Orbeli Analitical Research

Chinese Investments in Russian Infrastructure

24 m. | 2020-01-24

PRC-RF trade turnover

A ccording to the General Customs Department of China, Russia ranked 11^th among China’s 20 major trading partner countries between January-September, 2019. The major trading partners of China are the USA ($402.6 bil.), Japan ($231.8 bil.) and the Republic of Korea ($210.1) [1].

Source http://www.russchinatrade.ru

During the aforementioned period, RF-PRC trade turnover has grown by 3.7%, amounting to about $80 bil. Exports from Russia to China have increased by 5.6%, amounting to $44 bil. The exports from China to Russia increased by 1.3%, amounting to $35.6 bil. [2]. China’s exported goods to Russia are worth $35.6 bil. 45.4% being machinery. The second largest commodity group is clothing and shoes ($4.5 bil) the third group being chemicals ($3.4 bil.) [3].

PRC exports to Russia according to commodity groups, January-September of 2019

Commodity Group	Export, $ mil.	Share in the total export, %
Machinery	16 174.1	45.4
Clothing and Shoes	4 521,3	12,7
Chemicals	3 489,4	9,8
Fur products	1 969,7	5,5
Food, agricultural products	1 255,7	3,5
Products from ferrous metal	1 138	3,2
Toys	856,2	2,4
Furniture, lighting appliances	840,7	2,3
Ferrous metals	541,2	1,5

Source http://www.russchinatrade.ru

Between 2013-2018, China’s exported goods to Russia was worth $276.9 bil. [4]. During that period, the highest recorded rate in 2013 formed $53.1 and in 2018, again forming slightly less at $52.2 bil.

Source https://ru-stat.com/date-Y2013-2018/RU/import/CN

Between 2013-2018, the highest volumes in Chinese exports were recorded in Moscow ($124.3 bil.) and in St. Petersburg ($31.9 bil.).

Chinese investment projects in Russia

T he main areas of Chinese investment projects in Russia include fuel the mining industry, agriculture, construction, trade, light and textile industries and home appliances. [5]. By the end of 2019, there have been operating more than 5000 Chinese companies in Russia [6].

Between 2008-2018, the highest rate of Chinese direct investment in Russia was recorded in 2014 at about $6.8 bil. During that period, Chinese direct investments in Russia exceeded Russia’s direct investments in China, which was $247 bil. in 2018.

Sources https://ecsn.ru/files/pdf/201902/201902_169.pdf

Both sides have officially expressed willingness for the increase in Chinese investments in Russia to reach $12 bil. by 2020 [7]. Beijing-Moscow investment cooperation became more conceptual and substantial since the 2000s. The Russian Direct Investment Fund (RDIF) was established in 2011, with reserved capital of $10 bil. provided by the Russian Government. The fund together with the world’s leading investment organizations work on increasing the investment attractiveness in the Russian market. So far it has attracted more than $40 bil. foreign capital into the economy of Russia [8].

The Russia-China Investment Fund (RCIF) was established in June, 2012 [9]. The initial seed capital was $2-4 bil. $1 bil. was allocated by RDIF and $1 bil. by (China Investment Corporation, CIC[10],[11]). The remaining $1-2 bil. was planned to be contributed by other investors [12]. The main objective of the fund is to ensure high profitability of Russian-Chinese joint venture projects. The structure was initiated by RCIF and CIC [13]. The structure’s bilateral investment cooperation areas include machine building, agriculture, wood processing industry, transport, and logistics. More than 70% of the Fund’s capital is planned to be invested in Russian and CIS investment projects and the other 30% in Chinese investment projects with the Participation of Russian companies [14].

Ceremony of the Russia-China Investment Fund Creation, Beijing, June 5, 2012.

Source https://rdif.ru/photogallery4/

In September 2018, RCIF and one of the leading Chinese companies, the Tus-Holdings [15], established a Russian-Chinese venture fund with a $100 mil. initial capital, aimed at developing investment opportunities in the high-tech segment of Russia’s economy and on continuing the further realization of that potential in Chinese markets.

The Intergovernmental Russian-Chinese Commission for Investment Cooperation was established in 2014, which set 3 main goals [16]:

Support non-energy investment projects,
Neutralize the obstacles limiting the development of investment projects [17],[18],
Promote the participation of Chinese companies in Russian joint venture projects.

An advisory committee was established within the framework of the Intergovernmental Russian-Chinese Commission for Investment Cooperation, with the participation of the representatives of the leading Russian and Chinese companies. The committee plays an important role in the development and realization of bilateral venture projects. This structure is jointly managed by RCIF and Chinese Investment Corporation [19].

The agenda of the 6^th annual meeting of the Intergovernmental Commission in Beijing in November 2019, included 70 joint venture projects with a total volume of $112 bil. [20], [21] in the following areas:

infrastructure
mining
chemical industry
agriculture
machinery and so on [22]

The issues on the Russian Far East regional developments are of special importance for the Russian-Chinese investment cooperation. There are large deposits of coal, uranium, tin, polymetallic minerals in the Asia Pacific region with much of it in the Far East of Russia. This includes 81% of diamond reserves, 37% of drinking water, 33% of water bio-resources, 32% of gold, 27% of gas and 17% of oil [23].

Russia is one of the important links in the natural transport corridor between the Far East and Europe, through which runs the shortest sea route from Asia to Europe through the Arctic Ocean [24]. The largest railway lines in the world such as the Trans-Siberian and Baikal-Amur start in the Far East, the total throughput of which exceeds 100 mil. tons and is planned to receive an increase by another 65 mil. tons by 2020.

There are 29 ports on the coastal areas of the Russian Far East. 20 economic and 5 free port areas have been established, more than 1780 venture projects totaling 3.8 trillion rubles are being implemented and more than 230 companies have been opened in the Russian Far East. There are 17 countries operating in this investment, among which are China, Japan, the Republic of Korea, Australia, New Zealand. Since 2014, 32% of foreign direct investments in Russia have been implemented in the Far East [25].

According to Russia’s Federal Customs Service, the trade turnover between the Russian Far East and Chinese border regions reached $7.8 bil. in 2017, which was 26.7% higher than in 2016. China exported goods worth $2.7 bil. to those areas [26]. In 2018, the trade turnover between the aforementioned regions increased by 28%, amounting to $9.7 bil.

The Eastern Economic Forum (EEF) [28] was established by the decree of the President of the Russian Federation.[27] The goal is to expand international cooperation in the Asia-Pacific region and to develop the economy of Russia’s Far East.

Source https://www.primorsky.ru/news/162232/

Russia and China signed a number of agreements at the 4^th annual session of EEF, in 2018, including the Russian-Chinese cooperation agreement of 2018-2024 in trade, economic and investment areas for the Far East and a memorandum of understanding and strengthening the Russian-Chinese regional production and investment cooperation [29]. The President of RPC Xi Jinping participated in EEF works for the first time in 2018.

Source https://ria.ru/20180911/1528294519.html?in=t

The Russian-Chinese cooperation development program in Russian Far East trade-economic and investment fields of 2018-2024 was signed in September 2018 [30]. Point 1.4 of the program [31] states: “Based on the fact that the Far East’s development is determined by national priority of the Russian Federation, Russia and China accept the development of trade-economic and investment cooperation in the Russian Far East as an important area in bilateral relations” [32]. “Ranking the 1^st place in terms of trade and investment cooperation volumes with the Far East regions, the People's Republic of China is a key foreign partner of the Russian Federation in accelerating the economic development of the Far East” [33].The Russian side recommends China implementing investment projects in the Russian priority development areas:

“Amur-Khingansk” PDA (Jewish autonomous region), investment projects in the field of logistics related to the Russian-Chinese railway bridge across the River Amur
“Big Stone” PDA (Primorsky Krai)- investment projects related to the development of the Russian largest civil shipyard “Star”
“Komsomolsk” PDA (Khabarovsk Krai)- investment projects related to the field of wood processing, high-tech production in aircraft/shipbuilding and agriculture
“Free” PDA, (Amur region)-investment projects for the construction of the largest gas processing plant in Asia-Pacific region
“Khabarovsk” PDA- production, agriculture and logistics
“South Yakutia” PDA- appropriation of the largest coal mines [34].

The Russian side attaches great importance to the development of the Far East Vladivostok’s free port area [35]. 45 projects, with an investment volume of $2.6 billion is being implemented with the participation of Chinese investors in Vladivostok’s PDA [36], which equals to 63% of all foreign investments in the Russian Far Eastern federal district [37]. Both sides are cooperating on another 35 investment projects worth $17.8 bil. The Intergovernmental Russian-Chinese Commission on the Development and Cooperation of the Russian Far East and on the North-East regions of China is performing well tackling development issues of infrastructures and other various economy sectors of the Russian Far East areas, as well as China’s adjacent areas.

Russia’s Far East and Northeast China’s Agriculture Development Program was signed at the end of 2018 [38]. Power China Company has been interested in Russia’s Far East agriculture’s development with which it considers the possibility of implementing a project to build a grain terminal in the Trans-Baikal Territory. China Forestry Group Corporation has come up with a design proposal for wood processing production [39].

Joint Investment Projects

I n recent years, the large Chinese companies bought shares in the Russian economies “giant” companies, mainly in the fields of oil and gas. In 2006, Sinopec China Petroleum & Chemical Corporation [40] acquired 99.49% ($3.6 bil.) shares of Udmurtneft OJSC [41] and 10% ($1.3 bil.) shares of Sibur Petrochemicals Company [42] in 2015. In 2016, Chinese Silk Road Fund [43] became the 10% ($1.5 bil.) shareholder of Sibur Company. In 2006, China National Petroleum Corp acquired 0.63% shares of Rosneft Oil Company worth at $500 mil. In 2014, it became the 20% shareholder of Yamal LNG project and in 2016, another 9.9% shares of the project became Silk Road Fund’s property ($1.2 bil.) [44]. The 14.16% share purchase transaction (more than $9 bil.) of Rosneft Oil by CEFC China Energy Company was indefinitely extended [45],[46]. In 2017, Beijing Gas Group Company Limited acquired 20% Verkhnechonskneftegaz JSC large oil and gas project’s shares ($1.1 bil.) of Rosneft Oil Company. In September 2018, RDIF, Alibaba Group, Mail.ru Group and Megafon companies signed an agreement on the establishment of the joint venture AliExpress Russia to promote e-commerce in Russia and CIS territory [47]. With this deal, Alibaba Group became 48% shareholder of joint venture AliExpress Russia and the remaining 52% was distributed among Russian partners (Megafon-24%, Mail.ru Group- 15%, RDIF-13%). The investment cost of the project was about $2.5 bil. [48].

In the mid-2019, China National Oil and Gas Exploration and Development Company (a subsidiary of China National Petroleum Corporation [49]) purchased a 10% stake in the Arctic LNG 2 project of Novatek Company [50]. One of the major Chinese food companies Angel Yeast Co. [51] implemented one of the major biotechnology projects in Russia (Lipetsk region) [52]. The project created a yeast production plant [52].

The Ak-Sug Mine

T he establishment of ore mining and processing enterprises as well as the exploitation of Ak-Sug copper-porphyry mine is one of the major projects of Onexim group’s [53] Intergeo Metals and Mining Company. The mine has more than 4.9 mil. tons of copper stock [54]. In 2015, Intergeo Company together with NFC [55] and China Overseas Engineering Group (COVEC) companies signed an Engineering, Procurement and Construction framework agreement [56]. The plant was planned to be exploited by 2023 [57], and to get 110,000 tons of copper concentrate in 24 years. AK-Sug mine was one of the five major projects of Russia with its copper resources [58].

Source http://www.todzhinsky.ru

“Rusaloks”

In June, 2019 the Russian-Chinese Venture Fund announced about making an investment in Russian “Rusaloks” [59], company specialized in innovative platforms’ production. The Fund aims to expand the production capabilities of “Rusaloks” strengthening its place in the Russian and Chinese markets. The Venture Fund also considers other projects in the field of artificial intelligence, new generation oil and gas equipment, industrial robots and innovative materials [60], [61].

Rusaloks’ pavilion, Guangzhou International Lighting Exhibition 2017
Source http://rusalox.ru/wp-content/uploads

Tushino technopark

At the annual meeting of the Russian-Chinese Business Advisory Committee held in September 2018, RCIF and Tus-Holdings signed an agreement on creating a science and technology park in the territory of the former Tushino airport. Total investment amounts to more than 90 bil. rubles. The Saudian Public Investment Fund (PIF), Mubadala Investment Company (UAE), the Chinese Silk Road Fund and other international investment companies are also participating in the construction of the technopark.

The project will create an advanced multifunctional technology park, which will include an innovative center, as well as sports, public, scientific-educational and residential facilities.

RCIF and Tus-Holding company also consider implementing another similar project, to build Russian-Chinese high-tech innovation park on the territory of Skolkovo Innovation Centre[62], which also envisages the establishment of a multifunctional center covering more than 70 thousand square meter area with an investment totaling more than $100 million [63].

Russian-Chinese first railroad bridge

I n April 2019, RDIF announced the completion of the Russian-Chinese railroad bridge across the Amur River connecting the Russian and Chinese sections of the Russian-Chinese border for the first time in history. The construction of the bridge began in 2014 [64]. The project is implemented by RDIF in collaboration with the Far East and Baikal Region Development Fund. The annual throughput capacity of the bridge is 21 million tonnes. It links the Jewish Autonomous town of Birobidzhan with Heilongjiang Province of China. The sides attach importance to the project in the context of expansion and modernization of trade, transport and communication infrastructure between the two countries enabling to increase the capacity of the railroad 1.5 times. The 2 km long bridge will reduce the road by about 700 km. [65].

Source https://newsru.cgtn.com/news

Bridge between the cities of Blagoveshchensk and Heihe

One of the Russian-Chinese projects of international importance, which is the construction of the bridge over the Amur River and linking the cities of Blagoveshchensk and Heihe was completed in the end of 2019 [66]. It is the first and so far the only automobile bridge between Russia and China across the Amur River [67]. Although the project has a history of about 30 years, the negotiations gave a final result only in 2014 [68], and the financing was done as a result of a concession agreement with one of the Chinese banks, at 4.9% a year. The construction of 19.9 km long bridge began in the end of 2016 [69], [70]. The total cost of the project is $358 million.

Source https://photos.rg.ru/2019/11/29

Yamal liquefied natural gas exploitation project

Yamal LNG is one of the biggest Russian-Chinese investment projects of integrated extraction, liquefaction and supply of natural gas. A liquefied natural gas production facility was built in the South Tambey gas field in the Yamal peninsula. Based on PRMS standards, proven and possible gas reserves are estimated at 926 billion cubic meters. A transport infrastructure was built within the framework of the projects, which includes Sabetta seaport and airport [71]. The project provides an annual production of about 16.5 mil. tons of LNG [72] and up to 1.2 mil. tons of gas condensate with delivery to the Asia-Pacific and European markets [73],[74].

Yamal LNG
Source https://energybase.ru/en/news

The projects operator of Yamal LNG is Yamal LNG OJSC. It is a joint venture of the Novatek company (50,1%), Total concern (20%) and China Petrolium National Corporation (20%) and Silk road fund (9,9%) [75]. The construction of LNG is carried out in three stages in 2017, 2018 and 2019 (at each stage 5.5 mil. tons annually and another line, with 900 thous. tons of extraction [76]) [77]. The second line of the liquefaction however launched earlier than expected, in the end of 2018 [78]. According to Gazprom, the total reserves of all deposits of the Yamal Peninsula are 26.5 trillion cubic meters, 1.6 billion tons of gas condensate and 300 million tons of oil [79].

In June, 2010, Gazprom and Novatek companies signed a Agreement to implement the LNG production project in the South Tambey gas field. The parties agreed to allocate the South Tambey field as a pilot project to create LNG facilities in the Yamal Peninsula [80]. Gazprom [81] and Yamal LNG companies signed an agreement on exporting liquefied natural gas from the South Tambey gas field [82].

Source https://defenceforumindia.com/forum

Greenwood

C hina Chengtong International Investment company has over 2 years of experience in the Russian investment market. The largest investment projects were Greenwood 1 and Greenwood 2, which envisaged to create international business centers. Greenwood 1 international trade-exhibition complex project was completed in 2010. Greenwood 2 business park launched in 2017 will be exploited in 2020 [83],[84],[85],[86]. The total cost of the project was $220 million.

Greenwood business center
Source https://places.moscow

Power of Siberia

In May 2014, Gazprom and China National Petroleum Corporation signed an agreement on the purchase and sale of Russian gas via the “eastern route” (“Power of Siberia” gas pipeline. The agreement was signed for 30 years [87]. The length of the pipeline “Power of Siberia” is about 3000 km, with a maximum annual capacity of 38 billion cubic meters [88]. The pipelines diameter is 1420 millimeters. Currently, the gas from the Chayandinskoye field (Yakutia’s gas production center) reaches consumers of the Russian Far East and China via the “Power of Siberia” gas pipeline. Gazprom received the Chayandinsk field’s exploitation license in 2008, and since 2014, the trial oil production began and in 2019, the gas production began at the field [89]. By the end of 2022, gas produced from the Kovykta field (Irkutsk gas production center) will start to flow through “Power of Siberia” pipeline. The gas pipeline’s route passes through the three entities of Russia, namely Irkutsk and Amur regions and the Republic of Sakha (Yakutia).

Source https://www.gazprom.ru/projects/power-of-siberia/

In September, 2014, Gazprom launched the construction of Power of Siberia’s first section, running 2200 km from Chayandinskoye field to Balgoveshchensk (China’s border). The second phase of the project will include the construction from Kovykta field to Chayandinskoye (about 800 km). The third stage envisages to expand gas transmission capacities from the Chayandinskoye field to Balgoveshchensk [90].

On December 2, 2019, “Power of Siberia” pipeline was put into operation. With this the first ever pipeline deliveries of Russian gas to China began [91]. The Presidents of Russia and China were attending the official opening ceremony via a TV link-up [92],[93]։

Source https://www.gazprom.ru/press/news

Bystrinsky Gold-Iron-Copper Ore Exploitation projects of The Trans-Baikal territory

Bystrinsky gold-iron-copper mine acquisition and the construction of the ore processing plant in Trans-Baikal territory envisages to extract and exploit the mine with a Russian-Chinese joint project [94]. Russia’s leading mining and metallurgical company Nornickel launched the construction of the plant in 2013 and commissioned it at the end of 2017 [95]. The plant plans to extract and process about 10 mil. tons of ore annually [96]. According to the project, the ready product, in the form of magnetite and copper gold-bearing concentrates is planned to be exported to China [97], [98].

In March 2018, the Bystrinsky GOK produced the first samples of copper concentrate and the first batch of products was supplied to China [99]. There were rumors that Nornickel company was negotiating with Chinese investors on selling some part of the Bystrinsky project shares provided that the control package is maintained [100]. The Chinese consortium of Highland Fund acquired the shares in this project (10.67%) [101].

Bystrinsky Enrichment Plant

Polyarnaya timber industry complex construction project

P olyarnaya timber industry complex construction project is another Russian-Chinese joint project [102] (Northeast of Trans-Baikal, Chinese 100% capital, Sinban Company, Heilongjiang province), which was included in the list of 5 priority projects in the field of forest industry with its investment volumes [103]. It is envisaged to extract the complex in 2020 [104]. The initial cost of the project was estimated $55 mil. In case of reaching the project’s capacity, the cellulose plant will annually consume 700,000 cubic meters of wood.

Polyarnaya timber industry complex
Source https://programlesprom.ru/

In April 2019, RDIF and RCIF reached an agreement with the Chinese Tus-Holdings company on the joint construction of science and technology park on the territory of Moscow State University named after M.V. Lomonosov [105]. The activities of the park will be aimed at supporting Russian-Chinese cooperation in science and high technology [106].

Khabarovsk Krai: Gas Supply Project

I n 2019, Sherwood Energy, a subsidiary of Chinese company Sirius Holding signed an agreement with Far East Investment and Export Agency [107] on the implementation of gas processing project. At the initial stage, it is planned to launch a 7.2 mil. tons of methanol production in Ayan settlement of Khabarovsk Krai. Based on the project, the gas from West Yakutia’s mines will be supplied to Ayan (20 bil. cubic meters annually) through new gas pipelines. The pipeline’s length will be about 1200 km [108]. The total cost of the project is 740 bil. rubles, 250 of which will be spent on exploration and development, 150 on the construction of pipeline and methanol plant and 40 on Ayan infrastructure forming works.

Kaliningrad- Chongqing Railway route

In November 2018, Kaliningrad-Chongqing (China’s industrial center-Chengdu) railway was commissioned [109]. The project was implemented by RZD Russian Railways [110] and United Transport & Logistics Company — Eurasian Railway Alliance (UTLC ERA) [111].

In December 2016, the Russian Government approved international transport corridors “Primorye-1” and “Primorye-2” development concept [112]. The document states: ““Primorye-1” and “Primorye-2” ITC are of great importance for the realization of Russia’s Far East transit potential” [113]. “Primorye-1” and “Primorye-2” ITC pass through the Free Port of Vladivostok, uniting the Chinese Heilongjiang and Jilin provinces with the sea ports of Russian Primorye region. Within the framework of the ITC development projects it is planned to modernize border infrastructures (including the construction of ports, checkpoints, automobile and railway infrastructures) [114]. According to international experts, the cargo flow through the “Primorye-1” and “Primorye-2” ITC is estimated at 45 mil. tons (23 mil. tons of grain and 22 mil. tons of container) of cargo by 2030.

Source https://www.mk-law.ru/delyus

In 2018, the cargo through “Primorye-1” and “Primorye-2” ITC amounted to 91.2 thous. tons [115]. It is expected that the corridors will work with a full load by 2025 [116].

Russia occupies an important place in the Chinese “One Belt, One Road” strategic initiative, which is confirmed by the investment projects implemented in Russia. Just a few years ago, in 2013, the launch of “One Belt, One Road” strategic initiative by the Chinese President Xi Jinping gave a new impetus to further expand the Chinese “dragon” economic capital to Russia. We assume that the coming years will be more active in this direction. Chinese economic/investment activity in the Russian market brings new meaning and content in the context of Beijing-Washington trade economic war.

[1] http://www.russchinatrade.ru/assets/files

[2] http://www.russchinatrade.ru/assets/files

[3] http://www.russchinatrade.ru/assets/files

[4] https://ru-stat.com/date-Y2013-2018/RU

[5] https://ecsn.ru/files/pdf/201902/201902_

[6] http://government.ru/news/38454/

[7] https://ecsn.ru/files/pdf/201902/201902_169.pdf

[8] https://rdif.ru/About/

[9] http://www.rcif.com/

[10] http://www.china-inv.cn/en/

[11] http://www.china-inv.cn/chinainven

[12] https://rdif.ru/fullNews/136/