Russia's Far East to boost agricultural ties with China

August 08, 2016 06:02
Yury Trutnev says Russian Far East and China can collaborate in more agricultural projects. Photo: EJ Insight

Authorities in the Russian Far East region are expected to launch the first batch of projects under a newly established agricultural fund during the Eastern Economic Forum next month.

“We’ve set up an agricultural fund of US$10 billion with Chinese capital,” Deputy Prime Minister Yury Trutnev, who is also the presidential plenipotentiary envoy to the Far Eastern Federal District, said in a media briefing in Vladivostok.

“We will use the fund to implement some environmentally safe and clean food projects,” he said.

A signing ceremony will be held during the forum, which will take place in Vladivostok on Sept. 2 to 3.

Officials will also announce more details about the Sino-Russian partnership.

“China is one of the most active countries in the food production sector today,” Trutnev said. “The Chinese economy has also accumulated a substantial size to enable them to materialize such projects.”

Last December, China announced a deal allowing the importation of Russian agricultural products, including wheat, corn, rice, soybean and rapeseed.

In April, both countries signed a deal setting up an agricultural fund with China contributing 90 percent of the capital and the rest coming from Russia.

Russia holds a 51 percent stake in the fund while China owns the rest.

According to the Ministry for the Development of the Russian Far East, the fund will initially invest 32 billion rubles (US$480 million) in 17 agricultural enterprises in the region, local media reported last week. 

Sinking oil prices and sanctions

Over the past two years, the Russian economy has been reeling from declining oil prices and sanctions imposed by the European Union and the United States after the Russian military intervention in Ukraine in 2014.

Average crude oil prices dropped 51.7 percent to US$41.85 last year from US$86.73 in 2014, according to the Illinois Oil and Gas Association.

Russian exports, consisting mainly of oil, gas and metal, fell 31.4 percent to US$341.47 billion during the period, with the downward momentum continuing in the first half of this year.

Following the sanctions that began in March 2014, net flows of foreign direct investment in Russia fell to negative US$59 million in the second half of that year, compared with positive US$11.45 billion in the same period of 2013. The weak trend remained in the first half of 2016.

The Russian ruble weakened to 66.43 against the US dollar at the end of last Friday from 33.98 in mid-2014.

Given the drastic currency depreciation, inflation in Russia hovered above 15 percent last year and eased to about 7 percent recently. Many local residents complain that they cannot afford to buy food and basic necessities.

Amid the weakening economy, Russian President Vladimir Putin hosted the first Eastern Economic Forum in Vladivostok last September with the goal of boosting exports to Asian countries and attracting foreign investments.

Putin also wants to develop the Far East region as a showroom of market economy for the rest of the country to follow.

“Whether we like it or not, sanctions and sinking oil prices have impacted our economy,” Trutnev said. “We will keep discussing with our partners about how to improve our effectiveness.”

He said apart from attracting investments, the second Eastern Economic Forum will also focus on how to strengthen interstate relations and nurture the younger generation of Russians in the region.

Recent economic data and market indicators are suggesting that the worst is over for the Russian economy, Sean Darby, chief global equity strategist at Jefferies LLC, said in a report last month.

"The authorities have kept a very disciplined monetary and fiscal policy to ensure that inflation has remained tempered while fears over a devaluation of the currency have proved groundless," he said.

Eastern Economic Forum

In May, Trutnev visited Japan to promote the Eastern Economic Forum and related investment opportunities across different sectors including agriculture, energy, medicine and food processing in the region.

He also visited Hong Kong and Singapore to drum up investments, followed by a trip to Tianjin in June to attend the World Economic Forum.

“We are creating an environment that relies on investments. Our task is to create a good setting for investors to seek their opportunities,” he said.

“We met with some Hong Kong companies recently. They are showing up on the Russian markets,” he said.

Russia is now setting up an electronic trading platform for a stock market collaboration project between its Far East region and Hong Kong, he added.

Last year, Chinese Vice Premier Wang Yang, together with representatives from 75 Chinese companies, attended the first Eastern Economic Forum and signing several investment agreements worth 1.3 trillion rubles.

This year the forum will continue to take place at the Russky Island campus of Far Eastern Federal University, where the 2012 APEC summit was held.

More than 2,400 visitors from 40 countries are expected to participate.

This is the first of a three-part series that will serve as a curtain-raiser for the second Eastern Economic Forum summit. [Chinese version中文版]

[2] Russia pins big hopes on free port, economic zones in Far East

[3] Vladivostok: from naval base to tourist and cultural mecca

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The Russian Far East region has a lot of agricultural and seafood resources. Photo: EJ Insight
Vladivostok in Primorsky Krai in the Russian Far East region will be transformed into a trading and tourism hub. Photo: EJ Insight
Sergey Ivanets, president of the Far Eastern Federal University, says the university can benefit as a venue of the annual Eastern Economic Forum. Photo: EJ Insight
The Far Eastern Federal University was the venue of the 2012 APEC summit. Photo: EJ Insight

Chief reporter at EJ Insight