A friend in need during hard times

As Western nations turn their backs on Russia, more skills and funding for infrastructure projects may arrive from the other direction

Six decades ago, the new People's Republic of China, isolated by the West, turned to the Soviet Union for ideas and support for the urban planning of Beijing, where the Soviet influence can still be traced today.

Now a reverse trend is taking place.

Faced with mounting Western sanctions due to the Ukraine crisis, Russia is now looking to the East, and particularly China, for investment to fund Moscow's multibillion dollar infrastructure projects aimed at upgrading the Russian capital into a global metropolis.

At stake is an ambitious midterm urban development plan for the city involving $200 billion (165 billion euros) investment and properties covering a total of 180 million square meters.

The plan includes building a vast new administrative and business center dubbed "New Moscow", improving the city's metro, road and railway systems, and revamping old industrial zones and depressed areas along the Moscow River, Russian officials said at a recent urban forum in Moscow.

Dalian Wanda Group Co Ltd, China's largest commercial property conglomerate, is negotiating with Moscow authorities to develop properties covering 1.5 million sq m at a cost of about $2 billion, according to Marat Khusnullin, deputy mayor of Moscow in charge of urban planning and construction policy.

The project will transform an area called Zil Industrial Park, a former Russian automobile manufacturing site along the Moscow River, into a new modern commercial and residential district.

The investment deal may be concluded next year and the transaction will be settled in yuan, Khusnullin told China Daily.

Moscow's consent to use the Chinese currency as settlement removed what was considered a major hurdle for Dalian Wanda's investment, after the company previously expressed concerns about the falling rouble, which lost nearly half of its value against the dollar in 2014.

Earlier reports had even suggested the deal would be postponed due to the currency crisis.

In addition to the currency arrangement, Moscow will also offer favorable land policies and cheaper land prices to attract other Chinese developers, the deputy mayor says.

Experts are now suggesting that this kind of closer business partnership between Russia and China in the infrastructure sector is likely to serve the interests of both sides well into the future.

Struggling with a faltering oil-based economy hit by falling energy prices, Mayor of Moscow Sergey Sobyanin is now focusing on domestic infrastructure, in what he is calling the "new recipe", to energize its economy and create new growth.

Diversifying its portfolio of foreign investment has also become a priority, especially as international economic sanctions against the country as a whole, in response to the Ukraine crisis, leave little prospect of raising capital from the West.

"When times are hard and tough, we shouldn't stop moving ahead and should continue to focus on attracting overseas investment," Sobyanin says.

In a way, the timing could not be better for Sino-Russian cooperation.

China is currently looking for new markets overseas for its own infrastructure construction and equipment manufacturing sectors, which continue to face overcapacity problems after a two-decade property boom at home.

Beijing is also moving away from dollar-denominated assets such as the US Treasury bonds and is expanding the scope of its investment targets including infrastructure and property projects abroad, which are believed to yield better returns for its massive foreign reserves.

Dalian Wanda is far from the first Chinese investor to pay serious attention to the opportunities being presented by Moscow's urban development plan.

In May, China Railway Construction Corp Ltd, a major state-owned company, for instance, signed a memorandum of understanding with Moscow officials to participate in the building of a 15-kilometer underground line connecting Moscow and New Moscow, itself part of the city's overall $40 billion transportation expansion plan.

Other Chinese participants in the project include Hong Kong Mass Transit Railway, Henderson Land Development Co Ltd and Hang Lung Group Ltd.

"We used to import railway equipment from Europe. But now I have ordered my staff to source all equipment from Asia, including China," says Deputy Mayor Khusnullin.

What makes China especially appealing to Moscow is the country's experience of fast urban expansion. By 2020, the Russian capital hopes to have completed the construction of 150 km of metro lines, according to Karima Nigmatulina, acting director of the Moscow General Planning Research and Project Institute.

"The only cities that can compare to that rate are Chinese cities. It is interesting to cooperate with counterparts who work at the same pace," she said.

Massive real estate demand and much faster decision-making and construction processes compared to Western cities also make Moscow very attractive to Chinese investors, Nigmatulina says.

Xu Hongcai, an economist at the China Center for International Economic Cooperation, says he expects the falling rouble and depressed asset prices in Russia to continue to offer more investment opportunities for Chinese companies.

"It is certainly a good time to invest in Russia, where greater bargains and better deals are emerging all the time," he said, adding the caveat that Chinese companies looking to invest or work in the country should always push for settlement in the yuan to avoid the exchange rate risk.

Some experts are warning, however, that a major Russian economic recession is looming and confidence is waning, with many international investors now dumping the Russian currency.

Benjamin Barber, an American political theorist and researcher at the City University of New York, has doubts about the viability of longer-term prospects between China and Russia.

"Every time there is a crisis with the West, it pushes China and Russia closer. But it is very unlikely to work in the long term," he says.

"Global interdependence makes it harder for the Russia-China game to play," he says, adding that corruption, lack of transparency and an unstable financial market also make Russia a risky investment destination.

Xu Hongcai insists that Russia will inevitably change its single-structure economy currently based on energy exports, and will require closer cooperation with neighbors in the East, including China.

"In the long run, it is strategically important for Russia to develop closer business ties with China and to diversify its economic structure, which will offer Moscow greater room to maneuver when crisis happens," Xu says.

"But China is not naive enough to think that Russia sees China as a 'hardcore' loyal business partner. Putin's recent visit to India has told us something else."

lixiang@chinadaily.com.cn

(China Daily European Weekly 01/02/2015 page22)