The Ice Silk Road: Sino-Russian cooperation in the Arctic

screen-shot-2017-12-24-at-10-07-01.png

Guest contribution by Nikita Ermakov, Marketing & Consulting Specialist, Yenching Scholar at Peking University

As part of the Belt and Road Initiative, there exists a "Vision for Maritime Cooperation." One element of this is China’s increased participation in Arctic Affairs. Given Russia’s existing position of strength in the Arctic, and its membership of the Arctic Council (the eight countries with territories that have direct access to the Arctic), it could become a strategic partner for China’s accelerated efforts in the region. To understand how the two could come together, we first need to understand why the development of the Northern Sea Route (NSR) through the Arctic, also known as the Ice Silk Road, is being pushed by the Chinese.

  1. Cheaper and faster logistics

Transporting cargo by sea remains cheaper than rail or road, explaining why 90% of the world’s goods are still transported by sea. For China, the Northern Sea Route is cheaper and faster than the Southern Sea Route which runs through South-East Asia, India, the Middle East, Northern Africa, the Suez Canal and the Mediterranean Sea. The NSR runs along the northern shores of Russia through the Arctic Ocean. The distance between ports in Northern China and Western Europe, the North Sea and the Baltic Sea are reduced by 25-55% using the NSR.

Screen Shot 2017-12-24 at 10.07.31

Source: Bloomberg.com

  1. Improved trade security

Given the continued importance of the trade for China’s economy (both for its raw material imports and all its exports), it comes as no surprise that China wants to protect its key trading routes and open up others to offer reliable alternatives. The majority of China’s imported energy supply - e.g. over 80% of oil imported by sea - comes through the Malacca Strait, a route that risks closure by rival powers in the event of escalating geopolitical tensions. Moreover, instability in certain African and Middle Eastern countries continues to add risk to trading routes through the Gulf of Aden, Suez Canal and the Mediterranean; in the process increasing insurance premiums paid by Chinese shipping companies. The NSR provides an alternative and arguably safer route given the probability of tensions with Russia is far lower.

  1. Resources opportunity

Development and extraction of natural resources in the Arctic present a sizeable commercial opportunity. The Arctic contains abundant deposits of nickel, copper, coal, gold, uranium, tungsten, and diamonds, and currently produces 10% of the world’s oil and 25% of natural gas.

  1. Prestige

As China becomes a stronger maritime power, leading explorations into previously uncharted territory becomes a motivating factor. China currently has four Arctic bases, two of them operating all year round. Their maintenance requires regular and timely supplies of food and equipment; consequentially China has started work on its second large-scale and the first self-made icebreaker, the "Xuelong 2", which is set to be completed in 2019. Xuelong - the first icebreaker - was constructed has been in use since 1994.

Sino-Russian cooperation in the Arctic

All of these four factors point to increased Sino-Russian cooperation in the Arctic. Russia’s existing strength in the Arctic is reflected in its icebreaker fleet, currently the largest in the world with 40 icebreakers. This is a contrast to the United States which only has two ice-breakers, although only one is able to operate in the Arctic across the entire year. Russia’s experience and infrastructure in the region could serve as a base for collaboration; and China has the financing capabilities to spur further development. That can be seen, for example, in China’s $12 billion worth financial backing of the $27 billion Yamal Liquefied Natural Gas (LNG) project in Northwestern Siberia. The Chinese investment was made in April 2016 and helped to set the project on track despite the financial pressure faced by Russia from international sanctions. Once completed, the project will help satisfy China’s demands for LNG.

Moreover, Russia, facing sanctions from the US and Europe, is incentivised to improve trading routes to China. Combined with the trade security issues facing China, the Ice Silk Road presents a mutually beneficial project for both. And indeed the security aspect should not be overlooked as the militaries of the two countries have already held joint military exercises in the Baltic and South China Seas.

The backdrop of Sino-Russian ties is conducive for the development of the Ice Silk Road, a key pillar of China’s Belt & Road Initiative. During the Belt and Road Summit held in Beijing in May 2017, President Vladimir Putin delivered the second keynote address after President Xi – the positioning of his speech in itself speaks volumes of how the two nations see their relationship developing into the medium term. The Ice Silk Road stands as the latest manifestation.

Photo Credit: China Daily