February 7, 2023

How Moscow Turned Its Far East into Beijing’s Raw Material Colony

A Russian state flag flies on the top of a diesel plant in the Yarakta Oil Field, owned by Irkutsk Oil Company (INK), in Irkutsk Region, Russia March 10, 2019.
A Russian state flag flies on the top of a diesel plant in the Yarakta Oil Field, owned by Irkutsk Oil Company (INK), in Irkutsk Region, Russia March 10, 2019.

Today, all analytical attention seems to be focused on the full-scale war that Russia has unleashed against Ukraine. However, thousands of kilometres away, some events are taking place that can have no less impact on the prospects of world geopolitics.

In December 2022, Russian President Vladimir Putin took part, via videoconference, in the commissioning ceremony for the Kovykta gas field, the largest one in Eastern Siberia. Its recoverable reserves stand at 1.8 trillion cubic meters of natural gas, but they are almost entirely hoarded for Chinese consumers. With that client in mind, the “Power of Siberia” gas pipeline was built to pump about 27 billion cubic meters of gas to China annually.

Professor Tatyana Zabortseva from the Siberian Institute of Geography says that Eastern Siberia has effectively been turned into a “raw material pantry” for China. The residents of the Irkutsk region itself, where the Kovykta gas field is located, have been denied an opportunity to benefit from their natural treasure and forced to rely on coal and firewood for heating. The level of gasification of local households today remains at a staggering 1%, although the authorities promise to raise it to 3.22% in the coming years.

In other words, Moscow appears to value its relations with Beijing much more than it cares about the well-being of its own citizens. Down below, I will discuss in greater detail how the people of Siberia have been victimised by the Kremlin’s colonial policy. Yet first, let’s focus on the reorientation of Russian raw material exports from Europe to China that has been going on for several years.

The Pivot to the East

Moscow started talking about the strengthening of political and economic relations with China in 2014, immediately after the annexation of Crimea and the conflict in Donbas. These events led to the first sanctions against Russia by the U.S. and the EU but failed to result in a total embargo on the imports of Russian oil and gas.

Moreover, even with the start of a full-scale war between Russia and Ukraine in 2022, the EU countries continued to purchase large amounts of Russian raw materials, which helped finance the Kremlin war machine. Bloomberg reported that last year alone, Russia received about $285 billion from energy revenue, mainly from the European countries until they began to massively refuse to buy raw materials from it.

Under these conditions, the Russian economy, which is vitally dependent on oil and gas exports, started looking for other potential consumers globally. It immediately focused on China and its gigantic economy. In 2022, Russia became the largest oil supplier to China, having surpassed the previous leader of Saudi Arabia.

By expanding its raw material exports to China, the Kremlin tries to compensate for the losses sustained from the cessation of trade with Europe, although Russia is forced to sell oil and gas to its eastern partner at a large discount of up to 30% against the world price. However, doing so also allows the Kremlin to solve a political problem and ensure – if not support from Beijing –then at least its neutrality with regards to Russia’s military adventure in Ukraine.

In Europe, the Kremlin initially tried to use ‘gas blackmail’ by taking advantage of the fact that many European countries have become dependent on Russian natural gas since the 1970s when the first pipelines were launched. This is especially true of the largest economic power in Europe – i.e., Germany. Berlin, however, was able to reduce its dependence on Russian gas from 55% down to zero in the shortest time possible – in only months, from March to December of 2022.

Germany managed to achieve such spectacular success through reorientation to liquefied gas from other world producers and construction of several new LNG terminals. Although the Russian pipeline was previously believed to have no alternative, the Kremlin’s strategy failed. Moscow tried to blackmail Europe into easing sanctions and weakening support for Ukraine. The outcome it produced was the exact opposite: it effectively lost the largest market for Russian state/owned energy giant Gazprom.

Would China be able to fully compensate for these losses? It obviously would not. Thus, Russia’s commodity revenues will fall significantly. Alexei Gromov, a director of the Moscow Institute of Energy and Finance, says that only 20% of the losses in the European market can be compensated by Chinese consumers.

In addition, China is acting much smarter than Germany. Having disproportionately relied on Russian gas imports since the 1980s, Berlin was hurried to diversify its raw material suppliers in 2022. Neither China does wish to become completely dependent on Russian gas by awarding Gazprom a monopoly. Chinese enterprises are careful enough to buy liquefied natural gas from Qatar, the United States, and other producers globally.

Politically, the Chinese ‘dragon’ is strategic and unlikely to fully endorse Russia’s aggression in Ukraine. China’s economy dwells on the mass production of consumer goods and is wary of international sanctions that could impede its economic growth were Beijing to actively support Moscow. Therefore, the Kremlin’s calculation of “friendship with China against the West” looks like wishful thinking on its part. Thus far, Chinese weapons deliveries to Russia remain out of question.

Siberia, Twice Colonised

By the end of the 20th century, China and Russia seemed to have ‘swapped places’ in the global rankings. In the Soviet era, China was still a predominantly agrarian country while already the most populous nation on the planet. With Deng Xiaoping’s reforms, a rapid industrial revolution began and made China one of the world’s leading economies. In contrast, post-Soviet Russia’s economic reforms were not particularly successful. A photo depicting how a Russian city of Blagoveshchensk and a Chinese city of Heihe – located opposite each other on two banks of the Amur River – looked in the 1970s compared to how they look now is quite indicative.

Fears often circulate in the Russian media that China might one day seize Russia’s Siberian and Far Eastern territories by force. However, Beijing does not need this at all: Moscow itself is pleased to give away all of its natural resources to China for next to nothing.

Today, Chinese companies enjoy long-term lease agreements that allow them to access thousands of hectares in Siberian and the Far Eastern forests, with all the timber, therefore, shipped directly to China. It is worth mentioning that Russia – despite possessing such rich forestry resources – lacks a single pulp mill in that region. Since processed forest products are more expensive than roundwood, China favours importing cheap raw timber instead. The Far East has essentially been turned into a joint Moscow-Beijing colony for raw materials. The two authoritarian powers completely ignore the interests of the local population, as earlier exemplified by the distribution of natural gas produced at the Kovykta field in Irkutsk.

If any large plants are built in the Russian Far East, these usually happen to be the most environmentally dangerous ones. In 2021, for instance, a Chinese company aspired to build the world’s largest methanol plant in the Ayano-Maisky district of the Khabarovsk region. However, the project was thwarted by a district referendum, with 90% voting in opposition. Yet, the State Duma soon adopted a law that restricted local self-governments’ autonomy, thereby overruling any similar referendums in the future.

Moscow and Beijing are free to build whatever environmentally hazardous plant they may wish while paying zero attention to the concerns of people to be directly affected by it. Yet such a solution will not only fail to extinguish but, on the contrary, will only fuel the local protest mood. Already bogged down in the war against Ukraine, can Russia afford the tensions brewing in the Far East and heightening up to separatist slogans. Moscow is clearly demonstrating its colonial policy not only in Ukraine but also in the region far from it.

This article was written for ICDS Diplomaatia magazine. Views expressed in ICDS publications are those of the author(s).