East to get integrated in the “One Belt, One Road” project. The first option is the development of international transport corridors on the Russian-Chinese Far Eastern border. The Chinese plan of the “One Belt, One Road” project states: “We must derive maximum benefit from the proximity of the province of Inner Mongolia to Russia and Mongolia, improve railway communication between Heilongjiang province and Russia and regional railway network, enhance cooperation between the Chinese provinces of Heilongjiang, Jilin, Liaoning and the Russian Far East region through land and marine multimodal transport development, and the con struction of Eurasian high-speed railway linking Beijing and Moscow for the purpose of creating the key “windows’ for the northern territories”.9

Among all these goals the most realistic is the development of transport corridors of Primorye (Fig. 1). “Primorye-1” has already been used to transport cargo. It connects the border railway station Suifenhe with the container terminal of Vostochny port. The total route length is 500 km, while the distance from Suifenhe to the nearest Chinese port of Dalian is about 1300 km, the Corridor has an exit to the highway Ussurijsk — Pogranichny — Gosgranica, as well as to the ports of Nakhodka and Vladivostok. Its ultimate goal is shipping of Chinese containers to the Northeast Asian countries and to the United States. International transport corridor “Primorye-2” connects the Jilin province to the ports of Slavyanka, Zarubino and Posyet. In late June 2014 an agreement was signed between the company “Transit-DV” and the Chinese “Zhong Gong Xin”, according to which the joint construction of the Slavyanka port to carry out transit containers transportation between Russia and China. In Slavyanka containerized cargo from northeastern provinces of China will be transferred to container ships for the shipment to the South of the country. Apart from the port, a highway from Slavyanka to the border will be constructed, which will later be modified from two-lane to four-lane. In Zarubino port four terminals will be constructed: grain, alumina, container and universal. The first line is to be launched in 2018. Approximately 60% of its cargo flows would be provided by China, 30% will comprise the Rus sian goods for export to the Asia-Pacific region, and the remaining 10% are allocated for foreign trade operations of Russian companies.

There is a proposal on the organization of the transport corridor “Primorye-3” from the Chinese border to Vladivostok. A competitive advantage of this project is that the corridor is 65 km length, i. e. 2–3 times shorter than “Primorye-1” and Primorye-2”.

In the future the Primorye transport corridors can be used for the transit of Chinese goods not only to the Asia-Pacific region, but also to Europe via the Northern sea route. However, currently its feasibility is questionable as the planned cargo is dominated by containers and grain, which are difficult to transport along the NSR. And the development of the Northern sea route has stalled amid the suspension of the Arctic energy projects due to sanctions and falling oil prices.

The connection of the transport infrastructure of Russia and China is important not only in Primorye, but also in other regions. In 2013, a road bridge, linking the mainland Khabarovsk territory with the Bolshoy Ussuriysky island and then with China, was opened. The construction of the railway bridge Nizhneleninskoye — Tongjiang across the Amur river between the Jewish Autonomous oblast and Chinese Heilongjiang province has been started. This will reduce the transportation distance of goods to final consumers by about 700 km. Initially the bridge was expected to be put into operation in late 2015, but due to financing difficulties in Russia beginning of its operations is delayed to 2016.

The integration of the Russian eastern territories into Chinese transport initiatives are also possible through the Chinese-Mongolian-Russian economic corridor.10 The proposal was presented by the Minister of Foreign Affairs of China Wang Yi in spring 2014. He argued that the initiative means the integration of the Chinese “One Belt, One Road”, Mongolian “Steppe road”, and Russian initiative of Trans-Eurasian development corridor.

The development of the transport corridor to China via Mongolia is of great importance for Eastern Siberia, which will be able to supply products to China, avoiding the bottleneck of the “eastern polygon” of Trans-Siberian railway. Manufacturers of coal could gain an advantage. But more importantly, the meridional transport corridor may allow outsourcing water-intensive and energy-intensive production from China to Eastern Siberia, earlier partially constrained by transport barriers.

The overview of the major transport and logistics projects in Asia shows that Siberia has a limited interest for Asian partners in terms of transport, and in the Far East an important role is given only to Primorye territory, which can act as a significant transit region due to its geographical position. Consequently, the Russian infrastructure projects are still insufficiently integrated into regional and continental megaprojects (Table 1).

Table 1. The role of Siberia and the Russian Far East in new Eurasian projects

Source: Makarov I.A., Makarova E.A., Karaganov S.A., Bordachev T.V., Kanaev E.A., Litvinova Ju.O., Lihacheva A.B., Pestich A.S., Pjatachkova A.S., Sokolova A.K., Stepanov I.A., Shherbakova A.V. (2016) Povorot na Vostok. Razvitie Sibiri i Dal’nego Vostoka v uslovijah usilenija aziatskogo vektora vneshnej politiki Rossii [Turn to the East: The development of Siberia and the Far East under the intensifi cation of Asian vector of Russian foreign policy]/ (ed.) I.A. Makarov. Moscow: Mezhdunarodnye otnosheniya.

Therefore, only the Russian Far East is to a certain extent included in regional infrastructure projects, while Siberia is not considered in the plans of Asian countries. Given that the transport component is one of the key in the development of Siberia and the Far East, it is vital to build effective mechanism for coordination of regional-scale, national and continental projects.

 Notes:

1 Tavrovskij Ju.V. Shelkovyj put’ vozvrashhaetsja na kartu mira [Silk Road is back on the global map]// Nezavisimaja gazeta, 1 September 2014: http://www.ng.ru/courier/2014-09-01/9_silkroad.html

2 Makarov I. A., Makarova E. A., Karaganov S. A., Bordachev T. V., Kanaev E. A., Litvinova Ju.O., Lihacheva A. B., Pestich A. S., Pjatachkova A. S., Sokolova A. K., Stepanov I. A., Shherbakova A. V. (2016) Povorot na Vostok. Razvitie Sibiri i Dal’nego Vostoka v uslovijah usilenija aziatskogo vektora vneshnej politiki Rossii [Turn to the East: The development of Siberia and the Far East under the intensification of Asian vector of Russian foreign policy] / (ed.) I. A. Makarov. Moscow: Mezhdunarodnye otnosheniya.

3 Bordachev T. V., Karaganov S. A., Bezborodov A. A., Gabuev A. T., Kuzovkov K. V., Lihacheva A. B., Lukin A. V., Makarov I. A., Makarova E. A., Skriba A. S., Suslov D. V., Timofeev I. N. (2015) K Velikomu okeanu — 3: Sozdanie Central’noj Evrazii [Toward the Great Ocean — 3: Creating Central Eurasia] / ed. S. A. Karaganov. Moscow: MDK “Valdai”

4 Gabuev A. T. Iskateli privlechenij: kak zarabotat” na proekte Shelkovogo puti [In search for investment: how to make money on Silk Road project] // Forbes, 30 March 2015: http://m.forbes.ru/article.php?id=284189

5 Bordachev T. V., Karaganov S. A., Bezborodov A. A., Gabuev A. T., Kuzovkov K. V., Lihacheva A. B., Lukin A. V., Makarov I. A., Makarova E. A., Skriba A. S., Suslov D. V., Timofeev I. N. (2015) K Velikomu okeanu — 3: Sozdanie Central’noj Evrazii [Toward the Great Ocean — 3: Creating Central Eurasia] / ed. S. A. Karaganov. Moscow: MDK “Valdai”

6 Lukin A. V. Ideja “jekonomicheskogo pojasa Shelkovogo puti” i evrazijskaja integracija [The idea of Silk Road Economic Belt and Eurasian integration] // Mezhdunarodnaja zhizn”, № 7, 2014; Bordachev T. V., Karaganov S. A., Bezborodov A. A., Gabuev A. T., Kuzovkov K. V., Lihacheva A. B., Lukin A. V., Makarov I. A., Makarova E. A., Skriba A. S., Suslov D. V., Timofeev I. N. (2015) K Velikomu okeanu — 3: Sozdanie Central’noj Evrazii [Toward the Great Ocean — 3: Creating Central Eurasia] / ed. S. A. Karaganov. Moscow: MDK “Valdai”

7 Makarov I. A., Makarova E. A., Karaganov S. A., Bordachev T. V., Kanaev E. A., Litvinova Ju.O., Lihacheva A. B., Pestich A. S., Pjatachkova A. S., Sokolova A. K., Stepanov I. A., Shh erbakova A. V. (2016) Povorot na Vostok. Razvitie Sibiri i Dal’nego Vostoka v uslovijah usilenija aziatskogo vektora vneshnej politiki Rossii [Turn to the East: The development of Siberia and the Far East under the intensification of Asian vector of Russian foreign policy] / (ed.) I. A. Makarov. Moscow: Mezhdunarodnye otnosheniya

8 Full Text: Vision and actions on jointly building Belt and Road // Global Times, 29 March 2015: http://www.globaltimes.cn/content/914373.shtml

9 Ibid

10 Makarov I. A., Makarova E. A., Karaganov S. A., Bordachev T. V., Kanaev E. A., Litvinova Ju.O., Lihacheva A. B., Pestich A. S., Pjatachkova A. S., Sokolova A. K., Stepanov I. A., Shherbakova A. V. (2016) Povorot na Vostok. Razvitie Sibiri i Dal’nego Vostoka v uslovijah usilenija aziatskogo vektora vneshnej politiki Rossii [Turn to the East: The development of Siberia and the Far East under the intensification of Asian vector of Russian foreign policy] / (ed.) I. A. Makarov. Moscow: Mezhdunarodnye otnosheniya

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