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What Does a Kishida Government Mean for Japan-Russia Economic Relations?

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What Does a Kishida Government Mean for Japan-Russia Economic Relations?

Japan-Russia relations look set for a lull under Prime Minister Kishida. But there are good reason to continue economic cooperation in the Russian Far East.

What Does a Kishida Government Mean for Japan-Russia Economic Relations?
Credit: Depositphotos

Under the leadership of Prime Minister Abe Shinzo (2012-20), Japan emphasized economic cooperation with Russia, especially projects in the Russian Far East. However, under his successor, Suga Yoshihide (2020-21), this momentum was lost. Kishida Fumio, who took office on October 4, also does not appear to share Abe’s ardor for closer ties with Japan’s northern neighbor. Yet while relations with Russia look set to be a lower priority for Japan’s new leader, logistics, energy, and health care remain promising areas for cooperation.

First, in terms of logistics, Russia is potentially interesting to Japanese business because of the Tran-Siberian and Baikal-Amur railways. The growing interest in Russian rail transport is driven by a global surge in consumer demand associated with the global post-pandemic recovery. Moreover, in 2021 there is a shortage of ships and containers on international shipping lanes.

The risks of international container shipping from Asia to Europe were clearly demonstrated by the blockages of the Suez Canal in April and September this year, in both cases due to large tankers running aground. It should also be noted that rail transport produces less carbon dioxide emissions than seaborne freight, which is highly relevant in light of the transition to a carbon-free world economy in the 21st century.

In order to promote the opportunities offered by Russian transport and logistics services, the Russian Railways Corporation opened an office in Tokyo in April this year.

However, if Japanese companies are to be persuaded, there remain important things for Russia to do. These include increasing the capacity of the Tran-Siberian and Baikal-Amur railroads. Development of port infrastructure in the Russian Far East is also needed to ensure the rapid transfer of containers from ship to train.

Second, the energy sector is already a striking example of successful cooperation between Russia and Japan. In addition to Japanese companies’ longstanding participation in energy projects in Sakhalin, in 2019 Japanese corporations Mitsui & Co and JOGMEC (Japan Oil, Gas, and Metals National Corporation) purchased a 10 percent stake in the Arctic LNG-2 project. This long-term project will see Russia increase its share of the Japanese LNG market and enable Russia to diversify its gas exports away from dependence on Europe.

Japan-Russia cooperation in the area of gas will expand further with the opening of an LNG transshipment terminal in Kamchatka, which is due to open no later than October 31, 2022 and will be constructed by Moscow’s branch of the China Communications Construction Company. This will ease the shipment of Arctic LNG to Asian markets and will include the involvement of Japan’s Mitsui O.S.K. Lines. All this should also have a positive effect on the labor market in the regions of the Russian Arctic and the Far East.

In addition to gas, hydrogen is a promising area of bilateral ​​cooperation. According to numerous forecasts, including from the International Energy Agency, we can expect a manifold increase in the global demand for hydrogen in the coming decades. This is due, among other things, to the global transition to a carbon-free economy. Russian and Japanese representatives have already held several rounds of talks on cooperation in the field of hydrogen energy. It can be noted that Kawasaki Heavy Industries, a major Japanese corporation, is among the interested companies. Today, JSC Rosatom Overseas and the Japanese Agency for Natural Resources and Energy (part of the Ministry of Economy, Trade, and Industry) are actively cooperating in developing a feasibility study for a pilot project for exporting hydrogen from Russia to Japan.

Judging by the projects and reports presented at the Eastern Economic Forum in September, the Sakhalin Region will continue to be the most advanced Russian region in the field of hydrogen energy. This includes plans for a “hydrogen valley,” which would be a special economic zone on the island for the development of hydrogen technology.

Furthermore, Sakhalin hopes to be the first region in Russia where carbon neutrality can be achieved. They intend to achieve net zero carbon emissions by 2025. In another five years, commercial production of hydrogen on Sakhalin could reach the level of 100,000 tons. The main volumes are intended for export, but they have not forgotten about domestic consumption either. For example, there are plans to launch a train running on hydrogen, as well as to develop automobiles that will use a new type of fuel. If the Sakhalin hydrogen cluster is successful, the Ministry for the Development of the Russian Far East speaks of replicating the model in other regions.

Sakhalin wants to appear as an avant-garde region, pioneer innovative projects, and receive large federal funding for this. That is to say, Sakhalin wants to be a showcase for the energy transition in Russia. Indeed, during EEF-2021 Gazprom, Rosatom, and the Sakhalin Oblast entered into an agreement on cooperation in the field of hydrogen energy. The document defines the main directions of interaction between the parties for the construction in the Sakhalin Region of a plant to produce hydrogen from natural gas by the method of steam reforming of methane with carbon dioxide capture. Gazprom may act as gas supplier for the plant, and Rosatom will handle the logistics of supplying hydrogen to consumers.

The third promising area for cooperation between the Russian Far East and Japan is medicine and health care. In particular, there is hope that the success of the Japanese health care system in extending the healthy lives of Japanese citizens can be replicated for residents of the Russian Far East. Here we need to take into consideration that life expectancy in Russia is only 71 years on average while in Japan it is about 81 years for men and almost 88 for women.

For three years, the Hokuto and Saiko medical centers have been successfully operating in Vladivostok and Khabarovsk, respectively. The Japanese company Marubeni Corporation together with JSC Russian Railways are building a center for preventive medicine in Khabarovsk (planned to open in March 2022), which will receive up to 600 thousand patients a year.

Among the successful examples of cooperation in the medical field, it is also necessary to note the coronavirus express test that was jointly developed by Russia and Japan. This is used in the three largest Moscow airports, as well as for testing football players in the Russian Premier League.

Overall, Japan-Russia relations look set for a lull under Prime Minister Kishida. This is due to his intention to take a less conciliatory stance than Abe on the countries’ territorial dispute over the Southern Kuril Islands (known as the Northern Territories in Japan). Deepening geopolitical tensions also risk placing Russia and Japan on opposing sides of a regional divide.

However, even if broader political ties are not close, significant potential remains for continued, pragmatic cooperation between Japan and the Russian Far East in the areas of logistics, energy, and health care.