China refuses to invest in Russian economy

Russia’s attempt to shift its economic policy towards the East following the annexation of Crimea and the start of western sanctions has hit a dead end, reports

Despite numerous appeals by Russia’s leaders, Chinese companies refuse to invest in Russian real ecomony, and are following the example set by western businesses, and withdrawing their money.

Between January and June, the total volume of direct foreign investments from China into Russia dropped by 24%, the Central Bank of Russia reported on Wednesday.

By the end of the first half of the year, Chinese investors had withdrawn $1 billion dollars, reducing their total investment to $3.18 billion.

Nearly all of the outflow was related to a direct reduction of presence in Russia: 92% of the amount ($921 million) was withdrawn directly from the capital of Russian companies.

Overall, China has been actively increasing its investments abroad: according to the Ministry of Commerce, between January and July, Chinese companies invested $65 billion in 4,000 foreign companies in 152 countries and regions around the world, which is 14% more than the number for the last year.

However, none of these funds reached Russia. According to the Central Bank of Russia, the outflow of Chinese investments has continued for four consecutive quarters, and the current amount is only two thirds of what it was before the annexation of the Crimea ($4.54 billion).

The major Russian-Chinese investment projects that were trumpeted in the past have all come to nothing. The idea of selling the Chinese energy conglomerate CEFC a share in Rosneft fell through when CEFC’s director Ye Jianming was arrested on charges of economic crimes. The project to build the “Eurasia” high-speed railway line from Beijing through Moscow to Berlin was declared unprofitable.

The Russian Finance Ministry’s attempts to enter the Chinese market and start borrowing in yuans has also been left up in the air for more than four years. The issuance of Yuan-denominated Federal Loan Bonds (OFZs), initially planned for 2016 and later postponed until 2017, has still not received the final consent of the Chinese government, Russian Deputy Finance Minister Sergey Storchak reported in October.

The most recent attempt to solicit Chinese money took place in June, when Russian President Vladimir Putin attended the Shanghai Cooperation Organization summit in Qingdao. At the summit, plans were made to do a feasibility study on a Russia-China trade agreement similar to the Trans-Pacific Partnership. Two and a half years were given to the project, and no clear dates were set for real investments.

A feasibility study is just a memorandum, observes Alexander Knobel, director of the RANEPA Center for International Trade Studies: every year, officials sign trillions of rubles worth of these non-binding documents at the World Economic Forum.

China is only willing to invest in the Russian economy under certain conditions, and may now impose them on Moscow due to sanctions, observes Yuri Zaytsev, a senior researcher from the Gaidar Institute.

  Russia, China, Putin