Asian Countries Increase Investment in Russia’s Far East

With only 5% of Russia’s population, the country’s resource-rich Far East region has attracted around a quarter of the country’s foreign direct investment (FDI) in the last four to five years.

According to a new Russian government report obtained by Asia Times, most of the FDI was related to the manufacturing and transport sectors as opposed to natural resources.

The government strategy of creating multiple special economic zones offering localized tax-breaks, eased visa and customs processes and other initiatives, has helped the Far East attract 3.7 trillion rubles ($64.8 billion) in foreign investment across 1,200 projects in the last four and a half years, the recent internal report by the Ministry for the Development of the Far East said.

The most active foreign investors come from China, Japan, and South Korea, as well as from Vietnam and India, according to the report. Most projects are in manufacturing for export of goods to the rest of the Asia-Pacific region.

China has had a particularly active role in the region. Chengtong Holdings is said to be investing US$1.5 billion in a pulp and paper mill in the Khabarovsk territory. And China Communications Construction Co. is completing a feasibility study for the Primorye-1 and Primorje-2 transport corridors.

According to Qiyang Niu, a master student in European and Russian Studies at Yale University, Beijing’s initiative for investment in Russia’s Far East stems in part from the need to revitalize Northeast China’s troubled economy.

“The official negotiations on the two Primorye corridors between the governments and companies of the two countries began in April 2016. A joint Sino-Russian company managing the project is also being organized. Yury Trutnev, the deputy prime minister of Russia who is in charge of the Far East, has been frequently meeting with political and business leaders of China. These are not negative signs. If the construction of the corridors proceeds without major obstruction, it could relieve the overcapacity issue of northeast China, therefore bringing a new light to the region’s troubled economy,” Niu says in an article published by The Diplomat.

While industry analysts warn that real results from the initiatives will take much longer to appear, the ministry’s report shows the bureaucrats have a reason for optimism.

Still, the region’s development is facing serious obstacles, some Russian analysts have said. According to political scientist Artem Lukin, the Ministry for the Economic Development of the Far East is being overly optimistic in its assessments.

“A qualitative breakthrough in the development of the Far East has not happened yet,” he says.

“The hardest issues faced by the region are, first of all, financial conditions. There are no substantial investments here to date. The declared amount is 3.7 trillion rubles. But, will they all arrive? Yes, we see large funds coming in from Russian state companies or some other quasi-government money. As for foreign investors, they are still rather cautious.”