China gets sidelined as global trade routes re-open further north
Op-Ed Commentary: Chris Devonshire-Ellis
May 24 – The Far Eastern Russian city of Vladivostok is set to experience a boom as concerns over China’s aggressive slashing of mineral exports dictate the need for new supplies. Circumnavigating the need to export vital commodities either through or from China is fast becoming a major policy. China’s exports of rare earths accounted for 90 percent of the global supply until last year, however it has drastically reduced its export quota of rare earths from 50,000 tons annually to just 8,000 tons this year.
That is seriously affecting global markets, as demand in the United States, Japan, and South Korea is set to reach 180,000 tons by 2012, leaving a massive shortfall. These materials, which include granites and syenites rich in rare metals such as Yttrium, Tantalum, Niobium, Thorium and Zirconium are used in numerous hi-tech applications in everything from weapons systems to computers, mobile phones and flat screen televisions. However, significant alternative supplies are to be found in Mongolia, which is rapidly developing a number of joint venture projects with foreign investors keen to ensure alternative supplies. These include businesses such as the San Jose-based Green Technology Solutions (GTSO) who have recently announced a partnership with Mongolia’s Rare Earth Exporters.
The first exports of the JV’s products – to South Korea – are to be streamed live on the internet, such is the interest and potentially game-changing nature of the Chinese position and Mongolia’s ability to take up the demand. According to both companies, the live video feed is being established for interested viewers to see on both company’s web sites. Detailed logistics for the shipment are currently being scrutinized thoroughly. GTSO management believes that establishing a new reliable source and route to supply U.S. economic and military allies with rare earth supplies is a matter of American national security as well as an opportunity to enhance the shareholders’ value. The products will be transported east via rail to Vladivostok, and shipped to South Korea from there. That will have a significant impact on the development and strategic importance of the city as an international export hub from East Asia, providing both an alternative to routing through China and an over reliance on Chinese supplies.
Vladivostok is the capital city of the Primorsky Krai region in Russia’s Far East. It is situated at the head of the Golden Horn Bay, not far from Russia’s border with China and North Korea, and is the home port of the Russian Pacific Fleet. The population of the city, according to the preliminary results of the 2010 Census, is 592,100 – compared to Shanghai, which is just over 23 million for the municipality. The city is connected by rail to Northeast China, and specifically the massive intersection at Harbin, which then links into China’s main rail network. The trans-Siberian route also offers access to Central Asia, Russia and Europe, while scheduled flights operate to Harbin, Shanghai, Niigata, Toyama, Seoul, Pusan, Pyongyang, Anchorage and many Russian cities including Moscow.
That said, the military and strategic naval importance of Vladivostok has to a great extent kept it from the huge commercial development that China’s eastern ports have enjoyed. However the desire to compete with China and to open up new markets for Russian raw materials is prompting a major rethink on the future development of Vladivostok. While rare earths remain largely a Mongolian commodity, Russia is keen to exploit other natural resources it possesses such as lumber, coal, gas and other minerals. The Mongolian initiative may well pave the way for a rebirth of the port in response to concerns over the sustainability of Chinese supplies and the tendency to politicize trade through the barring of exports and closing of borders. Two incidents have occurred already this year that have given concern; the exports of rare earth exports to Japan being suddenly halted over a dispute concerning the arrest of a Chinese fishing vessel in Japanese waters, and the closure of the Chinese border with Mongolia at Erlianhot – the main rail route – last month due to “technical problems.” The Mongolians retaliated by suspending coal exports. The Chinese routinely close the border with Mongolia whenever the country is visited by the Dalai Lama, a situation Mongolia says interferes with its internal affairs. Either way, the impression being made on businesses reliant on passage through China from Mongolia or Russia, or for exports of minerals from China is one of unreliability on the part of the Chinese. Vladivostok offers the solution.
That is also recognized by the Russian Government, as it plans to redevelop Vladivostok to take advantage of Chinese intransigence. The city is due to host the 2012 APEC forum. In preparation for the event, the infrastructure of the city is being renovated and improved. Two giant cable-stayed bridges are currently under construction in Vladivostok, being the Zolotoy Rog Bridge over the Zolotoy Rog Bay in the center of the city, and the Russky Island Bridge from the mainland to Russky Island, where the summit will take place. The latter bridge will become the longest cable-stayed bridge in the world upon completion.
China Briefing readers interested in attending the 2012 APEC event in Vladivostok may qualify through membership of the Greater Tumen Initiative, a UNDP sponsored program that promotes political and trade links between China, Russia, Mongolia, North and South Korea – Japan is an observer nation. The GTI may be contacted at www.tumenprogramme.org. Businesses involved with the development of trade in Eastern Russia and Mongolia, and exports from East Asia (including China) to Japan, South Korea and the United States are encouraged to attend in order to assess the impact a resurgent Vladivostok is likely to have.
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