Russia turns to China to develop its Far East
In the developing Sino-Russian partnership, each party tries to maximize its own benefit – while offering the other consolation prizes.
In a nutshell
- Beijing has set aside territorial disputes with Russia for wider strategic goals
- The war has forced Moscow to drop its guard on Chinese penetration
- China on the Sea of Japan and a more resilient Russia are two early impacts
China has a long historical memory of Far Eastern territories being seized by the Russians. In the mid-19th century, at the end of the Opium Wars, the weak Qing dynasty ceded 1.4 million square kilometers of land, including the whole area east of the Ussuri, and north and east of the Amur River to the Pacific Coast, in what was then called Outer Manchuria and now constitutes much of Russia’s Far East. This territory, annexed to the Tsarist Empire in the Aigun (1858) and Beijing (1860) Treaties, was later absorbed by the Soviet Union. By some calculations, the total territory once under Chinese imperial sovereignty that passed to Russian control amounted to almost 6 million square kilometers.
Soviet promises
As early as 1919, when the outcome of the Russian Civil War was still in doubt, Lev Karakhan, the deputy people’s commissar for foreign affairs of the Soviet Union, made promises to China that the Soviet Union would return to the Chinese people “all that had been taken from them by the Tsarist empire” during the period of so-called “Unequal Treaties.” The Soviet government made clear that for this to happen, it would be “necessary first of all to put an end to the invasion of Manchuria and Siberia by brigands.” A few months later, with Soviet forces victorious in the civil war and less in need of help from China, Karakhan’s offer was withdrawn – but not forgotten in Beijing.
Since the collapse of the Soviet Union, Russia has claimed to be its legal successor. By this logic, from China’s point of view, Moscow would be responsible for fulfilling unkept Soviet promises to return Russian Far East territories. And since taking power in 1999, President Vladimir Putin has made a series of gestures toward settling these disputes. According to recent Chinese official statements, under his leadership Russia has on four separate occasions returned a total of 173 square kilometers of territory to Chinese sovereignty. Of course, compared to the larger claim of nearly 6 million square kilometers of occupied territory mentioned above, this is only a drop in the ocean.
Xi’s alliance and Putin’s U-turn
Even so, China’s government-controlled media have sung Mr. Putin’s praises, interpreting his actions as a sign of good faith, without mentioning the historical Chinese lands still occupied by Russia. This is directly related to President Xi Jinping’s decision to build a “no limits” anti-American alliance with President Putin. The Chinese leader has also failed to challenge the Complementary Agreement, which entered into force in 2008 under Jiang Zemin and technically settled the demarcation of the border by tacitly recognizing the conquests of Tsarist Russia and the Soviet Union. President Putin’s “generosity” prior to the signing of this agreement was in fact an attempt to ensure it was finalized, to Russia’s great advantage. The Xi government, however, chose to view it retrospectively as a token of the Kremlin’s sincerity.
Like many Russians, President Putin is aware that much of his country’s Far East belonged to China during the Qing dynasty. These territories are sparsely populated, and since the Soviet Union’s collapse, local residents have been highly concerned that inviting China in as an investment and development partner could reawaken territorial tensions. For this reason, Moscow long greeted Beijing’s pleas to jointly develop the region with a conspicuous lack of interest.
In 2018, when the Chinese government published its “China-Russia Cooperation and Development Plan for the Russian Far East (2018-2024),” there was little initial response from the Russian side. Until the full-scale invasion of Ukraine in February 2022, Moscow’s trade and investment focus was primarily geared toward Western Europe. Then, suddenly, Russia lost its main export markets in Europe, along with most of the key suppliers of technology and inputs to industry, including key military manufacturers in Siberia and the Far East. The Kremlin realized it had no hope of retooling and expanding its industrial base to sustain the war in Ukraine without help from China.
This knowledge made Mr. Putin more amenable to serious concessions to China. His state visit to Beijing and the northeastern province of Heilongjiang in May 2024 included repeated expressions of approval for an expanded Chinese role in developing the Far East. That same month, the appointment of economist Andrey Belousov as defense minister highlighted Mr. Putin’s new appreciation that the war in Ukraine could only be won by prioritizing economic and industrial policy.
Rare opportunity
In Beijing, this surprising shift in Russia’s attitude could only be seen as a rare opportunity. With significantly reduced holdings of U.S. Treasury bonds, China has plenty of funds to invest. Beijing’s aim, on the one hand, is to exploit the Russian Far East’s rich resources, mainly minerals, to ensure a secure supply chain for domestic manufacturers, one free from Western influence. On the other hand, China can also sell a lot of high-tech equipment and technology to Russian industry, shoring up the latter’s flagging war effort and perhaps obtaining useful military know-how in exchange. This particularly applies to the Far East, where Russia has a high concentration of defense industries in desperate need of outside investment.
The Kremlin is already in such dire financial straits that it is selling oil, gas and other commodities at cut-rate prices to generate the cash needed to sustain the war. The Xi administration recognizes that Moscow may not be so generous once the war is over or once President Putin is no longer in power.
Chinese investment interests are focused on two key areas. One is the junction of the Amur (Heilongjiang) and Ussuri rivers, where Bolshoy Ussuriysky (Heixiazi) Island and the Russian city of Khabarovsk (with its population of 620,000) are located. The other is near the mouth of the Tumen River, not far from Russia’s great Pacific port of Vladivostok (population 600,000), where the Chinese border lies just 15 kilometers away from the Sea of Japan. In both of these strategic locations, Russia intends to harness China’s financial resources and manufacturing savvy to build two gigantic special economic zones.
Investment plans
Mr. Putin’s May visit to China cemented China’s engagement in developing the Far East, though moves in that direction had already begun in mid-2023. At that time, Russian media disclosed that China and Russia had agreed on some elements during the Putin-Xi meeting in March 2023, including plans to directly invest more than $160 billion in 79 major projects in Russia. These investments would involve critical infrastructure, information technology, energy, mining and other sectors.
The IT and infrastructure components of these projects were closely linked with defense output, which Russia now forecasts as the main driver of future economic growth. These sectors, previously closed off to foreigners by high security barriers, are now wide open to Chinese partners. By the end of 2023, the number of investment projects with Chinese participation in the Russian Far East had reached 49, with a total of nearly $9 billion invested. That is still only a relatively small fraction of the sum announced above, indicating that 2024 will be the crucial year for China to action its investment goal.
Local solution
That is not to deny evident strains between the two sides. As is well known, Mr. Xi has been deliberately seeking to delay the mammoth Power of Siberia 2 pipeline, whose 50 billion cubic meters annual capacity Putin had hoped would replace nearly half the natural gas volumes he used to sell to Europe and thus enable the state treasury to cover war expenses. China now has ample supplies of natural gas, in part thanks to growing LNG imports. More importantly, Beijing does not want to be too dependent on Russia’s gas. It has avoided this in part by insisting on prices below what even Moscow can accept.
Without the prospect of a major jump in gas sales to China, Russia’s main hope for augmenting its revenues is to induce Chinese investment in industry, as well as mineral, food and timber resources in the Far East. Obviously, this is something President Xi can agree to. One example is China’s purchases of enriched uranium and other radioactive elements, isotopes and compounds, reaching a combined $233 million in May 2024.
Trade in other products suffered a minor setback when the Biden administration threatened to impose secondary sanctions on foreign banks supporting transactions involving Russian purchases of dual-use products. To protect itself, China abruptly halted bank payments to Russia, resulting in a sharp initial drop in trade volumes in March and April. By the time President Putin visited Beijing in May 2024, however, the parties had discovered a relatively simple work-around. The Chinese authorities permitted some local banks in northeast China to resume handling payment transfers with Russia, allowing trade and investment flows to resume, especially to the Russian Pacific regions. Despite explicit G7 warnings, Beijing has little to worry about because these lenders have very low international exposure and would not suffer significant losses from being sanctioned. Yet, Russia is aware that it cannot circumvent higher transaction costs regardless of alternative solutions.
Different priorities
Perhaps an even bigger priority for Beijing than developing Russia’s Far East is securing direct access to sea for its landlocked northeast, which is separated from the Sea of Japan by a 15-kilometer stretch of the Tumen River. Opening this waterway for deep-draft ships could have important strategic implications for Beijing, including establishing a direct Chinese presence for the first time in more than a century on the Sea of Japan and opening a potential crack in the U.S. defensive barrier on the first island chain. This is exactly what Japan does not want to see.
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One obstacle to navigation is the Korea-Russia Friendship Bridge, a railway built over the Tumen in 1959 whose low span hinders the passage of larger vessels. Thus, the most recent bilateral statement on the 75th anniversary of reestablishing diplomatic relations between Beijing and Moscow explicitly mentioned that “the two sides will conduct a constructive dialog with the Democratic People’s Republic of Korea on the issue of Chinese ships sailing through the lower reaches of the Tumen River.” Only a tripartite agreement between the three countries will allow the extensive dredging, building of a high-span bridge and construction of port facilities that would allow commercial navigation on the waterway.
However, Mr. Putin’s meeting last month with Kim Jong-un saw no mention of such an ambitious infrastructure project, only confirmation of plans to build a highway bridge. The Russian leader did not mention the opening of shipping lanes for China at the meeting because his urgent objective was to obtain more materiel for his war machine at any price.
Scenarios
The growing Sino-Russian partnership in the Russian Far East is not attracting sufficient attention in the West. Yet it is clear to all that China’s engagement will greatly enhance the ability of Russia’s military industry to function as a war machine. As its recent summit in Washington D.C. showed, NATO is belatedly realizing the significance of Chinese dual-use products in Russia’s war effort, even if no reliable data has yet appeared on its true extent.
Even for goods not produced in Russia, the growing number and efficiency of border crossing points and customs clearance procedures is speeding up the delivery of inputs needed for war production. Currently, 19 border crossing points are operating in Heilongjiang province alone, and they are being systematically modernized. In short, Russia is building up the logistical infrastructure its industry needs to sustain a long-term war.
Thus, developments on the other side of Eurasia threaten to cast a very long shadow in Europe. They significantly weaken Western sanctions against Russia’s military-industrial complex, while bypassing the threat of “secondary sanctions” against China for supplying dual-use goods. Under these circumstances, the West and Ukraine may have a much shorter timeline than previously believed to defeat or contain Russia on the battlefield. And the clock is ticking.
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