The Far Reaching Chinese-Russian Silk Belt & Road JV
As predicted, a significant array of economic cooperation agreements were signed between Russia and China during President Xi Jinping’s visit to Moscow last week.
The deals include the creation of the new US$10 billion China-Russia RMB Investment Cooperation Fund, which provides access to RMB financing for Russian projects, including under the One Belt, One Road and Eurasian Economic Union initiatives. China was recently given permission to offer settlement services in RMB in Moscow through the ICBC.
Other deals include commitments from China Development Bank, China National Petroleum Corporation, the Silk Road Fund, China Investment Corporation, the Russian Direct Investment Fund, and from the Russia-China Investment Fund. These are examined as follows:
The China-Russia RMB Investment Cooperation Fund
Presidents Vladimir Putin and Xi Jinping were present as the Russian Direct Investment Fund (RDIF) and China Development Bank (CDB) signed a memorandum of understanding to create the China-Russia RMB Investment Cooperation Fund.
The Fund is expected to facilitate the establishment of a simplified framework for direct investments with settlements in national currencies. The investments will total RMB 68 billion (US$10 billion).
RDIF will implement the project via the Russia-China Investment Fund (RCIF), a private equity fund jointly created by the sovereign wealth funds RDIF and China Investment Corporation (CIC), and CDB will implement the project via its wholly-owned subsidiary China Development Bank Capital.
The RDIF was established in 2011 to make equity co-investments, primarily in Russia, alongside international financial and strategic investors, thus acting as a catalyst for direct investment in the Russian economy.
“We are happy to announce our partnership with China Development Bank, and offer Chinese investors an opportunity to provide capital denominated in the national currency,” says Kirill Dmitriev, the CEO of RDIF and co-CEO of RCIF. “This framework is a powerful driver of direct cross-border investments, with a potential to significantly increase the number of joint Russia-China projects.”
“The China-Russia RMB Investment Cooperation Fund is an important cooperation between China and Russia in the equity investment segment, which is supported by the Chinese and Russian governments,” added Huaibang Hu, chairman of China Development Bank. “It will promote the comprehensive and long-lasting financial and economic partnership between two countries, and facilitate Renminbi internationalization.”
RCIF and Hainan
In another deal signed during Xi’s visit, RCIF agreed to cooperate and implement joint projects in Russia and in Hainan province in China. It will support the development of the One Belt, One Road initiative and bilateral investment cooperation between Russia and China.
The agreement identifies the development of industrial and innovation parks, high-tech healthcare services, tourism and social infrastructure, and culture and art initiatives, as priority areas. The total scope of the planned projects is more than US$500 million.
“Hainan Province stands as a significant portal of the Maritime Silk Road, which is part of the Belt and Road initiative, and RCIF is committed to enhancing bilateral investment and trade between China and Russia,” said Bing Hu, co-CEO and president of RCIF.
Hainan is the southernmost province in China, and is the most popular destination for Russian tourists traveling to China. It has also become the focus of innovation in technology, healthcare, and culture. The province is considered a “new southern bridgehead” for the development of strategic Russian-Chinese cooperation in a number of areas, including investment.
Silk Road Fund and Tushino project, Moscow
Another agreement signed during Xi’s visit involves the Silk Road Fund joining the consortium formed by RDIF and RCIF, in partnership with leading Middle Eastern funds, to invest in a real estate development at the former Tushino airfield in the northwest of Moscow.
The Tushino project received city planning permission in 2016. It includes sports facilities, the Rostec City business park, apartments for 15,000 residents, plus schools and a clinic.
The international consortium now includes investment funds from Russia, China, Saudi Arabia, the UAE, Kuwait, and Bahrain. They will provide equity financing for the project with a total investment of over 90 billion Russian rubles (US$1.5 billion). The development involves Russian state-owned corporation Rostec Corporation as one of the key tenants, and Russian Holdings company Vi Holding as a developer.
“The participation of RCIF and the Silk Road Fund, for the implementation of the Rostec-City project demonstrates high levels of confidence from Chinese investors in one of Moscow’s most significant development projects,” comments Karima R. Nigmatulina, CEO of Vi Holding.
“Acting as a co-investor alongside leading international investors, RDIF has been the catalyst for attracting investment into this project. The participation of Chinese investors is particularly significant for us, given that for more than 10 years Vi Holding has been the largest Russian private investor in the Chinese economy.”
The Silk Road Fund is a US$40 billion medium- to long-term investment fund established in Beijing in December 2014. It provides both equity and debt financing to support infrastructure, energy, industrialization, and financial cooperation that are vital to the connectivity of the Chinese economy with the rest of the world.
Vi Holding Group is an international investment and industrial group based in Russia that owns and operates a diversified portfolio of assets. Its core investment activities are focused on the development and management of real estate assets, power generation, metals and mining. The total value of the group’s assets exceeds US$6 billion.
The group has a significant presence in key global markets with a strong focus on high-growth countries in Asia and Africa, with several large-scale projects successfully completed and a number of new ones under active development. The group also plans to increase the scale of its investment activities in Russia.
RDIF and RCIF signed an agreement during Xi’s visit to work with Russian Export and FRC International. The partners will operate under the common trade name of Dakaitaowa – meaning “to open a Matryoshka (Russian nesting) doll” in Chinese – and will further grow exports of ecologically clean food to Chinese markets.
The agreement entails a joint development of the project and utilization of its infrastructure to export Russian-made ecologically clean food products and distribute them on the Chinese market. The investments will facilitate further sales growth and promote cooperation with retail chains and e-trading platforms in China.
“We believe that now is the right time to be delivering Russian food products to China and this project shows great promise,” says Igor Chaika, chairman of the board of Russian Export and FRC International. “The project is unique in that it will give Russian businesses the opportunity to sell products through existing Chinese sales networks without having to create their own infrastructure.”
CNPC, Rosneft and Gazprom
Growing cooperation in the oil & gas sector was also on the agenda during President Xi’s visit to Moscow. China National Petroleum Corp (CNPC) signed agreements on projects involving Russian oil and gas companies Rosneft and Gazprom.
On July 3, CNPC chairman Wang Yilin and Rosneft CEO Igor Sechin held a meeting and signed a cooperation agreement on behalf of the two sides. CNPC and Rosneft will further promote upstream cooperation in Russia and third-countries, step up the establishment of the joint venture refinery in Tianjin, and move forward with collaboration in a variety of sectors.
And on July 4, in the presence of Presidents Xi and Putin, CNPC chairman Wang Yilin and Gazprom management committee chairman Alexey Miller signed a supplementary agreement to the sales and purchase agreement for Russian gas to be supplied via the eastern route, which was signed in 2014.
In order to ensure that gas deliveries via the eastern route start on time, CNPC will accelerate construction of the pipeline and facilities of the Amur GPP project and underground gas storage in China. CNPC and Gazprom also agreed on enhanced joint upstream development.
Longer term bilateral issues included Presidents Xi and Putin discussing progress on China negotiating a free trade agreement with the Eurasian Economic Union, a free trade bloc that includes Russia, Kazakhstan, and Belarus among its members that if signed off, would see Chinese manufactured goods come right to the borders of the European Union. Also on the agenda was Chinese funding for the opening up and development of the Northern Sea Passage, a maritime route officially acknowledged as part of China’s Belt and Road that would see the Arctic open up to shipping and provide another route for bilateral Sino-Russian trade with Europe.
“These agreements demonstrate that the age of Beijing aligning itself with Washington are once again drawing to a close and illustrate the new power broking between Beijing and Moscow.” says Chris Devonshire-Ellis. “Beijing needs Moscow onside to facilitate the Belt Road axis, and both countries need each other in order to compete with the United States over the main trade prize of the EU. Understanding the new world order requires an acknowledgement of what is happening in Russia. Moscow is increasing its business and trade development infrastructure in the Eurasian region, and will be having a huge impact on both overland and maritime routes. Understanding and spotting where the opportunities and money flows are going means understanding contemporary Russia’s true position in the development of Eurasia and Moscow’s importance to Beijing. There are business and investment opportunities in both.”
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