Russia seeks to revive ties with Hong Kong

Brian Yeung February 10, 2016 08:01

Alexander Kozlov started his diplomatic career in the old Soviet Union in 1988.

Now, he is the newly appointed consul general to Hong Kong and he is on a special mission for Russia -- reviving ties between the two sides.

The Russian consulate general reopened in Hong Kong in 1994, almost 90 years after it was shuttered, ending an uninterrupted run since 1857.

Having spent many years in Beijing and Shanghai, Kozlov noticed that Russia is underrepresented in Hong Kong compared with mainland China.

For instance, only two Russian companies -- United Co. Rusal Plc. (00486.HK) and IRC Limited (01029.HK) -- are listed on the Hong Kong Stock Exchange.

At the time of its Hong Kong, RUSAL was a Jersey-incorporated company and IRC was registered in Hong Kong. 

Kozlov believes that the situation is about to change.

Russia was not on the list of so-called acceptable overseas jurisdictions until January 2016, preventing its companies from raising funds on the Hong Kong stock exchange.

“We are expecting more Russian companies to list in Hong Kong,” he said.

Speaking at this year’s Asian Financial Forum, Russian Deputy Prime Minister Arkady Dvorkovich announced an agreement on avoidance of double taxation between Hong Kong and Russia.

Kozlov highlighted said the agreement will make Russian assets more compelling to Hong Kong companies because it reduces Russia’s withholding tax rates on dividends, interest and royalties.

In particular, Russia’s dividend withholding tax rate will be reduced to 5 percent or 10 percent from 15 percent, the withholding tax rate on royalties to a maximum of 3 percent from 20 percent for companies and 30 percent for individuals, he said.

During a talk at the Asia Society Hong Kong Center, Dvorkovich said Russia is in talks with local governments about a free trade zone between the Eurasian Economic Union (EEU) and Hong Kong.

The EEU is an economic union of five member states aimed at creating a common economic bloc.

Russia, Kazakhstan and Belarus signed the EEU agreement on May 29, 2014. It came into effect on Jan. 1.

EEU member states also include Armenia and Kyrgyzstan.

And now, the EEU is looking for new partners outside Central Asia.

For example, Dvorkovich said Russia has reached an initial agreement with Vietnam on a free trade zone.

Russia is also in talks with Israel and Singapore, according to reports.

The EEU market boasts a population of 180 million and a combined gross domestic product (GDP) of US$4.2 trillion, according to Singapore's foreign ministry.

It's worth noting that all EEU members states are also part of China’s "One Belt, One Road" (OBOR) initiative.

What remains unclear is whether the EEU and OBOR projects compete with each other.

Dvorkovich highlighted a potential link between EEU and OBOR projects, offering opportunities to Chinese businesses.

However, he said there is a need to identify mutual benefits and find the right balance.

“We are competitors in many respects. So the biggest challenge is to reconcile competition between the partners,” he said.

Yet, Kozlov thinks EEU and OBOR projects are not in direct conflict.

“These projects are operating on different levels -- from the perspective of a union and that of an initiative,” he said.

The argument about contradictions between the EEU and the OBOR comes from an old notion that conflict between Russia and China over Central Asia is inevitable.

“Over time, reality disproves that theory. Instead, there is growing cooperation among Russia, China and other Central Asian countries. The Shanghai Cooperation Organization (SCO) is a prime example.”

Launched in 2001, SCO is an intergovernmental organization aimed at strengthening ties among border-sharing member countries including China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.

Kozlov said Hong Kong could be instrumental in bridging the EEU and OBOR initiatives.

“Hong Kong has long been an international financial center, a super connector and a bridge to China. It is of strategic importance in bringing the union and the initiative together.”

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BY/JP/RA

Brian Yeung

an independent contributor and consultant