Russia and China Are Becoming Best Friends
Russia is aggressively signing new investment arrangements with China following their slow detachment from Europe.
The Russian Direct Investment Fund and CITIC Merchant Bank, a Chinese state-owned investment fund, signed an agreement to create a joint investment bank, Russian media said on Friday.
The deal is supposed to be signed during Xi Jinping’s visit to Russia this week.
The new Russia-China Investment Fund (RCIF) is not all about energy, but it is all about commodities. One target is agriculture in, particularly China, RDIF head Kirill Dmitriev told RIA Novosti newswire on Friday. The first investment is for agribusiness projects in Heilongjiang province, which is right on the Russian border.
“The sides intend to form a special investment fund of $2 billion, our share is a minor one, it will be mostly the money of institutional Chinese investors, including those with significant experience in investment in the agricultural sector,” Dmitriev told the news agency about the ag investment.
Up to 10 projects are currently being considered, including several agribusiness projects in Russia’s southeast.
Russia put a ban on European food imports in retaliation for sanctions against its energy and financial firms and has been turning to new markets.
Russia has been going through its own Asia Pivot — a term Obama used in his first term to signal his administration’s plans to tilt U.S. foreign policy towards Asia. Russia seems to have discovered China by default. Its main and most natural market has always been Europe. But a round of sanctions last year, imposed because of Russia’s involvement in Ukraine’s civil unrest, have turned Russia to the east.
Trade between the two has always been limited, until about four years ago. But today there are more clear business interests, and even some political interests are shared. Both would like to deter dollar hegemony in Asia, particularly in Eurasia as that desolate part of the world is only now starting to develop.
It is unclear whether these deals are being forced on Russia because of sanctions, or whether there were backroom whispers about these things prior to the July 2014 sectoral sanctions.
Russia and China’s recent $400 billion natural gas contract was the biggest deal ever signed between them. It came shortly after E.U. says they need an alternative to Russian natural gas.
“Russia and China are making friends,” says Martin Charmoy, director of Prosperity Capital Management in London. “China needs almost everything that is produced in Russia — and Russia is a fairly cheap commodity producer. We expect Russia-China trade will reach $200 billion in the next couple of years. European companies used to be very successful in Russia,” he says, naming like Ikea and Danone in particular. Russia is Danone’s largest single country market. “European companies are losing ground because of the sanctions and the geopolitical situation. Europe has to be careful, though, because Russia is a very important market for them,” Charmoy says.