Abstract: Russia’s economic condition after the imposition of sanctions in 2014 by the West has made its ambitious projects in the Far East largely static due to shortfall in financial investments. The call for foreign direct investment (FDI) has seen proactive engagements from some of the most economically progressive Asia-Pacific countries. The Eastern Economic Forum (EEF) since its inception by Russia has attracted multiple external stake holders such as China, Japan and India. However, enhancing India’s engagement in the FAR is not without challenges especially with China’s growing presence in Russia’s projects in the region. China has set up joint projects in energy, large scale investments, infrastructure and technology in the Far East thus making it a dominant external actor in the Far East. China hence is posing a major challenge to countries such as India that are relatively new players in the Far East.
Key Words: Eastern Economic Forum, Act Far East Policy, China, regional connectivity, infrastructural projects
In recent years, the Russian Far East region has seen proactive engagements from some of the most economically progressive Asia-Pacific countries. The accommodation of extra-regional players in Russia’s ambitions in the Far East fits well in the country’s reconnecting Asia policy since the announcement of ‘pivot to Asia’ strategy (2014).
Russia’s economic condition after the imposition of sanctions in 2014 by the West has made its ambitious projects largely static due to shortfall in financial investments. Hence, the call for foreign direct investment (FDI) has given momentum to some of Russia’s projects such as infrastructural development for connectivity in the Far East. For instance, the participation of countries and companies such as Japan’s Sojitz Corporation in the construction of a new airport terminal in Khabarovsk project in the Russian Far East region (FAR).
In 2018, the FDI in the FAR projects had reached $33 billion mainly in sectors that include transport and logistics (644.1 billion rubles, 29.7% of total FDI volume), agriculture (360.9 billion rubles, 16.6%), timber (137.6 billion rubles, 13%), extractives (171.5 billion rubles, 7.9%), and mining (133.4 billion rubles, 6%).i
The Eastern Economic Forum (EEF) since its inception by Russia in May 2015 has attracted multiple external stake holders like China, Japan, Malaysia, Mongolia, South Korea, North Korea, Singapore, Indonesia, Australia, New Zealand, Vietnam, and India as well as international business communities, researchers, economists, political delegations, investors and industrial experts largely from Asian continent. The formation and participation of extra-regional players in EEF is seen as the potential for additional growth to the economic cooperation for Russia with countries such as China and India.
The fifth EEF held on 4-5 September 2019 in Vladivostok emerged as one of the key focus areas to strengthen India-Russia economic cooperation alongside the aim to reach the $30 billion target of trade by 2030. Prime Minister Narendra Modi who was the chief guest for the EEF 2019 called for an ‘Act Far East’ policy. However, enhancing India’s engagement in the FAR is not without challenges especially with China’s growing presence in Russia’s projects in the region. China in particular has emerged as Russia’s most important economic partner through bold funding mechanism and evidently sealing mega projects in the FAR. Furthermore, China has set up joint projects in energy, large scale investments, infrastructure and technology in the Far East thus making it a dominant external actor in the Far East. China hence is posing a major challenge to countries such as India that are relatively new players in the Far East.
Exploring the Potentials of the Far East
The FAR was largely overlooked by Russia in the aftermath of the Soviet collapse until late 2000. It gained prominence in domestic developments under the leadership of President Vladimir Putin. Today the FAR is given utmost importance due to its huge potentials for enhancing the economic growth of Russia. The rise of the FAR in the policy initiatives and reforms undertaken by Russia is mainly due to its geographic location and economic potentials as it consists of minerals and rare earth, oil, coal, gold reserves, gas, fisheries, shipbuilding, energy, forestry and timber, agriculture and food processing, ceramics, tourism and infrastructure. President Putin in 2013 declared the Far East as a national priority and a ‘nationwide task’.ii
The geographical location of the Far East with access to rail routes to the eastern terminus- the Trans-Siberian Railways, an upgraded Vladivostok airport, and access to large pacific ports, energy transit routes and huge reservoir of natural resources act as the gateway for Russia to connect to the rest of the world especially in the Indo-Pacific region.
For sustainable development of the FAR, the Russian government has provided targeted infrastructural and financial support to the local investors with 40 legislative initiatives has been passed. For instance, the Trans-Siberian and Baikal-Amur railway projects are part of a larger rail project to boost economic growth and exports from the country’s FAR that borders the Pacific Ocean.iii Nearly 20 advanced special economic zones and five free ports have been put in place in the region. As a result, over 1,780 new investment projects worth over 3.8 trillion rubles and 230 new enterprises have emerged. Under the Russian Homestead Act, over 70 thousand Russian citizens have received free land for agri-business, farming, and livestock, etciv further encouraging eastward migration of Russian population.
Some of the institutions that have been introduced by Russian government are the Ministry of Development of the Far East which consists of the Far East Investment and Export Agency, the Far East Development Corporation, and Far East Human Capital Development Agency.v
With such initiatives at the domestic level in the FAR and the annual conduct of EEF have drawn the attention of various extra-regional players and attracted the business community and investors.
India’s Approach to the Far East
The successful engagement of India in the fifth EEF has indicated a mutual desire to reinvigorate the economic engagement between India and Russia which continues to be the weakest link in the partnership. According to Russia’s Federal Customs Service, Russian-Indian trade in 2017-18 was $10.69 billion, a 21.3% increase over 2016-17. During 2018-19 (Apr-Aug), the bilateral trade between the two countries was $3.3 billion. Russian exports to India amounted to $ 2.3 billion and Indian exports to Russia amounted to $951 million during this period. In order to intensify the economic relations, India and Russia have set a target of $30 billion worth trade turnover and $30 billion investment by the year 2030.vi
For countries such as India, the Far East potentially acts as a conduit for connectivity and to expand economic scope in the Indo-Pacific region. India and Russia have emphasised the importance of deepening regional economic cooperation to ensure sustainable socio-economic development and the implementation of the 2030 Agenda that includes enhancing economic relations within the framework of the United Nations Economic and Social Commission for Asia and the Pacific in key areas such as transport, energy and trade.viiImportant developments therefore between India and Russia in the FAR are mainly through regional connectivity and participation in economic organisations.
To further bolster India’s FAR ambitions, a delegation of four Chief Ministers of Indian states that included Yogi Adityanath from Uttar Pradesh, Vijay Rupani from Gujarat, Pramod Sawant from Goa and Manohar Lal Kattar from Haryana led by the Commerce and Industry Minister of India Piyush Goyal visited Vladivostok from 12-13 August 2019 for the first time to explore the opportunities and potentials of business to business (B2B) cooperation in the FAR. The key sectors that were seen as potential areas of cooperation were priority sectors, including minerals and rare earth, energy, forestry and timber, healthcare, agriculture and food processing, ceramics, tourism and infrastructure.viii
PM Modi’s announcement of granting $ 1 billion line of credit (LOC) to Russia in the EEF aims to attract and provide incentives to Indian business community to invest in the FAR. India’s grant of $1 billion LOC though helpful, it is far from sufficient given the impact of sanctions on Russia’s economic growth and the need for large-scale investments to execute its ambitious projects in the FAR.
To attract business community and tourism, India and Russia are also focusing on removing the obstacles and address the issues. As a step in this direction, the two countries have welcomed progressive simplification of visa formalities, extension of duration of e-Visa facility for business and tourism purposes to one year including for Russian nationals and the introduction of free electronic visas for Indian nationals to visit the Kaliningrad region and Vladivostok.ix
Some of the positive outcomes of the focus of cooperation in the FAR are the successful setting up of Indian businesses in the region. For instance, Keshrimal Ghisilal Kothari Group (KGK) a leading gems and jewellery industry has set up a high-tech diamond cutting and polishing factory in Vladivostok. The group is set to invest 2.8 billion rubles in the Vladivostok unit which will also provide employment to nearly 400 people. It has also signed a long term contract with Russia’s leading diamond industry Alrosa and cooperation agreements with Governor of Vladivostok and VTB Bank.x They have agreed to cooperate in supply of coking coal from Russian Far East to India and the setting up of Tata Power in Krutogorovo in Kamchatka in coal mining.xi
In the Far East along with other avenues of cooperation, energy cooperation has added further expansion of economic engagement. Adding further value to the already existing over $10 billion invested by Indian oil Public Sector Undertakings (PSUs) in Russian oil majors including Sakhalin, Imperial Energy, Vankorneft and Taas Yuryak, the signing of the Roadmap for Cooperation in Hydrocarbons for 2019-24 during the 20th annual bilateral Summit, both sides expect bilateral cooperation in this sector to touch new heights in the next five years.xii
Geographical distance has often been regarded as the biggest impediment for weak economic relations between India and Russia. In this direction, the signing of the Law on the Freeport of Vladivostok in July 2015 opened new avenues for further connectivity to the FAR as it provides tax incentives, simplification of customs and visa procedures, and maximum reduction of administrative barriers.xiii
The Chennai-Vladivostok maritime route in this aspect needs utmost attention by both the countries in order to benefit as it acts as an open gateway to Indo-Pacific region. Through this route, India’s efforts to benefit from the region’s wealth will get a major boost when its Far East investments and policies correspond with its domestic ‘Blue Economy’ initiatives such as SAGARMALA project (2015).
Also, through the ‘Make in India’ initiative, India has invited Russian companies to participate in the development of industrial corridors in India, including in areas of road and rail infrastructure, smart cities, construction of wagons and creation of a joint transportation logistics company and execute the railway speed raising projects.
India’s Interests and the Expanding Chinese Footprint
The engagement between Russia and China in the Far East today has seen an increase in people-to-people contact, e-visa and visa-free scheme for Chinese visitors, joint infrastructure projects, connectivity and economic engagement. Given the geographical conditions that handicap the potentials of cooperation between Russia and China in the Far East, the countries have begun to work on overcoming the infrastructural gaps that pose a major challenge to their common interests in the region. Some of the most notable infrastructural collaborations between Russia and China in the Far East are the Amur transportation rail-road bridge connecting Tongjiang-Nizhneleninskoye through River Bridge and the Heihe-Blagoveshchensk through Road Bridge to increase trade and cargo transport. China’s largest food trade company China National Cereals, Oils and Foodstuffs Corporation (COFCO) plans to build a grain warehousing logistics system given its vast agricultural production in the region. The STO Express has set up business in FAR and also plans to build warehouses for cross-border development in Primorsky and to develop agriculture and e-commerce in the FAR.
Energy cooperation in particular remains a key factor in Russia-China relations. Chinese companies have joined gas projects on the Russian Arctic shelf and the Sakhalin shelf. The signing of the $400 billion gas supply agreement (2014) for annual supplies of 38 billion cubic meters of natural gas from Russia to China via the ‘eastern’ route for 30 years was a major development in the partnership in the FAR. Under the ‘Power of Siberia Gas Transmission System’, Russia aims to gain access to China’s energy markets through the eastern route. The system is set to supply gas from Irkutsk and Yakutia production centers to consumers in Far East including China. Russia-China natural gas pipeline signed between Gazprom and the China National Petroleum Corporation will connect Heihe to the Russian pipeline at Blagoveshchensk in Amur Oblast (Fig.2). xiv Energy agreements with China in the Far East come in the wake of the European Union’s decision to decrease its energy dependence on Russia since the Ukraine crisis. China is seen as one of the potential energy customer base for Russia given the former’s growing energy demands.
The Power of Siberia pipeline is a natural gas pipeline under construction that will cross three regions of Russia, including Irkutsk Region, Republic of Sakha (Yakutia) and Amur Region. The system will convey gas from Irkutsk and Yakutia production centers to consumers in the Far East and China. The total length will comprise about 3000 km, with the design export capacity of 38 bcma.xv As part of the project, on May 21, 2014, Gazprom and China National Petroleum Corporation (CNPC) signed the Purchase and Sale Agreement to supply Russian gas to China. The 30-years’ agreement implies delivering 38 bcm of natural gas annually.xvi
‘Power of Siberia’ Gas Transmission System
Alongside energy pipeline agreements, Russia and China have identified the benefits of development of high speed railway and road transport for flow of trade, good and services. The need to address the infrastructural gaps in the Far East has therefore become a key priority focus for both the countries. The Amur River road and rail bridge for instance links the city of Tongjiang in Heilongjiang Province with Nizhneleninskoye in Russia’s Jewish Autonomous Region. The bridge is scheduled to be put into operation in the spring of 2020. Its capacity is estimated to be up to 3 million people and 6 million tonnes of cargo annually, which equals almost 300 thousand vehicles.xvii
Another notable collaboration between Russia and China is the Russia-Kazan high speed railway project. In April 2016, China Railway International Group agreed to provide a loan of RUB400bn ($6.2bn) for the construction of the Moscow-Kazan rail line over a 20-year period.xviii This high-speed rail network between Europe and Asia aims to improve cargo transportation between Beijing and Moscow, as well as mobility, interconnection and economic growth in the regions of Russia.xix
The Chinese have also invested largely in agriculture in the FAR. Today, the Chinese farmers and agribusiness companies constitute a major part in FAR agricultural production. The FAR has emerged as one of the key regions to address China’s growing food security as it involves Chinese agribusiness investors, farmers, labourers. For instance, there is growing demand for soybean in China and given the escalating US-China trade war and retaliatory tariff, soybean cultivation concentrated in the Amur oblast, and Primorsky Kraixx support Russia’s largest soybean growing area. Another agriculturally important region is the Western Siberian grain belt.xxi With the announcement of Russian Homestead Act in 2016 to attract migration to Far East from within and outside Russia, Chinese immigrants especially farmers are set to take advantage of this Russian initiative.
While it is argued that China’s economic engagement in the Far East is a boon to Russia given its optimal minimal economic growth and imposition of sanctions, the FAR too provides the much needed reciprocity to boost China’s ‘Polar Silk Road’ strategy (Fig.7) in the Arctic region. As per the white paper outlining its plans for a Polar Silk Road released by China in 2018, the aim is to integrate its Belt Road Initiative (BRI) with the North Pole region. The Polar Silk Road is expected to boost its network of shipping routes and trade routes for global trade including infrastructural projects. Some of the projects between the two countries such as the Yamal Liquefied Natural Gas (LNG) project in the Arctic, the Amur Bridge and the Moscow–Kazan high-speed railway (HSR). Hence, access to the Far East will assist China to gain access to the Northern Sea Route (NSR) which is the shortest sea route between the European part of Russia and the Far East.
China’s Polar Extension to Silk Road
Arguably, the fact that Russia has a share in the funding of joint infrastructural projects with China in the Far East is apparent that Russia is conscious of not allowing China from monopolising the potentials of the FAR in coming years.
A ‘Bumpy’ Road Ahead for India in the Russian Far East?
Russia and India are together exploring the opportunities of enhancing economic engagement in the Far East through investments, trade and commerce. While India has positively engaged with its bilateral partner Russia and its initiatives due to mutual interests, the Far East poses a bigger challenge as India is not insulated from competition given the pro-active role of other extra-regional players such as China. China due to large investments in the Far East has gained access to both land routes and water routes for strong economic engagements not just with Russia but also include European markets alongside its desire to hold an assertive posture in the Indo-Pacific region.
For India to gain leverage in the Far East and enhance its engagement, the road ahead is evidently going to be bumpy. However, India may harness on some of its potential factors especially the soft power. Labour migration is a potential factor given the fact that India is host to one of the largest immigrants in the world which has proved to be an asset as seen in the case of Canada. Both India and Russia have highlighted in the EEF 2019 joint statement for a temporary placement of skilled manpower from India to the Far East.xxii The implementation of such an initiative is a crucial step in strengthening India’s engagement in the FAR.
Also, despite China monopolising some of the key infrastructural projects in the FAR, there continues to exist infrastructural gaps in the region such as tourist infrastructure, modernisation, expansion and development of areas adjacent to the railway stations and port base facilities. Hence, India may explore the possibility of investing in infrastructural projects such as having a Chahbahar port like project in the Far East to gain leverage in commercial benefits and also act as a key gateway to the sea, rail and road routes between India and Russia both in the FAR and in the Arctic region.
* The Authoress, Research Fellow at Indian Council of World Affairs, New Delhi.
Disclaimer: The views expressed are that of the Researcher and not of the Council.
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