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Russia fails to attract Chinese cash to Pacific coast

Russia fails to attract Chinese cash to Pacific coast

Despite prolonged efforts by Russia to attract Chinese investment to its Pacific coast, firms from China appear to have little interest in the neglected regions.

During an April visit to Beijing, Russian President Vladimir Putin told Chinese strongman Xi Jinping that bilateral co-operation had “reached an unprecedentedly high level and has become an example of how relations between states should be built in the present-day world”.

Trade had risen by 24.5 per cent during the last year to a record US$108 billion.

But Moscow’s efforts to attract Chinese investment to its far east have largely failed.

Despite building the Free Port of Vladivostok (FPV) to attract Chinese investment, only 2 per cent of China’s US$140m foreign direct investment in Russia during 2017 went to Russia’s far east.

Russia set up the FPV in 2015 as a special economic zone with tax and customs privileges across five Pacific regions.

Vladivostok had free-port status in the 19th century and Putin looked to help the region compete with the booming Asia Pacific and encourage deeper integration with China.

He hoped to attract independent East Asian firms as the Kremlin looks for closer Asian ties after alienating the west with the 2014 occupation of Crimea.

Pro-Kremlin RT said Chinese investment had risen as a result of western sanctions which had pushed Beijing closer to Moscow.

The unreliable media source said a US Department of Defence document reported that China had partnered with Russia to “mitigate US pressure tactics”. It purportedly said they work together at United Nations Security Council in a shared “preference for a multipolar world order”.

“In the wake of western sanctions against Russia, China has increased investment in Russia’s economy,” the Pentagon said, according to RT.

But potential Chinese investors are reportedly wary of the systematic problems in Russia’s Pacific regions, including the small market of 6 million spread over a vast area and the creaking infrastructure.

Chinese firms are daunted by the often unreliable rules of the FPV, with contracts constantly being amended by the authorities.

Last year the Tigre de Cristal casino at the FPV, which was set up as the starting point for a potential casino zone for the Chinese market, faced bankruptcy when gambling taxes were suddenly raised.

Russia’s legal system appears to be too complicated for new arrivals from China, who often struggle to make sense of the legislation without Russian assistance.

Firms told the Financial Times that the complexities of tax and customs legislation in Russia often undermined the benefits that the FPV promised potential investors.

The FPV was designed to attract fresh investment but many Chinese employers in the economic zone said they had been working in Russia’s Pacific region for years.