China and Russia’s sovereign wealth funds are making their first joint investment – in a Siberian timber company – as part of a push to increase commercial ties between the Russian far-east and fast-growing countries in Asia.
China Investment Corporation and its Russian counterpart, the Russian Direct Investment Fund, established a joint private-equity fund in June. The fund will make its first investment, of around $200m, for a minority stake in Russia Forest Products, the country’s second-biggest forestry company, which has operations in Siberia.
Vladimir Putin, Russia’s president, has championed a pivot towards resource-hungry Asia in a tacit acknowledgment that Moscow has been slow to exploit economic opportunities on its Asian doorstep.
Mr Putin is this week hosting the Asia-Pacific Economic Cooperation forum in the Pacific port city of Vladivostok in an effort to "market the far-east as attractive for investment”, said Kirill Dmitriev, RDIF’s chief executive officer. .
On Thursday Mr Putin attended the opening of a new Mazda Motor car assembly plant in Vladivostok. Mazda has teamed up with Sollers, the Russian auto maker, to invest $350m in the plant.
Chinese investments in Siberia have been hampered by Beijing’s concerns about the reliability of Russia’s investment environment – as well as by Russian suspicions about Chinese motives in the sparsely populated far east.
Chinese attempts to buy land and natural resources in places as far afield as Iceland, Australia and Mongolia have sometimes been rebuffed. This week, Chalco, China’s biggest aluminium producer, abandoned its investment of up to $938m in SouthGobi coal mine because of Mongolian suspicions about Beijing’s intentions.
Mr Dmitriev said the joint nature of the Russia-China fund’s investments gave assurances to both sides: "There’s a general understanding that it’s important for Russia to develop good relations with countries of the east and to learn from them. Russia-Asian co-operation is going to be an increasing feature of the way the world works.”
The fund’s first deal would create 1,000 jobs, he added, and improve margins by getting Russia Forest Products to sell processed wood instead of raw logs.
Russia has invested $21bn in preparing for the Apec leaders’ summit on Russky island near Vladivostok, including construction of the world’s longest cable span bridge. Some residents of the city are sceptical about the lasting effects of such showcase investments. Asked what had changed as a result of the summit, one volunteer said: "Now there’s a big bridge.”
CIC and Russian Direct Investment Fund will contribute $1bn each to the joint fund and are hoping to raise another $2bn from outside investors within 18 months.
Stanley Li, an analyst with Mirae Asset Securities, said the deal made economic sense for both sides, but noted there were likely to be limits to their co-operation. "Russia will probably keep China out of really huge energy investments, like it has had from ExxonMobil or Shell, because those are more politically sensitive,” Mr Li said. "At this stage, timber is something that the countries can do without too much political resistance.”
By David Pilling in Vladivostok
Financial Times
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