Foreign Policy Research Institute A Nation Must Think Before it Acts The Russian Far East: Opportunities and Challenges

The Russian Far East: Opportunities and Challenges

  • December 22, 2012

The Russian Far East: Opportunities and Challenges

  • December 22, 2012

By Rens Lee

Rens Lee is a Senior Fellow of the Foreign Policy Research Institute. He delivered this talk at the Kennan Institute for Advanced Russian Studies on October 9, 2012.

Moscow’s relations with its eastern territories, especially the nine provinces of the Russian Far East, have significant implications for Russia and for the Asia-Pacific community generally – and that includes the United States.

Let me start with some comments about the setting of the RFE. This vast land encompasses 36 percent of Russia’s entire territory – some 6.2 million square kilometers, or about two-thirds the size of the United States. But it has only 6.3 million inhabitants or about 4.4 percent of Russia’s population, and amounts to just $104 billion, or 5.6 percent of Russia’s total GDP.

Also, the RFE is rather inconveniently situated: far removed from Russia’s European core and centers of power but uncomfortably close to dynamic and ambitious Asia-Pacific powers. Consider that Vladivostok is about 4,000 miles from Moscow but just 830 miles from Beijing and 660 from Tokyo, and that the RFE’s southern provinces share a 3,600 kilometer frontier with China.

So here’s a huge territory that is at once isolated, seriously underdeveloped, demographically challenged, and geographically vulnerable, Nevertheless, the RFE represents a valuable and strategically piece of real estate, and potential focal point of international competition. Consider the following:

  • The RFE is a vast storehouse of vital natural resources: oil, natural gas, coal, gold, diamonds, most major metals (including rare earth metals), timber, and fish stocks.

  • It is strategically situated in the North Pacific, where the economic and security interests of several important powers intersect – that is, Russia, Japan, China, the Koreas, and the United States.

  • The importance of the RFE will certainly grow with the shift of gravity of the global economy to the Asia-Pacific and as US-China rivalry increasingly defines the contours of international politics in the western Pacific.

  • Finally, direct or indirect control over the Russian Far East and eastern Siberia could confer some major advantages in international politics in northeast Asia and beyond; in fact, it is a long-standing U.S. foreign policy and security interest that no single outside power should be allowed to dominate that vast region.

To make a long story short, the RFE was practically abandoned by the central government after the collapse of the Soviet Union in 1991. Because of steep budget cuts in the 1990s, the region lost about 15% of its population (the drain has now increased to 25 percent), and close to 90 % of its heavy industry, plus a lot of its Pacific-based naval and air force capability. The general disintegration of the state apparatus encouraged regional bosses to assert a measure of independence from the center and to make their own deals on trade and migration issues, which was really a survival strategy for the RFE’s provinces in this difficult time.

In the past decade, though, Russia has moved to enhance its power and presence in the Far East and the adjoining Trans-Baikal regions. Geopolitical considerations have spurred Russia’s renewed interest in the eastern territories. Russia’s leaders began to see the RFE’s isolation, general backwardness, and hemorrhaging population as a threat to the security of the Russian state. Fears that the RFE provinces might detach themselves from the center, and that Russia as a whole could break up, and that outside powers could gain a major foothold in the region, began to pervade the national discourse.

With these concerns in mind, Moscow decided to make economic growth in the RFE and adjoining Siberian regions a top national priority. Moscow’s modernizing strategy in the Far East has proceeded along two major tracks.

The first is to strengthen Russia’ administrative and economic footprint in the RFE. Moscow recently has created a new State Ministry for the Far East and has planned a giant state company that would be responsible for the Far East and eastern Siberia. Massive state investments of $31 billion were pledged to uplift the RFE’s economy, infrastructure, and living standards, with a 2.6 percent increase projected between 2008 and 2013. Some 95 percent of the funding is allocated to the RFE (as opposed to the Trans-Baikal provinces) and roughly two-thirds was earmarked for an extreme makeover of the city of Vladivostok – new roads, 2 big sea bridges, reconstruction of the airport, a conference center, a university campus, and so forth – in preparation for the recent APEC summit.

The second major thrust of strategy is to strengthen economic links with Russia’s Asia-Pacific neighbors. Right now Russia accounts for only about one percent of regional Asia-Pacific trade. Russia is making a deliberate tilt eastward to harness the RFE’s future to the dynamic and fast-growing economies of the Pacific region, as opposed to the sluggish and stagnant economies of the European Union. Obviously no amount of Russian state resources will suffice for the gargantuan task of developing an area two-thirds the size of the United States.

All this is not just development for development’s sake. Moscow’s policy is driven by at least four major considerations:

  • To reaffirm and strengthen Russia’ sovereign control over its eastern territories;

  • To send a clear message to outside foreign actors that Moscow is a serious player in the Asia-Pacific;

  • To make the RFE, especially its southern parts, into a modern and efficient hub to expand Russia’s exchanges with the Asia-Pacific;

  • To stop population outflows and prevent demographic insolvency – the true Achilles’ heel of Moscow’s ambitious designs for its Far East.

From Moscow’s perspective, the integrationist impulse represents a state-managed rather than a market-driven territory. But how much state management of the integration process is required? Russia’s leaders believe that complete liberalization of foreign contacts would result in a loss of effective sovereignty; thus Moscow wants to balance the imperatives of openness and fast-track development with those of preserving control over its Pacific territories. How much of a balance is necessary or desirable, though, is a matter of controversy.

Important opinion leaders like Sergei Karaganov of the Council on Foreign and Defense Policy would willingly sacrifice a measure of state direction, at least in the traditional “Soviet” sense, in order to exploit the huge growth potential of the Asia-Pacific market. Karaganov proposes the radical devolution of the state’s economic, social, and financial functions to Russia’s east, and in fact would create a Russia ruled from three centers – an economic pole comprising one or more cities in the eastern territories, a cultural-judicial capital in St. Petersburg, and political-diplomatic-military capital in Moscow.

Karaganov would hope to offset the looming presence of neighboring China with broader participation of Russia’s Western and Asian democratic partners in large-scale development project in Siberia and the RFE. The search for balance in foreign economic relations is a recurring theme in Russia’s dialogues on the Far East. But whether the necessary capital will be forthcoming depends on a host of factors and remains now a rather distant hope.

China, by any measure, is the key to the future development of the Russian Far East. Consider that China is the dominant trading partner for the RFE border provinces and represents a vital market for the RFE’s most important products such as metals, coal, and timber, and is an essential supplier of foodstuffs, clothing, and electronic products to the RFE’s inhabitants. Consider also the very long Sino-Soviet border and the huge population imbalance between China’s Manchurian provinces and the Russian Far East – a ratio of about 16:1. Indeterminate numbers of Chinese already have crossed into the RFE legally and illegally, and provide vital labor services in agriculture, construction, trade, forestry and other fields, though they do not yet constitute an organized political force (like, say, Mexican immigrants in the United States).

As you probably know, Russia and China have evolved a close-fitting strategic partnership in recent years, and the partnership right now is riding high. The countries have apparently resolved their outstanding border disputes, and they enjoy shared understandings on such international issues as Iran sanctions, Syria, NATO enlargement, and threats of ethnic separatism. But the partnership also includes a strong component of cross-border economic integration. You may recall China’s $25 billion loan to Russia in 2009 to build a pipeline to supply China with 300,000 barrels of oil per day for the next 20 years. China is now Russia’s largest trading partner, surpassing even Germany, with $90 billion of turnover projected for 2012 and $200 billion by 2020.

But especially noteworthy in these developments was an agreement between presidents Dmitry Medvedev and Hu Jintao in 2009 to link the development of China’s northeast provinces (Manchuria) to the development of Russia’s eastern regions. The scheme specified some 201 “key cooperative projects” plus 65 target areas for improving transportation and border crossings on both sides.

Under this agreement, Russia would initiate projects for mineral resource extraction, forestry, agriculture, water supply and power generation while China would establish or reconstruct factories to create an internationally competitive manufacturing base. The proposed transportation networks would of course facilitate the supply of Russian raw materials to the PRC’s northeast. Almost everywhere in the RFE is affected by the joint projects, excepting Yakutia. As you might expect, this scheme did not go over well in many Russian circles, and was widely criticized for relegating Russia to the role of a resource colony serving the needs of a metropolitan China, and at the same time distorting Russia’s path of future development, in ways that would allow China to call the shots in regional development policy.

Here I’d like to interject just a couple of reflections on China’s global economic and security strategy.

Consider that the PRC is short of just about every resource needed to sustain the country’s pace of development – oil, natural gas, coal, most metals, timber, water, and so on; so China needs to forage in international markets to obtain these raw materials and to sell Chinese-manufactured goods to pay for them.

But another part of the strategy has been to position China globally in ways that would be advantageous in the event of a major international conflict. For example, China is heavily involved in development in the Caribbean not primarily because of the Caribbean’s resources, but largely because of the proximity of the islands to the United States – America’s backyard, so to speak – though political factors such as Taiwan recognition also come into play. China’s behavior in the RFE reflects all of these priorities. A sphere of influence in the RFE would greatly increase China’s geopolitical weight, and the RFE offers a secure resource base in Eurasia should military hostilities prompt the United States to cut off sea lines of communication to China.

So what is likely to happen to the RFE in the long term? The basic realities already mentioned – isolation from European Russia, proximity to Asia, serious underdevelopment, a deepening demographic crisis, combined with China’s relentless quest for reliable sources of raw materials – suggest to some a rather grim outlook: a gradual soft power assimilation of the RFE into a resource appendage of China’s northeast. Yet other countries have interests in the region, so this prognosis seems a bit simplistic.

For example, a look at trade patterns shows that while China clearly dominates trade with the RFE’s border provinces, democratic countries (not all of them Asia-Pacific ones) are the dominant partners for the non-border provinces. Also, the vast majority of foreign investment in the RFE, 85 percent, flows to just two provinces, Yakutia and Sakhalin – world-class repositories of gold and diamonds, and oil and gas respectively – and China plays a relatively minor investment role in these rich provinces. Indeed, China’s investment in the RFE in 2010 was just one percent of total foreign investment in that year. Admittedly, the broad scope of the Hu-Medvedev agreement suggests that China’s trade and investment presence in the non-border provinces will increase with time.

So what are America’s interests in the future of the Russian Far East? Generally speaking, the United States has a historical and a security interest in preventing the domination of that economically and strategically vital region by any single outside power. In the last Russian civil war, to go back in time, the concern was with Japan, which had 100,000 troops in the RFE as of 1920, and harbored plans to create a dependent Russian administration in the Eastern territories stretching as far as Lake Baikal – a forerunner of Manchukuo and the “greater East Asian co-prosperity sphere” of the 1930s and 1940s. In fact, the U.S. government at the time issued a protest note to Japan that “the U.S. government cannot accept the violation by Japan of Russia’s sovereignty and territorial integrity.” Today, of course, the main perceived threat to Russia’s control over its Pacific territories appears to come from China, and this has given rise to the idea of a “geopolitical entente” between Russia and America to contain China’s growing power and reach.

Such an alignment could take in economic collaboration such as development of the fabled resources of Russia’s Far East as well as some common understandings on security issues in northeast Asia. I understand that there have already been informal Russian-US-Japanese talks along these lines. The idea has some resonance in policy circles in Moscow and here, but also has its detractors. Though Pacific Russia and Pacific America have few outstanding differences (other than demarcation of the border in the Bering Strait, which seems on the way to being resolved), Atlantic America and European Russia have many points of conflict—Eastern Europe, the Middle East, the Caucasus, NATO enlargement, missile defense – you name it.

In fact, I suspect that Putin may have cast Japan rather than the United States in the role as Russia’s economic and technological savior, and Asian counterweight to China. This would require resolution of the dispute over the four southernmost Kurile Islands, which Russia occupies and Japan claims. But recently there are signs of renewed efforts by both parties to put an end to the territorial dispute. A recently announced accord to build a $13 billion liquefied natural gas plant and export terminal in Vladivostok, and the launching of a new Mazda assembly plant (also in Vladivostok), seem to testify to a warming of Russo-Japanese relations.

Also, on the economic front, the United States doesn’t have much of a presence in the RFE other than the large Exxon-Mobile investments in Sakhalin oil and gas, and those funds were committed years ago. America accounted for just 2.2 percent of the RFE’s foreign trade in 2011, and only 0.1 percent of overall foreign investment in 2010. Russia’s WTO membership could improve the picture here, but lots of political obstacles still remain and the rather unpredictable business climate in the RFE still doesn’t inspire a lot of confidence among investors.

Aside from preventing domination by China, A U.S. interest is also to prevent the transformation of the RFE into a new Asian arena of great power contention, with China, Japan, South Korea (and yes – even the United States) vying for individual provinces’ allegiances and favors while the authority of the Russian state over the RFE progressively deteriorates. Such an outcome would be destabilizing for the Asian Pacific region generally, especially in the context of rising tensions with China.

From this perspective, what is needed in the long term is not just a US-Russian Pacific partnership, but some sort of regional economic and security arrangement that would ensure international access to the markets and resources of Russia’s Far East while conserving Russia’s real sovereignty over that territory. As the world’s largest economy and most important Asia-Pacific power, the United States logically should take the lead in establishing such a mechanism, which would have to include the five most interested Pacific states – Russia, America, China, Japan, and South Korea (perhaps eventually both Koreas). In any event, Washington needs to establish its own security priorities vis-à-vis the RFE, and to collaborate with other powers in defining the future economic and political status of this vital region.