CHINA AND RUSSIA JOIN HANDS TO BUILD PIVOT PORTS ALONG SILK ROAD ON ICE

ZHANG TINGTING

Chongyang Institute for Financial Studies, Renmin University of China

CHEN XIAOCHEN

Director, International Studies Dept., Chongyang Institute for Financial Studies, Renmin University of China

The “Ice Silk Road”, ever since its proposal during the meeting between the Chinese and Russian foreign ministers in May 2017, has become an important area of bilateral cooperation. We believe that, in a broad sense, the “Ice Silk Road” refers to the economic cooperation with the Arctic states; and in a narrow sense, it refers to the Arctic shipping routes that connect East Asia, Western Europe and North America, especially the Arctic Northeast Passage. This article adopts the narrow definition.

Planning shall be on top of the agenda for the joint construction of the pivot ports along the “Ice Silk Road” by China and Russia. The choice of pivot ports is of particular importance. As an overseas point of supply for replenishment, a rest point, and a berthing point for maintenance of ships and aircrafts,the strategic pivot sea ports play a crucial role in safeguarding the maritime transport, promoting pragmatic maritime cooperation and realizing the strategic objectives of building China into a marine power. The key to promoting unimpeded trade among the participating countries of the “Belt and Road Initiative” is to bring into full play the“link” and “connectivity” role of the pivot cities, which, in many cases, are also important ports along the maritime trade routes. Therefore, the key to facilitating trade along the “Ice Silk Road” is to “link” and “connect” the pivot ports.

The harsh climate in the Arctic brings about difficulties in port construction as well as various risks. Such questions as why it is necessary to plan the layout of the pivot ports in advance and how to choose the ports and avoid risks in the process of construction have become immediate concerns to be addressed.

THE NECESSITY OF PIVOT PORTS IN CHINA-RUSSIA JOINT CONSTRUCTION OF THE “ICE SILK ROAD”

Jointly building the pivot ports along the “Ice Silk Road” is of great significance to both China and Russia.

I. The significance of jointly building the pivot ports along the “Ice Silk Road” to China

First of all, the Arctic Route connects northern China and Europe, two major trading regions, and in particular opens up a safe shipping shortcut that enhances the Northeast China’s link with Europe and thus helps the revitalization of the Northeast. For example, through the Port of Zarubino, goods from Jilin and Heilongjiang, two Chinese provinces without access to the sea, can be shipped to Europe along the Arctic Route.

Secondly, in terms of port construction, by linking the two major trading areas of China and Europe, the Arctic Route provides opportunities for the development of ports in northern China and thus boosts the formation of local cluster of ports, such as the ports in the Bohai Sea Ring Area. In addition, port construction can be taken as an entry point for China and Russia in their joint efforts to build the “Ice Silk Road”,which is expected to break the bottleneck of the Arctic development and further drive the overall economic cooperation. For example, on the basis of the cooperative Yamal liquefied natural gas (LNG) project in the Port of Sebetta,the future cooperation between China and Russia can be extended to the port construction.

Finally, the joint construction of the“Ice Silk Road” is of great significance to addressing the short supply of natural gas in China. Data released by the National Bureau of Statistics of China on October 19, 2017 show that from January to September 2017, China’s natural gas production was 108.7 billion cubic meters, while its absolute consumption amounted to 167.1 billion cubic meters,with both absolute consumption and its rate of increase higher than output.The Yamal project can, to some extent,ease the gas shortage of China. After Yamal starts full production in 2019, it is expected to steadily supply 6 billion cubic meters of natural gas to China every year at least until 2045 when the license may expire.

II. そe signi fi cance of jointly building the pivot ports along the “Ice Silk Road” to Russia

Russia is the largest country in the Arctic, in terms of both population and territory area. However, suffering sluggish domestic economy since the disintegration of the Soviet Union, Russia has devoted insufficient efforts to developing the Arctic and supporting the development of the region, resulting in the declining influence on Arctic affairs.The Arctic Route thus is of strategic significance to its engagement in the Far East.

On the one hand, the “strategy of double-headed eagle” is a basic diplomatic strategy that Russia has always been adhering to. Connecting the East and the West by the Arctic Route is in line with this long cherished strategy.Since coming to power, Putin has paid close attention to the development of the Far East and signed the Strategy for Socioeconomic Development of the Far East and the Baikal Region up to 2025 in 2010, placing the development of the Far East on the agenda again. Western sanctions following the Crimean crisis in 2014 pressured Russia to accelerate its pace of developing the Far East and led to the convening of the first “Eastern Economic Forum” in September 2015,which aimed to open Russia further to the Far East and attract foreign investment.

On the other hand, a series of western sanctions against Russia has thrown the country into grave economic difficulties, from which Russia is yet to fully recover. In order to maintain its status as an Arctic power, Russia urgently needs to develop the Arctic. However,due to the financial restraint, it has only reaped limited results. Under such circumstances, Russia is earnestly in need of investment from other countries and the Arctic can serve as a key area where China and Russia carry out cooperation.

III. そe signi fi cance of jointly building the pivot ports along the “Ice Silk Road” to shipping routes and ports

In terms of shipping routes, the Arctic Route is one of the most promising routes in the future. Firstly, the Arctic Route has greatly shortened the distance between East Asia to Western Europe. For example, it takes only 27 days to travel from the port of Dalian to the port of Rotterdam along the Arctic Route, shaving off nine days as compared to the traditional routes.Secondly, the Arctic Route via Russia is a route that runs through relatively stable regions and is free of U.S control and such extremist forces as terrorism.Therefore, the shipping safety is better guaranteed. Finally, its transportation potential is considerable. The annual freight volume of the Arctic Route was 3,982 kilotons in 2014, 5,432 kilotons in 2015 and 7,266 kilotons in 2016, showing appreciable increase.

In terms of ports, it is quite difficult to form a cluster of ports in the Arctic and as a result, carefully selecting several separate ports is the only viable option. Firstly, harsh natural environment will not only lower the construction efficiency, but also shorten the service life of port facilities, making it impossible to construct ports “in an intensive manner”. Secondly, Russia’s lackluster economy prevents the country from investing a large sum of money in largescale port construction. Finally, the construction of ports along the Arctic Route is very demanding in terms of technology, equipment, and manpower,thus calling for gradual accumulation of experience. Therefore, planning shall be on the front page of “Ice Silk Road”project calendar and pivots ports shall be selected in a targeted and accurate manner.

FEASIBILITY STUDY OF PIVOT PORTS ALONG THE “ICE SILK ROAD” JOINTLY BUILT BY CHINA AND RUSSIA

By examining the experience of port construction, policies on the admission of foreign investment and the participation of Chinese enterprises, we believe that it is feasible for China and Russia to jointly build pivot ports along the “Ice Silk Road”.

I.Sound foundation of the existing infrastructure

Russia has a long history of development in the Arctic. As early as 1620, Tsar Fedorovich had included some of the Arctic region in Russian jurisdiction.In 1728, Bering, the Russian captain appointed by Peter the Great, successfully passed the strait which was later named after him. From 1914 to 1915, sponsored by Tsar Nicholas II, the famous Russian polar explorer Andrey Vilkitsky sailed from east to west along the Arctic Northeast Passage and discovered the Severnaya Zemlya, the largest archipelago in the Arctic Ocean.

In Soviet times, a large number of military ports were built in the Arctic region, such as Provideniya and Tiksi.Although these ports are now in disrepair and with limited transportation capacity, such infrastructure as residential areas, terminals and airports are basically in place.

II.The experience of building the Port of Sebetta

After the disintegration of the Soviet Union, Russia slowed its pace in the Arctic development. Being elected as the President, Putin beefed up efforts in the Arctic development, promulgated a host of policies, and scored some achievements, such as building the Port of Sabeeta. To facilitate the Yamal LNG project, Russia kicked off the building of the Port of Sabetta in 2012. The Sabetta has become a modern port that accommodates over 30,000 builders at most and is equipped with a modern international airport as well as LNG antiicing facilities. The planning of port expansion is currently underway. Russia’s experience in building the Port of Sabetta provides reference for the joint building of the pivot ports along the “Ice Silk Road” by China and Russia.

III.Russia’s flexible policy on the Arctic development

Russia’s flexible policy on the Arctic development is conducive to the joint building of the “Ice Silk Road”. The Russian law stipulated that only companies with more than 50% of state-owned shares and not less than five years of experience in marine exploration were eligible to exploit the resources on the continental shelf and that strict restrictions were imposed on equity changes.However, in developing the Yamal project, Russia “handled the special case with special methods”. In 2015, as the major shareholder, Novatek reduced its shareholding from 60% to 50.1% so that the Silk Road Fund, as a new shareholder could hold 9.9%. Such flexible policy certainly will help the joint construction of the “Ice Silk Road” by China and Russia.

IV.“Made in China” provides strong technical support

The vast Arctic market is so attractive that the Chinese companies are motivated to provide technical support for the joint construction of the “Ice Silk Road”. In the Yamal project, the Arctic drilling rigs manufactured by the Honghua Group Limited were able to withstand the cold of minus 45 degrees Celsius and the wind force over Beaufort number 12. Chinese companies also undertook the manufacturing of six transport vessels and the operation of 14 out of the 15 LNG carriers. In addition,in terms of formats of participation,Chinese companies stand ready to adopt flexible cooperation methods, such as“public-private partnerships” (PPP).

BASES FOR THE SELECTION OF PIVOT PORTS AND THE RESULTS

Then here comes the question: how should we select the pivot ports? This article selects 10 typical Arctic ports,including Provideniya, Uelen, Pevek,Nizhneyansk, Tiksi, Dikson, Sabetta,Arkhangelsk, Mezen and Murmansk and evaluates the ports from the perspectives of geographical location,demographic conditions, development potential, shipping period and bilateral cooperation basis. Murmansk, Sabetta,Tiksi and Uelen are identified as the pivot ports.

I.Evaluation and analysis of five major elements

First, in terms of geographical location, as shown in the graphic below, Uelen, Tiksi, Sabetta, and Murmansk enjoy geographical advantages. Located at the easternmost part of the Chukchi Peninsula at the junction of Russia and the United States, Uelen serves as a “strategic passage” in the Bering Strait. Tiksi is the place where oceans, streams and rivers meet. Port of Sabetta is located at the mouth of the Ob River, which is the only shipping route channeling China’s Irtysh River from south to north into the Arctic Ocean. The development of the Port of Sabetta is likely to revitalize the route. Murmansk is located on the westernmost part of the Russian section of the Arctic Route and is the “throat”through which ships enter Europe.

Secondly, in terms of development potential, Murmansk, Arkhangelsk, and Mezen enjoy a time-honored history of development while the others were built in Soviet times.

Third, in terms of shipping period,being ice-free all the year around, Murmansk is the best option.

Fourth, in terms of demographic conditions, Arkhangelsk, Murmansk, and the Port of Sabetta have an advantage.

Fifth, in terms of the existing China-Russia cooperation, the Port of Sabetta boasts a good basis for cooperation. In addition, the Port of Sabetta is a hub for goods arriving in the North Pole from the China’s Xinjiang, Kazakhstan, and Russia’s Ob River. It is of great significance to the future China-Russia cooperation.

II. Summary of Evaluation

The article sets five levels for each of the above five factors, as follows: excellent (A), 5 points; almost excellent (A-),4 points; good (B), 3 points; medium (C),2 points; and poor (D), 1 point.

As shown in Table 1, the evaluation results show the ports in order of total points they have scored: Port of Sabetta,20 points; Murmansk, 18 points; Tiksi, 16 points; Uelen, 15 points; Arkhangelsk, 14 points; Dikson, 13 points; Port of Mezen,13 points; Pevek, 13 points; Provideniya,13 points; and Nizhneyansk, 11 points.Therefore, the ports of Murmansk, Sabetta, Tiksi and Uelen are identified as pivot ports in the joint construction of the “Ice Silk Road” by China and Russia.

DIFFICULTIES IN AND SUGGESTIONS FOR THE JOINT CONSTRUCTION OF THE“ICE SILK ROAD” BY CHINA AND RUSSIA

In the previous part, the article has evaluated and selected Murmansk,Sabetta, Tiksi, and Uelen as four pivot ports. In the following part, this article will point out the risks facing the port construction and accordingly make suggestions.

I. Risks faced by China and Russia in their joint construction of the pivot ports along the “Ice Silk Road”

Russia has made some achievementin developing the Arctic Route, but such factors as complicated Arctic climate and geopolitics still pose a number of risks to China and Russia in their effort to jointly build the pivot ports along the“Ice Silk Road”.

Table 1. Evaluation of 10 Major Ports in North Pole

The top risk is harsh climate. Of these ten ports, the majority could only enjoy above-zero average temperature from July to October each year, with the minimum temperature in Tiksi being as low as minus 50 degrees Celsius. The freezing cold makes it extremely difficult to carry out constructions. The experience of building the Port of Sabetta shows that each worker could only spend quite limited time working outdoors every day and that they had to stop working once the wind was strong.

The second is geopolitical risks. During the “Arctic 2007” scientific expedition in August 2007, Russia planted its national flag on the seabed of the Arctic Ocean to declare its sovereignty. Ever since, the Arctic has witnessed increasingly fierce competition among the countries in the region. In the future competition for the Arctic, the complicated interests of the major powers will also have a bearing on the construction of the pivot ports along the “Ice Silk Road”.

The third is political risks. In July 2014, the United States began to impose a second round of sanctions against Russia and prohibited a number of Russian banks and companies from entering the US bond market, including the Rosneft Oil and Novatek. In the same month,the European Union and the United States imposed a third round of sanctions targeting at specific companies and industries and banned the export of high-tech oil equipment destined for Arctic deep water exploration and shale oil projects to Russia. Such factors also affect the joint efforts of China and Russia in building the pivot ports along the“Ice Silk Road”.

II. Suggestions for the joint construction of the “Ice Silk Road” by China and Russia

Despite various risky factors in the joint construction of the “Ice Silk Road”,some of them would be avoided as long as the favorable conditions could be utilized well.

Firstly, China-Russia coordination is critical. The prerequisite for jointly building the “Ice Silk Road” pivot ports is the high-level mutual trust between China and Russia. After the joint construction of the “Ice Silk Road” was proposed during the meeting between Chinese and Russian Foreign Ministers in 2017, it took less than half a year for the two countries to achieve policy coordination and less than one year to kick off the operation of the Yamal LNG, the very first project under this initiative.Such achievements were almost impossible without the political mutual trust between China and Russia. And the level of mutual trust should be further upgraded in future cooperation to ensure unimpeded channel of policy communication and coordination.

Secondly, a construction plan featuring “one specific policy for one specific port” should be adopted. Since the Arctic ports vary greatly, a “tailored policy”shall be adopted in the construction of each port to fully exercise its geographic advantages. The special geographical location of Uelen at a “strategic point”in the Arctic Route suggests that it can be built into a “free port”, just similar to the way Singapore port was planned.As a military hub during the Soviet Union period, Tiksi is well positioned to serve as surveillance, search and rescue and service center for the Arctic Route,providing services to the passing ships.The Port of Sabetta can be built as an industrial development zone centered on LNG projects. For relatively mature ports such as Murmansk, joint capital can be utilized for upgrading existing facilities or the “equity for investment”model adopted in the construction of the Port of Sydney can be used for reference. Tiksi and Sabetta are located respectively in the estuaries of the Lena River and the Ob River. More emphasis shall be placed on enhancing their roles as cargo collectors and distributors so as to drive the economic growth of the region along the rivers.

Thirdly, efforts should be made to install icebreakers and anti-icing equipment and address demographic issues through immigration. Due to the relatively long ice period in the Arctic ports,icebreakers are needed to open a route.With advantages in building icebreakers, Russia should assign high priority to equipping Uelen, Tiksi and Sabetta with icebreakers. In addition, Russia has equipped the Port of Sabetta with antiicing equipment. And it will be helpful for other ports to pool the experience of the Port of Sabetta. To solve the problem caused by small population in Uelen and Tiksi, it is viable to adopt a large-scale immigration policy.

Finally, more participants should be engaged to avoid risks. To take targeted measures against potential risks in the process of port construction, while taking joint steps with Russia, China can also engage third-party participants,such as France among other western countries or Japan and South Korea among other countries outside the region. They can also partner with Norway, Finland or other Arctic states and draw their merits to effectively reduce the risks.

In short, the Arctic Route has enormous economic value and security value. It is in the interests of both countries to jointly build pivot ports along the “Ice Silk Road”. The existing infrastructure in the Arctic, Russia’s flexible policy on the Arctic development, experience in building the Port of Sabetta and the technical support of Chinese manufacturing have all greatly enhanced the possibility of the joint development of the Arctic and the construction of pivot ports in the Arctic. The specific natural and social conditions of the Arctic should be taken into consideration in the process of selecting pivot ports.By examining geographical location,demographic conditions, development potential and the basis of Sino-Russian cooperation, this article identifies the ports of Murmansk, Sabetta, Tiksi, and Uelen as the pivot ports. To this end,we should adopt “one specific policy for one specific port”, make full use of the preferential immigration policies,strengthen anti-icing and ice-breaking devices, and engage third parties to build these ports into pivot points along the “Ice Silk Road” .