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Mining & Energy

The Russian Far East: Russia’s land, China’s funds


An employee working on the ‘Armada’ farming project run by China's Dongning Huaxin Group near the far-eastern Russian town of Ussuriysk. Photo: Reuters

An employee working on the ‘Armada’ farming project run by China’s Dongning Huaxin Group near the far-eastern Russian town of Ussuriysk. Photo: Reuters

The Russian Far East has always been a strategically important region to Russia because of its rich mineral resources and access to the Pacific Ocean, though it is largely neglected and underdeveloped compared to other regions in Russia.  More than 66 percent of Russian gold production comes from six eastern regions, including Amur, which is part of the Russian Far East.

For instance, the former Bema Gold Corporation, now acquired by North American Kinross Gold Corporation (NYSE: KGC), has operations in the vicinity of the Okhotsk-Chukotka Arc Volcanic Belt in the Russian Far East.Highland Gold Mining Ltd. (LON: HGM) has its main operations in the Khabarovsk region of the Russian Far East.

The region is also a major supplier of natural gas and petroleum for Russia’s oil and gas industry, which is one of the largest in the world. Gazprom OAO (OTCMKTS: OGZPY), the largest extractor of natural gas in the world, has signed agreements with Russian Far East’s Amur Region, Primorye Territory, and Khabarovsk Territory for various natural gas exploration programs. Rosneft, the largest publicly traded oil company, also has a refinery plant in the Komsomolsk-on-Amur for the company’s petroleum, natural gas, motor fuels, and petrochemicals products.

Nickel mining is also prevalent in this region due to the presence of mining companies like Norilsk Nickel (MCX: GMKN) and Amur Minerals Corporation (AIM: AMC). Norilsk Nickel is one of the world’s leading producer of nickel, and though it has various exploration projects in the northern and western parts of Russia, it has expanded its operations in the Amur Region in the Russian Far East, which has its own rich share of gold, base metals, and other precious metals. Amur Minerals, on the other hand, has discovered an estimated 830,000 tons of nickel sulphide in the Amur Oblast region, giving way to the Kun-Manie nickel sulfide copper project. Production of the Kun-Manie Project is set to start once its production license is approved by Russia’s prime minister.

Given the proximity of the Russian Far East to the country’s Chinese border, it is no wonder that the trade between Russia and China had blossomed. However, these countries’ relations are no longer confined to trading alone, as many Chinese entrepreneurs are investing in Russia’s most remote and neglected territory.

Strong Economic Ties

With thousands of miles of unexplored land, the Russian Far East is a sparsely populated region, with only 7.4 million people. But it makes up for it through natural resources like iron ore, gold, coal, base metals, and rare earth minerals, which China needs in order to feed its economic growth.

In the past, there was much suspicion between the relations of Russia and China as they fought a border war in 1969. But the benefits of trade and investment have begun to erode old enmities as Chinese investors started rushing in and putting money on various industrial developments in the Russian Far East. They have set up special economic zones in the Amur Region, Jewish Autonomous Region, and the Primorye and Khabarovsk territories and invested $3 billion in various new projects—a far larger amount than the less than $1 billion allocated for the same areas by Moscow in 2011. Trade between China and Russia also doubled in 2010 to $60 billion.

The Russian government had said that China will be a key partner in building roads, railways, and ports in the planned development of the Russian Far East over the next five years. According to Boris Krasnojenov, metals and mining analyst at Renaissance Capital, “We know that Russia needs to cooperate with another country to open up the Far East and the natural partner is China, which has far more financial resources than either Japan or South Korea.”

The K&S iron ore project at Birobidjan in the Jewish Autonomous Region is a good example of Chinese and Russian cooperation in action. The 1.2 million tons of ore being produced by the Kimkhan mine of the K&S project is being exported to China.

The major problem, however, is infrastructure, but China’s funds are the answer to that problem. “China has never been interested in acquiring controlling stakes in Russian companies. What they want is to secure a steady supply of the raw materials they need and build the infrastructure to get it back to the home market. That is their development model everywhere,” Krasnojenov said. In other words, China gets its supply of raw materials, and Russian companies are given their much-needed foreign investments. “It’s a win-win for everybody,” said Svetlana Kostromitinova, a mining analyst.

Amur Minerals also looks at China as a potential market. For one, China lies just across the Amur River to the south, which already accounts for proximity. China is also one of the leading importers of nickel ore from top supplier Philippines, since it needs the raw material for the production of nickel pig iron, a cheaper alternative to stainless steel. With Amur’s Kun-Manie project being touted as one of the top 20 largest nickel sulphide deposits in the world and the impending raw minerals export ban in the Philippines, Amur Minerals could fill in the gap once its nickel production license is approved.

A Chinese Invasion?

But China entering Russia through investments is not the end of it. Alexander Shaikin, in charge of controlling the Russian-Chinese border, said that 1.5 million people from China have tried to illegally enter the Russian Far East over the past 18 months from June 2014. Indeed, the Russian Far East is slowly becoming China’s safety valve, since China has more than 1.34 billion people, around eight times Russia’s population. The Russian Far East is comparatively empty, with only 1.3 people per kilometre.

However, the inequality between the two countries’ populations and land area is not the major driving force of Chinese migration to Russia, according to The Diplomat. What would encourage Chinese expats to cross the border is an increase in more labour intensive activities like agriculture, which is often a steadier employment compared to street kiosk trading, logging and construction, which are typically transient jobs. These could lead more Chinese migrants to consider permanent settlement in the Russian Far East.

The large Chinese immigration into the Russian Far East could revive Russian fears of a Chinese demographic conquest, especially since a sizeable portion of the lands north of the Amur River and the lands east of Jilin and Heilongjang, now all parts of Russia, used to belong to China more than 150 years ago under the Treaty of Nerchinsk.

Still, Moscow will not simply let the Russian Far East slip, since it includes all of Russia’s access to the Pacific Ocean, as Vladivostok is Russia’s only warm water Pacific port. Nikolayevsk, at the mouth of the Amur River, processes most of Siberia’s remaining exports. Police in Russian cities also enacted more aggressive ethnic profiling—checking the documentation of foreigners and actively targeting ethnic Asians—in order to curb Chinese immigration.

In spite of the somewhat tense environment between China and the Russian Far East, those looking at the bigger picture see a receptive climate. “Chinese investment is quite welcome in this area. All big projects in the Far East and Eastern Siberia require very significant infrastructure and China’s role will be vital,” Krasnojenov said.

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About Sandy Miguel-Descalso

Financial writer and editor based in the Philippines with a thirst for travel and photography.

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