Russia’s Far East Development Fund and China’s state-owned gold mining company, China National Gold Group, are to sign an accord by the end of this year on setting up a joint US$1 billion investment fund targeting new projects in the metals and mining sector.
“Ourselves and China Gold are creating a fund in which private investors too can take part and turn a profit. Our first goal is to invest in projects to mine gold, precious metals and copper,” Far East Development Fund head Aleksey Chekunov told media.
The fund is slated to begin dispensing funds for projects next year and will have an initial capital of US$500 million to put to work. That will increase with contributions from both sides, as well as private investors.
The Far East Development Fund (FEDF) was established in 2011 to provide soft loans for the implementation of investment projects in Russia’s Far East. Its only shareholder is the state lender Vnesheconombank, whose mission is to aid in development projects and foreign economic relations. FEDF assets as of June 2017 stood at US$614 million.
China’s Metropoly Holdings and Sinohigh Investment have also expressed interest in establishing two joint Russia-focused investment funds, one in mining and metals and another for infrastructure and development projects.
The investment push is part of China’s Belt and Road Initiative, and also of a program of economic cooperation the country has drafted with Russia. That program calls for large Chinese corporates in the mining and infrastructure fields to invest in and support new projects in Russia.
“China, despite neighboring Russia, has made rather smaller investments in the Far East relative to Korea and Japan”
Economics professor Alexander Latkin told Asia Times that the creation of the joint Russia-China fund would have a favorable impact on the economy of the Far East, but that results should not be expected quickly.
“Given the large budget deficit in Russia and the sequestration of many programs for the development of the Far East, such initiatives will get support,” Latkin said.
“This initiative looks especially favorable since China, despite neighboring Russia, has made rather smaller investments in the Far East relative to Korea and Japan. But, we should keep in mind that this is a long-term project that should not be expected to turn around quick results.”
China Gold should have approached private companies, not state institutions, if it wanted to invest in mining in Russia, said Maxim Krivelevich, from the School of Economics and Management at the Far Eastern Federal University,
“Given the cultural specifics and characteristics of Chinese business, companies from there may see it as more convenient to work with state or quasi-state actors. So, they are looking for support from officials. However, working with Russian bureaucracy is somewhat different,” Krivelevich said.
He explained that in Russia business people often aim to achieve the fastest return on capital possible, whereas officials are more interested in attracting large capital to show off the size of investments.
“As a result, China Gold could end up putting a lot of money into projects with low and long-term returns,” Krivelevich said.
Chinese companies have made several major transactions in the Russian commodity sector in 2017.
In May, Fosun bought 10% of Russia’s largest gold mining company, Polyus, for US$900 million. China’s CEFC, meanwhile, paid US$500 million to acquire 6.25% of Russia’s EN+, which controls metals, mining and energy assets, during the course of the group’s initial public offering.