Page 18 - bne IntelliNews weekly newspaper June 23

Opinion
June 23, 2017 www.intellinews.com I Page 18
MACRO ADVISER:
Russia's Asian pivot starts to pay off
Chris Weafer of Macro-Advisory
Hopes that China would quickly fill the vacuum created by US and EU sanctions were initially disappointed. But over the past year the situation has changed and China investment into Russia is steadily rising and, more importantly, broadening away from the previous exclusive interest in hy- drocarbon and extractive industries. More impor- tantly, having recovered from the economic crisis, Russia is now in a better position to get improved commercial terms for China investment than it was in 2014 or 2015, and to broaden its investor relationships.
The main danger to that improving position is that tougher US sanctions, which could also restrict some major EU companies from investing in Rus- sian projects, would again shift the advantage to China and force Moscow to sell more of its prized assets on Beijing’s terms. The actions of US Con- gress 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 de- veloped nations imposed sectoral sanctions and financial restrictions on Russia, the chant from nationalist politicians in the Duma was “Asia-piv- ot”. The idea being to replace what they saw as a failed experiment to develop a mutually beneficial and respectful relationship with the West by mak- ing a sharp turn to Asia, to China in particular. It was assumed that China would be eager to fill the role vacated by the US and EU as, after all, Rus-
Russian President Vladimir Putin has held regular summits with Chinese President Xi Jinping.
sia 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, look- ing for a financial lifeline 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, famous- ly 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 invest- ment 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 to keep existing sanctions at least until the second half of 2018 or later?
It is very difficult to get exact figures for China invest- ment into Russia but the fact that the volume has picked up strongly is clear enough. Russia’s Central Bank reports that direct investment from China in 2015 and 2016 was only $645mn and $350mn re- spectively. But reports from China say the total was $3bn in 2015 and rose to $14bn in 2016.