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China pledges $10bn to Silk Road, Arctic projects in Russia

by Janne Suokas 

Yamal, a Russian nuclear-powered icebreaker.Christopher Michel Flickr CC BY 2.0

China Development Bank (CDB) has agreed to lend up to 65 billion yuan (US$10bn) to Russia’s Vnesheconombank (VEB) for financing projects under Beijing’s Belt and Road initiative and the Moscow-led Eurasian Economic Union (EAEU).

The two state-owned development banks signed a framework agreement in Beijing on the sidelines of Russian President Vladimir Putin’s state visit to China last week. It follows up on a pledge made by Putin and Chinese President Xi Jinping in 2015 to seek an integration of the EAEU and the Chinese trade and infrastructure initiative, according to the Russian bank.

Under the agreement, CDB and VEB could co-finance some 70 projects approved by the parties, especially in the Arctic region.

“Within this coordination, we have a number of major projects, in particular those on the Northern Sea Route and China-Europe high-speed link. Currently, there are about seventy projects we could co-finance, which would greatly contribute to coordinating integration processes,” VEB Chairman Igor Shuvalov said in a press release.

“Cooperation between VEB and CDB will significantly contribute to integration processes in Eurasia,” he continued.

The loan deal is the biggest yet between VEB and CDB, which have signed credit agreements worth more than US$10bn over the past 12 years. The two banks had been in talks about loan terms and interest rates since November last year, according to Vedomosti.

US and EU sanctions placed on VEB over the Ukraine conflict prevent it from raising money in Western capital markets.

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China’s Arctic ambitions

China and Russia are seeking to strike a delicate balance between cooperation and competition in Central Asia, the Russian Far East and the Arctic.

The Belt and Road initiative was proposed by Xi in 2013 to boost China’s trade links with up to 70 countries, from Asia to Europe and Africa, including every member of the Eurasian Economic Union – Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia.

China has so far launched direct Belt and Road cargo train links to 42 cities in 14 European countries, with most of them passing through Kazakhstan, Russia, Belarus and Poland to destinations in western and southern Europe.

Last year, Beijing moved to include an Arctic sea route linking China to Europe in its ambitious initiative. The Polar Silk Road would make use of the Northern Sea Route, which is a shipping lane running between the Pacific Ocean and the Atlantic Ocean along Russia’s northern coast.

For its part, Russia has promoted the Northern Sea Route as an alternative route that would help cut shipping times from Shanghai to Rotterdam by about a week compared to the journey through the Strait of Malacca and the Suez Canal.

In its first Arctic policy, released in January, China called itself a “near-Arctic state” and said it hopes to cooperate with other countries in the exploration and development of the region and its vast natural resources, which are expected to become available as ice melts due to global warming.

China is cooperating with Russia in a liquefied gas (LNG) project on the Yamal Peninsula, which lies along the Northern Sea Route and has boosted cargo traffic in the shipping lane.

The US$27bn project started commercial operations in December, largely thanks to loans worth US$12bn from CDB and Export-Import Bank of China. In addition, the Shanghai-based Silk Road Fund has invested US$1bn for a 9.9 percent stake in the project.

While Chinese money may be needed to realise infrastructure development goals in the Russian Arctic, Moscow remains keen to protect its sovereignty over the region.


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