The Silk Corridor

09.09.2014 — Analysis

Russian-Chinese cooperation

Boris Dubrovsky, the acting governor of the Chelyabinsk region, has taken part in a forum titled, "Openness and Cooperation. Working Together to Build the Silk Road Economic Zone," which was held as part of the Eurasia Expo international exhibition in the Chinese city of Urumqi (in the Xinjiang Uyghur Autonomous Region).

Following the discussion, the leader of the southern Urals met with Nur Bekri, the chairman of China's Xinjiang Uyghur Autonomous Region. Boris Dubrovsky spoke to RusBusinessNews about the results of those talks and about the visit overall.

- Gov. Dubrovsky, you've met with representatives from the People's Republic of China three times in the last six months. What's behind your keen interest in that country?

- China has been and remains a key partner for us in international relations. We need investment and technology so that we can expand our regional gross product and significantly increase our labor productivity, as called for in the Chelyabinsk Region's 2020 Development Strategy. I very much hope that these projects with the People's Republic of China will help us to meet these challenges and to expand our presence on global markets.

As we know, Chinese companies are already operating here - the Chinese invested $9.4 million in the Chelyabinsk region in 2012 and $16.4 million in 2013. We have joint ventures that produce refractory materials, plus a number of projects are underway within the timber-processing industry and in the energy sector. In particular, over ten Chinese companies are supplying equipment for the new unit at the Troitskaya Regional Power Plant. Once that's up and running, we will be able to significantly reduce the impact on the environment while providing consumers with a more reliable source of power.

Trade between the Chelyabinsk region and China has steadily risen over the last two years, reaching $563 million in 2013. And shipments have increased from both the Chinese and Russian sides. For example, last year exports from the Chelyabinsk region to the People's Republic of China grew 142%. I'm confident that despite the difficult situation internationally this momentum will continue in the future.

- And what's the reason for your confidence?

- The major investment projects that we intend to pursue with the Chinese give me cause for optimism. One of these projects is the construction of the Southern Urals transportation and logistics complex.

It's no secret that today that most of our Chinese-manufactured goods arrive in the Urals and Western Siberia in a roundabout way, first traveling by sea, and then being trucked through St. Petersburg and Moscow. Rail shipments via the Trans-Siberian Railway are complicated because of difficulties at the border crossing with China in Zabaikalsk. That is precisely why the idea arose of establishing a transportation corridor between Urumqi, Astana, and Chelyabinsk, which would become part of a revived Silk Road.

The value of this project cannot be overemphasized. The Southern Urals transportation and logistics complex, the first phase of which will be rolled out in the spring of 2015, will not only get goods into our region three times as quickly, it will also provide a significant boost to the area's development. According to our estimates, the creation of a transportation corridor will provide jobs for at least two thousand people.

- It's understandable why the Chelyabinsk region and Russia as a whole would be interested in the creation of a new transportation route, but how do the Chinese feel about it? They do have another choice after all – they could route a Silk Road through other countries, for example...

- Our Chinese partners are not only interested in moving their goods more quickly into the Urals and Western Siberia, but also in creating new ventures based on the logistics complex.

I should point out that most of the space at the Southern Urals complex has been designated for the construction of an industrial park, which will allow us to develop advanced technologies. In the future it's possible that a special economic zone might be created here, which would be very attractive to the Chinese.

One company, CHANGHONG, has already expressed its intention to begin manufacturing household appliances at the transportation and logistics complex, and the HAIER corporation is prepared to produce high-tech energy-conservation equipment at the future industrial park. Other Chinese manufacturers that are actively working with companies in the Chelyabinsk region have also expressed an interest in the Southern Urals complex.

Our colleagues in China are willing to invest not only in the high-tech industry, but also in other sectors. They are interested in producing industrial raw materials and agricultural commodities and processing farm products. They believe that by exporting primary raw materials we are not using our timber resources effectively. They feel it would be much better to process it in the region. The Chinese have suggested that we begin to produce furniture together. That could be done in Russia as well as in China - the furniture market is very receptive.

Having a direct transportation corridor between our two countries as well as an established logistics system for product delivery would eliminate a lot of headaches for manufacturers. So, Chinese entrepreneurs are quite interested in us. Our current challenge is to organize the work that needs to be done so that the projects envisioned can be brought to fruition very quickly.

- What issues were discussed with the leader of the Xinjiang Uyghur Autonomous Region during the most recent visit to China and what agreements have been reached?

- In April, we signed an agreement to cooperate with the government of the Xinjiang Uyghur Autonomous Region until 2016. Our relationship has entered a hands-on phase – it's only a matter of months before the Southern Urals complex opens. Now big questions are emerging about the return on the investment in the project.

We understand that the transportation corridor can only meet its full potential if the logistics services we offer are attractive to the business community. To do this, we need to fine-tune the interaction between the operator of the consolidated warehouses in China and the company Logic Land – the innovator behind the Southern Urals transportation and logistics complex – and also to establish concessionary rates for rail transportation from Central and Western China to the station at Alashankou.

These issues were discussed at the meeting with Nur Bekri, and that government leader has assured us that all the necessary directives have been given to them and that experts are already busy looking into them. This also includes arranging direct air passage between Chelyabinsk and Urumqi.

Currently, negotiations are underway with Hainan Airlines about establishing regular flights. That Chinese air carrier is ready to offer one flight per week beginning in May 2015. But I don't think that will be enough. We'll need two flights per week in order to build significant passenger traffic between Urumqi and Chelyabinsk.

We expect that there will be more through travelers headed to that destination than passengers who have chosen China's Xinjiang Uyghur Autonomous Region to be the final stop on their journey. A flight passing through Urumqi will allow passengers traveling to other cities in China, as well as to Thailand, Vietnam, India, and Indonesia, to have a comfortable stopover and purchase tickets at more affordable transfer fares.

It's still too early to talk about specific dates for the introduction of the flight – everything will depend on permission from Chinese officials, as well as on the airport audits that are scheduled for October of this year. But I presume that we could begin those flights as soon as New Year's. I've laid out my arguments before the managers at Hainan Airlines, and they assured me that they are expediting the approval process.

The introduction of a direct flight from Chelyabinsk to Urumqi will allow us to strengthen the economic and cultural ties between the two regions. We have much to learn from partners who show such an impressive pace of economic growth. We need to take a very close look at their technology and management solutions in order to maximize the synergy of our cooperation.

Interviewed by Vladimir Stepanov