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An Uneasy Alliance: The Limits of the China-Russia Arctic Partnership

China isn’t as eager to invest in the Russian Arctic as once hoped, and it only seems inclined to do so if it’s able to drive a hard bargain, says Ekaterina Klimenko, a researcher with the Stockholm International Peace Research Institute.

Written by John Thompson Published on Read time Approx. 5 minutes
Natural gas reservoirs are seen under construction at the port of Sabetta in the Russian Arctic’s Yamal Peninsula in April 2015. The project was bankrolled in part with Chinese money.Kirill Kudryavtsev/AFP

It makes a lot of sense that Russia and China would pair up as partners in extracting Arctic resources. The former is feeling the pain from low oil prices and Western sanctions imposed after its annexation of Crimea, and it needs cash to help finance its ambitious Arctic economic development aims. The latter, meanwhile, is a resource-hungry rising superpower looking to increase its clout in the Arctic region. At a glance, it looks like an ideal match.

Yet Ekaterina Klimenko, a researcher with the Stockholm International Peace Research Institute, concludes in a new paper on emerging Chinese-Russian cooperation in the Arctic that this relationship is not so simple.

The recently completed Yamal liquefied natural gas plant is often hailed as a success story for Chinese investment in the Russian Arctic, but Klimenko writes that China drove a hard bargain, insisting that most of the equipment for the plant be produced at Chinese shipyards. Other sought-after Chinese investments in the Russian Arctic have yet to materialize. Klimenko isn’t holding her breath, for instance, for the planned Belkomur railway in Arkhangelsk region to be built soon.

Russia, meanwhile, notwithstanding its bluster that it doesn’t need Western assistance to develop its Arctic, still appears to desire the technological know-how and managerial expertise that comes with Western involvement. That has led Chinese experts to suggest that the present window of opportunity to invest in Russia’s Arctic projects shouldn’t be mistaken for a stable, long-term relationship.

Arctic Deeply spoke to Klimenko recently about her research findings.

Arctic Deeply: Why is the relationship between Russia and China in the Arctic not as simple as some people might think?

Ekaterina Klimenko: Russian experts always say that the Chinese are very difficult negotiators. For instance, Russians think that if they allow China in the Arctic, or any other region of Russia, Chinese will be just jumping with happiness and just going for it. But no, they want not only to be part of it, they want to be having a say. They need to have a good deal out of it. Not only to be sort of a strategic partner for Russia, but they also want to make money there, to get resources there, so they want to have also managerial experience. They also want to have their equipment used in the Arctic developmental projects. For them it’s not just to help out Russia, to develop its energy resources. It’s also to do good business.

Arctic Deeply: You make the point that the Yamal liquefied natural gas project was a pretty good deal for China. Do you mind explaining that?

Klimenko: First of all, I would say Yamal LNG is the only Arctic project [with Russian-Chinese cooperation] where we can see real progress at this point in time, because there is a lot of talk, especially on the Russian side, that, “Oh, we’re going to do everything with the Chinese now.” China is now seen as the main strategic partner for the development of Arctic resources and shipping routes.

The Chinese are not so enthusiastic in general about Russia, and in the Arctic in particular, because they have to have their conditions. They have to have a share in the project, where they would have a voice and voting rights as well. They don’t want to have a minor share in the project.

In the Yamal LNG particularly, if they invest money and find the investment capital, they want also to sell Chinese equipment, so the LNG plant itself will be built using Chinese equipment. Then they also want the Chinese shipping companies to transport this equipment. They want to maximize their profit.

Arctic Deeply: And that may come as a disappointment to Russia, which also hopes to leverage these projects to sell their own equipment and ships and so forth?

Klimenko: No, it’s a bit different. Russia, in fact, always prefers to deal with European companies, with U.S. companies, and there are several reasons for that. First of all, they want technology and exchange of know-how, especially when it comes to working on the [continental] shelf, not on their land resources. Second, it’s also how the resources and the project are being implemented. The managerial experience is also important for Russia.

When I talked to Russian experts, they think that Russia and China have relatively similar ways of managing a company, so for Russian and Chinese, there’s nothing to learn from each other. They would all prefer to work with Europeans. But after the sanctions in 2014 after the Crimea [crisis], Russians wanted to show that they have an alternative to Western technology, to Western partnerships. That’s why they are trying to boost up the Chinese presence in the region – to show that, first of all, they can either do it on their own, and second, that they have other partners in the region.

One of their strategies was also to sort of produce their own equipment, but, frankly, what we hear from the media at this point is that they are still very dependent on imports of the equipment. If they’re going to do it eventually themselves, it will take them a very long time to do that.

Arctic Deeply: I believe you did say in your paper that there were signs of disappointment about how the relationship has worked out on Russia’s side. Can you spell out the signs of disappointment?

Klimenko: [It] was mostly a general sense that I got from conversations with Russian experts is that they expected maybe the deals to be signed quickly. They expected the partnerships to be more detailed and developed. They expected more involvement of the Chinese on the construction of Northern Sea Route infrastructure, etc., but that did not happen. Also, they expected the Chinese will just pour the money on them, provide a lot of loans, etc., for the development of the Arctic resources and in general.

It’s not only about the Arctic. It’s, in general, disappointment on the economic side of it. They never managed to actually secure any loans from the private banks in China. They actually never really got access there. What they did get are loans from institutions that are still closely related to the Chinese government. But it’s not like there are major investments from the big Chinese product companies or access to Asian markets for financial investments. They have had to lower their expectations of what they’re getting from the Chinese.

Arctic Deeply: You have written that Chinese Arctic scholars see partnerships with Russia as a window of opportunity rather than an enduring long-term relationship. Why is that?

Klimenko: We’re at a point in time that’s after the sanctions and maybe before the relations between Russia and Western parties are normalized, when they will turn back to get into partnerships with European and Western and U.S. companies. This is the window of opportunity for Chinese, if they want to, to get as much as possible with the Russians – either in the Arctic or in general.

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