Russia cements Asian relations at Apec summit

By bne IntelliNews September 10, 2012

Natasha Doff in Vladivostok -

From the lavish preparations to the upbeat speeches, Russia's message at September's Asia-Pacific Economic Cooperation (Apec) summit in Vladivostok could not have been clearer: Asia, not the West, is the key to Russia's future.

Usually a fairly uninspiring affair, this year's event - the first hosted by Russia in its 14-year membership - Russian readership tried to make this one to remember. Held in a swanky new university complex, perched atop an island off the coast of an expensively spruced-up Vladivostok, the summit far exceeded its aim of proving to the countries of the Asia-Pacific region that it means business.

And just in case delegates weren't impressed enough with the 1,000-metre bridge built in their honour or the gifts left daily in their rooms, there was a gigantic fireworks display (rumoured to have cost $8.8m), a glamorous cocktail party aboard a ship on the final evening and the most lavish buffet the Russian press corps have ever seen.

Key to Russia's new geopolitical approach is trade, which the country hopes to capitalize on by using its strategic position as a land bridge between Europe and Asia. Currently some 50% of Russian exports go to Europe, while just a quarter goes to the Asia-Pacific region. The Russian authorities say they want to bump this up to at least half in the coming years.

But while the sentiment is attractive, it is clearly easier said than done. Transport between western Russia and the country's vast eastern hinterlands is served by a single railway, while red tape and corruption put a heavy strain on the transfer of goods and deter investment. Moreover, the Russian government does not have $21bn to invest in each of the hundreds of run-down cities east of the Urals, as it has done in Vladivostok.

Nevertheless, the mood on the sidelines of the summit was positive, with businessmen who work in the region confident that that the Russian government is taking the right steps to piggyback on Asian growth. "Russia is a big place and it's hard to get everything done at once, but the world doesn't wait," said John Faraci, chairman and CEO of International Paper, which has invested heavily in forestry projects in Eastern Siberia. "The world is growing and the opportunities are there."

Faraci and others pointed to the concrete steps already being taken, such as a new government ministry set up in Far Eastern city of Khabarovsk in May to promote the development of the region, railway capacity upgrades and measures to cut nightmarish customs procedures. The authorities have also opened up a shipping channel along Russia's northern coast and are lobbying Apec members to consider diversifying supply chain routes to include Russia. "The amount of trade between Europe and Asia exceeds $1 trillion and every percent of the cargo that is transported via Russian territory will bring our economy no less than $1bn," Ziyavudin Magomedov, chairman of the board of Summa Group, said at a panel session. Currently less than 1% of the cargo is transported via Russia.

An industrial holding company with close links to the government, Summa looks set to emerge as a key player in the development of the Far East, having already invested in a raft of infrastructure projects in the region. The group is negotiating a deal to buy a 55.8% stake in the Far East Shipping Company and signed a memorandum of understanding during the Apec summit with Russia's state development bank, Vnesheconombank (VEB), to jointly develop a Far Eastern grain terminal.

Just as important as hard infrastructure, is further economic integration with the countries of the Asia-Pacific region. Joining the World Trade Organization (WTO) was a start, but Russia is also pushing for more free trade areas, a single Apec customs window and more lenient visa requirements.

And Russian President Vladimir Putin's grand plans aren't limited to East Asia. His aim is to link up the region with most of the countries of the former Soviet Union via Russia's newly formed Customs Union with Belarus and Kazakhstan, and a wider project to create a European Union-style economic bloc with most of Central Asia, called the Eurasia Economic Union (EEU) that is supposed to appear by 2015. "If you look at the territory of the three countries, you will see that we do have something to offer," Putin told CEOs at the summit.

Putin made clear that the main target of his new strategy is China, which has promised to open up its import markets and generate some $10 trillion in demand for global exports until 2015. It is notable that the Russian president repeatedly referred to trade and energy ties with Beijing during his speech, while barely mentioning the other major Apec economy, the US.

Russia has also followed China's lead in shunning the Trans-Pacific Partnership, a US-led trade group formed at last year's Apec summit. Although Russia's trade with the US also has potential for a significant increase, investors said this strategy makes a lot of sense, given China's growth prospects and proximity to Russia (the country's eastern border lies less than 100 kilometres from Vladivostok). "If China is going to succeed, Russia will inevitably succeed too, because a lot of the growth in China will be dependent on access to resources that Russia has," David Gray, a managing partner at PricewaterhouseCoopers, said at the summit. "It doesn't make sense that everyone is optimistic about China but pessimistic about Russia. You'd have to have mismanagement on a Herculean scale for there not to be growth in Russia."

Russia cements Asian relations at Apec summit

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