Russia: Courting The East, Not The West

Via The Financial Times, an interesting article on Russia’s efforts to to woo its Asian neighbours, pouring money into Far East cities such as Vladivostok and seeking out new trade opportunities there:

If imitation is the sincerest form of flattery, then for the South Korean dignitaries it was a sight to behold.

On a recent visit to Vladivostok, Russia’s so-called capital on the Pacific, a group of Seoul officials was treated to the Russian Far East’s first Korean pop competition, where dozens of (very Slavic) local teenagers took to a university stage to imitate, in choreographed dance, Korean music videos they had found on YouTube.

Vladivostok Russia map Thumbnail
Girls took to the stage in red sequinned dresses, and shimmied, as the original Korean music videos played on a screen in the background. In the audience, 200 of their Russian contemporaries – and the visiting South Korean officials – erupted into applause.

After years of neglecting its Asia-Pacific borders, Russia is stepping up efforts to woo its Asian neighbours, pouring money into Far East cities such as Vladivostok and seeking out new trade opportunities there.

The change in Russia’s outlook from west to east is spurred partly by the problems in the eurozone. But analysts say it is a change that logically should have happened years ago.

“If Peter the Great were alive he would leave Moscow and not go to St Petersburg but make his capital somewhere around Vladivostok. That is the frontier,” says Dmitry Trenin, of the Carnegie Centre in Moscow.

“Even without the euro crisis the centre of gravity in the world of economic, political and military strategy is moving to Asia-Pacific region.”

In September, Russia will host the Asia-Pacific Economic Cooperation Summit for the first time, before which it is rolling out the red carpet for the other country participants, with events such as the Korean pop competition, part of a month-long festival celebrating Russian-Korean friendship.

On the political side, Moscow is ramping up visits with Asian leaders – Vladimir Putin and Dmitry Medvedev met seven times with their Chinese counterparts over the past 18 months – and strengthening economic ties. Russia and China have promised to increase bilateral trade from $83.5bn in 2011 to $200bn by 2020. Trade turnover with Japan more than doubled between 2005 and 2010 to $23.1bn, while trade with South Korea tripled to $17.7bn over the same period.

The evolution is driven by simple supply-and-demand as well as geography. Resource rich Russia can provide Asian industry with the raw materials it needs to sustain growth, and also get them there quicker than other resource suppliers.

Raw materials typically take two to four days to reach China from Russia, versus 23 days by boat from South Africa, notes Artem Volynets, chief executive of EN+, the holding company for Oleg Deripaska’s assets, including the East Siberia-based Rusal and power utility EuroSibEnergo.

“Russia has the opportunity to create Canada out of Siberia,” Mr Volynets says. With the west in crisis, he adds, “there is a real chance for Russia to diversify away from its dependence on Europe”.

Despite this, much stands in Russia’s way, including barriers of Moscow’s own making.

One of the reasons that Russia “largely overlooked the skyrocket growth of Asia” – a mistake that even faraway Europe and the US did not make – was a fear that China’s surging population would move in on Russia’s own, sparsely populated territory, says Sergei Karaganov, a faculty dean at Moscow’s Higher School of Economics. “We never looked for opportunities, we looked for threats.”

While the idea seems antiquated, it still holds true. Last week prime minister Dmitry Medvedev warned of “negative manifestations” in the Far East, including “the formation of enclaves made up of foreign citizens”.

“Not many people live [in the Far East], unfortunately, and the task of protecting our Far Eastern territories from excessive expansion by bordering states remains in place,” he said during a government meeting on migration.

To develop the Far East, the Kremlin will not only have to boost flagging population numbers there but attract the type of professionals who can transform the region from a raw materials base to a diverse economy.

Russian trade with the EU and China

Unfortunately, most young Russian professionals are not exactly jumping to move to Vladivostok, especially when they can find well-paying jobs in more established markets such as Moscow, Europe or China.

Meanwhile, the Russians actually living in the Far East are not exactly thrilled to be there either. According to new data from Moscow polling agency VTsIOM, two-fifths of the Russians who live in Siberia and the Far East want to leave, citing low salaries and a lack of career prospects as the main reasons.

The human capital obstacle is one Russia may be able to overcome, especially with high-profile events such as the Apec summit, which are bringing more attention to the region.

Harder to surmount are the infrastructure issues, which plague not just the Far East but the roads and railroads that are supposed to connect it with the rest of the country.

“This is great saying we are going to go to the east and build in the east, but how are we going to get there?” asked Klaus Kleinfeld, chairman of Alcoa, at the St Petersburg Economic Forum in June. “Only one-third of Russia’s roads in the Far East meet the World Bank’s quality standard.”

Mr Volynets estimates $600bn is needed to properly develop East Siberia and the Far East. While Russia’s natural resource companies can supply China, they cannot actually get the materials there due to bottlenecks, he says. The Port of Shanghai, for example, has an annual of turnover of 600m tonnes, while all of the Far East ports combined can export just 70m tonnes a year, due to the undeveloped infrastructure.

For the time being, these bigger problems have been pushed aside as Vladivostok prepares for the September Apec summit. While Russians themselves may have reservations about the region’s development, its partners are more optimistic, as witnessed on the sidelines of the Russian-Korean friendship festival.

“Because of this summit and [Vladivostok’s transformation] we can expect a real rapid development in the region, in the economy and in its politics,” gushed Park Hyun Bon, director of the Korean Tourism Organisation’s Vladivostok office.

Kwak Seung-Jun, chairman of the president’s council for the future of South Korea and one of the visiting dignitaries was also impressed. “It’s like I’m travelling not to a different country but to a different city in Korea,” he beamed.

This entry was posted on Tuesday, August 21st, 2012 at 4:28 am and is filed under Russia.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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