Vladivostok: Russia’s Far East Cinderella Story

Paul Goncharoff

Vladivostok is a key city in a region that few outside of Russia report on, some may have never heard of it. When there is an event such as the Far East Economic Forum, there is a flurry of news, a flash in the pan, but afterwards little follow-up and then it is off the world’s radar again. Big mistake!

While analysts and talking heads discuss the One Belt One Road (OBOR) strategy, and the Eurasian Economic Union (EAEU), plus ASEAN that are effectively interacting and trade-linking great swathes of the populated world, the changes these moves bring gives new meaning and positivity to the word ‘disruption’ from a truly multipolar sense of the word.Multilateral connectivity is an essential feature of the abovementioned strategic projects, their true significance for Eurasia and the world is yet to be fully appreciated from the point of view of the continent’s geography.  The unique nature of Eurasia’s geography has to do with the unprecedented distance of Eurasia’s Hinterlands from seacoasts and therefore a historically prohibitive cost accessing international markets. This problem was, and to a degree still is acute for landlocked economies without access to the sea – Eurasia is comprised of 26 out of 44 (59%) of all of the world’s landlocked countries. The OBOR, EEU and related programs ensure such access by integrating free movements of goods by rail, roads and increasingly the sea.Vladivostok is the subject of this article as it’s location plays a pivotal role in these vast changing trade patterns. One of the least reported aspects of this steadily growing trade dynamic is the Northern Sea Route (NSR), which as illustrated makes the movement of heavy cargoes such as oil, and all manner of commercial maritime transport far more cost effective and efficient than the historically established traditional routing from Asia to Europe and back. Just this past year has seen cargo throughput go from an average of 18 million tons to an expected 30 million tons in 2019. This means that over these past 5 years the Russian Arctic sea route for shipping has more than quadrupled, do the math.

The NSR is also the shortest maritime passage connecting the European part of Russia and its trans-shipment ports with the country’s Far East regions and Asia. The transport artery passes through several seas of the Arctic Ocean, including the Barents Sea, Kara Sea, Laptev Sea, East Siberian Sea, Chukchi Sea, and the Bering Sea to the Pacific Ocean. Stretching through these Arctic waters, the Northern Sea Route operates within Russia’s Exclusive Economic Zone. The passage is gradually becoming a major trade route for goods shipped between Europe and Asia. The route cuts transportation time in half compared to traditional routes through the Suez and Panama canals.

Vladivostok City Centre

At the hub of this disruption and expansion for the 21stcentury, you might be surprised to learn that it is the port city of Vladivostok and its environs. The name Vladivostok, literally means ‘ruler of the east’, located around the Golden Horn Bay, next door to Russia’s borders with China and North Korea and just 482 miles across the Sea of Japan to Sapporo. The city is the homeport of the Russian Pacific Fleet and the largest Russian commercial and civil port on the Pacific Ocean. Vladivostok is also terminus of the Trans-Siberian Railway, which links to the OBOR and EEU.

From the time of the Korean War, and throughout the cold war period, Vladivostok was a ‘closed city’ during the Soviet Union. It was essentially frozen in time. Since the birth of the Russian Federation and its opening up to the world, it resumed normalcy in 1991, when I also happened to be there on US-Russia business. Since then it has without fanfare been on a strong growth curve of development, but largely unnoticed by the world at large. As one of only four major seaports serving a gigantic country, Vladivostok has become a major commercial hub for goods brought from China, Japan, Korea, and the rest of ASEAN.The city has also recently been the focus of investment, including new construction and renovations. With its steep hills looking down on ships and ports, and streets dotted with Chinese and Korean shops and restaurants, the city today is sometimes compared to San Francisco in look and feel. The city also hosts nine universities one of which is the Far Eastern Federal University (FEFU), one of Russia’s largest institutions with over 40,000 students. This student aspect adds to the dynamism and energy of this city, as well as a vast source of digital development talent and interest.

The city besides being a key center for trade and transport is quickly developing in areas of digital and high technologies. A Crypto-friendly financial center is being established in Vladivostok through Russia’s Far East and Baikal Region Development Fund (FEBRDF) together with China-based Tai Cloud Corporation for joint implementation of blockchain projects such as the coming financial center.The Financial Center when completed will host foreign banks’ branch offices, a multi-currency crowdfunding platform and a digital financial assets-trading exchange. In addition, it has been determined that there is a very real and pressing need to speed up plans establishing a ‘crypto valley’ in Vladivostok also with the participation of FEBRDF.

One of the analog brakes delaying the vast potential of Vladivostok is the acute shortage of accommodations for the growing international business and tourist trade. There are only a few hotels of international standards, several make-do hostels, and short stay apartments let out by individuals via the internet. The shortage remains acute, and businesspersons as well as the booming tourist demand from neighboring Japan, Korea and China is severely underserved, not to mention the rest of the world.

One of the factors that have been slowing development are the various sanctions regimes aligned against Russia, especially in the realm of the US Dollar which has served to limit access to the region by American as well as EU investors. One interesting consequence from these restrictive trade practices limiting property development by traditional foreign direct investment in regions like Vladivostok is a company called Relex, which is appropriately the world’s first real estate development cryptocurrency. Relex partners with projects like those in Vladivostok, conducts due diligence to a high standard and enables the use of cryptocurrency for development funding, wholly or in part. This is where the blockchain and crypto come together to allow growth of free trade in the bricks and mortar world.

One key project is now ongoing by a group called Vostok Projects in Vladivostok where it is developing three key real estate development projects in the Vladivostok area. These are a 25-storey waterfront apart-hotel complex in the city center, a 70-home executive housing estate in a seaside northern suburb of the city and a secure estate of 40 large homes on the seaside adjacent to the Primorye Integrated Leisure Zone where Russia’s largest casino complex operates.As the development of Vladivostok and the region continues despite gusting geopolitical headwinds, even H.R.H. Prince Michael of Kent when discussing Vostok Projects with founder John Bonar, clearly understands the advantages of continued engagement and development, even to the point of a potential visit by HRH to cut the ribbon to one or more of these Vladivostok projects.

At the end of the day, the quiet yet strong development dynamics in Vladivostok, for that matter the entire Russian Far East are already catalyzing business, trade and geopolitical changes throughout the Eurasian continent. The birth of these multilateral efforts to improve the economic health of a vast part of the planet and populations has the advantage of happening at a time where the latest technologies and best practices can and do apply to what has been a geographic slate that politics and history have wiped clean. It is the flagship of this digitally evolving 21stcentury, and a long term high value investment for the present and for decades into the future.