Page 18 - bne_Magazine_July_2017

18 I Cover story bne July 2017
MACRO ADVISER:
Russian President Vladimir Putin has held regular summits with Chinese President Xi Jinping. (Wu Hong/Pool Photo via AP)
Russia's Asian pivot starts to pay off
Chris Weafer of Macro-Advisory
Russia’s hopes that China would quickly fill the vacuum created by US and EU sanctions were initial- ly disappointed. But over the past year the situation has changed and China’s investment into Russia is steadily rising and, more importantly, broadening away from the previous exclusive interest in hydrocarbon and extractive industries. More importantly, having recovered from the economic crisis, Russia is now in a better position to get improved com- mercial terms for China investment than it was in 2014 or 2015, and to broaden its investor relationships.
The main danger to that improving posi- tion is that tougher US sanctions, which could also restrict some major EU com- panies from investing in Russian proj- ects, would again shift the advantage to China and force Moscow to sell more of its prized assets on Beijing’s terms. The
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actions of US Congress will undoubtedly damage Russia’s longer-term recovery prospects as well as some major US and EU corporations. The only winner here will be China.
In 2014, as the EU, Europe and several other developed nations imposed sec- toral sanctions and financial restrictions on Russia, the chant from nationalist politicians in the Duma was “Asia-pivot”. The idea being to replace what they
saw as a failed experiment to develop
a mutually beneficial and respectful relationship with the West by making
a sharp turn to Asia, to China in particu- lar. It was assumed that China would be eager to fill the role vacated by the US and EU as, after all, Russia is the world’s biggest energy exporter and a significant exporter of industrial materials while China is the world’s biggest importer of most of these products.
It wasn’t just the politicians calling for the switch to a China focus. Ministers and state officials, looking for a financial life- line against the uncertainty of sanctions and collapsing oil revenues, also tried
to tap China. But, with the exception of interest in modern weaponry and access to energy projects, it seemed that China simply was not interested in bailing out its neighbour or in any sort of strategic relationship. Sberbank CEO, German Gref, famously said after returning from a China trip “we were in a long line of people looking for money and nobody called us to the front of the queue”.
So, has the hope for a stronger trade
and investment relationship with China failed? Despite government optimism, is the country facing an uncertain future as US senators pass a bill aimed at making it more difficult for US companies to work in Russia, and the EU is expected