The schedule of top-level international events in the Asia-Pacific is famously busy. To keep a finger on the pulse of the region, numerous politicians, businessmen, experts and other stakeholders seek to become regulars at numerous fora and dialogues in Singapore, Boao, Tianjin, Dalian, the APEC summit, the ASEAN summit, the East Asian Summit, the Belt and Road summit from last May onward and so on. Since 2015, the Russian government, and personally President Vladimir Putin, have been signalling an increasing presence in the Asia Pacific by claiming the early September slot in that summitry calendar as the hosts of the annual Eastern Economic Forum in Vladivostok.
Addressing a wide range of topical regional issues from the DPRK’s missile program to the train projects of Hyperloop, New Silk Road and the Greater Trans-Siberian, the event appears to have become one of the most tangible materialisations of Russia’s pivot to Asia, as proclaimed several years ago. At the same time, it also reflects the longer rapprochement between Russia and the Pacific over the past two decades, and Vladivostok’s drastic shift during this period has been quite symbolic of those changes: from, literally, a closed city to a free port.
Until 1992, Vladivostok was closed to foreigners as host city of the country’s Pacific Fleet. In 2012, shortly after the federal government established a dedicated Ministry for Development of the Russian Far East, uniquely headquartered between Moscow, Khabarovsk and Vladivostok, the city hosted the 24th APEC Summit, which provided a significant boost to its infrastructure and to its regional profile. In 2015, Vladivostok has been granted the status of free port (porto franco) as part of the ministry’s policy of promoting so-called Territories of Advanced Development – special economic zones with incentives for investors.
Similarly to the 1988 EXPO infrastructure legacy in Brisbane, Vladivostok inherited the APEC summit facilities, transferring them to the newly-merged Far Eastern Federal University and using the venue to host major events, the top one being the Eastern Economic Forum. Another parallel with Australia is the A50 Australian Economic Forum in Sydney, organised for meetings between the Australian government and key investors. The key difference here is that the Vladivostok event targets investors specifically from the Asia Pacific, as Russia hosts similar economic forums catering to a wider audience in St. Petersburg, Krasnoyarsk and Sochi.
The 2017 gathering in Vladivostok boasted the signing of deals worth $44 billion in aggregate value and was attended both by Russia’s Northeast Asian neighbours, such as China, Japan, both Koreas, and Mongolia, and by participants from wider Asia Pacific – Argentina, ASEAN countries, Australia, Canada, India, Iran, South Africa and the U.S. Guests among political leaders included Japanese Prime Minister Shinzo Abe, South Korean President Moon Jae In and Mongolian President Khaltmaagiin Battulga (a year earlier, the session involving Russian, South Korean and Japanese leaders was moderated by former Australian Prime Minister Kevin Rudd). It is noteworthy that the Chinese delegation was traditionally headed by Deputy Prime Minister Wang Yang. Although neither Xi Jinping nor Li Keqiang have attended the event yet, their absence is mostly explained by their preference of bilateral Sino-Russian meetings, differences between Japan and China, as well as by time collision with major events held in China at the same time, namely, the 2016 G20 summit in Hangzhou and the 2017 BRICS summit in Xiamen.
Furthermore, the absence of Chinese heads of state and government at Vladivostok-based summits is contrasted by China’s growing economic presence in the Russian Far East. Although Japan has been the largest Asian investor in Russia in terms of cumulative investment nationwide due to its 30-year involvement in the Sakhalin oil projects, funds from Chinese investors account for over 80% of recent investments in the Russian Far East. This is explained by the fact that the Chinese companies were the quickest to seize the opportunities of the aforementioned economic incentives in the region.
The highlight of growing Russo-Chinese economic interdependence was the purchase of a 14.16% stake in the Russian state-controlled oil major Rosneft for US$9 billion by CEFC China Energy, one of top-10 private companies in China and a Fortune Global 500 list.
Another bold initiative discussed at the event was the Russian government’s proposal to launch Elon Musk’s Hyperloop transportation project – designed by SpaceX and Tesla and funded inter alia by the Russian Direct Investment Fund – in the Far East. If implemented, the US technology of Hyperloop would connect the infrastructure of the Russian port of Zarubino with the port of Hunchun in China’s Jilin province – potentially linking the New Silk Road with the Greater Trans-Siberian.
Vladivostok has the potential of being a key link in Russia’s alignment with the Belt and Road Initiative and is naturally situated at the Asian end of the Northeast Passage across the Arctic – Shinzo Abe even hailed it as a gateway to Eurasia-Pacific. But the city’s advantageous geography also comes with a qualification: it sits on a harbour close to North Korea, with which Russia shares a 17-km terrestrial border and a 22-km maritime border. Despite Moscow’s decision to join the latest UN sanctions against Pyongyang alongside Beijing, Russia’s relations with the DPRK are not confrontational overall. The Russian authorities have tried pursuing various cooperation projects involving coal, energy and North Korean migrant workers in attempts to engage with the reclusive neighbour. No wonder the Korean nuclear issue dominated multilateral discussions between political leaders at the Eastern Economic Forum, as Northeast Asian countries attempted time and again to overcome the region’s Cold War heritage.
While announced figures, grand designs and top-level attendees of the Forum may be impressive, much of the trumpeted economic success hinges upon the political drives of Japanese and South Korean leaders vis-à-vis Russia, rather than strictly economics, whereas the attraction of medium-level Asian investors remains a challenge the Russian government has yet to surmount.
Russia’s sales pitch to attract foreign capital in the Far East was largely based on the strong depreciation of the rouble in the past years, the region’s vast resource potential, proximity to Asia, and tax incentives, aided by the entrepreneurial and pioneering mentality of the local population. Russian authorities introduced a simplified e-visa procedure for visitors to the country’s Far Eastern provinces arriving from East Asian and Middle Eastern countries. Vladimir Putin even promised a fast-track Russian citizenship for individuals investing over US$10 million in the region.
However, while Russia’s Doing Business and Global Competitiveness rankings hover around 38-40th places, actual business operations in Asian Russia still remain inhibited by significant regulatory burdens, requiring foreign investors to have a strong backing at the level of senior government officials. Furthermore, Vladivostok’s appeal as an international business hub is challenged by some nitty-gritty deficiencies, such as a lack of infrastructure – the city is yet to complete the construction of its second and third five-star hotels, started by Hyatt but experiencing schedule slips and offered on sale to Chinese, Korean and Japanese investors. Even though the US sanctions vis-à-vis Russia are targeted at specific sectors, some oil projects in particular, and don’t affect most of other industries (metals & mining, agriculture, manufacturing), many foreign investors display a risk-averse attitude and adopt a cautious approach.
Nonetheless, those impediments do not appear too daunting compared to the major progress achieved in reintegrating the Russian Far East with the Asia Pacific in the past years, as shown by the examples of some of the Eastern Economic Forum’s regular attendees. The recent government measures to lure more foreign investors to the Far East are going in the right direction, says Martin Tate, head of a farming company from New Zealand that has been operating in the region for two decades and has become the second largest player in that sector, after Russian state agriculturists. Meanwhile, a number of Australian mining operators and services companies are also active in the region, one of the key examples being Tigers Realm Coal. The company controls two coal licences in Chukotka (a peninsula across the Bering Strait from Alaska) and owns a port and coal terminal, confirming the availability of strategic infrastructure to foreign investors. The proximity of China and the larger Asian market places the Russian Far East’s offer in niches familiar to Australian and New Zealand companies: as breadbasket and the source of mineral wealth. That, in turn, stimulates the region’s integration in global value chains focusing on Asia.
This article was written by Dr Nikolay Murashkin, Visiting Fellow at the Griffith Asia Institute.