Latvia might be another player in China's long-term rail-sea development vision
It was a meeting that could easily pass unnoticed. Chinese Premier Li Keqiang met with Finnish Prime Minister Juha Sipila on June 27 in Dalian, China, during the annual World Economic Forum meeting known as Summer Davos. The upshot of their tete-a-tete was that China and Finland pledged to enhance bilateral co-operation in Arctic affairs and areas such as manufacturing and urbanisation. Most important, Li told Sipila that China wanted to bolster communication with Finland in international and regional matters, specifically in the context of China-EU & China-Nordic co-operation.
The growing collaboration between the world's second-largest economy and a small Nordic nation of 5.5 million people highlights a little-known fact: China's One Belt, One Road (OBOR) project has an Arctic angle and Finland could play a pivotal role. On the Finnish side, one of the most interesting proposals is for a €3 billion (US$ 3.4 billion) ‘Arctic Corridor’ railway that would connect Northern Europe with China and Arctic Ocean deep-water ports. The idea is being pitched by a group of Finnish academics and business leaders. It would connect the city of Rovaniemi in northern Finland with the Norwegian port of Kirkenes on the Barents Sea.
Finland's Arctic Corridor project.
Ships could move goods from China as well as oil and gas from Arctic fields in Russia westward along the Northern Sea Route to Kirkenes. Cargos would be offloaded to the railway and sent southward through rail connections to Scandinavia, Helsinki, the Baltic states and the rest of Europe.
"The Arctic Corridor project sees OBOR as very important as it provides an alternative to connect Asia with the Arctic and Europe," Timo Lohi, a spokesman for the Arctic Corridor project, said. Lohi notes that Kirkenes in Norway is the closest Western port to Asia. The port is also ice-free, allowing the use of larger vessels and saving on icebreaking costs.
The Northern Sea Route, which runs along the Russian Arctic coast from the Kara Sea, along Siberia, to the Bering Strait, is assuming growing importance under OBOR. Melting Arctic ice, in one example, makes it possible to ship gas by tanker from Russia's huge $27 billion Yamal LNG (liquefied natural gas) project in Siberia, in which Chinese companies and development banks have hefty stakes. Using the Northern Sea Route also lops an estimated 20-25% off the distance between Asia and Europe that use the Indian Ocean and the Suez Canal routes.
China's rail freight angle
The Arctic Corridor railway could also be joined at the Finnish border to Russia's rail network, which in turn connects with China's. According to Lohi, this would enable Chinese freight to be transported to Europe by train. Such interconnected rail networks already allow goods to be delivered between the United Kingdom and China.
The Arctic Corridor project is at an early stage. Preliminary planning has started in Finland, and regional land use and other impact studies are under way. The plan will be discussed at Finland's Kouvola Rail Forum in September. The planning process could take 10 years. Financing for the project is yet to be nailed down. But if cargo flows are sufficient, Lohi believes construction could begin by the early 2030s.
China is said to be aware of the project, though no official contact has been made. The Norwegian and Finnish transport ministries are also discussing how to co-operate on the effort.
Chinese financing for the Arctic Corridor is critical. European Union member Finland was battered by the 2008 financial crisis. Its economic growth still lags behind the rest of the euro zone, and various EU-related issues make it hard to secure other outside aid. While Chinese interest in the project is uncertain, firms from China are already making hefty investments in Finland. China's Sunshine Kaidi New Energy Group invested $1.13 billion in a new wood-based biodiesel plant in the northern city of Kemi. More Chinese investments are on the way.
Latvia also a player
Finland isn't the only prospective site for an OBOR railhead. Another candidate is Latvia. Bordering Russia, it has well-developed cargo-shipping and rail-freight infrastructure dating to the Soviet era. This was a factor when China opened an 11,000-kilometer direct freight route between Yiwu city in Zhejiang province and Riga, Latvia, last November.
Some observers say geography, logistics and expertise make Finland and Latvia the only logical choices for northern railheads that could serve Obor's needs. In addition to airports and rails, Finland offers its capital port of Helsinki, while Latvia boasts the industrialised port city of Riga. Both nations, moreover, are EU members.
"Although there is currently no clear leader for establishing improved freight routes that connect China with Northern Europe, Finland and Latvia are emerging as the two favourites due to a combination of geographic, economic and logistical considerations," said an article in The Baltic Times.
Moving cargo by sea to Kirkenes from Russia and China is more attractive than hauling it overland by rail. "The notion of shipping goods by land from Asia to Europe is not very practical and is expensive," said David Dollar, a senior fellow at the Brookings Institution in Washington DC.
"Last year there were 20,000 containers from China that went by rail to Europe. You can put 20,000 containers on one ship. So I think shipping will continue to be the overwhelmingly economical way to ship goods."
On the downside, analysts say both Finland and Latvia need substantial infrastructure investments to participate effectively in OBOR, highlighting the need for Chinese cash. Adam Lajeunesse, an expert on Arctic security, sees other challenges. He cautions that the demand for northern infrastructure projects like the Arctic Corridor is still theoretical and faces serious hurdles.