Analysis

China’s Polar Silk Road: Long Game or Failed Strategy?

November 16, 2023

Read Time:8 Minute, 11 Second

The events of 2022 proved to be a year of great geopolitical changes. In February 2022, just days before Vladimir Putin launched his full-scale invasion of Ukraine, Xi Jinping and Putin met in Beijing, where they discussed among other things the development of the Polar Silk Road (PSR).¹⁾ The PSR was jointly announced in 2017.²⁾ The Arctic was declared as a potential area of cooperation between the two countries, and the PSR was considered by some as the fulcrum of the Russo-Chinese cooperation. In March 2023, a year after the previous visit, Xi Jinping again visited Russia, marking China’s continued commitment as Russia’s partner – albeit not a partnership without limits. As Russia indicated a strong desire for China’s presence in the Arctic, the PSR has largely disappeared from the official Chinese discourse, raising more questions about China’s long-term intentions with its Arctic policy and its wider strategic approach to the global order. Has the PSR failed, or are we merely witnessing a hurdle for China’s long-term strategy in the Arctic?

Failed strategy?

The Polar Silk Road (PSR) was added in 2017 to China’s mega-scale connectivity project, the Belt and Road Initiative (BRI), first announced in 2013.³⁾ BRI is characterized by infrastructure investment along a constellation of economic corridors, including the Northern Sea Route. The announcement of the PSR created a lot of interest in the potential for resource extraction and sea transport in the Arctic region, as noted in Chinese academic and journalistic reports and articles, sometimes even dubbed the “Golden Waterway” (黄金水道) in Chinese media. However, it is unclear how significant the PSR is in China’s overall Arctic strategy and foreign policy. There have been conflicting signals from Chinese officials regarding the importance of the PSR.⁴⁾ While it is seen as an important framework for cooperation, not just with Russia but also with countries in North-East Asia and the Nordics, it is still uncertain how important it is in China’s overall strategy.

The PSR has mysteriously disappeared from Sino-Russian negotiations, although development of transport corridors remains on the agenda. Indeed, amidst international and domestic turmoil, the development of the PSR in 2022 – and so far in 2023 – seems to have slowed down drastically. Between 2013 and 2021, COSCO Shipping Specialized Carriers arranged 42 voyages on the Northern Sea Route with 33 vessels, 14 of which were carried out with icebreaker escort.⁵⁾ In 2021, COSCO had hit a record number of passages along the Northern Sea Route – laying at a record of 14, making the vision of a PSR ever so close to reality. In 2022, on the other hand, not a single COSCO or Chinese-owned ship has sailed along the Northern Sea Route⁶⁾ for fear of secondary sanctions and staggering costs. Ironically, it was Russia’s war on Ukraine that impeded this progress.

A similar distrust was shown when it came to the construction of a nuclear icebreaker. In 2018, the People’s Liberation Army (PLA) Academy of Military Sciences and China Shipbuilding Industry Corporation (CSIC) released their plans to construct China’s first nuclear icebreaker, followed by a public tender announced by the China National Nuclear Corporation. Yet, the technical specifications eventually released by China Shipbuilding Industry Corporation in late 2019 made plans for a conventionally-powered icebreaker. The project seems to have been put on ice, and though this technology is readily available to Russia, Chinese experts are skeptical about using Russian nuclear reactors.⁷⁾ Although Russian State Atomic Energy Corporation Rosatom and the Chinese Academy of Sciences will cooperate on developing a fast-neutron reactor, this does not imply that Russia will share its reactor technology with China.

Long game?

Russia was one of fourteen countries that saw a 100 percent decrease in BRI engagement in 2022.⁸⁾ Despite these examples of the PSR developments slowing down, China has invested in projects in the Arctic under the umbrella of the PSR, the most important project being Yamal LNG. Here China National Petroleum Corporation (CNPC) and Chinese Silk Road Fund have a combined 30 percent stake. Two Chinese state enterprises, China National Offshore Oil Corporation (CNOOC) and China National Oil and Gas Exploration (CNOCD, a subsidiary of CNPC), also own 10 % each in Arctic LNG-2, the construction of which is currently underway.⁹⁾ Chinese banks signed the total of EUR 12.5 billion in loans for the two projects, about 1.4 percent of the USD 932 billion of cumulative BRI engagement. Yet, Russia has been careful to not let the controlling stake slip out of their hands, and balanced Chinese loans with others, notably Japan. Unlike TotalEnergies or Shell, none of the Chinese stakeholders exited their Russian projects after Russia’s invasion of Ukraine (but the same is true of Japan’s Mitsui). While Yamal LNG and Arctic LNG 2 remain the largest Chinese energy investments in the Arctic, diversification of hydrocarbon supply is the cornerstone of Chinese energy security strategy. Over half of China’s natural gas comes from domestic production, and the 14th Five-Year Plan, released in March 2022, determined to increase domestic production further by 2025.¹⁰⁾ In addition, customs data show that both Qatar and Russia increased LNG exports to China in 2022, and the December 2022 Sino-Saudi oil and energy deals is another case in point for diversification.¹¹⁾

Another side of a potential longer-term strategy on China’s part can be found in how Chinese actors are preparing for transportation and shipping in ice-covered areas. Although several companies put orders for construction of ice class ships in recent years, COSCO possesses the largest fleet capable of operating the Arctic shipping routes, something which is influenced by both commercial and political considerations. With the increased threat of sanctions following Russia’s large-scale war against Ukraine, COSCO has all but suspended its operations on the Northern Sea Route, leaving room for new actors to enter this space. Following Putin-Xi summit in March, the newly established Hainan Yangpu NewNew Shipping Co., subsidiary of Torgmoll, launched a new container route connecting Saint-Petersburg and China via the Northern Sea Route.¹²⁾ The company plans to deploy five vessels, connecting China with Russian ports of Kaliningrad, Saint Petersburg, and Arkhangelsk through the Northern Sea Route.¹³⁾ This newfound purpose for the Northern Sea Route comes amid increasing trade between China and Russia,¹⁴⁾ as shipping from China to Russia has faced serious problems due to rising demand and limited infrastructure.¹⁵⁾

These efforts are supported by Chinese policies, such as Five-Year Plans, indicating a long-term approach for the design and development of PSV.¹⁶⁾ Main efforts are at the moment concentrated in research and development of technologies necessary for polar shipping and mining, such as ice-enhanced LNG ships, icebreakers, and polar deep-sea exploration vessels. This also includes tracking and navigation technology, high-power polar ship propellers, polar amphibious unmanned vehicles, polar floating oil and gas drilling platforms and ships. While not all these technologies may prove to be viable, a commitment to R&D backed by policy documents and funding expands the decision-making options and demonstrates the continued pertinence of the PSR in the future.

Crossing the river by touching the stones

US NATO Admiral Rob Bauer told the Arctic Circle assembly in October 2022 that China expands its presence in the Arctic “by leveraging new opportunities provided by the melting ice in the region, including the PSR linking China and Europe, by investing tens of billions of dollars in energy infrastructure and research projects in the region.” This statement is to our knowledge not supported by facts. So far, beside Yamal LNG and Arctic LNG 2, there are no investments that together would amount to ‘tens of billions of dollars.’ During the March 2023 negotiations during Xi Jinping’s visit, the Chinese leader held back once again – unwilling to commit to the Russian proposal to build a “Power of Siberia – 2” pipeline, running from the Russian Arctic to Northeast China. Given China’s commitment to energy transition, it is unclear if China needs all of that energy at all.¹⁷⁾

As China is striving to become a global power, including in maritime and transportation domains, the Arctic is of interest to China. 2022 showed that China’s approach is not a predefined 20-step plan upon which the PSR will be completed. Rather, China is, as the Chinese proverb goes, crossing the river by touching the stones, i.e. China is adapting to the circumstances as they are evolving. Since the invasion of Ukraine, cooperation with Russia has been challenging. China has nevertheless expressed in its 2018 Arctic Policy (White Paper) the desire to cooperate with any country on developing transportation routes in the Arctic, not just Russia. With cooperation across the Arctic becoming more difficult, the PSR seems to be gradually waning. It is questionable how high up on the agenda of the top Chinese leadership the Arctic is, but both parties have called for the “Arctic to remain a place for peace, stability and constructive cooperation.” The next years will be critical for China and Russia, as the two countries will have to contend with major challenges to their foreign policy. For China, there are other bigger issues at hand than the PSR. We should not dismiss a period of low activity as a failed attempt though. For China, developing the PSR is not defined by a few slump years.

By Erdem Lamazhapov, Iselin Stensdal and Gørild Heggelund. Erdem Lamazhapov is a PhD Research Fellow, Iselin Stensdal a Researcher and Gørild Heggelund a Research Professor, all at the Fridtjof Nansen Institute.