[Analytics] Talsinki: The Chinese project undersea

FILE PHOTO: A general view of Helsinki, Finland, where the tunnel is to start © Reuters / Ints Kalnins. Sketched by the Pan Pacific Agency.

This article deals with the issues regarding to Chinese investment in large-scale international infrastructural projects within the Belt and Road Initiative. The paper presents also the analysis of goals and prospects of construction of undersea tunnel Tallinn-Helsinki (the so-called Talsinki), possible advantages and benefits of implementation of this project, as well as its negative sides. Markus Tamm specially for the Pan Pacific Agency.

The proposed by Chinese government initiative called The Silk Road Economic Belt and the 21st-century Maritime Silk Road also known as Belt and Road Initiative (formerly One Belt One Road) is a modern large-scaled project. Its aim consists in formation of a new model of international cooperation directed to grouping of countries through a wide logistic and transport network by using roads, ports, railways, pipelines, airports, transnational electric grids and even fiber optic lines.

Creation of modern infrastructure can attract more investment, as well as it can promote the trade development along the route. This policy assists also in stimulating of domestic economy through overseas demand, and it can absorb some overcapacity of Chinese industrial sector. The Initiative involves five spheres of cooperation: development of political dialogue, strengthening of road and transport connections between the countries, intensification of barrier-free trade (through elimination of trade barriers and restrictions), strengthening of currency circulation, and strengthening of international relations[1].

Outward investment from China is expected to excess the domestic one in the near future, and therefore net capital outflow will be observed in Chinese national economy. Partly it can be explained through the fact that nowadays China pursues a policy of active stimulating of Chinese companies for foreign markets entering, providing an unprecedented support for those ones. Besides, China has simplified administrative procedures for investors working abroad. Within this trend, Chinese investment has geographically increased to a significant degree; nowadays it is not limited by Asian, African and Latin American countries, which possess substantial nature resources, but it includes also developed countries of Europe and America. During the recent years, Chinese investment in developed countries has excessed its investment in the developing ones.

Nowadays China invests actively in many infrastructural projects within the Belt and Road Initiative: it buys railways and invests in their construction, in air transportation, as well as it puts under control a variety of different ways of goods delivery. At the same time, in practice, China wants to control not the lands themselves, but the economy of these lands. In this regard, the Celestial Empire is losing its main advantage, i.e. the cheapness of goods. Besides, China creates actively different new financial hubs all over the world; these are the Asian Infrastructure Investment Bank, the BRICS Bank, the financial structures of SCO, where it plays a role of the main sponsor and supervisor. In fact, it is some kind of expansion, which is almost invisible because the consumer gets the same goods formally. Chinese pay system UnionPay becomes gradually one of the world-largest pay systems, and it competes successfully with the American ones, Visa and MasterCard. Besides that, this system is active on the Estonian territory as well[2].

Implementing the Belt and Road Initiative, China wants to control just the system of transportation and logistics. Nowadays China enters Estonia for this purpose, promising the implementation of a large-scaled project on construction of undersea tunnel between Tallinn and Helsinki, also known as Talsinki, by 2024. The company Finest Bay Area that coordinates the construction of tunnel has made an agreement with Chinese fund Touchstone Capital Partners; according to it, China plans to invest 15 billion Euro. The main investors are supposed to be such financial giants as China Communications Construction Company, China Railway International Group (CRIG), and China Railway Engineering Company (CREC). Overall, it is assumed that China will fund the project ever since the construction phase. If everything goes according to plan, the phase of active construction will begin in 2020[3].

Why is China so interested in Talsinki? Mostly because of the fact that the tunnel between two cities could be a part of infrastructure for implementation of the Road and Belt Initiative in Europe, which is lobbed actively by China.

However, looking back at the recent past, one may note an interesting pattern. Entering a country of interest, China promises to implement grandiose mega-projects that create supposedly a large number of jobs for this employer country. For example, China promised Nicaragua to invest 40 billion US dollars in building of an analogue of Panama channel in 2013[4]; China promised the Afghanistan government to establish development of the world largest copper mine Aynak  as soon as possible in 2011[5], etc. All these grandiose projects are placed on hold nowadays, or are under active consideration. Obviously, Talsinki project will not be an exclusion.

In this regard, it should be considered that China is primarily aimed to promotion of own building materials and labor force to the international market. According to the plans of Chinese party, only Chinese labor force and building materials made in China should be used in the construction of the undersea tunnel. Under such terms, the project implementation with the participation of China will be less beneficial for Estonia, because the last one will be denied any opportunity to provide own population with additional jobs. Besides that, Chinese building materials such as cement are of low quality, as well as they are not always in line with European standards. Furthermore, according to project documentation, China intends to exploit not only human and engineering resources, but also intends to implement own railway infrastructure into the territory of Europe, including rail gauge size and rolling stocks. In particular, the width of railroad tracks using in Finland and Estonia is 1,520 mm. However, the width of railroad track in tunnel is assumed to be 1,435 mm, so that it would be compatible with the railway track of Rail Baltica. Therefore, the construction of narrow-gauge railway line (1,435 mm) oriented to China will create possible inconveniences for transport and logistic sphere of Finland and Estonia. Despite the fact that Talsinki may become strategically important for the whole European Union, Brussels might forbid the interested countries to involve Chinese investors in the project; and this will most probably mean the fail of the whole concept of undersea tunnel. Under these circumstances, there is a calculated risk of meddling of the USA in implementation of European part of the project of the Eurasian Land Bridge, because the cooperation projects with China are contrary to the current course of the USA. In particular, the US government might impose sanctions on Chinese and European companies involved in the project for geopolitical reasons of containment of China[6].

Amidst the noted specifics, bargain regarding to implementation of Talsinki project might remain on the stage of intentions, or might undergo regular corrections in further, and not all the changes might be in favor of Estonian interests.

Therefore, it is not accident that Estonian government is skeptical about statements of Gustav Valtonen, the founder of Finest Bay Area Development, and Peter Vesterbacka, its director. “We have not any information that would allow us to decide, if this plan can be theoretically implemented. I am sure that it may not be done by 2024”, said Jaak Aab, the Minister of Public Administrations, who is in charge of tunnel planning procedures from the government side.

According to Jaak Aab, it is still unclear, whether the railway will be a private, or a state one. The uncertainty remains also regarding the matters of funding and payback of the tunnel, i.e. the government of Estonia would like to understand, which cost and actions will require from the state, even if the project is wholly private. “The schedule presented together with the request is unrealistic and is not in conformity with the law”, declared the Minister in his letter to Finest Bay Area Development in late July 2019. Aab questioned also declarations of the developer that the tunnel would serve 51 million of passengers and 22 million ton cargo per year; this is almost six and four times more respectively as compare to the current volume of transport[7].

Taavi Aas, the Minister of  Economic Affairs of Estonia, has doubts about the project as well. “We need a clear understanding of where the funding comes from and how much money is necessary. What assurances can we have regarding to the project completion? The developer of the project could not explain, how was the amount of people who would be able to use the tunnel calculated[8]”.

Leslie Leino, Estonian specialist on China, thinks that Chinese large investments are often accompanied by confusion, dishonesty and corruption. According to his words, neither the Chinese embassy in Tallinn, nor Estonian Ministry of Foreign Affairs has not any discussions concerning the construction of the tunnel or the fund Touchstone Capital Partners. “’China has never really been a beacon of altruism in history; the project is aimed not at helping out Europe, but at both finding new markets for Chinese goods, and increasing its influence”, the expert notes[9].

Many Estonian experts after exploration of possibilities of the project conclude that the undersea tunnel will payback under the term that European railway track Rail Baltica, which crosses the Baltic States, will pass through it. They argue that the tunnel will be cost-effective, if both Estonia and Finland together with the EU cover 40% to 50% of costs, i.e. 9 to 13 billion Euro, and the debt are recovered during the next 35 to 40 years. Thus, the implementation of these plans will take much more time than the Chinese investors assume[10].

Accordingly, the key issues of Estonia regarding to construction of undersea tunnel relate mostly to the safety. What if the developer does not complete the construction? What if the tunnel is sold to the third party? Which leverage on Estonia and Finland will get the owner and operator of the tunnel? Finnish developer and Chinese investors have not yet presented their answers in order to allay fears of Estonian government. That is why the implementation of Talsinki project within Chinese Belt and Road Initiative remains a distant and elusive dream.

[1] http://kz.chineseembassy.org/chn/zhgx/zxdt/t1074174.htm

[2] https://www.unionpayintl.com/en/mediaCenter/newsCenter/companyNews/5663.shtml

[3] https://www.baltictimes.com/chinese_fund_prepared_to_invest_eur_15_bln_in_tallinn-helsinki_tunnel/

[4]  https://www.theguardian.com/world/2013/jun/12/nicaragua-canal-waterway-panama

[5] https://www.ecfr.eu/article/commentary_china_moves_into_afghanistan634

[6] https://icds.ee/wp-content/uploads/2019/12/ICDS_EFPI_Analysis_The_Talsinki_Tunnel_Frank_J%C3%BCris_December_2019.pdf

[7] https://en.rebaltica.lv/2019/09/the-golden-handcuffs-of-chinese-investment/

[8] https://emerging-europe.com/intelligence/tunnel-vision/

[9] https://news.err.ee/918729/caution-needed-with-chinese-tunnel-investors-says-expert

[10] https://www.uudenmaanliitto.fi/files/17202/Tallsinkifix_julkaisu_2015_Pre-feasibility_study_of_Helsinki_Tallinn_fixed_link.pdf

Markus Tamm is the senior researcher at the Baltic Center of International Studies (Tallinn, Estonia).

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