Rens Lee is a Senior Fellow of the Foreign Policy Research Institute. The following is from a presentation at the Kennan Institute on September 25, 2013.
The story today is about Moscow’s strategy for developing Russia’s economically and demographically challenged Far East and about China’s likely influence over that strategy — and about prospects for Western engagement with that remote part of the world.
The Russian Far East has been a top priority for Moscow in recent years, consuming a significant and increasing share of state resources. But Moscow expects most of the impetus for the growth of that depressed region to come from broadening trade and investment ties with the relatively dynamic economies of the Asia-Pacific region.
This outreach strategy carries risks, mainly because Asia-Pacific integration could translate into integration with the regionally dominant power—that is, the People’s Republic of China, with which the RFE shares a 3600 km border. To the extent this happens, Russia’s economic sovereignty over its Far East could be compromised, with broader consequences for the regional balance of power in northeast Asia.
Let’s start with a few words about the setting. The Russian Far East is a valuable piece of real estate, rich in virtually every kind of natural resource, and strategically located in northeast Asia, where the interests of several major powers intersect. It makes up more than a third of Russia’s national territory—equivalent to two-thirds the size of the United States. Yet it accounts for just 4.5 percent of Russia’s national GDP and about the same percentage of Russia’s total population. Because living conditions are harsh, mortality rates high and social services minimal, the region has lost more than 20 percent of its population since 1989, is still losing people, and is threatened with demographic insolvency.
The Russian Far East was long neglected by the central government, especially after the collapse of the USSR. But in this century Moscow has come to view the region’s isolation, general backwardness, and hemorrhaging population as threats to the integrity of the Russian state, and even to Russia’s identity as a nation. As Dmitri Trenin of the Carnegie Moscow Center put it, “without Siberia and its Pacific coast, Russia would no longer be Russia, but would come to resemble another Ukraine.”
The result has been a succession of federal plans designed to strengthen Russia’s Pacific presence, to stem outflows of population, and especially to position the RFE to interact more successfully with Asia-pacific economies.
The first 2008 to 2013 plan was dedicated mostly to an extreme makeover of the city of Vladivostok and its environs in preparation for last year’s APEC summit. Some 680 billion rubles or $23 billion were spent on this project. Also, a new special Ministry for Development of the Far East was established—not in far-off Moscow but in Khabarovsk—and this ministry is supposed to play a pivotal role in promoting relations with Russia’s Pacific neighbors.
A second program for the Far East announced this year envisages state investments of $127 billion between 2014 and 2025, but recently yet a third plan proposes spending a fantastic 10 trillion rubles or about $320 billion to accomplish the development of the region by 2020. Moscow has no clear idea of where this money will come from. Medvedev says some would come from raiding state pension and welfare funds but the subtext of all these schemes is that better-heeled outside nations will have to play significant roles in the RFE’s future growth.
China figures very large in Moscow’s plans for the RFE and for Russia as a whole. President Putin talks about “catching the wind from China’s rise in the sails of our economy” and official development policy for the RFE is geared to China’s industrial requirements, even while also encouraging investment participation from Russia’s democratic partners. Two questions arise here: first, how much economic influence does China exercise in the Far East, relative to other countries? Second, to what extent will policy decisions in Beijing and Moscow affect the economic future of the RFE?
Chinese economic influence is least apparent in the investment sphere; China accounted for just over 1 percent of all foreign investment in the RFE and Transbaikal provinces in the years 2011 and 2012. Typically, most outside investment in recent years has come from the European Union, not from the Asia-Pacific at all.
The vast bulk of investment funds are channeled to mining and energy projects, mainly in oil-and gas- rich Sakhalin province and gold- and diamond-rich Yakutia, where China’s economic presence currently is insignificant. Chinese investment in the RFE, such as it is, is confined mainly to small-scale, low-tech ventures such as trade, retail services, construction materials and forest products and is concentrated in the four RFE provinces adjoining China.
On other dimensions, China’s influence is more apparent. China is the largest trading partner of the Russian Far East as a whole and its dominance is overwhelming in the four border provinces, where its share of external trade ranges from 40 percent to 99 percent. Migrants from China, both legal and illegal, provide essential labor services in agriculture, trade, construction, forestry, mining and other fields. No one has a clear idea how many Chinese there are in the RFE but informal estimates range from 60,000 to upwards of half a million. Chinese interests lease large tracts of agricultural land in Russian provinces along the border–some 426,000 hectares according to one frequently cited estimate—on which they grow wheat, corn, soybeans, vegetables and other foods, packaging them under both Russian and Chinese labels.
Chinese influence is even growing in the Far East underworld, where Triad groups reputedly are displacing the Russian godfathers of old, and funneling huge sums into hotels, casinos, restaurants and hostess bars, as well as into businesses that hurt the economy such as illegal logging and salmon-poaching, migrant smuggling and trafficking Russian women to China. In fact, the most influential organized crime figure in the Russian Far East today is said to be not a Russian national, but a Chinese (“Lao Da”) whose home base is in Liaoning province.
On a policy level, Moscow seeks a bigger Chinese presence in the economy of the Far East and this coincides with China’s own drive for a secure land-based source of raw materials. A case in point was a 9-year agreement signed in 2009 between presidents Dmitri Medvedev and Hu Jintao to link the development of Russia’s Far East plus the three adjoining trans-Baikal provinces to the renovation and modernization of China’s decrepit Soviet-built industrial base in Manchuria. In translation, this really meant harnessing production of energy, minerals, forest products, water and other resources in these provinces to service China’s industrial expansion. To some critics this meant putting 45 percent of Russia’s territory (RFE plus Transbaikal) in the position of a resource colony or appendage to China’s metropolitan northeast.
Implementation of the Hu-Medvedev program has been slow, but last month the ministry of development of the Far East and China’s State Development bank signed a framework cooperation agreement that included a Chinese commitment to spend up to $5 billion to finance priority production and infrastructure projects in the RFE. I believe that China’s same state development bank in 2009 made a huge loan of $25 billion to Russian companies to supply China with 300,000 bbl of oil per day over the next 25 years. That loans, like direct investments, can provide enormous economic leverage is hard to dispute.
The pro-China orientation of Russia’s Far East development strategy is controversial and poses some risks to the Russian state. Moscow certainly is not planning to surrender its Far Eastern territories to China, but unwise policy decisions coupled with realities on the ground–the long Sino-Russian border, China’s dynamic growth, expanding cross-border trade, a huge population imbalance, historical associations of the peoples and so on—all suggest that China’s economic influence in the RFE will grow significantly in years to come. China’s rivalry with the United States in the western Pacific will doubtless increase the importance of the RFE and other resource-rich Eurasian territories in its national strategic calculations.
At the same time, Russia’s democratic partners—Japan, South Korea, the United States, the EU—also have interests in the RFE, especially in its northern provinces. They hold some major advantages over China in resource-extraction technologies, especially in offshore oil-and-gas exploration, and in development of related marketing infrastructure. The Western countries should press these advantages to increase their engagement with the Russian Far East—economically, culturally and even politically. They should consider coordinating their investment strategies, as a way to balance China’s growing influence and reach, ensure open international access to the RFE’s markets and resources, and help Russia realize the region’s vast economic potential
Finally, the United States and Russia’s Far East are neighbors across the Pacific, just 58 miles apart at their closest continental points. Geopolitics dictates that America and Russia have a common security interest in preventing domination of the RFE—including indirect soft-power domination—by any outside power, and China now is the power in question. This converging interest is not clearly recognized in Moscow, which seems to believe that alignment with China may be the best way to boost its credibility as an Asian power. In fact, since Russia is viewed as an outsider by its Asian neighbors, an alignment or entente with the United States and its allies could prove a more sensible strategy for achieving this goal
In addition, as Chinese military and economic clout expands in East and Northeast Asia, Washington for its part should begin taking Russia seriously as a Pacific power, and even as a potential partner in its Asian security calculations. The Obama administration already is assembling an informal coalition of Asian states as a counterweight to China, and bringing Pacific Russia into the fold, at least at the margins, could make sense as a balancing strategy. This isn’t beyond the realm of possibility, especially if the West commits to funding development initiatives in the RFE that can ensure Russia’s continued real sovereignty over that vital region.