Russia and China have agreed to set up a bilateral investment bank. The agreement, signed by the Russian Direct Investment Fund (RDIF) and CITIC Merchant, was one of the 32 bilateral deals stipulated during Chinese President Xi Jinping’s state visit to Moscow, adding to the two deals for the export of Russian gas to China by pipeline arranged in the past year.
While relations between these two BRIC countries have been strengthening for some time, the timing of these deals is no coincidence. “The large number of economic deals agreed between Russia and China reflects the pressure Russia is facing from the US and EU due to the Ukraine crisis, which has forced Russia to turn towards China as a large global growth market for Russian exports of oil and gas as well as various other major trade deals including military equipment and technology,” Rajiv Biswas, Asia-Pacific chief economist at IHS, tells GTR.
One of the deals involves the creation of a leasing platform to promote the Sukhoi Superjet 100 (SSJ100) passenger aircraft to Chinese and Asian markets comprising the RCIF, Sukhoi Civil Aircraft Company, United Aircraft Corporation, the Xixian New Area Management Committee of Shaanxi province (Xixian) and New Century International Leasing. It is estimated that up to 100 aircraft will be delivered to the Chinese and Southeast Asian markets through the Xixian-based leasing platform over the next three years.
Both Russia and China have much to gain from stronger bilateral economic relations. Rajiv Biswas, IHS
In the agricultural sector, RDIF and the People’s Government of Heilongjiang province agreed on establishing a proposed US$2bn agricultural investment fund for agricultural projects in Russia and China. According to an RDIF statement, they will also consider creating an experimental agricultural free trade zone between the Heilongjiang province and the Amur Region using the direct exchange rate between the rouble and the yuan, supporting the implementation of incentives for Russian and Chinese high-tech agricultural businesses.
Another deal involves a partnership between RDIF, the Russia-China Investment Fund (RCIF) and China’s Construction Bank Corporation (CCB), to assist Russian firms in raising debt financing from Chinese banks by increasing the terms of loan and access to funding. Additionally, the parties are considering the possibility of launching a joint investment fund, which would operate separately from the Russia-China Investment Bank.
The latter would have a role to play alongside the newly-founded Asian Infrastructure Investment Bank (AIIB), of which both China and Russia are founding members. “This bilateral investment bank will be complementary to the AIIB, since the AIIB is focused on infrastructure financing for developing Asian countries. However it will add to China’s growing importance as a source of financing for other emerging markets globally,” comments Biswas.
The bank will act as a driver for fostering further investment co-operation between our countries. Kirill Dmitriev, RDIF
It is hoped that the new investment bank will provide a wide range of investment banking services to attract Chinese capital for Russian companies. These will include: mergers and acquisitions advisory – with predominant focus on offering Chinese strategic and financial investors equity in Russian companies; debt finance – including debt financing from Chinese banks and placing Russian corporate bonds on Asian capital markets; and capital markets services – including listings, primary and secondary placements on Asian capital markets.
“We believe the Russia-China Investment Bank’s services will be in high demand across both nations. The bank will also act as a driver for fostering further investment co-operation between our countries,” says Kirill Dmitriev, RDIF’s CEO.
Media reports have expressed doubt that these agreements can lead to an alliance any time soon, as China’s interest in Central Asian countries may be seen as a threat to Russia’s traditional influence in the area. Additionally, tensions with Western countries make a Russia-China relationship much more necessary for Russia than it is for China.
For now, Biswas is adamant that both countries will benefit equally: “Both Russia and China have much to gain from stronger bilateral economic relations. Russia’s pivot towards China has offered an opportunity for Russia to develop a large new export market for its oil and gas exports, helping to reduce its vulnerability to EU demand for Russian gas. China also offers large market opportunities for other Russian exports, including for military equipment and technology. From China’s point of view, energy security is a key strategic priority, and the major new oil and gas export deals agreed with Russia will help to improve China’s energy security and diversify sourcing of supply,” he says.