For Russia, a new port of call

Russia will mount a determined effort to shift the focus of its trade and foreign policy from Europe to Asia when it hosts a summit of the Asia Pacific Economic Cooperation (APEC) forum later this week.

Moscow attaches enormous importance to its first ever chairmanship of the 21-member economic group, which represents 40 per cent of the global population and 54 per cent of the world’s Gross Domestic Product (GDP). Russia has poured a staggering $21 billion into preparations for the September 8-9 summit — one and a half times as much as Britain spent on the 2012 Summer Olympic Games. All infrastructure for the summit has been built from scratch on a sparsely populated island, Russky (Russian), near Vladivostok, Russia’s main port city of 620,000 people on its Pacific coast. Landing in Vladivostok’s renovated and expanded airport, the APEC delegations will drive along one of the world’s longest suspension bridges to Russky Island to take accommodation at a newly built massive congress centre with a million square metres of living and workspace, which will serve as an upscale campus for the new Far Eastern University after the summit.

Analysts say Russia stands at a turning point in its history as momentous as the time of Peter the Great, Russia’s emperor who moved the capital from Moscow to Saint Petersburg, which he built on the Baltic Sea in the early 18th century to connect with Europe.

“If Peter the Great lived today he would once again leave Moscow, but this time he would head for the Sea of Japan, not the Baltic Sea,” said Dmitry Trenin, head of the Carnegie Centre in Moscow. He called for making Vladivostok Russia’s new capital of the 21st century.

The idea seems to be resonating with the government. Deputy Prime Minister Igor Shuvalov said the government had spent billions to spruce up Vladivostok for the forum with an eye on turning the city into an Asian “investment capital.”

So far efforts to develop the region have been stalled by lack of roads, power lines, airports and other infrastructure. Russia’s Far Eastern Federal District accounts for 36 per cent of the country’s territory, but generates less than 6 per cent of the country’s Gross Domestic Product and has a mere 4.4 per cent of the country’s population.

Earlier this year the government set up a separate Ministry for the Far East mooting forming a state corporation to spearhead the development of the region.

The Kremlin hopes the APEC summit in Vladivostok would help it advance two strategic goals — win a firm foothold in the dynamic Asia-Pacific markets and develop its energy rich but economically depressed Eastern regions.

“In order to have fast growth rates in the future we must stand on two strong legs — one in Europe and the other one in Asia,” said Mr. Shuvalov.

Today, however, Russia heavily limps on its Asian leg. The European Union accounts for 50 per cent of Russia’s foreign trade compared with less than 20 per cent for APEC countries, largely just four of them — China, the U.S., Japan and South Korea.

“If we set ourselves the task of diversifying our economy, reducing our resource dependency and being much more valuable to different economies, then the balance of our trade must change,” Mr. Shuvalov told reporters ahead of the summit. “At least 50 per cent of our trade should come from the Asia-Pacific region.”

Two advantages

The Kremlin’s probably most pressing motive for wooing APEC business to develop its Far East and East Siberia is to counterbalance China’s growing influence in the region. China has flooded local markets with cheap goods and is the main importer of Siberian resources. In a rare official acknowledgment of the threat of Chinese colonisation, Prime Minister Dmitry Medvedev said last month that Russia must “protect” its depopulated eastern territories from “excessive” inflow of “citizens of neighbouring countries.”

“To avoid becoming the appendage of the Chinese economy, Russia must focus on developing its Far Eastern territories and integrating them into the Asia-Pacific region,” said Mr. Trenin of the Carnegie Centre in Moscow.

Russia joined APEC in 1998, but its presence on the Asian markets is still negligible: its share of APEC trade does not exceed 1.5 per cent. The situation may change now that Russia has finally joined the World Trade Organisation after nearly two decades of talks, opening the way for free trade accords with APEC members.

Russia has two competitive advantages to offer to APEC countries — natural resources and a vast territory that stretches across nine time zones from the Baltic Sea in the West to the Pacific Ocean in the East.

At the coming APEC summit, Russia will unveil plans of creating a transport corridor between North-East Asia and Europe by rail via the Tran-Siberian mainline and by sea along Russia’s Arctic coast. According to Russia’s Transport Ministry, the rail route alone could handle as much as 10 per cent of the cargo that currently goes through the Suez Canal. A Russian think tank has estimated that if the APEC countries invest $20-30 billion in Russian transport infrastructure, they could save $600 billion by 2020.

Another Russian proposal for APEC is to enhance regional food security by creating a Far Eastern Grain Corridor. Grain exporters estimate that Russia could ship 10-15 million tons of grain to South-East Asia via its Pacific ports provided the required infrastructure is built and trade rules are simplified.

With the bulk of its energy exports going to Europe, Russia is anxious to lay alternative routes to Asia to cater to the needs of the fast growing APEC economies. Two years ago it built an oil pipeline from Siberian fields to its Pacific coast with a deviation to China. There are plans to launch the construction of a gas pipeline along the same route and set up export-oriental LNG facilities in the Far East. Russia has been developing oil and gasfields on Sakhalin Island with foreign companies, including ONGC Videsh, but needs far greater foreign investment to tap the Siberian energy resources. Experts put the price tag for revitalising flagging Eastern Siberia and the Far East at about $700 billion.

“The main result of the APEC summit should be a flow of foreign investment to Russia and the opening of Asian economies for Russian investment,” said Mr. Shuvalov, who oversaw preparations for the APEC summit.

Russia’s higher profile in APEC will also benefit India, as Moscow strongly supports New Delhi’s bid to join the group.