Is China's attention moving towards Russia? - comments Oleg Khokhlov for the Banker


The Banker, 01.12.2016

Russia is edging towards China – or so the story goes. And the politicians are doing their part. Russian president Vladimir Putin and his Chinese counterpart Xi Jinping have met in China five times since Mr Jinping came to power in 2013, which crucially also includes the period since the introduction of Western sanctions on Russia in early 2014. <…> Investing also means access to technology and new, specially protected markets, as well as the creation of global brands through acquisitions. Some investment is driven by government policies. But as Oleg Khokhlov, a partner in banking and finance at Moscow-based law firm Goltsblat BLP, points out, investment goes beyond even this. “We are seeing an interesting trend of Chinese companies transacting with other Chinese companies with assets in Russia,” he says. “In those cases, the fact that the business is in Russia is just a coincidence. They know the business is run by Chinese people and that they work to a Chinese codex.” Such business hubs exist, for example, in the Far East in Russia, he adds, where Chinese investors are active in the forestry sector, are transacting between each other and are building local infrastructure, which is lacking. <…>Chinese influence also extends to Russia’s banking sector, where Chinese financial institutions have been setting up shop since 2013. Banks such as ICBC, Bank of China, China Construction Bank and Agricultural Bank of China are largely seeking to participate in lending and leasing activities, according to Mr Khokhlov. “Chinese banks are slowly but incrementally increasing their capacity to do onshore deals in Russia,” he says. The banks are particularly interested in stronger credits or familiar names, he adds, such as aircraft finance transactions for Russian majority state-owned airline Aeroflot. Most Chinese banks follow Western sanctions, especially those with subsidiaries in the US and Europe, but some, including China Development Bank (CDB), have decided to disregard the restrictions. “From the early days of sanctions, CDB had sign-off from the Chinese central government to lend to sanctioned Russian entities,” says Mr Khokhlov. “It would lend to the likes of VTB and Sberbank regardless of EU and US sanctions, which meant that CDB became an important source of funds for sanctioned banks.”

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