The Chinese factor is significantly helping Russia to withstand the current economic crisis and conflict with the West. At the same time, there is a lack of effective tools on the Russian side for collecting data on the level of presence and aspirations of Chinese business in the country. If these tools are not created quickly, it could cost us dearly.

The reluctance of Chinese businesses to invest in the Russian economy is one of the well-known truths. Indeed, last year China invested more than $170 billion in various countries around the world, but almost nothing seems to have reached Russia. The notorious lack of Chinese investment is the reason for global conclusions about the Russian investment climate, the development strategy of the Far East and pessimistic assessments of the results of the “pivot to the East” and “coupling” policies.

All these conclusions belong to the realm of alternative reality. China is already one of the major investors in the Russian economy. Chinese investments in Russia do face serious difficulties and problems, but these problems are typical for countries with a level of development and economic structure similar to Russia's.

Their solution requires not so much an improvement in the investment climate and special concessions for Chinese investors (although this is what the Chinese side will always insist on), but rather an understanding by the Russian state of the features of the Chinese investment model, its limitations and shortcomings. And also maintaining competition in Russia’s foreign relations in the Asia-Pacific region by intensifying cooperation with Japan, South Korea and, as far as possible, with the United States.

The high level of political relations between Moscow and Beijing and China’s strategic interest in Russia appear to directly affect the scale of Chinese investment and bring real benefits to the Russian economy. In this sense, the declarative political aspects of the Russian “turn” policy, repeatedly ridiculed and criticized, are in fact quite positive.

At the same time, there are obvious problems with managing the process of developing cooperation at the level of collecting primary data on the Chinese economic presence, especially at the regional level.

What do we know about Chinese investments in Russia?

Statistics from the Russian Central Bank show that Chinese direct investment of all types in Russia amounted to $645 million in 2015 and $350 million in 2016. These data are obtained based on Russia's balance of payments. Thus, it is possible to accurately calculate the total volume of investments in Russia from all over the world (in 2016 - $32 billion, including participation in capital - about $19 billion).

However, identifying their sources in this way is impossible, especially when it comes to developing countries such as China. The fact that ridiculous figures from Russian statistics on Chinese investment continue to appear in the media and even in scientific publications is difficult to assess as anything other than regrettable.

For both countries, the main partners in investment cooperation are offshore areas such as the Bahamas and Virgin Islands, Hong Kong, the Netherlands, Singapore, and the Cayman Islands. Chinese statistics try to take this factor into account when analyzing investments outgoing from the country, but they are not very effective in this regard.

A relatively reliable source on Chinese direct investment abroad can be considered the annual directories on Chinese investment cooperation, published in the fall of each year and giving a snapshot of the situation at the end of the previous year. According to the 2016 directory, the total volume of Chinese investment abroad amounted to $145.67 billion in 2015.

Of these, 116.35 billion (80%) were accounted for by five offshore jurisdictions - Hong Kong, the Netherlands, the Cayman Islands, the British Virgin Islands, and Bermuda. The fate of this money is unknown; a significant part of them can return to China, for example, through Hong Kong, which has traditionally been the main source of direct investment in China, while others can be used to acquire assets abroad. Thus, the rest of the world, in terms of Chinese statistics, competed for the remaining 20% ​​of Chinese investment.

According to Chinese statistics, direct investment in the Russian economy amounted to about $2.96 billion in 2015. At the same time, their accumulated volume by the end of 2015 amounted to $14.02 billion. This placed Russia in third place in terms of accumulated investment volume in Europe after the Netherlands and Great Britain and in second place (after the Netherlands) in terms of attracting investments for the year.

Regarding investments in 2016, there are a series of contradictory statements from the Chinese side. In December 2016, the representative of the Ministry of Commerce of the People's Republic of China Shen Danyang said that the exceeding of investment volumes of 14 billion was a “bright moment” of 2016, but did not mention whether we are talking about accumulated investments or an indicator for the year. The figure he mentioned corresponds to the data on accumulated investments at the end of 2015.

At the same time, in January 2016, he named a never-before-seen figure of accumulated investments in Russia at $34 billion. At the end of 2016, the Chinese Ambassador to Russia Li Hui called the figure 10 billion. In February 2017, Chinese Minister of Commerce Gao Hucheng called the figure for accumulated investments in Russia at $42 billion.

Thus, the indicators of official Chinese statistics on Chinese investments in Russia differ several times from the data of Russian statistics. From the point of view of the share of Chinese investments visible to Chinese statistics, Russia is one of their main recipients in Europe.

At the same time, the Chinese themselves admit that their statistics also have obvious flaws. The sanctions regime in force since 2014 also apparently does not encourage Chinese businesses to boast about their investments in Russia.

As far as can be understood, the Chinese government has attempted to calculate the size of investments in Russia based on a survey of large companies. Last summer, during contacts with officials of the Russian Ministry of Economic Development, the Chinese mentioned the amount of accumulated investments at $32–33 billion.

Russian Deputy Minister of Economic Development Stanislav Voskresensky recently stated that 17 joint projects worth $15 billion, launched in recent years, are currently under implementation, and this figure does not include large transactions related to Chinese investments in strategically important companies FEC.

Taking into account the extremely confusing statements of Chinese leaders and the absence of any worthy statistics from the Russian side, it can be assumed that China is one of the major investors in Russia now, but the true volumes of Chinese investments are not known to either the Russian or Chinese sides.

Is China investing a lot or a little in Russia?

First of all, it is worth deciding on a basis for comparison. To assess the effectiveness of Russian policies to attract Chinese investment, it makes sense to compare Chinese investments in Russia with investments in economies similar to Russia – in terms of development level and, preferably, in structure.

This is rarely done. Typically, the relatively modest size of investments in Russia is compared with the total volume of Chinese investments abroad, 80% of which are sent offshore, or with the nominal amounts of giant transactions concluded by the PRC in the markets of the United States, on the one hand, and countries like Kazakhstan, Nigeria, Ethiopia and Pakistan - with another.

Meanwhile, if we ignore investments in offshore companies, we get the impression that recipients of Chinese investments are divided into three main groups. These are the economically developed countries of North America and Europe; the poorest countries in Africa, Southeast and South Asia and “one-dimensional” commodity economies like Saudi Arabia or Kazakhstan.

In developed countries, the Chinese often buy ready-made businesses with advanced technologies and/or strong international brands.

In other cases, Chinese interest is aimed at controlling raw materials assets, key infrastructure, or moving production to countries with cheap labor and weak government regulation.

Excluded from this scheme are moderately developed countries that have their own diversified industry and are trying, like China, to implement strategies for its advanced development. Many sectors of their economies are direct competitors of Chinese companies and, as in China, enjoy government protection.

The traditional Chinese model of investing in underdeveloped countries, with the large-scale import of Chinese labor, equipment, materials and ignoring local standards, will not be accepted here. On the other hand, there are no ready-made companies with international brands open for purchase by the Chinese. There is also no high quality of institutions and legal environment characteristic of developed countries. The result is the typical frustration of Chinese investors with talk of a bad investment climate and the like.

For example, accumulated Chinese direct investment in Poland as of mid-2016 amounted to only $462 million, in Romania $741 million, in Hungary, a “support” country for Chinese business in Central Europe, $2.1 billion. At the same time, Poland and Romania are popular sites for locating production for companies focused on the EU market. Poland is also known for the high quality of its macroeconomic policies, and is the only EU country whose economy grew in 2009.

The history of Polish-Chinese business ties also has its own failed infrastructure megaproject - the Chinese attempt to build the Warsaw-Berlin expressway in the late 2000s, which failed due to the inability of the Chinese company to comply with European rules and standards.

Brazil, a member of BRICS, which has a slightly lower level of development compared to Russia and is not under sanctions (though experiencing an even more acute economic crisis), received less Chinese investment in 2015 than Russia - $2.26 billion.

At the same time, $2.8 billion was invested in primitive Venezuela in 2015. This can hardly serve as a basis for conclusions about the excellent Venezuelan investment climate and capital attraction policy.

Thus, China is probably one of the largest investors in Russia at the moment. In combination with the role of Russia’s largest trading partner at the national level (second after the EU), whose share has only been growing in recent years, the level of emerging interdependence (clearly asymmetrical) should not be underestimated.

The Chinese factor is significantly helping Russia to withstand the current economic crisis and conflict with the West. At the same time, there is a lack of effective tools on the Russian side for centralized collection of data on the level of presence and aspirations of Chinese business in the country. If these tools are not created quickly, it could cost us dearly.

The size of Chinese investment in the Russian economy is actually larger than one would expect, taking into account the Chinese investment model, the structure of the Russian economy, sanctions, the collapse of energy prices and other factors. Political factors appear to be playing a significant role in the growth of Chinese investment.

The obstacle to the further growth of Chinese investment is not so much the Russian investment climate as the lack of a clear understanding among Chinese private businesses on the issues of working in moderately developed countries like Russia. It will be important to work to disseminate the necessary information and establish personal contacts between representatives of private business in the two countries in order to produce a number of clear “success stories” in the future.

The series of articles is intended for entrepreneurs who want to find Chinese partners to implement investment projects in Russia. Here we do not touch upon issues related to the supply of various goods from China. Below is a typical algorithm of actions:

1. Participation in round tables and training seminars.
2. Preliminary consultations with investment companies. Determining the circle of potential investors.
3. Familiarity with the decision-making procedure for investing in investment projects of constituent entities of the Russian Federation, depending on the source of investment.
4. Development of a mechanism for investing in the project (syndicated loans from Russian and Chinese banks, portfolio investments, direct investments). Elaboration of insurance issues for an investment project.
5. Adaptation of a business plan for a Chinese audience
6. Translation of a business plan into Chinese
7. Preparation of a project presentation in Chinese;
8. Participation in Russian-Chinese exhibitions (Russian-Chinese EXPO, Small and Medium Business Forum, China Foreign Investment Fair);

It is necessary to present the essence of the business as accurately and clearly as possible, paying special attention to guarantees of investment security, as well as financial benefits for the investor. It is advisable to engage a Chinese translator for translation or editing so that the text meets the requirements of business Chinese. Also translate into English, as the most popular international language.

Carefully think through the details of the project and describe them. The Chinese are very pedantic, they carefully study everything down to the smallest detail in order to protect themselves and their money in this way, as well as to identify most of its shortcomings at the stage of presentation of the project.

Investing in real estate has always been a reliable means of preserving and increasing savings.

Real estate as an investment object

Real estate for both residential and commercial purposes in large cities is in constant demand and is becoming more expensive from year to year.

Real estate as an investment object

The larger the settlement, the more profitable it is to buy real estate.

Real estate

Tourism is one of the largest, dynamically developing sectors of the world economy.

Tourism as an investment object

Investment in tourism is the placement of investors' capital in the tourism business with the aim of making a profit.

Tourism as an investment object

The objects of the most effective investment in the tourism sector can reasonably be the tourism product and tourist areas.

Tourism

Stock market - what is it?

The stock market is a set of rules and mechanisms that allow transactions for the purchase and sale of securities.

Both private investors and speculators have access to work on stock exchanges; this type of activity is actively developing and offers a good opportunity to invest money.

Stock market

The main direction of investment of the Investing in China Company in the Chinese stock market is exchange trading in futures (Futures are a derivative financial instrument, a standard futures exchange contract for the purchase and sale of an underlying asset). The main activity is carried out on the Shanghai Stock Exchange.

Industry of China

The industrial potential of the People's Republic of China brings approx. 46.6% of the country's GDP.

Industry of China

China is the world's first industrial superpower in terms of industrial production.

Industry

Investing in light industry and the oil industry is the key to high profitability. In China, the leading light industries are still textile and food, which account for more than 21% of all industrial output. Income from cooperation with hundreds of industrial enterprises makes up a significant part of the Company's total income. In the oil industry, this is cooperation with Sinopec Corp. (China Petroleum and Chemical Corporation). In terms of the total number of industrial enterprises, China ranks first in the world. Currently, about 3/5 of all labor resources employed in the industry work in heavy industry, and half of the industrial output is produced. As throughout the world, new and cutting-edge technologies are being introduced in China, and much attention is paid to energy and resource conservation. Invest

Trade turnover between Russia and China in the first three months of 2016 increased by 3.6% in annual terms - to 91.77 billion yuan ($14.19 billion) - announced at the end of the quarter the official representative of the General Administration of Customs of the People's Republic of China Huang Songping. According to him, during this period the volume of exports from China to Russia amounted to 45.91 billion yuan ($7.10 billion, an increase of 6.2%). At the same time, the volume of imports of Russian goods to China increased by 1.1% - to 45.86 billion yuan ($7.09 billion).

Often successful companies are created through the collaboration of several parties: one has an idea, the other has the resources to implement it. Thanks to the Internet, it has become easier for these parties to find each other. However, it is important not just to find a person with money, it is necessary to attract a good partner, cooperation with whom will become the basis for a successful startup and further advancement of the business. When considering investor proposals, try to think about which of them will be interested in your business. To do this, formulate the stage of development of your business: will it be its origin, formation, growth, maturity, or decline. Every company that is at various stages needs its own investor.

Features of the stages of company activity
At the inception stage, as a rule, an entrepreneur has nothing, only an idea, and sometimes a registered patent. There are also problems with the formation of the management team; business processes are not established. External investors are often relatives and friends, or they can be private individuals who have some experience in this area and are willing to take risks. On our website you can find such investor offers.

During its formation, the organization already has an established production of finished products, or already provides services, but its activities do not bring the desired income, and sometimes are even unprofitable. This stage is characterized by business processes that have not been fully developed; only the formation of a management team occurs. At this stage, it is necessary to pay attention to the financial and legal documentation of the company. An investor who is interested in it should easily understand the corporate structure of the organization and its financial position. It is good that the company does not participate in litigation, disputes with government services, etc. At the stage of expansion of activities, the volume of operations performed increases, and profits become stable. As a result, the company begins to occupy a stable position. The stage is characterized by well-established business processes, new markets and projects are opening. At these stages, banks, funds and other serious investors are involved in financing.

Advantages of our business portal
The business portal site is designed to assist its visitors in developing their business and increasing capital. In particular, this page presents various investor proposals. We recommend that you read them carefully and do not make hasty decisions. Try to learn as much as possible about your partner and assess his reliability. When drawing up contracts, read them carefully, let there be as few understatements as possible, and let all agreements be recorded in writing. On this page you can both find an investor and become one yourself by posting an investor proposal. Many of our visitors were able to find reliable business partners with whom they have been working for many years. Perhaps you will become one of their number.

Looking through the statistics of search queries on my website, I noticed that immediately after I posted on the website information about the Chinese Committee for the Promotion of International Trade, or, as we popularly call this organization, the “Chamber of Commerce and Industry of China,” this website page became one of the most popular.
After some time, the site was flooded with requests: “to find a Chinese investor for the reconstruction of a gold mine (sea port, manufacturing plant, etc.)”, “to find Chinese companies to invest in the infrastructure of entire territories and regions in the Russian Federation who want rent or invest in the construction of hotel complexes, tourist centers, holiday homes,” etc.
Some site visitors interested in attracting Chinese investment even called to seek advice on the matter. Not to say that communication was always productive or even informative, but here’s what immediately attracts attention.

After reading this document, it becomes clear that the Chinese authorities are trying, first of all, to prevent capital flight from the country by setting strict limits for Chinese companies investing abroad.
Of greatest interest to individuals and legal entities on the territory of the Russian Federation interested in attracting Chinese investment are the areas listed in paragraphs 3 and 4 of the “Instructions”, in paragraph 3:

1. Focus on the development of investment projects abroad that contribute to the economic development strategy “One Belt, One Road”, investing in related infrastructure that ensures mutual communication and mutual access of the countries participating in the projects
2. Sustainably develop investment projects that allow the export of advanced production facilities, equipment and technical standards.
3. Strengthen investment cooperation with advanced and high-tech foreign manufacturing enterprises, encourage the creation of technological research and development centers abroad.
4. Based on a balanced assessment of the economic efficiency of projects, take an active part in investment projects in the field of exploration and development of oil, gas, mineral and other types of resources.
5. Make efforts to expand cooperation in agricultural production, develop investment cooperation in agriculture, forestry, livestock, by-products and fisheries and other fields, based on the principle of "mutual benefit and win-win."
6. Consistently promote the implementation of overseas investment projects in the fields of commerce, culture, logistics and other types of services, provide support to qualifying financial institutions to open their branches and organize a service network to conduct activities in accordance with the requirements of the law.

And paragraph 4 Areas limited (but not prohibited) for investing abroad:

The participation of domestic enterprises in investment projects abroad that do not correspond to the peaceful foreign policy course of the state’s development, an openness strategy based on the principle of “mutual benefit and win-win”, and macro regulation policies is limited, including:

1. Investing in projects located on the territory of states that have not established diplomatic relations with the People's Republic of China, sensitive states and regions where military operations are taking place, or where bilateral and multilateral treaties with the participation of the PRC provide for restrictions on foreign investment.
2. Investing in real estate, hotels, cinemas with a large number of halls, entertainment industry, sports clubs, etc.
3. Creation of joint-stock investment funds or investment platforms abroad without specific industrial projects.
4. Investing in projects using outdated production equipment that does not meet the technical standards of the host country.
5. Investing in projects that do not meet environmental, energy and safety standards of the host country. Among them are the first three categories of projects, participation in which must be approved by the body responsible for regulating investments abroad.

Thus, Chinese investment policy abroad opens up quite large opportunities for Russian business.

Now let's talk about what you will need to do to take advantage of your chance to "lure" a Chinese investor.

First of all, find competent, competent specialists, namely Chinese translators, lawyers, specialists in the field of foreign trade activities with experience in working with China.
You will need to prepare a feasibility study, a business plan, translate property rights documents, land plans, and all the documentation that a potential Chinese investor may request from you. Remember that you will also have to correspond with your Chinese partners on current issues.
Why is it better to translate documents into Chinese rather than into English? The answer is simple, do you want things to move as quickly as possible? Do it!!! Don't get your hopes up that many people in China speak English! Believe the experience of a person who has lived and worked in China for more than twenty-five years: even the Chinese who speak quite passable English happily “jump off” when they realize that they can communicate in their native language. Nobody wants to put in more effort than is required! If a situation arises when a Chinese investor has to make a choice, he, other things being equal, will choose the investment project for which the documentation is translated into Chinese.
It is possible that your potential Chinese partner takes the documents and correspondence received from you to a translation agency, only to read what you sent him 3-5 days later. Meanwhile, the fuse disappears... It’s not for nothing that we say: “Strike while the iron is hot.”

Remember the next thing. The Chinese are extremely distrustful, so sometimes attempts to go directly to your goal can end in failure. Let me explain my point. There are quite a few of our compatriots living in China who know the Chinese language well and are good translators from Chinese. But for the Chinese, we are all “strangers,” and the Chinese businessman prefers “his own,” even the most illiterate translator. In such cases, a recommendation from one of the Chinese can be very important.
TRY TO FIND THOSE WHO ARE ALREADY WORKING WITH CHINESE PARTNERS AMONG YOUR ACQUAINTANCES. It will be great if your friend or acquaintances already have a good business reputation in the eyes of the Chinese by this time. Enlist their support, let them recommend you, in such cases “word of mouth” works well. Use this to your advantage.

China is a country with an extremely developed bureaucratic machine. It is very important here that you come not “from the street”, but “from someone”; letters of recommendation from institutions and organizations and petitions are still in use here. The Chinese are well aware of such things, and their role cannot be underestimated.
Therefore, if there is such an opportunity, enlist official support, use every opportunity and, especially, “administrative levers.”
Contact the local administration, prepare an official letter, a certificate, something that can raise your reputation and the attractiveness of your proposed investment project. For a Chinese investor, this will mean that you have secured the necessary support from the administration and will be able to successfully resolve, if necessary, a certain range of organizational issues.

Another important point. The Chinese Committee for the Promotion of International Trade is, of course, cool! However, this is a huge bureaucratic machine whose competence includes tasks that are much more important than finding you a suitable Chinese investor.
In essence, a structure of this scale represents and serves Chinese national interests at the international level. And this is not the level of the majority of “ordinary” individuals and legal entities of the Russian Federation. Why am I doing this?! And besides, instead of sitting and “waiting by the sea for weather”, sending letters and requests to the Chinese Committee for the Promotion of International Trade, direct your efforts in a more productive direction!!! Look for your future partner among your Chinese industry colleagues.
In simple words, if your specialty is the agricultural complex, you need to look in the Chinese agro-industrial complex, if the task is to reconstruct the port, your potential Chinese investor is among Chinese companies solving similar problems in the PRC.
But even with such an algorithm for searching for an investor, you cannot avoid the personnel issue, you will not be able to take a single step without qualified Chinese translators, lawyers, foreign trade specialists, China specialists; moreover, be prepared for the fact that there is unlikely to be anyone then, ready to engage in this complex, painstaking work “for future dividends.” Specialists will need to be paid. By the way, “reluctance to pay”, to invest any real funds, at the initial stage of searching for investors is the most common reason that an investor is not found.

China is a huge country with a rich history and traditions. Unfortunately, many Russian businessmen do not have experience working with the Chinese, so they know nothing about the peculiarities of the psychology of a Chinese entrepreneur, or about the specifics of negotiating in China, or about business customs.
If you are seriously considering cooperation with the Chinese, it's time to start studying your future partners. This will be useful to you when the work on implementing a joint project moves into practical territory and you have to personally, of course, not without the participation of your Chinese translator, communicate with your colleagues from China. Try to learn something about the Chinese, their history and culture, I am sure that it will not be in vain and will bear fruit. Chinese business is built primarily on successful interpersonal relationships.

And finally, probably the most important. PATIENCE, PATIENCE, AND AGAIN PATIENCE! How many times have you heard: “These Chinese, how annoying they are, can’t you work faster!”, or “How many times can you have dinner with them and drink their stinking vodka! Do all this without me and bring them only when they are ready to sign the contract!”
Unfortunately, it doesn't work that way! Only by showing patience, hospitality, understanding and internally accepting all the national characteristics of your Chinese colleagues will you be able to win over a future investor.
The work of finding partners and interacting with the Chinese is very similar to going to the gym. According to statistics, after a month of training, up to 10% of “athletes” refuse to continue training; after two months, the dropout rate doubles.
Six months pass, and no more than 20% of the original number remain in the gym. 80% of “dropouts” are not ready to invest money, effort and time in this rather slow and labor-intensive process, having experienced disappointment from the inability to achieve quick results and have lost proper motivation. Unlike those who were initially committed to targeted, painstaking work.
Be patient and good luck in your search!

© Tsai Ilya. Moscow 2018. All rights reserved.

Tags: Chinese investment, investment in Russia, Chinese investment policy, Chinese investment abroad, China Chamber of Commerce and Industry, China Committee for the Promotion of International Trade, translator in China