Russia has always been an attractive market for Chinese investment, thanks to the wealth of natural resources, low cost of logistics and transport, relatively cheap labor and opportunities for projects for technological, agricultural and environmental development. But in recent years the Russian government has increasingly been to support the initiatives of Chinese companies entering the Russian market. So, the investment company Fosun Group actively implemented in the real estate market in Moscow, and agricultural Famsun looking for ways for more efficient production and transportation of grain in China. Joint plans of many businesses. Energy giant Sinopec jointly with SIBUR plan to build one of Russia’s largest petrochemical complexes, to resolve the shortage of polymers in China. Other areas of Chinese investment include metallurgy, machinery, energy and renewable energy sources. In many cases, in addition to the funds, Chinese companies provide access to advanced technology that makes partnerships both sides even more valuable.
In the regional aspect for China, most interest is the far East. Land, rich in coal, oil and gas, metal ores and precious metals are located on the border with North-Western regions of China that are less economically developed. Providing the region with the necessary infrastructure and jobs is one of the main vectors of internal policy of Beijing, and solve many of the problems of the domestic market of China due to the cooperation with Russia.
The China factor plays a huge role in the modernization of the Far East and a decrease in the level of local unemployment. For example, the Russian EN+ group and Shenhua to jointly develop the Chinese Zur mine, proposed mine there should be 6 million tonnes of coal per year. The project investments amount to 5.5 billion yuan ($800 million) and involve the construction of infrastructure, including 100 km of an access road and several social objects.
What prevents Russia and China
The cooperation between the two countries there are many problems, among them the negative perception of China among some Russians that have historical roots. Survived in 1969, before the armed conflict the border conflict between China and the Soviet Union were officially permitted in 1991, but is still part of the region’s residents feared a recurrence of such conflicts, and some of the respondents speak about the fear of Chinese dominance in the region, and this affects the business projects of the two countries.
Complicates the task of the language barrier and the lack of people able to negotiate with local authorities and contractors, the Chairman of the Fuyao Glass Industry Group Cao Dewang. Fuyao Glass was one of the first large Chinese companies that entered the Russian market with a project value of $200 million in 2011 in Kaluga. For 7 years the company managed to overcome the language barrier and misunderstanding concerning the specifics of the local economy and law, said Cao Dewang, but he admitted that economic instability is the biggest obstacle to investment in Russia, which complicates the implementation of projects. Particularly acute for business was the collapse of the ruble in 2014: a year after their factory was built, the company lost $20-30 million, and managed to restore the balance only by 2016.
As recognized by Chinese businessmen, most companies just can’t afford to lose in Russia 10-15% of invested capital annually, waiting for the projects to profitability, but to the Russian government, Chinese investors are recommended to focus on stabilizing the economy and the exchange rate. Fuyao Glass Industry Group failed to succeed on the Russian market and to use the Kaluga factory for export to Europe, but such examples in Russian-Chinese cooperation, not so much.
Chinese investors are talking about poor infrastructure and transport in Russia as an obstacle to investment. Another barrier are the sanctions against Russia from the West.But China intends to increase investment flows, despite the difficulties associated with the sanctions and trade tariffs.
Points of growth for business
According to the Moscow school of management SKOLKOVO, Chinese investors have funded 57 projects in Russia. One example is ul wind farm built by Chinese state-owned company Dongfang electric, in cooperation with Fortum and “Rosnano”. The project was launched in November 2016 and January 2018 in Ulyanovsk built 14 wind turbines. The wind farm — the first in Russia industrial Park alternative energy and power of the energy generated is 35 mW. Fortum’s investments totaled $65 million, and plans to further wind energy development in the region to create a new industrial cluster. According to the company’s plans, by 2024, wind energy may account for 30% of total energy consumption in Ulyanovsk, the project will make a significant contribution to gross regional product, and the investor will be required to submit to the regional budget taxes in the amount of 100 million rubles. The project marks a new era of power market development in Russia because it focused on the rejection of traditional energy sources.
Another example of Chinese investment in the Russian market is Fosun Group. Group Chairman Wang Zongbin in January 2017 met with first Deputy Prime Minister Igor Shuvalov and informed him that the Russian market is one of the main directions for long-term investment Fosun Group, as the main industry for investment, natural resources, real estate and health care. In 2017, Fosun Group, together with the company Avica Ruben Vardanyan has acquired a historically significant object in “Voentorg”, but the amount of the transaction were not disclosed, analysts estimated it at about $170 million This was the first purchase of Fosun Group in the Russian real estate market. In 2017, Fosun Group began planning another purchase in Russia: the investment object has been selected gold mining company Suleiman Kerimov. As a result of negotiations “the pole gold” has signed an agreement to sell 10% stake in the company for $890 million c option to purchase an additional 5% after the initial transaction and it would greatly complicate the deal. However, in January 2018 Polyus announced that the deal was canceled in connection with the failure of one of the terms of the contract. Despite this, Fosun Group is in search of other investment opportunities in Russia, according to the website of the company.
In the ring of sanctions
According to the Moscow school of management SKOLKOVO, the share of investment of China in the Russian agriculture account for 17% of the total investment from 2011 to 2017 and exceed $6.2 billion: this reflects not only the interest of Chinese businesses to the agricultural sector of Russia, but also attempt to reduce dependence on imports from the United States.
Now a group COFCO — China’s largest manufacturer of food and agricultural trader plans to redirect part of the supply of grain from the United States to the Chinese market in favor of Russia. COFCO announced interest in the Russian deliveries still in 2015, and in 2016, was named among the priorities of the import of meat products and bottled water from Russia and investment in hotel business in Primorsky Krai. Part of the plans the company has already implemented: 2017 COFCO bought the first batch of Russian wheat 500 MT, and expects growth in deliveries by 2018. This year it is also planned to supply 10 million bottles of Kamchatka still artesian water. Now COFCO plans to invest $400 million in the purchase of Russian terminal for transporting grain. Chinese media reported that COFCO is interested in ports Temryuk, Taman and Novorossiysk, and plan grain shipments through these terminals can be up to 10 million tonnes of grain annually. These investments may mean that the Chinese grain market is gradually drifting towards Russia from the United States, especially given the intensity of trade disputes between Beijing and Washington.
To minimize the costs of logistics COFCO plans to build a logistics Park, warehouses and a factory for processing soybeans in the region. For Russia, the plans of the company can mean better infrastructure, more jobs, a significant increase of grain exports and strengthening of its positions on the world market.
The governments of Russia and China have repeatedly stated that they expect to cooperate more closely in the next few years, but that sanctions against Russia have stimulated a more active reversal of the Russian economy to the East.