China Development Bank offers Russia transit-route financing

China Development Bank has offered to finance construction of two key transport corridors in Far East Russia to make exports quicker and easier.

The state lender proposed financing development of the Primorye-1 and Primorye-2 routes, which connect China’s northwest provinces with Far East Russian ports, during negotiations between China Railway Group Ltd. and the first vice-governor of Russia’s Primorsky Krai territory in late October.

The routes already support a growing volume of cargo but the infrastructure needs to be significantly upgraded in order to handle high volumes of exports.

A representative of China Development Bank said that loans could be allocated under the guarantees of Russian state-owned banks.
“There are two models of financing: direct credit or a loan transfer,” said Yi Chun, China Development Bank’s special representative for international cooperation and a member of its working group for Siberia and the Far East. “The first requires more time, plus a guarantee from the Russian bank. The second option involves issuing a loan to a large Russian bank, such as VTB, Sberbank or Vnesheconombank. There is no guarantee required. Our bank is paying a lot of attention to the development of the Far East.”

The international transport corridors Primorye-1 and Primorye-2 are part of China’s Belt and Road Initiative. Primorye-1 connects northern provinces of China with the ports of Nakhodka and Vladivostok, from where cargo is sent by sea to the south of China, and to South Korea and Japan.

Primorye-2 connects the province of Jilin with the Russian ports of Slavyanka, Zarubino and Posiet. 

The corridors allow transportation of agricultural goods such as soybeans, corn and rice, as well as mining commodities including coal and ore.

According to experts, the use of the two Russian corridors could save Chinese shippers up to US$700 million in transport costs per year.

For the Celestial Empire, a successful and rapid implementation of the project means a reduction in logistics costs [and] a gain in competition with other producers in the region

Just last month China Communications Construction Co. announced its intention to join the project. It is preparing a feasibility study and estimates, as well as draft proposals for financing models and ways to make a return on investment.

Maxim Krivelevich, a lecturer at the Far Eastern Federal University’s School of Economics and Management, told Asia Times that China has a clear interest in the transport routes as they provide its northern territories with sea access. He said alternatives are either too expensive or too complex, and that Russia’s Far East ports are currently operating at a lighter capacity than ports in Hong Kong or Singapore.

“It is profitable for Chinese banks to invest in this project, because this is a strategic investment,” he said. “For the Celestial Empire, a successful and rapid implementation of the project means a reduction in logistics costs [and] a gain in competition with other producers in the region. After all, whoever can bring their goods to Europe faster and cheaper wins.”

Russian state data shows that in the first nine months of 2017, transit through the Suifenhe-Grodekovo railway border crossing – part of the Primorye-1 route – was five times that of the whole of last year. 

The government believes that by 2030 turnover on Primorye-1 could reach 7 million tons of containerized cargo and 5 million tons of grain, while Primorye-2’s cargo traffic could hit 15 million tons, and its grain traffic 23 million tons.