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The agreement between the sovereign wealth funds of China and Russia to create a joint investment venture was heralded last week at the third VTB Capital “Russia Calling!” forum, held in Moscow.
Fan Kung Sheng, managing director of the China Investment Corporation (CIC) stressed that the four-year old sovereign wealth fund was increasingly looking to form long-term strategic joint ventures in emerging markets. Already, it had made investments in Russia, including a $100 million stake in VTB bank that he said was “the beginning of a beautiful relationship”.
Earlier this week, CIC agreed to invest $1 billion along with the Russian Direct Investment Fund, which will also provide $1 billion, in a new Russia-China Investment Fund. The agreement was signed in Beijing on Tuesday by Russian prime minister Vladimir Putin and Chinese premier Wen Jiabao. At least 70% of the fund’s investments will have to be made in Russia, Kazakhstan and Belarus, and its initial focus will be on agriculture, consumer products and green energy — rather than natural resources.
“China and Japan are our neighbours,” said Putin during the keynote address at the VTB Capital forum. “Technologies are in Europe, [but] investment opportunities and consumer markets are in Asia.”
The three-day event drew more than 2,000 delegates, including more than 500 investors from Russia, Europe, the US, Asia, the Middle East and Africa. About 300 senior top managers from Russia’s leading companies participated in plenary sessions and panel discussions on topics that included ways of encouraging foreign investment, infrastructure development and the country’s macroeconomic situation.
Putin also responded to questions that ranged from Russia’s fiscal policy and the dismissal of former finance minister Alexey Kurdrin, to access to the country’s natural gas resources and tackling corruption.
The prime minister, who recently announced his intention to stand for president next year, was confident that the world is not in a “second wave of the [2008] crisis”, and that Western governments are still in a position to prevent an escalation of current problems “if they act responsibly and swiftly”.
Meanwhile, he claimed, the Russian authorities have better instruments to respond to external challenges than three years ago, with sufficient liquidity that can be provided in a “timely manner to counter the deterioration in the conditions on the financial markets”. In addition, Russia’s international reserves are now the third largest in the world, and enough to contain volatility in the foreign exchange market.
He emphasised, however, that “macro stability will not be compromised” and that “fiscal discipline is non-negotiable”. The draft 2012-13 budget forecasts a small deficit based on a conservative oil price assumption, with a balanced budget to be attained in 2014. The country’s public debt-to-GDP ratio is less than 10%, yet this year’s borrowing programme has been further reduced.
Nevertheless, Putin pointed out that Russia’s projected 4% economic growth rate is too low, and that the goal is a rate of 6% to 7%. Strong domestic demand and an improving investment climate will be important drivers, and the ultimate goal is to diversify the economy and create hi-tech jobs, diversifying the economy away from the natural resources sector.
He also argued that although the state’s involvement in the economy will eventually be reduced and barriers to entry lowered, “political continuity is paramount”.
Gazprom’s monopoly over natural gas exports could eventually be liberalised, allowing independent firms, which already participate in domestic distribution networks, to have access. However, there will be no rush and Russia’s long-term strategic interests will continue to be a primary consideration.
Putin acknowledged that corruption is a serious issue. “[Low] salaries in law enforcement are an important factor [behind corrupt behaviour] and they are to be substantially increased as early as next year so that police officers place greater value on keeping their jobs,” he said.
Putin declined to be drawn on the recent sacking of Kudrin, pointing out that the decision was made by the president, Dmitry Medvedev, although he said that Kudrin was still regarded as a member of their “team”.
Other major speeches were delivered by Elvira Nabiullina, the minister of economic development; Alexey Ulyukayev, deputy chairman of Russia’s central bank; Arkady Dvorkovich, aide to the president of the Russian Federation; Alexander Voloshin, head of the Moscow Financial Centre taskforce; David Bonderman, founding partner of TPG Capital; and Andrey Kostin, VTB Bank president and chairman.
The organiser of the forum, VTB Capital, is the investment banking arm of VTB Group and is one of three units of VTB Group, along with the corporate and retail businesses. Since its foundation in 2008, VTB Capital has taken part in more than 170 capital markets deals, attracting more than $90.7 billion worth of investments in Russia. Headquartered in Moscow, it also has operations in London, Singapore, Dubai and Hong Kong.
