The world is currently in the most complicated and severe geopolitical and geo-economic situation since the end of the Cold War. The wave of anti-globalization that first appeared in the economic field gradually expanded into the geopolitical arena, with smears of ideological and nationalistic competitions. Promoted by the U.S. President Donald Trump, the U.S.-Russia Cold War-like pattern has now been replayed with China. As for Russia, although Trump appears to have an inexplicable, personalized good relationship with the Russian President Vladimir Putin, the fundamental conflict of interest between the United States and Russia has left the two countries remain in an antagonistic state. In this context, due to the small scale of economy, Russia is facing very urgent pressure to seek geographic space.
The Royal Institute of International Affairs, otherwise known as the Chatham House, is one of the world's most renowned international research centers and is also the largest international research centres in the UK. The institute published a research paper this year and discussed a question worth pondering, i.e. why has Russia's infrastructure shifted its focus to Asia?
According to the report, Russia’s vast territory and varied geographical conditions mean that its transportation network is extremely important for connecting the eastern and western regions of the country as well as with other countries to promote international trade. However, inadequate transportation infrastructure prevents the country from taking advantage of economic opportunities. This deficiency is particularly prominent when working with its Asian partners such as China, Japan and South Korea. Due to the uneven distribution of Russia’s population and transportation network, the western part of the country has a dense railway and road network, but the railway network in the Russian Far East (RFE) is relatively sparse. For Russia, an established goal is to turn the RFE into a trade and investment hub connecting Asia and Europe. However, it is not an easy task to improve Russia's transportation network in the Far East. The main obstacles include overloading of the port system, insufficient number of well-engineered bridges to accommodate the increase in cargo and severe seasonal weather conditions. If the transportation network (railways, bridges, ports, etc.) in the RFE is not continuously and systematically improved, Russia will not be able to attract foreign investment to increase freight capacity and support export growth, which will also limit its access to the large number of natural resources that its export economy depends on, whereas in the RFE, there are significant reserves of resources such as oil, natural gas, coal and precious metals that remain untapped.
The deterioration of the geopolitical environment has limited Russia's ability to obtain external investments. The annexation of Crimea by Russia in 2014 and subsequent military intervention in eastern Ukraine prompted Western countries to adopt sanctions measures, which weakened Russia's relations with the United States and Europe. This makes it a necessity for Russia to find alternative economic partners in Asia to invest in the RFE and make its economic potential a development reality. In terms of actual progress, although the Russian government has introduced some measures, such as a preferential tax system, this has yet to bring any large-scale foreign investments in the RFE. Due to the lack of a large amount of new capital inflows, many major projects, such as the planned expansion of ports, are put on hold.
Objectively speaking, Russia has made certain progress in energy transportation infrastructure. For example, the completed Eastern Siberia-Pacific Ocean (ESPO) oil pipeline project which measured over 4,000 kilometers in length, costing over USD 25 billion and requires a construction time of 7 years. The project will help Russia efficiently cultivate the world's fastest growing Asia-Pacific market, according to Putin. In addition, Russia has also built the Power of Siberia gas pipeline, which was scheduled to be completed in 2019. Based on the situation known to ANBOUND, Gazprom stated in September 2020 that the maintenance of the Siberian power pipeline has been completed. However, if Russia is to realize its ambition to direct half of its energy exports to the Asian market, more investment is needed to achieve a meaningful transformation in terms of geo-economy.
An important significance of Chatham House's research is that it reveals an important task Russia is undertaking: under geopolitical pressure, Russia's strengthening of infrastructure construction such as large-scale transportation in the RFE is of great significance for it to complete the adjustment of the geo-economic structure. ANBOUND’s researchers are of the opinion that in order to achieve this goal, Russia still needs to overcome many difficulties and challenges.
Firstly, Russia needs to balance the European and the Asian aspects in its strategy, policy and resources. Russia is traditionally a European country; its national economic, industrial, urban, population distribution, cultural and education are all located in the European region, west of the Ural Mountains. While the vast territory has provided Russia abundant resources, it has also become a huge obstacle to its balanced regional development. What Russia needs to balance is not only national policies, but also culture, geopolitics, and limited economic resources.
Secondly, if Russia wants to strengthen its infrastructure of the RFE, it needs to consider the economic and population support of the region. Statistics show that the RFE covers an area of 6,215,900 square kilometers, with a population of only 6.29 million (2010), which accounts for less than 5% of the total population of Russia. The most populous city in the RFE is only 800,000 people. In such a sparsely populated area, the population and economic support capacity are very weak, to say nothing of construction, maintenance and the utilization of large-scale transportation infrastructure.
Thirdly, this will be a test for Russia's opening-up policy in the RFE. Russia’s economic development in the RFE is closely related to its cooperation with China, Japan, and South Korea. These three countries are the main markets for economic cooperation in the RFE and are important buyers of Russian energy and resources. The economic development of the Russian Far East must be geo-economically meaningful. It is not as simple as transporting oil or natural gas through pipelines, but also requires further exchanges in trading goods, investments, population, technology, etc. Russia also need to strengthen economic cooperation with China, a neighbouring country with a large population. How Russia, which does not excel in the market economy, opens-up to the outside world in the Far East will be a great challenge.
Final analysis - conclusion:
Under the geopolitical pressure of Western countries, Russia has begun to strengthen the geo-economic importance of the RFE; promoting the eastward shift of infrastructure is an important supporting project for Russia under such a context. However, for the development of the RFE to achieve geo-economic significance, Russia still faces key challenges in terms of balancing Europe and Asia, enriching the economy and population of the RFE and increasing its opening-up.
About Mr He Jun
Mr. He Jun takes the roles as Partner, Director of China Macro-Economic Research Team and Senior Researcher. His research field covers China’s macro-economy, energy industry and public policy.
