Potential Northeast Asian Economic Corridors: Differing Chinese and Russian Priorities

Sitting at a strategic crossroads between Europe and East Asia, Mongolia and North Korea are potential economic corridors for the wider Eurasian landmass. However, the realization of such corridors depends in large part on Chinese and Russian policy priorities, since both have long-standing geostrategic interests in the region. If the current trend of regional economic development continues to override the traditional security dilemma of all these neighbors, Mongolia can provide the shortest route for China to Russia, while North Korea could facilitate Russia’s outreach to other non-Chinese economies in East Asia. At the same time, Mongolia and North Korea, as the most isolated economies of Northeast Asia, would benefit from Sino-Russian regional development initiatives. Even though Beijing and Moscow have endorsed closer cooperation, they apparently have differing priorities: China advocates the Mongolian economic corridor, whereas Russia prioritizes a corridor through North Korea.

The existence of shared, and sometimes competing, Sino-Russian geostrategic interests in Mongolia and North Korea is historically quite clear. When Russia has perceived threat coming through Mongolia in the past, it extended its political and military presence into this landlocked country. Over 20,000 Soviet soldiers lost their lives defending Mongolia from Japanese aggression in 1939, and the Soviet Union maintained over 100,000 military personnel in Mongolia during the period of Sino-Soviet tensions in the 1960s and 1970s. Presently, while not wanting to provoke China, its newly established strategic partner (see EDM, March 10), Russia now has revived its defense ties with Mongolia by organizing bilateral exercises, providing military hardware, and resuming military training assistance (see EDM, March 20, 2013; October 9, 2013). Similarly, over 150,000 Chinese soldiers and volunteers lost their lives in defense of North Korea in 1953, and China is still committed to the mutual defense aid and cooperation treaty, which was renewed in 2001. Moscow and Beijing continue to emphasize these bonds by attending, at the highest level possible, events commemorating such past joint military endeavors. This clearly indicates that Mongolia and North Korea remain geostrategically significant for Moscow and Beijing. But, economically, China and Russia have differing priorities.

China appears quite supportive of Mongolia’s initiative to become a Eurasian economic corridor, and it quickly included Mongolia in the Silk Road Economic Belt initiative as well as the Asian Infrastructure Development Bank. At a summit in Dushanbe, Chinese President Xi Jinping proposed a Mongolian economic corridor that would increase transit infrastructure and Mongolia’s power grid network (Xinhua News, December 4, 2014). Earlier this year, Chinese Foreign Minister Wang Yi repeated Beijing’s interest in building an economic corridor through Mongolia. He articulated that this corridor would be an organic combination of China’s Belt and Road initiative, Mongolia’s Prairie Road and Russia’s Eurasian Railway initiatives (Chinese Foreign Ministry press release, April 2).

In contrast, China has, to date, excluded the Democratic People’s Republic of Korea (DPRK—North Korea) from both economic belt and infrastructure bank initiatives, even though there were previously such discussions with North Korean officials. This may indicate Beijing’s priorities of bringing Mongolia, Central Asian states, and South Korea closer under the China-centric regional economic order at this time of strategic convenience. Whereas, regarding Pyongyang, Beijing seems to have decided that it would prefer to restrict Chinese-DPRK economic relations to their present level. North Korea currently has quite limited options and must rely on Chinese capital, technology and markets.

Russia, on the other hand, appears to have prioritized the North Korean economic link rather than Mongolia’s economic corridor for several reasons. First, Russia’s engagement with North Korea would provide more opportunities to project Moscow’s image of a “Great Power” in the Asia-Pacific—particularly since Pyongyang considers Moscow a reliable partner in balancing against Beijing as well as other members of the Six Party Talks on North Korea’s denuclearization. In late September 2014, Pyongyang dispatched its foreign minister to Russia to build up a united political front as both countries have come under sanctions from the West (Mid.ru, September 29, 2014; The Guardian, September 30, 2014).

Second, Russia’s investment into North Korea promises a quicker and greater return than its investment into Mongolia, which would provide only an additional route for Russian exports to China. In the case of North Korea, Russia is more interested in gaining access to ice-free ports on the Pacific coast and investing into transit routes for its mineral exports to the wider East Asian region. This would provide access to some of East Asia’s largest resource importers, including South Korea, Japan and Taiwan.

Third, Russia sees more investment opportunities overall in North Korea than Mongolia. This may be especially true considering the strong South Korean interest in linking the trans-Siberian railway with the trans-Korean railways. Indeed, Russia has already expanded its business presence in Pyongyang and started playing a key role in implementing such trilateral projects (see EDM, May 7, 2014).

In contrast, Moscow’s policy toward Mongolia has been largely for Russia to regain its former “privileged status” in areas of major Mongolian mining projects, infrastructure development and energy sectors. But this contradicts shifting political and economic realities in Mongolia, which has been seeking to diversify its global economic and investment partnerships (see EDM, February 20, March 2, April 6). Therefore, most emerging projects like new railroads, uranium mining and energy, where Russia and its state-affiliated business entrepreneurs expressed an interest, have become victims of local politics.

While concerned with their traditional geostrategic interests, China and Russia are pursuing different policy priorities for establishment economic corridors in peripheral states. China is more interested in funding infrastructure development projects in Mongolia, whereas Russia prioritizes North Korean economic links and economic opportunities. Despite the entirely different political systems in Ulaanbaatar and Pyongyang, both present risk and uncertainty for long-term investment projects—even when amicable Sino-Russian interactions create a favorable momentum for closer economic cooperation.