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Russia turns to China for rail development as West renews sanctions.

Posted by Luke Upton on Jun 29, 2015

ExportedRussian_RailwaysWith EU and US trade sanctions against Russia renewed, China is continuing to take advantage of the situation and is set to deliver high-speed rail to the country. The Wall Street Journal has reported that the state-owned China Railway Group has penned a contract to plan and design the 770km high-speed line between Moscow and Kazan – the largest current infrastructure project in Russia. The WSJ report, quotes Vladimir Yakunin, the president of Russia’s state-owned JSC Russian Railways, stating that China Railways Group will work with Russian firms in consortium. Who will be constructing the railway itself has not be confirmed but the Chinese were deemed “quite likely” by Yakunin. Sanctions forbade any French, German or Spanish companies submitting a bid for this contract and Yakunin (pictured), a close ally of Vladimir Putin, is currently banned from travelling in the US and EU. So where does this leave Western companies and the massive Russian rail market?

Just last month, Global Rail News reported from the 1520 strategic forum in Sochi that the French Alstom and German Siemens had reaffirmed their interest in the Russia market despite the ongoing political situation. Alstom Vice-President announced at the event that Alstom is setting up a Russian engineering centre to develop Russian-French train control systems for high-speed lines. However, there looks little opportunity for Western companies to engage with the Russian market in a significant way with the EU restrictive measures in response to the illegal annexation of Crimea and Sevastopol extended until January 2016 at the earliest.

The upheaval in Russia, which in addition to events in Ukraine and Crimea has also included a weakened economy hastened by declining oil prices, and a crackdown on opposition offers little chance to Western countries. But for China, with no such concerns is well placed to take advantage.

Vladimir_YakuninIn January of this year Russian Railways launched a new international postal delivery service for the Federal State Unitary Enterprise Russian Post (FSUE), which will allow packages to be delivered by rail from China to Russia for the first time. The international mail was previously delivered to Russia only by air and road and the new system is expected to transport more than 50,000 tonnes of mail a year, reported the Moscow Times. The agreement between Russia and China also aims to develop rail border crossings between the countries, along with infrastructure developments near border crossing points.

Since the Ukraine crisis began China has become increasingly important to Russia. According to The Japan Times, Russia received only $21 billion in net foreign direct investment in 2014, compared with $69.2 billion in 2013. Whilst in the same period, Chinese loans became by far the biggest source of foreign financing for the Russian economy. And In the middle of the Ukraine crisis, President Vladimir Putin struck a 30-year, $400 billion natural gas supply deal with China.

Editor's comment: The appetite for rail development in Russia is clear, but it is one that within the current political situation blocking Western investment in infrastructure projects will only be satisfied by Chinese companies in partnership with local firms. Reports reaffirming that Russia turns to China for rail development as Western sanctions continue are likely to feature regularly in international rail news in the coming year.

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See also: The remarkable 'BatTram' leads a Russian Revolution in tram design and Privately funded passenger Wi-Fi launches across Moscow Metro. and Sochi rail - $8.7bn in cost, two years old and almost entirely empty.

Topics: projects

Luke Upton

Written by Luke Upton

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