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China and Russia's Far East

AMBASSADOR RICHARD HOLWILL

In February 2022, Russian President Vladimir Putin crowed about his meeting with Chinese President Xi Jinping, saying that China and Russia have forged a “friendship without limits.” So far, the Chinese President has backed Putin’s attacks on Ukraine. This agreement serves China’s foreign policy goals, at least for now. China hopes to build an international order in which it supplants the United States as a leader of the international community. Because Putin’s Russia supports that goal, China supports Russia. But make no mistake, this friendship does have limits. At some point, China will have reasons to break with Russia and could do so in a dramatic fashion. The break will be driven by another of China’s foreign policy goals: the desire to regain all of the territory and dominance that it enjoyed prior to its “hundred years of humiliation,” which is how Chinese scholars and officials describe the period from 1839 and 1949, during which the Western powers, along with Japan and Russia, seized Chinese territory. Through that period, China agreed to a series of unequal treaties that allowed those powers to “pick China’s bones.” In 1839, China lost Hong Kong to the British. The Portuguese took Macau in 1887. Following the Sino-Japanese War in 1895, the Empire of Japan took Dalian and Taiwan. The Germans seized Jiqozhou Bay and Tsingtao in 1898. China ceded Zhanjiang to France in 1898.[1] Most of these issues have been resolved, but one territorial loss has been ignored so far. The Russian Empire also joined in the subjugation of China. It took Chinese land north of the Amur River and Sakhalin Island through the “Amur Annexation” in 1858. Until that year, China claimed all of the land from the Amur River to the Stanovoy Mountain Range in the north and to the Ussuri River in the east. China, however, did not exploit the region by encouraging settlers to move there; nor did China place more than a small number of troops there. Russian ships, troops and settlers had established themselves in the area but did not formally control the territory until the Russo-Chinese Convention of Peking of 1860. With that agreement, Russia was able to annex a part of China that is approximately the size of Texas and Oklahoma combined—350,000 square miles. Russia took these Chinese territories without firing a shot and gave up nothing in the agreement.[2] China has yet to recover these lands. For the remainder of the 19th and for most of the 20th centuries, this region, now known as Russia’s Far East (RFE), was a backwater, good for harvesting pelts and a miserable internal exile for dissidents and criminals. However, Russians have been seriously exploring the economic potential of this seemingly barren area for the past 30 years. China has not tried to reclaim the land lost to Russia, first because it was viewed as non-productive and not worth the effort. Now that more is known about the economic potential of this area, there is reason to believe that China is rethinking its interest in the RFE. China’s tolerance of Russia’s annexation of these lands could end if China’s leadership decides that Russia is no longer an effective ally. Chinese Presence In Russia Chinese entities are making significant inroads in Russia. Following the exodus of Western businesses from Russia, China began to make significant inroads into Russia and into the RFE. Russian banks have begun using UnionPay, a Chinese company, to issue credit cards to replace Visa and Mastercard, services that pulled out of Russia. Russian banks are also turning to the Chinese International Payment System to replace the SWIFT interbank settlement system used by most Western Banks.[3] The South China Morning Post reports that many small Chinese firms are seeking ways to fill the “void” left by the exodus of western firms.[4] Chinese farmers are filling other voids in this region. Many of the collective farms in the RFE collapsed with the fall of the Soviet Union. One farm in the Amur Oblast closed, leaving 400 Russian farm workers unemployed. Most left the region. By 2019, a Chinese investor put money into the farm and imported numerous Chinese farm workers. Other Chinese farmers are leasing and buying agricultural land throughout this region.[5]


China’s interest in the RFE prompted the central authorities to authorize building bridges across the Amur River. The Tongjiang-Nizhneleninskoye railway bridge, also known as the Amur railway bridge, was the first to open. It will connect the Tongjiang city in the northeast of China’s Heilongjiang Province and Nizhneleninskoye in the Jewish Autonomous Oblast of Russia. China also constructed a motorway to connect the Jilin-Heilongjiang expressway in China to a highway in Blagoveshchensk.[6]


There is no doubt that China expects these expensive projects to pay off as it imports raw material and industrial inputs from this region. Russia’s Economic Problems Meanwhile, Russia is clearly in trouble. Western sanctions have had an impact on the economy. The World Bank, the International Monetary Fund and the Organization for Economic Cooperation and Development (OECD) analyzed the Russian economy. Their conclusions forecast a drop in Russia’s Gross Domestic Product (GDP) for 2022, ranging from 5.5 percent as a best case to almost 9 percent in the worst case.[7]

There are proven remedies for the problems of the Russian economy, according to William E. Pomeranz of the Wilson Center. He has written that “President Vladimir Putin’s geo-strategic and political choices have rendered these traditional economic approaches unworkable.” For example, the recent collapse of the Russian ruble should have spurred exports, domestic manufacturing and foreign investment. “Sanctions and the entrenched structural weaknesses of Putin’s system make that impossible.” He says that Russia “lacks a diversified economy, a vibrant entrepreneurial class, the rule of law and a stable business environment that can support a fast economic turnaround.”[8]

Additionally, demographic trends in Russia further limit economic growth. A 1997 study by RAND noted that “Russia is experiencing unusually high death rates from nonnatural causes, many related to alcoholism. Life expectancy, especially among working-age males, has dropped precipitously. The Russian fertility rate has declined to among the world’s lowest, while its abortion rate is the highest.” Even before Putin’s war in Ukraine, the annual number of deaths has exceeded the number of births.[9]

The Jamestown Foundation contends that, since the RAND study, the demographic crisis in Russia has worsened. In August, the foundation wrote that during the first five months of 2022, “Russia’s population fell by 430,000.” Citing Russian documents, the foundation wrote that current estimates “point to a decline of more than one million people during 2022.”[10]


That number could increase, given recent events such as the casualty rates resulting from Putin’s assault on Ukraine and the recent exodus from Russia of working-age men who are leaving Russia in order to avoid being conscripted into Putin’s war. In September 2022, the Warsaw Institute estimated that “nearly 200,000 Russians have entered Kazakhstan, Georgia, Finland, and Armenia.”[11]

Most of those who left were working-age men. This left many businesses in Russia without the staff they need to operate their businesses properly. To fill this void, Russia plans to triple the number of migrant workers by 2030. The Russian government has announced plans to establish pre-migration centers in Uzbekistan, Kyrgyzstan and Tajikistan. These are the three countries that traditionally sent migrant labor to Russia. Guest workers are a major source of remittances as they send money back to their families. According to the Warsaw Institute, “remittances to Tajikistan make up 27 percent of the national GDP.” Immigrants will provide cheap labor for manual jobs—cleaning streets, cooking, delivering parcels and picking fruit. Few of them, however, can replace the college graduates who are the backbone of most businesses. Russia’s Deputy Economy Minister Dmitry Volvach said that Russia plans to recruit high-grade labor from the Eurasian Economic Union (EAEU), which includes Armenia, Belarus, Kazakhstan and Kyrgyzstan.[12] So far, there is little evidence that this effort has succeeded. Developing the RFE Because trying to minimize the drop in Russia’s GDP is President Putin’s primary economic concern, he is presently ignoring the RFE. However, in 2020, Putin announced plans to invest billions in the RFE. And, in an effort to populate the area, he offered free land to those who would move there.[13] Nonetheless, the region’s population fell by more than 100,000 between 2012 and 2018.[14] A survey of the region by the All Russia Center for the Study of Public Opinion found that 48 percent of the residents wanted to leave the region.[15] Russia has never succeeded in developing the riches of this region, which is rich in oil, natural gas, timber and valuable minerals, such as copper, diamonds, lead, zinc, bauxite, nickel, tin, mercury, gold and silver.[16] But developing these resources is a daunting challenge. The winters are harsh. The infrastructure is deficient. The tundra does not easily support roads, and there is a chronic labor shortage. China may view the RFE differently. The total Russian population of the Far East Federal District is just over 6 million. The three Chinese provinces that border the RFE have a combined population of over 109 million people.[17] Thus, the RFE offers both an abundant supply of industrial inputs and an outlet for demographic pressures. Currently, Chinese immigration into the RFE in 2014 is estimated to be around 400,000 and 550,000, although many of the migrants are seasonal workers.[18] Many officials in the RFE resist Chinese immigration, in part because the RFE is an important cog in Russia’s military-industrial complex. It is where factories build Russia’s fighter aircraft as well as military and civilian helicopters. The Russian Eastern Military District is headquartered in Khabarovsk, and the Pacific Fleet is headquartered in Vladivostok. Consequently, Russian authorities, who welcome immigration from certain countries, fear that Chinese immigration could have very negative consequences. Where Russia promised but did not deliver billions of new investments to the RFE, China has deep pockets and is not shy when it comes to investing in projects that will ensure access to resources in the future. In a 2015 paper, John Tuman and Majid Shirali contend that “between 2003 and 2010, the average annual change in Chinese FDI in Africa and Latin America was 80 percent and 154 percent, respectively.”[19]

Political analyses by authors in several of these countries contend that the investments are focused on securing access to hydrocarbons, strategic minerals and exclusive market access for the extraction of these commodities. The prospect of having ready access to a treasure trove of minerals and hydro-carbons close to home—in Russia’s Far East (RFE)—must be a temptation to Beijing. Under the right conditions, it would be an ideal target for Chinese investments. Defining the “right conditions,” however, is tricky. Russian business regulations are quite arbitrary, and local courts often rule in favor of the Russian party in any contract dispute. In addition, there have been many incidents of anti-Chinese activities by Russian citizens and authorities. For example, in 2006, concerns about China’s dominance of the region prompted Russia to expel 100,000 Chinese merchants from three of the Oblasts in the region.[20]


Presidents Putin and Xi can declare a “friendship without limits,” but enmity endures on the ground.


The Chinese fully understand this. However, they also understand the depths of Russia’s economic and demographic crisis. They know that once Putin’s War in Ukraine is over, Russia will be weakened, isolated and desperate. At a point well after the war is over, Russia’s leadership could be motivated to lease or even sell large parts of the RFE to China.


Given China’s view that it is entitled to all of the territory, both land and sea, that it once controlled, President Xi may not feel the need to pay for access to these territories. He could go so far as to demand that Russia cede control of the region to China. Whether through investments or force, China could reclaim the Amur Annexation and, in the process, be the first to pick Russia’s bones.


October 2022

[1] Adcock Kaufman, Alison (2010). “The ‘Century of Humiliation,’” Then and Now: Chinese Perceptions of the International Order. 2 Adcock Kaufman, Alison (2010). “The ‘Century of Humiliation,’” Then and Now: Chinese Perceptions of the International Order. 3 https://fortune.com/2022/03/12/china-russia-economic-bailout-ukraine-invasion/. [4] https://www.scmp.com/economy/global-economy/article/3172149/chinas-private-firms-see-russia-land-opportunity-grabs-amid?utm_medium=email&utm_source=cm&utm_campaign=enlz-chinaeconomicupdate&utm_content=20220329&tpcc=enlz-chinaeconomicupdate&UUID=d6bdaf11-ca62-42ea-877a-ff38642b975b&tc=13&CMCampaignID=f291b70c2bad3b23993d49e2c44c750e/. [5] https://www.bbc.com/news/world-europe-50185006/. [6] https://www.railway-technology.com/projects/tongjiang-nizhneleninskoye-railway-bridge-china/ [7] https://www.consilium.europa.eu/en/infographics/impact-sanctions-russian- economy/#:~:text=Russia's%20GDP%20growth%20(year%20on%20year)&text=The%20chart%20shows%20that%2C%20in,Data%20source%3A%20World%20Bank/. [8] https://www.wilsoncenter.org/publication/putins-created-economic-crisis-and-left-moscow-no-easy-way-out [9] https://www.rand.org/pubs/issue_papers/IP162.html/. [10] https://jamestown.org/program/russias-demographic-collapse-is-accelerating/#:~:text=During%20the%20first%20five%20months,for%202022%20as%20a%20whole/. [11] https://warsawinstitute.org/mass-russian-exodus-following-partial-military-mobilization/. [12] https://www.russia-briefing.com/news/russia-to-deal-with-labor-shortages-by-tripling-migrant-worker-volumes-and-increasing-multilateral-gdp.html/. [13] https://www.rferl.org/a/on-russia-s-far-eastern-frontier-acres-of-free-land-but-little-interest/30848156.html/. [14] https://www.worldpoliticsreview.com/articles/30016/putin-s-big-plans-for-russia-s-far-east-aren-t-panning-out [15] https://www.interfax-russia.ru/far-east/news/dolya-zhelayushchih-smenit-mesto-zhitelstva-dalnevostochnikov-dostiglo-maksimuma-vciom/. [16] https://factsanddetails.com/russia/Economics_Business_Agriculture/sub9_7e/entry-5176.html/. [17] https://thediplomat.com/2016/01/russia-china-and-the-far-east-question/. [18] https://www.orfonline.org/expert-speak/russia-china-relations-russian-far-east/. [19]chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.redalc-china.org/monitor/images/pdfs/Investigacion/43_Tuman_2015.pdf [20] https://euro-sd.com/2019/05/articles/13223/a-ticking-bomb-chinese-immigration-to-russias-far-east/.

 

AMBASSADOR RICHARD HOLWILL served as U.S. Ambassador to Ecuador from 1988 to 1989 and has extensive experience in Asia, Latin America, Europe and the countries of the former Soviet Union. From 1990 to 1993, he served as Counselor to the U.S. Arms Control and Disarmament Agency. He most recently served as vice president of public policy at Alticor in Washington, D.C., the parent company of the Amway Corporation, where he managed worldwide government affairs efforts. He chaired a trade advisory committee for the U.S. Trade Representative and the Asia Task Force at the U.S. Chamber of Commerce.

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