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The Polar Silk Road - China’s New Frontier of International Cooperation

By Henry Tillman, Chairman and CEO, Grisons Peak;

Yang Jian, Vice President and Senior Fellow, Shanghai Institutes for International Studies (SIIS); and

Egill Thor Nielsson, Executive Secretary, China-Nordic Arctic Research Center

Abstract:

The introduction of the “Polar Silk Road (PSR)” into the first comprehensive white paper on Arctic policy is a historic step for China’s Arctic engagement. Over the past few years, China has achieved policy synergies and launched industrial, scientific and technological cooperation with Russia and Nordic countries. With enlarged interests and enhanced capabilities, China is becoming a preferred partner for Russia and Nordic countries in a number of infrastructure, energy and transportation projects within the Arctic region. The PSR framework to advance Arctic cooperation under the Belt and Road Initiative (BRI) presents both economic opportunities and social as well as environmental challenges for Chinese enterprises to balance the utilization and protection of the Arctic.

China’s Opportunities in the Nordic Arctic

As key stakeholders of Arctic governance, Nordic countries including Finland and Norway have also proposed the Arctic Corridor,36 a transportation program that will connect the city of Rovaniemi in North Finland with the Norwegian port of Kirkenes, to further strengthen the international utilization of the NSR. The program includes the rebuilding of the Kirkenes deep-water port and the construction of a railway, a logistic hub in Rovaniemi and an air logistic Hub in Helsinki that is linked to the Baltic Tunnel. Once completed, ships can dock at Kirkenes, where cargoes are offloaded to the railway and sent southward through rail connections in Helsinki, and then through the proposed Helsinki-Tallinn tunnel to central Europe.

To China, the Arctic Corridor presents an extraordinary opportunity for cooperation under the PSR framework. Most obviously, infrastructure building of the Arctic Corridor is highly relevant to the NSR, facilitating connectivity between East Asian and Arctic economies and helping integrate the Baltic region and central European market in a more comprehensive way. Since the Arctic Corridor is a huge ensemble of costly projects, Chinese investment would be very welcomed - some Chinese companies have received invitation to discuss the possibility of getting involved in these projects, and a brochure in Chinese has been prepared.

Historically, Norway has been one of China’s most significant trading partners in Northern Europe. The Chinese and Norwegian governments are seeking to revive stalled free trade negotiations.38 In particular, Norway’s shipping groups are interested in engaging with their Chinese counterparts and look forward to greater involvement by Chinese shipping companies. As the northernmost ice-free port located by the Barents Sea and the closest Western port to East Asia via the NSR, Kirkenes will play an indispensable role in future cooperation between China and Norway; ships can move cargoes from China as well as oil and gas from Arctic fields in Russia westward along the NSR to Kirkenes.

For years, Kirkenes has been a free trading, logistics and industrial port in use for supplies and services to the Russian Barents, Pechaora and Kara seas, Yamal and other Northern Russian onshore and offshore sites. It is an ultra-deep, large fjord port with dry and calm inland climate, which is accessible and operative for conventional, non ice-class vessels under all weather conditions. In addition, Kirkenes has unlimited potential for expansion, with experienced shipping agents and ship repair services, where facilities for supply of power, fuel, water, as well as for the service of piloting, customs, health are efficiently presented.

On his visit to Shanghai in April 2018 on a delegation led by Norwegian Minister of Research and High Education, Mr. Rune Gjertin Rafaelsen, Mayor of Sør-Varanger municipality, Kirkenes, announced that Kirkenes was well prepared for the Arctic Corridor and the opening of the NSR. The Norwegian National Rail Administration, the National Coastal Administration and the National Road Administration have already made recommendations to the Ministry of Transport and Communication to extend support to the Arctic Corridor program, which would serve as an integral part of the flow of freight transport along the NSR. Such a vision has partially been realized. In September 2010, the bulk carrier M/V Nordic Barents became the first non-Russian flagged commercial vessel to successfully transit the NSR, sailing directly from Kirkenes through the NSR and the Bering Strait to Lianyungang of China with a cargo of iron ore.

In Finland, Rovaniemi as the Arctic capital shares a lot of interests with China in the fields of energy, mining, tourism, information and communication technology (ICT), and clean technology. A maritime cable project linking Europe and Asia via the NSR has been planned to pass through Rovaniemi. An increasing number of travelers choose to visit the Finnish Lapland area in winter. As a result, Rovaniemi recorded the hottest winter tourism season in 2017, with a 15 to 20 percent increase in the number of visitors compared with that in 2016. The high demand for accommodation has also attracted new investments to facilitate the growth of the tourism industry.

In February 2018, the final report of the Helsinki-Tallinn Transport Link Feasibility Study was released, which gave technical details of the proposed €13–20 billion, 103km-long rail tunnel connecting Finland to Estonia under the Gulf of Finland, including two huge artificial islands and a tunnel 250 meters beneath the sea. Once finished, it would be the world’s longest undersea tunnel. The tunnel would run in parallel with the planned airport rail line providing connections to the rest of Finland, Sweden, and North Russia. On the Tallinn side, the link would connect directly to the airport, which is already connected to the rest of the rail network and Rail Baltica, the new pan-Baltic rail project expected to be launched in 2019. Since rail gauges differ between Finland and Estonia, the line will adhere to the European standard (1435 mm), making it accessible to Rail Baltica.

In the foreseeable future, Helsinki will become an air hub of the Arctic Corridor. Currently, Finnair has already served 7 airport destinations in Greater China with 38 weekly flights, topping all other European airlines. It is noteworthy that passengers travelling on scheduled flights from Helsinki to China account for 5 percent of all international passengers, and China is projected to be the 8th most popular destination country for the Finnish. Meanwhile, air travel from China to Finland has grown tremendously during the past decade. The number of Chinese on overnight stay in the country has grown from 98,100 in 2007 to 361,800 in 2017. Between 2016 and 2017, the number of Chinese visitors increased by 63 percent; and Chinese tourists spent €335 million in Finland in 2017, a 49 percent increase from the level of 2016. With the introduction of Alibaba’s Alipay and Fliggy, Visit Finland has estimated that consumer spending by Chinese tourists in Finland, excluding flights and hotels, has more than doubled from around €600 per visitor to €1,300.

Social and Environmental Challenges for Chinese Enterprises

Although most of the infrastructure projects in the Arctic have yet to be built and no one can accurately predict the pace of sea ice melting and technological advancements, considerable progress in Arctic governance has been made over the past decade, while lasting momentum for Arctic partnerships has developed. In the coming years, many long held economic goals of Arctic countries are likely to be realized; and much closer links can be expected among China, Russia and Nordic countries, thanks to their policy coordination and concerted efforts. However, for Chinese enterprises, involvement in Arctic cooperation is a relatively new experience, which poses many social and environmental challenges alongside business opportunities.

The majority of Arctic countries along the PSR are developed economies, whose level of productivity and degree of affluence are much higher than China’s. They also take the lead in technological innovation - in the 2017 global innovation index (GII), almost every Arctic country except Russia ranked higher than China, although China overtook Iceland, Canada and Norway in 2018. In terms of business climate, most Arctic countries boast a sound market system, consummate industrial structure, sophisticated economic operation mechanisms and systematic market legal norms. Most importantly, these countries usually have high social and environmental standards. Therefore, they have high hopes for Chinese investment, while adopting rigid criteria for accepting the investment. Besides, in Arctic economies, goals of social development are more diversified and comprehensive, including social justice, ecological balance, economic development, inter-generational equity, enterprise ethics, and climate response, among others. In a similar vein, the decision-making process for social resource allocation is more complicated in Arctic countries. All these require Chinese enterprises to demonstrate more corporate social responsibility (CSR) when engaged in local business and projects.

In the meantime, climate change remains a big threat to the Arctic ecosystem, including the destruction of food chains of regional species. The exacerbation of climate change and its ensuing impact will bring about more stringent standards for economic activities in the Arctic, which will also increase the cost of Chinese investment. For Chinese enterprises, the exploration and exploitation of Arctic natural resources demands sufficient assessment of the environmental impact, ecological sensitivity and production safety of any investment. In the long run, it is necessary for Chinese enterprises to achieve a balance between the development of Arctic natural resources and the protection of the fragile environment, with better understanding on how human activities create barriers for the migration and reproduction of Arctic birds and animals, and how environmental pollution, such as oil spills, affects the fragile ecosystem.

The Chinese government has committed to regulate and supervise the activities of Chinese citizens, enterprises and other organizations in the Arctic, in accordance with the legal framework, to ensure that their activities comply with the international and national laws on environmental protection, resource conservation and sustainable development. Chinese enterprises must be fully aware that their partners along the PSR prioritize environment protection over economic gains in the Arctic. Thus, restrictions can be imposed by Arctic countries on Chinese economic activities; and Chinese enterprises operating along the PSR need to be equipped with more social and environmental awareness, and behave as responsible stakeholders in local communities, in order to achieve sustainable development in the Arctic.

 

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