Grain railway terminal
© sibgrain.ruGrain railway terminal GTZ.
Russia is speeding up the construction of a corridor in its Far East region in a bid to export more grain to Inner Mongolia in Northeast China.

On Wednesday, the same day the Ukraine military said it had driven Russian infantry back from some positions around Bakhmut, the Kremlin said that it will boost its grain exports to China via the New Land Grain Corridor.

Russian President Vladimir Putin instructed the cabinet and the central bank to work out an intergovernmental agreement to boost grain exports to China by October 1, Russia's national day, Russian news agency TASS reported.

Chinese state media said that, after tariffs, quotas and logistic problems are solved, China will import more wheat and barley from Russia and reduce its reliance on grain imported from western countries including Australia, the US, Canada and France.

Commentators said that, while Russia and China can work together to overcome western sanctions, at the same time the development will further push the decoupling of the global economy into United States-West and China-Russia spheres.

A decade-long project

The idea of building the New Land Grain Corridor, which will connect China with the Eurasian Union countries, was first proposed by Beijing in 2012. It gained support from Putin and Chinese President Xi Jinping in 2016.

The construction of Grain Terminal Zabaikalsk (GTZ), a railway transshipment facility at Russia's border with Inner Mongolia, commenced in July 2020. Most of the Russian grain sold to China is still being shipped from the Black Sea.

As of April last year, the terminal had been 75% completed, according to Russian media.

Russian Vice-Prime Minister Yuri Trutnev said on March 16 this year over 700 billion rubles (US$9 billion) had been invested last year in the Far East and 140 enterprises had been established. He said the amount of the contracted investments in the Zabaikalsk Territory will exceed 316 billion rubles. Of that eventual total, the amount already invested comes to 143 billion, he said.

Karen Ovsepian, chief executive of the GTZ, said total capital investments under the New Land Grain Corridor program will amount to 500 billion rubles. He said the GTZ, with a transshipment capacity of up to 8 million tons a year, will boost trade between Russia and China and also enable the Far East to drive the development of the Siberian and Ural regions.

When Xi on March 21 signed a joint statement with Putin to deepen comprehensive partnerships and strategic cooperation between China and Russia, he also met Russia's Prime Minister Mikhail Mishustin to discuss the New Land Grain Corridor.

The Russian government will "consider concluding an intergovernmental agreement between Russia and China" by October 1 and will "increase grain production in the Far Eastern, Ural and Siberian federal districts, as well as the volume of its export to the market of China," TASS reported.

The agreement will allow Russia to export more wheat and barley, in which it has advantages both in price and quality, Zhang Hong, an associate research fellow at the Institute of Russian, Eastern European, and Central Asian Studies at the Chinese Academy of Social Sciences, told the Global Times.

Comment: Indeed, because, unlike Russia, even Western countries that previously rejected GMOs are talking about contaminating their land, seed stock, and food supply with them: RSPCA sounds alarm on new law that would allow gene-editing on PETS, farm animals, crops

"As for the land corridor, trains running through ports such as Manzhouli and Suifenhe could transport grain from Russia," Zhang said, adding that the agricultural trade between China and Russia "is not very big" now.

Unrestricted imports

China's General Administration of Customs announced on February 24 last year that it would allow unrestricted imports of Russian wheat into China. Scott Morrison, then prime minister of Australia, criticized Beijing for supporting Russia, which was launching a full-scale attack on Ukraine on the same day.

In 2021, China imported 2.74 million tons or US$860 million of Australian wheat, accounting for about 28% of the grain's total import both by volume and value, according to Research and Markets, an industry data provider. It also imported wheat from eight other countries, including the US, Canada and France.

Comment: And if China takes its business elsewhere, that's a revenue loss for AUKUS and friends.

In the same year, China imported $2.88 billion of barley, mainly from France ($901 million), Canada ($861 million), Ukraine ($619 million), Argentina ($432 million), and Russia ($20.8 million), according to the Observatory of Economic Complexity (OEC). It also imported soybeans from Brazil ($27.2 billion), US ($14.3 billion), Argentina ($1.78 billion), Canada ($345 million) and Russia ($297 million).

Black Sea Grain Initiative

A Fujian-based writer says in an article published Friday that Russia wants to speed up the New Land Grain Corridor project as it cannot sell its agricultural products with the Black Sea Grain Initiative.

"Although both Ukraine and Russia signed the Black Sea Grain Initiative last July, Russia has so far faced big difficulty in exporting its grains amid western sanctions," he says. "No insurer can provide service to Russia's grain carriers while Russian exporters cannot settle their transaction without SWIFT."

For the sake of the world's needs, Russia has extended the Black Sea grain deal twice, in November and March, he says. But if the deal ends after May 18, Russia must find a new way to sell its grain and China is now its best choice, he says.

A Hebei-based columnist on Thursday published an article titled "Russia finally wakes up, Putin opens Far East barn for mutual benefits of China and Russia."

The writer adds: "Due to sanctions, Russia has been kicked out from the western markets and must look at the East, particularly China, the biggest consumption market in the world."

He says Moscow has previously been worried that it will lose the Far East over the long run if the region's population is diluted by Chinese. But now, he says, Russia is facing a severe challenge in the Ukrainian crisis and has to boost Far East development for the Chinese market.

He adds that, as China is also seeking a way to grow its economy to compete with the US, it will be a win-win situation if both China and Russia can work together and overcome the West's sanctions and containment.

"With the rapid change of the international situation in recent years, the stability of China's overseas grain supply chain has been affected," he says. "The risk of China importing grain from South and North American countries will be effectively mitigated by the increase in Russian grain exports to China."

According to the China Center for International Economic Exchanges, China will only be able to self-supply 65% of its food consumption in 2035, compared with about 76% at present. The country will still have to import 83% of soybeans it needs by 2035.
Follow Jeff Pao on Twitter at @jeffpao3