Russia and Greater China #5

Tuesday, May 29, 2012Distributed with the

Monthly supplement from Rossiyskaya Gazeta (Moscow, Russia) which takes sole responsibility for the contents

Opposition prepares for new battles

PAGE 3

Politics

PAGE 8

Customs union makes business sense

Trade

PAGE 13

Russia takes aim at soccer’s Euro 2012

Sport

SPECIAL REPORT

Neglected region in search of economic boom, writes Olesya Gerasimenko

Dreams of prosperity

It was a radical and controversial plan, but Nikolai Matvienko stands by his idea. When he was head of investment management for the Vladivostok City Administration,

three years ago, Matvienko wanted to lease half the city to China.

A local weekly publication quoted him as saying: “The district will be hand-ed over to China on a 75-year lease. A Chinese administration will be created there, to report to Harbin. The land will remain in Russia’s ownership, but will be leased, and rental fees will amount to 130 to 150 billion roubles (HK$33 bil-lion to HK$37 billion), which is three to five times the budget of the entire Primorsky Krai area, even by current estimates.”

National media quoted the article, but Matvienko denied making the pro-posal. The Chinese Foreign Ministry also denied any knowledge of the plan, though Matvienko was eventually fired. Matvienko, who works as an adviser to the vice-president of the Russian Build-ers’ Association in the far eastern Fed-eral District, still believes in his ambi-tious idea. “We need a territory with international governance status,” he says. “The people living there will enjoy dual citizenship.”

The crowd at the Ford stand at the Be-ijing Auto Show moves forward with cameras at the ready, aimed not so much at the four-door sedan on dis-play, but at the phalanx of blonde Rus-sian models surrounding it.

There were no Russian carmakers at the show, but the beautiful models made a big impact. Besides the 1.82-metre women at the Ford stall, another 50 or more Russian models added a touch of glamour to the exhibits at the show, underlining the role Russia is playing in China’s burgeoning model-ling industry.

“A lot of models heading to China in the past regarded the country as a step-ping stone to the catwalks of Europe,” says Ksenia Kryazheva, 20, who recent-ly returned to her native Barnaul in Si-beria’s Altai Krai after a three-month modelling stint in Beijing. “But there’s a growing awareness that China now has a flourishing modelling industry of its own.

“There were some trying experienc-es, such as being driven for 10 hours in a bus to attend a ‘modelling event’ that turned out to be a local beauty contest. But the experience of working in China was a great one,” she says.

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> CONTINUED ON PAGE 12People in Vladivostok are demanding a better life in the far eastern city. Photo: Alexander Hitrov

Moscow captivates visitors

Explore the unbeaten track of Russia’s capital during a short stay in Moscow. Page 14. Photo: Iliya Varlamow

Growth under threat

Glamorousmodels rule catwalks

Dmitry Butrin RGC

Vaughan Winterbottom RGC

Russia’s long-term economic growth is under threat, as the nation’s workforce continues to decline, according to an-alysts. Faced with this predicament, of-ficials are looking at ways to reform the country’s immigration policies that place restrictions on importing foreign workers.

So far, more than 6 million of its cit-izens have emigrated over the past two decades, while the birth rate is low and the death rate high. By 2025, the number of workers could drop by 10 million and, with the population stable at about 141

million, the Demography Institute of the Russian Academy of Sciences esti-mates the workforce would drop by 7.1 per cent by 2020.

“The country is entering a most com-plicated demographic period,” says Se-curity Council Secretary Nikolai Patru-shev.

ECOPSY Consulting Partner Grigory Finkelshtein says the workforce could drop 15 per cent by 2025 and 25 per cent in manufacturing alone.

“Industries with young professionals as their backbone, such as retail, will be most affected,” Finkelshtein says.

RUSSIA ANDGREATER CHINA

www.hk.rbth.ru

A product by

Russia’s top models visit China fre-quently. Photo: AFP/Eastnews

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RUSSIA AND GREATER CHINATuesday, May 29, 2012

Putin must change style and methods

Vladimir Putin is once again president of Russia, but it would be a big mistake to think that his new term will be as easy as his first two

stints in office in 2000 and 2004. According to the recent social polls

by the Public Opinion Poll Centre, only 29 per cent of Russians want him to rule as he did before and 53 per cent of those asked would like him to change “the style and methods” of his government.

Russians elected Putin for the third time, but they like him less then before. Fewer see him as “business like”, “edu-cated”, “intelligent”, or even “strong” and “brave”, according to recent polls by the Moscow Levada Centre.

Russia has changed and Putin has to change with it if he wants to remain on top. Can he do it? We can only wait and see.

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SPECIAL EVENT

Facebook investment pays off for nation’s richest man

Fairy tale to remember

Mark Zuckerberg isn’t the only one to have profited from Facebook’s initial public offering (IPO) on May 18. While Zuckerberg made substantial gains in one day from the social network’s list-ing on the Nasdaq stock exchange, the investments of two Russian business-men paid off equally handsomely.

Yury Milner, of the DST Group, and Alisher Usmanov, from Mail.ru and who owns nearly 30 per cent of English soc-cer club Arsenal, sold a combined 65 million Facebook shares and earned about US$2.5 billion on the IPO. The duo’s investment strategies have brought some impressive results.

Last year, Milner was named venture investor of the year by TechCrunch. Us-manov became the richest man in Rus-sia this year with an estimated person-al wealth of more than US$18 billion, according to the Russian edition of

Sukhoi’s bid to break into the lucrative world of regional aircraft market, dom-inated by Canada’s Bombardier and Bra-zil’s Embraer, suffered a huge blow this month when a Russian Superjet 100 air-liner crashed on the slopes of Mount Salak, a volcano, in West Java, while on

Some 30 fictional characters from Rus-sia and around the world took part in the first Fairy Tale Games from May 18 to 20 in Kirov. Among them were fa-mous characters such as Pinocchio, Till Ulenspiegel and Puss in Boots, and Russia’s Snegurochka (the Snow Maid-en), Kolobok, Baba Yaga, Berendei and others.

With Kirov Governor Nikita Belykh, Kirov Senator Svetlana Zhurova and members of the regional government in attendance, the characters swore to

Forbes magazine rankings published a month ago. Milner and Usmanov also have minority stakes in Twitter, Grou-pon and Zynga. Milner has invested in Chinese e-commerce website 360buy.com and Beijing start-up incubator In-novation Works. DST Advisors estimate that 40 per cent of the fund’s portfolio will be in Asia within five years.

a demonstration flight from the Indo-nesian capital of Jakarta. All 45 people on board died.

The Russian Regional Jet project to develop the Sukhoi Superjet was launched in the early 2000s. Sukhoi Civil Aircraft was established for this purpose and the first flight took place in May 2008. Deliveries to customers began last year from the main Sukhoi factory in Komsomolsk-on-Amur.

Investigations are expected to con-tinue until early next year.

Russian experts cling on to the hope that Sukhoi will survive and eventually emulate European airliner Airbus whose jet crashed during a demonstration flight on June 26, 1988. Despite scepticism and fear, and 24 years later, there are almost 2,800 A320s in operation.

President Vladimir Putin is less popular now. Photo: Reuters/Vostock-Photo

Breaking the iceSukhoi faces credibility crisis after fatal crash US$1.3

BILLION

Ice hockey fans are delighted after Russia crushed Slovakia 6-2 to win the World Championship title in Helsinki. Photo: Reuters/Vostok-media

be brave, kind and serve justice before competing in seven disciplines: mak-ing a magic ball of string; tug-of-war using a turnip; running on enchanted paths; Kolobok bowling; a biathlon which included archery; rowing; and croquet using mallets and a hedgehog. The programme also included dancing and dodgeball with golden eggs.

Champion Kolobok of Ulyanovsk and second-place Pakkaine (Santa Claus) and Tsar Berendei won medals shaped like petals.

This is how much money Russian oli-garch Roman Abramovich has spent on English soccer club Chelsea since its acquisition in 2003, according to Forbes magazine. The venture was not exactly successful as Abramovich lost about US$1 billion and has never managed to get the west London side out of the red. But can you really put a price tag on the honour of being the champions of Europe? Abram-ovich might think that all his invest-ments paid off on May 19 when Chel-sea won the Uefa Champions League for the first time in its 107-year his-tory. He still has some cash to keep Chelsea going – his personal wealth is estimated to be about US$12 bil-lion as of late last month.

Alisher Usmanov made a handsome profit. Photo: Kommersant

Investigations into the Sukhoi crash are likely to last months. Photo: AP

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Opposition ranks prepare for battle

June 26Do you want to buy a piece of Russia? Read the special report on investment opportunities in the country

In the “Control Walk”, organised by writers, thousands of people marched along Moscow’s Boulevard Ring to protest against the police violence that took place on May 6. Photo: Ruslan Sukhushin

Political focus shifts from national elections, which sparked civil protests, to the regions, writes Igor Vyuzhny

Federal authorities are loosen-ing regulations for local and re-gional polls, allowing opposi-tion parties to field candidates in elections later this year.

Russia’s election regulations were tightened in the mid-2000s to thwart criminal groupings and deal with inde-pendent politicians, but this ideology has exhausted itself, says former Kremlin po-litical technologist Gleb Pavlovsky.

Over the past few months, an impor-tant transformation has taken place, changes that would allow for the elec-tion of more independent candidates.

“The emergence of some opposition movements in the country destroyed the bureaucratic monopoly on forming local governments,” says political expert Vadim Dryagin.

Moscow was the first city where op-position candidates competed effec-tively in district administrations, and independent and opposition candidates were elected to district councils.

The struggle spread outwards, as in-cumbent candidates lost the mayoral elections in Yaroslavl and Togliatti.

In Astrakhan, Fair Russia opposition party candidate Oleg Shein challenged the ruling elite. He lost the election, but went on a hunger strike, declaring the vote had been rigged and protesters and non-parliamentary opposition mem-bers flew in to support him.

In Omsk, Moscow blogger Ilya Var-lamov was nominated for mayor, even though he was not a registered candi-date. The move showed the opposition’s determination to fight for local power.

Under public pressure and before leaving office as president, Dmitry Medvedev passed a bill reintroducing

direct elections for governors from June 1, replacing central government ap-pointments. The bill also eliminated a requirement that parties collect signa-tures and reduced the minimum size required for registration of a party.

Critics have said these were half-measures. Bureaucrats still have pow-erful tools to control access, while the opposition needs to squeeze through a regulatory bottleneck. Candidates need to collect signatures from up to 10 per cent of municipal deputies or heads of municipal councils to run for

ed Russia. It is the eighth registered po-litical party in the country. Leader Vladimir Ryzhkov says the party will nominate candidates in Velikhy Novgorod, Blagoveshchensk, the Amur region, Bryansk and Belgorod.

The most heated struggles are likely to happen in city council elections in Moscow and St Petersburg.

“The Moscow City Duma campaign is critical for the opposition, because en-hancement of their representation in the Moscow government could become a real political goal for angry citizens,” says political expert Mikhail Remizov.

Federal authorities seem satisfied with more political engagement. A spate of early resignations by governors could mean the Kremlin wants to infuse new blood in the local bureaucracy.

“The mopping up of the governor corps is a result of the previous appoint-ees not living up to expectations and failing to gain prestige locally,” says Vy-acheslav Pozgalev, Volgograd region governor from 1996 to 2011.

A part of Russia’s political elite has agreed to give more political freedom and financial independence to the re-gions. The State Duma is studying a bill to redistribute taxes to the regions, which will stir up interest in regional campaigns. For the changes to have im-pact, voters will need to pay more at-tention when voting and winning can-didates will need to deal with real problems at municipal councils.

“It is on the basis of the local author-ities that Russia’s civil society can emerge, when people with differing viewpoints have to work out a concert-ed position in order to govern their area together,” Dryagin says.

Moscow and St Petersburg are bound to see the most heated struggle for seats on city councilsgovernor. Still, many are happy at the idea of free elections and engagement, Dryagin says.

The opposition has a cluster of peo-ple who believe in clear and practical action, not just protests. The struggle will peak this autumn during elections for regional parliaments and governors. Dmitry Gudkov, a parliamentarian from the Fair Russia party that voted against Medvedev’s appointment as prime min-ister, says the opposition will field can-didates at all regional elections, start-ing in June, in Krasnoyarsk.

The Republican Party, established in 1990, is getting ready to challenge Unit-

The authorities disperse anti-Kremlin demonstrations, despite their peaceful nature. Photo: Reuters/Vostock-Photo

Moscow protesters take inspiration from Wall StreetDan Peleschuk RussiaProfile.org

The worldwide “Occupy” movement has finally arrived in Moscow. As Pres-ident Vladimir Putin settles into office, anti-Kremlin demonstrators are imple-menting new tactics to test the limits of their protests and the authorities’ tol-erance. Protesters are trying to turn cen-tral Moscow parks into a makeshift campsite and the new home base for the opposition movement.

Putin’s inauguration on May 7 was preceded by violent and unprecedent-ed protests. Unlike the cheery rallies of the winter, in which tens of thousands gathered to denounce the regime, more aggressive protests on the eve of his lav-ish ceremony marked a potentially dark-er chapter. In the following days, the anti-Kremlin demonstrators changed course and have implemented a differ-ent plan.

Now, the Moscow demonstrators have turned to the “Occupy Wall Street” movement for inspiration. They have gathered without slogans, placards and anger – and with only their white rib-bons and sleeping bags in city parks making outdoor opposition camps. They relocate to another site in the city cen-tre if police force them to leave.

The first Occupy-style camp nestled inside the Chistye Prudy park since May 8 and lasted about a week. Calling their event “Occupy Abai”, protesters turned a statue of 19th-century Kazakh poet Abai Kunanbayev into a fortress. Each day, a handful of activists camped out overnight, while in the afternoons and evenings the park swelled with partic-ipants and curious onlookers. Volun-teers gave lectures on politics and his-tory, ordinary demonstrators debated the future of the opposition, and a make-shift information centre – staffed by a handful of university students – helped co-ordinate it all.

At first, it seemed this type of protest provided few excuses for the police to become involved, since the event wasn’t a political rally and didn’t require a per-mit from City Hall. But on May 15, the Moscow Basmanny Court ruled that the police could disperse the opposition camp on Chistye Prudy, and the police immediately uprooted it.

Since then the anti-Kremlin protest camp has migrated to sites around the city centre. The Occupy Barrikadnaya camp (near the Barrikadnaya metro sta-tion) was scattered without any court hearing. Dozens of evicted protesters moved to the Arbat, while others set-tled at Nikitskiye Gates around a mon-ument to Kliment Timiryazev, a prom-inent Russian physiologist.

So, has the protest movement found a new course? It’s still unclear. A new mass rally is reportedly planned for June 12, the little-acknowledged Russia Day, and May 13 saw an estimated 10,000 people, led by opposition-minded writ-ers and artists, attend a largely undis-turbed “stroll” through central Mos-cow.

As for the Abai-style camp occupi-ers, they seem determined to hold firm for as long as it takes and only move to another place if they are dispersed by police.

As 18-year-old university student, Philip Galtsov, who helps co-ordinate the demonstration’s information cen-tre, embodies the rough-and-tumble spirit of many of the more seasoned par-ticipants. “Judging by the amount of people who have shown up and taken an interest here, I think you could say this is the future [of the protest move-ment],” he says.

Yet, he also raised a challenge, ech-oed by many other demonstrators, to opposition leaders in a sign that peo-ple are looking for more concrete ac-tion. “Personally, I think the strength of the movement really depends on whether it can address the more basic social issues that affect people’s every-day lives.”

POLITICS

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Russia has spent US$20 billion on Vladivostok, but its residents envy the economic boom Chinese cities are en-joying. Photo: Vitaly Ankov/RIA Novosti

Clinging to dreams of prosperity

ECONOMY

Port traffi c in the far east

Portmillion metric

tons

Vladivostok (Primorsky Krai) 4

Vostochny (Primorsky Krai) 16.5

Vanino (Khabarovsk region) 5.9

Prigorodnoe (Sakhalin region) 16.3

Busan (South Korea) 293

Qingdao (China) 370

Dalian (China) 337

Tokyo (Japan) 44.6

Osaka (Japan) 32.4

Nagoya (Japan) 46.1

Economic and lifestyle contrasts

“The authorities will be operating ac-cording to a business plan. It would be exciting to see how our lands could be governed differently.”

The Far Eastern Federal District cov-ers one-third of the country and has a population of 6.2 million (4 per cent of Russia’s total), of which 2 million live in the Primorsky Krai – known as Pri-morye. Some 600,000 people live in Vladivostok. More than 414 million peo-ple live within 1,000km of this city in South Korea, Japan, China and North Korea. Less than 100 million people live within a similar distance of Moscow.

The combined GDP of this area around Vladivostok is about US$7 trillion per year, almost four times as much as Rus-sia. Despite being part of this economic cluster, more than 20 per cent of local residents live below the poverty line and many blame federal authorities.

To deal with this problem, the Krem-lin injects money into Primorye.

In 2007, Vladimir Putin suggested holding an Asia-Pacific Economic Co-operation (Apec) summit in Vladivos-tok and US$20 billion has been spent preparing the city for its hosting. Gazprom laid a gas line from Sakhalin to Vladivostok. Russky Island was taken from the defence ministry and equipped with production facilities and infrastruc-ture. A giant bridge now links it to the mainland. Roads have been patched up and the city now has its first sewage-treatment plant.

Local residents are still unhappy, however. “Summit is a bad word,” they say. “Imagine that a husband who comes home drunk every night one day appears with a bunch of flowers. Would you forgive him all at once?”

Moscow’s hopes to improve the situ-ation have created new problems. There have been reports of an influx of people from Uzbekistan and Tajikistan to work

on construction sites. Of the 30,000 mi-grants registered this year, there are more Uzbeks than Chinese. Locals harp on about the foreign threat, but Primorye Governor Vladimir Miklushevsky says there are no such problems.

“Migrants from the [Commonwealth of Independent States] threaten us even more than China. Those who are un-wanted in Moscow and Siberia – peo-ple with no skills who don’t speak any Russian – come to Primorye,” says Ser-gei Pushkarev, the former head of the local branch of the Federal Immigra-tion Service.

The best-known protest movement is the Association of Citizens with Ini-tiative of Russia (known as TIGR, mean-ing “tiger”). It is led by Artem Samsonov and Yury Kuchin, two programmers who met behind bars after a rally of motor-ists was brutally dispersed on Decem-ber 21, 2008. They were detained and kept at a police station for 10 hours.

The group extended their focus be-yond roads and cars and into issues such as the shortage of kindergartens, con-struction landfills, fishing laws and the potential cancellation of time zones.

“We have no money, but we give ad-vice and co-ordinate,” Samsonov says. “We help activists meet. We success-fully stood up for our time zone, when they had that idiotic idea to make us all

get up at night. We contacted Petropav-lovsk, Kamchatka and Sakhalin, and staged rallies.” Samsonov believes TI-GR’s work has led to a slump in popu-larity of the United Russia party, whose share of the votes in State Duma elec-tions fell from 54 per cent five years ago to 33 per cent last year.

The Far East is dissatisfied with the federal centre, because it sees exam-ples of a better life nearby. Chinese con-struction projects may not be visible in Primorye, but construction operations on the islands near Khabarovsk, that were handed over to China in 2008 when the border between Russia and China was revised, don’t go unnoticed. Tara-barov Island is now called Yinlong Is-land (“Silver Dragon”), and the west-ern part of Bolshoy Ussuriysky Island has been renamed Heixiazi Island (“Black Bear”). A bridge across the Amur River linking the mainland with Bolshoy Ussuriysky Island is almost finished after round-the-clock construction at a cost of US$95 million. The bridge should open in October. Russia is also build-ing a bridge to Bolshoy Ussuriysky Is-land, but at a much slower pace.

In order to find out what really threat-ens Primorye – China, separatists or mi-grants from the CIS – Russia and Great-er China attends a lecture by Professor Alexander Abramov at the Far Eastern State Federal University’s department of mathematical methods in econom-ics. Abramov helped to design the Vladi-vostok development strategy until 2020 and worked on the chapter “Russia in the Asia-Pacific Region”.

During the lecture it became clear that Abramov was speaking about the same problems and solutions that the

“separatists” had mentioned previous-ly, but in more academic terms. He ar-gues that the far east needs looser reg-ulations, special budgetary and tax zones, exemption from restrictions on some operations and measures to at-tract company headquarters.

Abramov says the virtual ban on shut-tle tourism (15,000 people were directly affected) led to population outflows. A ban on construction in the restricted 500km border zone discouraged initia-

to just one day. Russian Railways oper-ates the “Transsib in Seven Days” project, which takes a week to trans-port cargo from the far eastern seaports to the European Union border. “This project would enable us to reduce the freight load on the Trans-Siberian Rail-way and transport up to 150 million tonnes of cargo annually,” Abramov says. “The railway option could compete with air traffic, according to Korean estimates. The project would break even within six years.”

The region’s development plans have not gone beyond the theoretical stage and all attempts to convince people to stay have been unsuccessful. The pro-gramme for the resettlement of compa-triots to Primorye announced by Putin has collapsed. There were plans to at-tract 18 million people in 2006 alone, but only 3,000 moved to the far east from abroad during the past six years.

Primorye loses about 15,000 people annually, according to the statistical service Primorskstat. Some migrants go west, and their dislike for Moscow af-fects their routes. Many leaving prefer settling in St Petersburg, a more intel-lectual destination. Another wave chooses to go east. In the 1990s they chose Japan, and in the early 2000s the flows were redirected to China. Young graduates from Far Eastern Federal Uni-versity who can speak Chinese can find jobs there relatively easily with salaries ranging from US$3,000 to US$5,000 per month. “If you want to live here, you’ll have to deal with all problems by your-self,” Matvienko says.

“We do not have separatism here, it is just that the things long hidden are becoming obvious now.”

The combined GDP of this area around Vladivostok is about US$7 trillion per year, almost four times as much as Russia

tives to promote tourism. At the same time, Chinese hotels and entertainment centres are just a step away from border posts. Abramov recounts the region’s missed transport opportunities – all the seaports of the far east combined trans-ship less cargo than the major ports of neighbouring China and South Korea. Neighbours interested in importing raw materials, or using Russia to transit their products to the West, are ready to invest in local infrastructure, but Moscow won’t let them for “geopolitical reasons”.

In November last year, South Korea offered to build a high-speed trunk rail-way parallel to the Trans-Siberian Rail-way, which would reduce delivery time

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Embracing Latin AmericaRegion emerges as new battleground for Moscow and Beijing, writes Ramón Pedrosa

Russia is competing with China for influence in Latin Amer-ica. With a combined popu-lation of 590 million and growth above 4 per cent, the

larger economies in the region – Brazil, Mexico, Argentina and Chile – are at-tracting increasing attention and offer-ing huge opportunities, particularly as a vacuum of influence emerges.

“The loss of influence of Europe and the United States in Latin America can be considered a side effect of the crisis, a sign that the legitimacy of the West-ern system is decreasing before the eyes of emerging markets and that others are bound to enter,” says José Luis López Valenciano, a Spain-based global ana-lyst who until recently worked with the Fundación para el Análisis y los Estu-dios Sociales (FAES), a think tank run by former Spanish prime minister José María Aznar.

Russian state energy firms Rosneft and Gazprom have gained access to Venezuelan petroleum projects. Photo: Getty Images/Fotobank

Many countries and companies from Europe are rethinking their approach to the region. Spain is experiencing its biggest crisis in decades, while its cor-porate powerhouses are leaving or being pushed out. Bolivia nationalised the operations of Spain’s Red Eléctri-ca, a partly state-owned electrical com-pany, this month. Argentina national-ised a 51 per cent stake in YPF, the national oil company held by Spain’s Repsol.

In the United States, a foreign policy aimed at the Middle East and Asia has sidelined Latin America.

“Unlike the United States, the Euro-pean Union, as a whole, can’t be con-sidered a trusted partner,” López Valen-ciano says. “This provides Russia and China with an opportunity to occupy the space Brussels is leaving.

Bilateral trade between Russia and Latin America has jumped to close to US$15 billion a year. Russia’s Foreign Minister Sergei Lavrov plans more than 60 summits in the next four years, even with smaller economies such as Peru and El Salvador.

Russia’s main interest in Latin Amer-ica is oil-rich Venezuela, which has huge proven oil reserves. Russia’s Gazprom, through its regional subsidiary Gazprom-bak Latin America Ventures, is taking over operations in the oilfields of Bacaquero Tierra and Lagunillas Tier-

ra, in the northwest of Venezuela, in a joint venture with Caracas Corporacion Venezolana del Petroleo (CVP). Gazprom has established a presence elsewhere, such as in Brazil, where it works next to Petrobras, a Brazilian state-owned oil company.

Russian airlines are helping to solid-ify these links. Aeroflot and Transaero are launching direct flights to Argenti-na, Mexico, Panama, Nicaragua, Brazil and Cuba, and the country is working on free-visa arrangements.

“Russian companies and institutions are pushing as hard as Chinese and those from Brazil,” says Judith Domíngu-ez Serrano, a professor at El Colegio de Mexico, a think tank with a unit focused on Asia.

“We see them seriously supporting research and opening markets that were traditionally reserved for European part-ners.

“However, when it comes to deploy-ing environmental or social policies, they still have a long way to go,” she says. “They are starting to learn how to work in the region.”

Russia’s official stance is that it can-not afford to ignore Latin America.

“Its leading states demonstrate an ability to actively and productively par-ticipate in dealing with issues on the global agenda and in economic growth rates the region is second only perhaps to Asia,” says a government spokes-man.

Russia’s trade with the region is dwarfed by China’s. China-Latin Amer-ica trade in 2010 hit US$179 billion, more than 11 times Russia’s.

China has been on a buying spree of ports and resources across Latin Amer-ica for two decades.

Chinese state-owned and private companies have bought port terminals from northern Mexico – in Manzanillo and Ensenada – to Ecuador, which changed its laws in 2006 to accommo-date the entry of Hutchison Whampoa, a Hong Kong conglomerate.

Chinese multinationals have been active in the region since 1992, when the Shougang Corporation of Beijing bought Peruvian company Hierro Peru.

Chinese foreign direct investment in Latin America, especially in Asia-Pacif-ic Economic Co-operation countries, rose to more than US$15 billion in 2010.

“There is a big worry about what the new powers will do to get a grip in the region,” says an analyst from the Cole-gio de Mexico.

“Russia and China are not alien to that.”

SCO moves far beyond original regional scopeAndrei Ilyashenko RGC

The Shanghai Co-operation Organisa-tion (SCO) may be in for major chang-es. SCO was designed in the 1990s to build trust between Russia, China and four Central Asian countries – Kaza-khstan, Kyrgyzstan, Tajikistan and Uz-bekistan – primarily in the military sec-tor. SCO member states were united by the threat of Islamic fundamentalism and the Taliban rule in Afghanistan.

In the early 2000s, SCO shifted its focus to combating international ter-rorism and drug trafficking, and co-op-eration in economic and humanitarian areas. The organisation pursued a cau-tious policy, never giving analysts rea-son to treat it as a serious political, let alone military, alliance. India, Pakistan,

Iran and Mongolia joined the SCO as observers, while Belarus and Sri Lanka became dialogue partners.

But times have changed. Crises in the Middle East, including those triggered by the Arab Spring and the role of West-ern countries, and the withdrawal of United States troops from Iraq and Af-ghanistan, have led to a revision.

Speaking at a meeting of member ministers in Shanghai, Russian Foreign Minister Sergey Lavrov said SCO would formulate a common policy to deal with crises in the region. The new mecha-nism could be launched next month, ahead of an international conference on Afghanistan in Kabul on June 14.

“The situation in Afghanistan and around it raises major concerns,” Lav-rov said. “We should participate in all international discussions on Afghani-

stan-related problems, co-ordinating our positions.” SCO will take into con-sideration decisions from the Nato sum-mit in Chicago later this month.

tinued presence of foreign troops. Mos-cow would also like to hear a report on the implementation of the UN resolu-tion that served as the basis for the mil-itary campaign in Afghanistan. SCO’s position will support the efforts of Rus-sia and China in this area.

If SCO’s membership grows, Moscow and Beijing’s demands are likely to gain further backing. Lavrov wants approv-al for India and Pakistan’s membership requests, and the organisation is close to giving Afghanistan observer status and making Turkey a dialogue part-ner.

SCO has obviously moved beyond its original regional scope.

A declaration by SCO member states quoted by RIA Novosti, the Russian in-ternational news agency, condemns the US anti-ballistic missile programme.

The document suggests that the uni-lateral expansion of the anti-ballistic missile system may damage interna-tional security and strategic stability.

The statement supports Moscow’s efforts to deter the US anti-ballistic mis-sile plans that could hurt Russia’s stra-tegic potential. China is also interested in deterring the US, as its nuclear forc-es are even more vulnerable. A consol-idated SCO position could be a signifi-cant counterweight to Nato’s plans.

However, there appear to be no plans to give SCO military and defence func-tions. According to the newspaper Kom-mersant, the new strategy will include additional instruments to develop the organisation that will have to be ap-proved by the heads of SCO states.

The essence of the strategy remains undisclosed.

BUSINESS

SCO is close to giving Afghanistan observer status and making Turkey a dialogue partner

Unlike the United States, the European Union can’t be considered a trusted partner

Previous statements by the Russian Foreign Ministry have made it clear that the nature of the US and Nato presence in Afghanistan will top the agenda. Mos-cow and Beijing argue against the con-

6


Russia’s First Deputy Prime Minister Igor Shuvalov talks with Chinese Vice-Premier Li Keqiang during the Russian-Chinese Trade and Investment Forum in Moscow. Photo: Xinhua/Legion Media

Ambitious investment tops agenda

PROJECTS

Moscow and Beijing to create US$4 billion fund to strengthen business ties, writes Viktor Kuzmin

Russia and China will estab-lish a joint US$4 billion in-vestment fund to support projects aimed at developing business co-operation.

The Russian Direct Investment Fund (RDIF) and the China Investment Cor-poration (CIC) will contribute US$1 bil-lion each, and another US$2 billion will come from other investors, Russian of-ficials say. The Russians will have a 60 per cent stake and the Chinese 40 per cent.

The fund will be one of the key top-ics of discussion during the third an-nual Russia Investment Summit in Hong Kong. Scheduled for July 5 and 6, and sponsored by Russian investment bank VTB Capital, the summit will attract 250 participants from Russia, the Common-wealth of Independent States (CIS, a loose association of former Soviet Re-publics, formed during the break-up of the Soviet Union) and Asian coun-tries.

“It provides a platform for compa-nies and institutions to educate and in-form an Asian audience about the Rus-sian and CIS market,” says Jonathan Hirst, publisher of FinanceAsia and AsianInvestor, the organiser of the sum-mit. “Over the past three years, the forum has established itself as the place to be to hear the latest from seasoned Russian investment experts.”

Igor Shuvalov, Russia’s first deputy prime minister, announced the RDIF’s creation late last month at the Russian-Chinese Trade and Investment Forum in Moscow. The fund, to be set up be-fore the end of next month, will pay at-

Heavyweight Chinese infrastructure investors are moving towards putting their money into big projects across Rus-sia, a market they described as “empty” during a presentation in Moscow on May 18.

Russian government officials are pushing foreign corporations towards its vast regions, particularly the north Caucasus, but no agreements have yet been signed.

Top executives from infrastructure, construction, tourism and leisure in-vestors Dalian Wanda Group and China Oceanwide Holdings Group conclud-ed a second visit to Russia in less than a year this May.

Moscow, Krasnodar region, Dag-estan and Irkutsk are particularly prom-

tention to projects in energy efficiency and conservation, says Kirill Dmitriev, head of RDIF. Up to 70 per cent of the funds are supposed to be invested in companies and projects in Russia and in CIS countries. The remaining funds will go to China.

China became Russia’s largest trad-

ing partner last year and now accounts for more than 10 per cent of Russian foreign trade turnover, but Russia’s share of China’s foreign trade is modest, rank-ing 12th among its trading partners.

Russia would be glad to raise the vol-ume of trade, given the deteriorating situation in the West. Last year, trade between Russia and China exceeded US$83 billion. Both plan to reach the US$100 billion mark in three years – a rate of growth much faster than with any other BRICS countries (Brazil, Rus-sia, India, China and South Africa). A more ambitious goal of US$200 billion in trade has been set for 2020.

“We’re going to achieve such results largely due to the optimisation of the

commodity structure of trade and increasing the share of engineering pro-duction and innovative products,” Shu-valov says.

The potential for bilateral co-opera-tion is huge. The complementary na-ture of the two economies and their focus on innovation creates opportu-nities, says Chinese Vice-Premier Li Ke-qiang. Twenty-seven commercial agree-ments, worth US$15 billion, were signed during the event. Two were especially noteworthy.

Oleg Deripaska, CEO of UC Rusal, Basic Element and owner of En+, signed an agreement with Zhao Gang, presi-dent of Norinco, that could be worth US$1 billion over three years.

Norinco is Rusal’s largest client in Asia, where the company wants to sup-ply 2 million tonnes of metal per year.

In 2009, Norinco, agreed to buy 1.68

million tonnes of aluminium from Rusal by 2016.

Last year, Rusal bought 33 per cent of Shenzhen North Investments - the trade subsidiary of Norinco. Early this month, a joint-venture company called North United Aluminium started op-erations. Norincon intends to partici-pate in the creation of Russia’s largest aluminium rolling mill at the Krasno-yarsk Metallurgical Plant.

The second agreement was between Russia’s Sibur petrochemical group and China’s Sinopec and focused on the pro-duction of synthetic rubber.

The Chinese company plans to re-ceive 25 per cent of the production and stock in the Krasnoyarsk Synthetic Rub-ber Plant.

“Historically, the plant has been ori-ented towards the Chinese market. Si-nopec’s participation in the project will allow for increasing production by about 40 per cent,” says Dmitry Konov, chair-man of the board of Sibur. Konov did not disclose the scale of Chinese invest-ments.

Sibur already sells petrochemical products through its office in Shanghai. Another transaction completed during the forum was the purchase by China Nonferrous Metal Industry’s Foreign Engineering and Construction of half of the Ozernoye project in the Repub-lic of Buryatia, home to huge lead-zinc deposits, for an undisclosed price.

In 2011, China became Russia’s largest trading partner. It accounts for more than 10 per cent of Russian foreign trade turnover

Chinese investors target lucrative marketHoward Amos The Moscow Times

China Oceanwide’s president Lu Zhiqian (second left) and Dalian Wanda’s president Wang Jianlin (third left) meet Russian officials.

ising for investors, Tsi Tszysin, vice-president of China Oceanwide, told reporters.

“We have made initial agreements with local authorities from these towns, so we have made the first step towards investment,” he said.

During their guided tour of the Rus-sian regions, the investors visited Ma-khachkala, the violence-prone capital of Dagestan, and the Caspian Coast - sites promoted by North Caucasus Re-sorts, a state-controlled company with a mandate to develop the region.

The size of the first projects under-taken by the Chinese companies could be about US$600 million, said Ivan Vvedensky, chairman of tourism agen-cy World Without Borders.

The potential total investment under discussion is between US$2 billion and US$3 billion. Vvedensky added that the

interest from the Chinese was “a very important signal”. Nevertheless, all sides stressed that nothing has been signed and the negotiations were still in an early phase.

“The Russian market is empty, and now is a good time to enter it,” said Bo Khe, vice-president of Dalian Wanda.

Most Chinese interest in Russia is directed at the natural resources sec-tor, but participants at the presenta-tion said the tourism industry was also very promising.

There were 840,000 Chinese visitors to Russia last year, said Yevgeny Pis-arevsky, deputy head of the Russian Federal Tourism Agency - making the Chinese the second-most-numerous tourists after the Germans.

At present growth levels, they are likely to soon occupy first place.

About 80 per cent of Chinese visi-tors come to Moscow and St Peters-burg, while 15 per cent are arriving as a result of cross-border traffic where the two countries meet on the Amur River.

The representatives of the Chinese companies said they were well aware of the problems associated with Rus-sia’s investment climate, having heard lots of “rumours”.

They stressed that their decision to invest would come after a careful study.

“I know for certain that my wife is very beautiful, but I can’t say for cer-tain that my neighbour thinks the same,” said Tsi, referring to perceptions of Russia abroad.

“And if she’s ugly it’s not necessary to tell him,” he joked.

“Investment is just the same.”

Ties continue to strengthen

7


Mainland in fast laneChinese vehicles make inroads into booming sector writes Viktor Kuzmin

Chinese car manufacturers are gradually increasing their sales in Russia’s booming car market. Some marques prefer to sell vehicles direct to Siberia and the Russian far east instead of setting up a joint-venture factory. Photo: Ruslan Krivobok/RIA Novosti

Emerging marques rev up sales in nation’s vibrant market

INDUSTRY

Mainland-manufactured cars are making inroads into Russia, the biggest importer of Chinese ve-hicles from 2006-2008,

despite competition from some of the world’s leading brands and protection-ist policies introduced four years ago.

Russia’s automotive market contin-ues to grow and more than 361,000 pas-senger cars and light commercial vehi-cles (LCVs) were sold in January and February last year, up 23 per cent year-on-year, according to the Association of European Businesses. About 2.7 mil-lion cars were sold last year, up from 1.4 million in 2009.

Chinese carmakers are slowly taking advantage of this booming market, with China’s Geely Automobile last year see-ing an impressive 212 per cent year-on-year rise in sales to 6,000 units. More than 43,000 Chinese passenger cars were sold in Russia last year, a 90 per cent increase over 2010. However, this is only slightly more than the number sold in the country last year by Japa-nese manufacturer Mazda, which ranked 13th in car sales.

Geely, China’s third-largest local manufacturer, sold 473,626 cars world-wide last year. However, Chinese car-makers have a minute market share, and have been hurt by allegations of low-quality assembly and materials.

Lifan topped Chinese carmakers’ per-formance in the first two months of the year, selling nearly 2,700 new cars — a 60 per cent increase.

Chery, the only Chinese brand with negative sales growth in Russia last year (minus 18 per cent), recorded a 218 per cent surge in sales in January and Feb-ruary, making it the 30th best-selling car. The Great Wall took 31st place – 1,700 cars were sold, with growth of 130 per cent.

BYD showed sales growth of 2,410 per cent in the first two months of the year. However, the brand only sold 10 cars in Russia in the corresponding pe-riod last year as BYD’s F3 cars weren’t assembled at the Russian Taganrog Au-tomobile Plant until October 2010.

tent that Chinese carmakers are expe-riencing overloaded after-sales service and spare-parts shortages.

The key to expansion may be to launch new assembly lines or build new factories, but Chinese companies are more interested in direct exports in Si-beria and the Far East, as low produc-tion costs make up for high import du-ties.

Chinese carmakers’ market share is likely to remain small. Some, including Great Wall Motors and Chery, have abandoned projects or dissolved joint ventures after failing to overcome pro-tectionist policies. Analysts say there is

little point in building new plants be-fore Chinese carmakers can consolidate their positions.

There are two main assemblers of Chinese cars in Russia.

The largest, with a capacity of 100,000 cars per year, is Derways. Based in Cherkessk, Derways opened in 2010 to make cars for Geely and Lifan, and bod-ies for Great Wall Hover trucks. The plant will also start producing up to 40,000 cars per year for Haima, an FAW brand.

The other is Taganrogsky Avtomobil-ny Zavod (TagAZ), a joint venture that began assembling vehicles for Chery, BYD Auto and JAC in 2008.

The undisputed leader in the Rus-sian market remains the domestically produced Lada. In January and Febru-ary, about 66,000 were sold, although the brand’s sales fell 13 per cent. The best-selling foreign brand was Nissan, which increased sales by 44 per cent, followed by Hyundai (66 per cent growth) and Kia (33 per cent growth).

Metropol analyst Andrei Rozhkov says Chinese carmakers face “tough com-petition” with Russia’s largest manufac-turer AvtoVAZ, and South Korea’s Hy-undai, and other affordable brands enjoying superior reputations.

However, sales have grown to the ex-

Over the past six weeks, three Chinese carmakers have announced plans to organise production in Russia.

China’s giant carmaker Great Wall and its Russian partner Irito may start the assembly of Hover sports utility ve-hicles at a plant being built in the Li-petsk region. Investment in the project may reach US$100 million. The initial production is expected to be 30,000 cars per year.

Lifan, another Chinese carmaker, is also planning to start producing as many as 120,000 cars per year at the AMUR plant (Automobiles and Motors of the Urals) in the Sverdlovsk region. Various stakeholders are still discuss-ing the investment and the need to bring in local parts suppliers.

Lifan remains the leading Chinese carmaker in the Russian market, ac-cording to the Automobile Manufac-turers’ Committee of the Association of European Business. The marque, which has a co-operation agreement with Cherkessk’s Derways factory, sold 17,900 cars in Russia last year, up 133 per cent from the previous year. It also plans to double its production this year to 30,000 cars.

Chinese marque Chery is also at-tempting to start production in Rus-sia. According to Gennady Pavlov, di-rector of Chery Automobiles RUS, the company is considering various op-tions.

Chery tried to gain a foothold in Rus-sia in 2007, when the Avtotor plant in Kaliningrad began assembling the Chery Amulet.

The company was located in a spe-cial economic zone which gave it tax and customs privileges, but the project was short-lived. The cost of assembly services was set in US dollars, but pay-ment was made in roubles, which made it unprofitable, a spokesman ex-plains.

Chery executives in Russia do not anticipate any problems with the ar-rival of Chinese carmakers in the coun-try.

There are no restrictions on the pres-ence of Chinese cars on the Russian market, Pavlov says.

Rather, the decrease in the number of Chinese brands compared with the pre-crisis period suggests some car-makers were not competitive.

Investcafe analyst Kirill Markin says that the key factors constraining sales in Russia are import duties and a dis-trust of Chinese machinery. Interest is on the rise, however, which suggests there is potential demand and that the market is growing.

Leading carmakers hope to start production

PROJECTS

BUSINESS CALENDAR

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at www.rbth.ru

The top-selling Chinese car models in Russia (from left to right): Chery Amulet, Chery QQ, Chery Tiggo, Great Wall Hover, Great Wall Deer. Photo: Press Photo

8


A close bond between Russia, Belarus and Kazakhstan Plenty of potential for growth

The impact for foreign business will be felt as the market grows.

At the moment, quality goods are 15 to 35 per cent more expensive in Russia, but prices should level out.

Negative factors are a lack of syn-ergie in taxes and technical require-ments – VAT is three times higher in Russia than Kazakhstan. Another hurdle is a residence principle, that requires traders to arrange customs clearance in their home countries. A solution will take time.

The deal boosted inter-union trade by over 38 per cent last year and the benefits for foreign countries will be-come obvious over the next two or three years.

Rustam Yuldashev is the chief execu-tive of STS Asia

Union makes business sense

Customs union is expected to bring economic benefits. Photo: Photoshot/Vostock-Photo

When Russia, Belarus and Kazakhstan announced the establishment of a customs union in Octo-ber 2007, many analysts

perceived this new association of former Soviet Union states as yet another po-litical manoeuvre to give Moscow great-er influence.

It is no secret that Russian leader Vladimir Putin, who once called the dis-integration of the Soviet Union “the main geopolitical catastrophe of the 20th century”, pines for the Soviet past and wishes to restore Moscow’s pres-tige among its close neighbours. How-ever, the creation of the customs union, initially, brought Moscow more trouble than it was worth. The country had to postpone talks with the European Union and the United States over accession to the World Trade Organisation for two years. The union also caused problems between Belarus and Russia.

However, as soon as the customs union finally became operational in 2010, it proved to be more about eco-nomics and pragmatism than about politics.

According to the Eurasian Develop-ment Bank, the union’s economic in-tegration holds potential benefits equiv-alent to 14 per cent of GDP for Belarus, 3.5 per cent of GDP for Kazakhstan and 2 per cent of GDP for Russia between 2011 and 2030.

In monetary terms, the GDP of the three countries should grow by US$900 billion over the next 19 years.

The customs union will benefit not only Russian, Belarusian and Kazakhsta-ni companies, but also others. And it is East Asian companies that are expect-ed to enjoy the most benefits, especial-ly those from China.

Producers, whose goods are trans-ported from China to Europe, will be the first ones to enjoy the advantages of the customs union. At present, the main route to transport commodities from the production hub in China’s

coastal provinces is the sea route via the Suez Canal. However, the develop-ment of transport infrastructure in Ka-zakhstan, Russia and Belarus offers ex-citing overland transport opportunities – either by road or by rail. Astana is now financing the construction of a high-way connecting western China and east-ern Europe, aligned with the network of Russian roads, in association with the World Bank and China Development Bank. This route will substantially cut transit time. Thanks to the customs union framework, exporters will only have to cross two borders instead of four to transport a container to Poland. Fur-thermore, customs duties have been

slashed – instead of paying all three countries, a company registered in China will have to pay a single customs tariff. Given the recent trend towards transferring production to inland and western regions of the country due to cheaper labour and government incen-tives, overland transport routes may prove shorter and more beneficial than sea lanes.

Secondly, the creation of the customs union may be beneficial to companies catering to former Soviet Union mar-kets. They will gain access to a single market with 173 million potential con-sumers instead of three separate ones. After the Eurasian Economic Union re-places the customs union in 2015 - Mos-cow, Minsk and Astana signed the rel-evant agreement in 201 - producers will not have to resolve legislative problems and compare legal intricacies in Rus-sia, Belarus and Kazakhstan.

A major advantage for Chinese busi-ness structures is that they will be able to get their subsidiaries registered in the most lenient tax area of the customs union – Kazakhstan. Tax rates in the two largest countries of the customs union troika – Russia and Kazakhstan – are markedly different. In Russia, the basic income tax rate stands at 20 per cent.

Employees pay 13 per cent of their wages in taxes and employers have to make additional social payments, which were increased to 30 per cent last year. Fi-nally, all goods sold in Russia are sub-ject to 13 per cent value-added tax. The Russian tax burden, which significant-ly increased last year, has already brought about many illegal compensa-

tion schemes. Another popular way of reducing the tax load for Russian com-panies is to re-register the business in Kazakhstan, where the average income tax is 15 per cent, personal income tax is 10 per cent, and the value-added tax rate is six points lower than in Russia. Social security payments are also lower in Kazakhstan, at 26 per cent, compared with 30 per cent in Russia. At the same time, the companies will enjoy the same benefits in the markets of Russia and Kazakhstan as residents of those coun-tries, without facing the obstacles that might apply to foreign investors. These tax differences may eventually cause Russia to liberalise its tax legislation, which will have a positive impact on Russia-based subsidiaries of Chinese companies.

“In creating a customs union, we were well of what we were in for. Taxes are lower in Kazakhstan, so business has started flowing in. Nevertheless, in the long term, we will benefit from this com-petition, as we will have to cut taxes to encourage business here,” a Russian of-ficial says.

Putin’s dream of a bright and prosperous future

Russia intends to intensify its moves for greater economic integration with countries that were part of the former Soviet Union. Moscow hopes to launch a Eurasian Economic Un-ion with Belarus and Kazakhstan by 2015.

President Vladimir Putin put for-ward his bold idea in his article, “New integration project for Eura-sia – making the future today”, pub-lished in the Russian Izvestia news-paper in October last year.

According to the newly-elected Pu-

tin, a Eurasian union could act as a bridge between Europe and the Asia-Pacific regions.

It would build on the existing Cus-toms Union, operational since July 1 last year, and the Common Economic Space (CES) launched on January 1.

At first it would include Belarus, Kazakhstan and Russia.

The CES is a high-capacity emerg-ing market with more than 165 mil-lion potential consumers, unified legislation and free movement of capital and labour.

Last year, the three countries signed 17 key treaties that make up the legal framework of the common economic space – and put together a joint commission.

Putin envisages that from the gradual merging of the Customs Un-ion and the CES, the Eurasian Eco-nomic Union will emerge and now wants Ukraine to join.

Deeper integration is possible through stronger political and cul-tural cohesion among members of the union.

TRADE

Integration is set to attract investors and bring about economic benefits to the region, writes Viktor Kuzmin

9


Economic growth under threat

With unemployment at 6.5 per cent, Russia looks to Central Asia to find workers. Photo: ITAR-TASS

Country faces long-term worries, as the number of professionals declines

MANPOWER

“These sectors will have to revise their approach to workers by improving, for instance, their employment terms and raise wages in order to compete for younger employees.”

At stake is economic growth. Signif-icant growth is unfeasible without an all-out drive to attract foreign manpow-er, according to experts, who say that Russia needs to import blue-collar work-ers to fill the low-end jobs that make up about two-thirds of the vacancies. The shortage of workers is conspicu-ous in oil, gas, engineering and trans-port sectors.

In its most recent draft of the State Immigration Policy to 2020, the Feder-al Immigration Service attempted to combine two approaches to importing foreign labour. It has sought to restrict immigration by requiring higher edu-cational qualifications, while allowing mass imports of semi-skilled labour. The Security Council sent the draft back for revision.

Most of the statements made about immigration policies in Russia are also ambivalent. Anyone speaking about the “immigration problem in Russia” has to admit both facts – that further eco-nomic growth is unfeasible without ac-tive efforts to attract foreign manpower and that social problems are tied to growing immigration inflows in the sec-ond half of the 2000s

The shortage of manpower in Rus-sia is increasing by the year. “The coun-try is entering a most complicated de-mographic period”, Security Council Secretary Nikolai Patrushev said recent-ly. Russia’s manpower will decline by at least 10 million people by 2025, he said.

For the time being, Russia is still try-ing to attract immigrants from its tra-ditional sources in Central Asia, such as Uzbekistan, Kyrgyzstan and Tajikistan. But the focus on Central Asia has its problems. The availability of labour in the region is limited, and even tempo-rary immigration by large numbers of Muslims from Uzbekistan and Tajikistan – employed in public utilities and con-struction in the Moscow region – has created ethnic tension.

Economists, who were tasked at the end of last year to come up with the government’s Strategy-2020 for eco-nomic development, considered three possible approaches to immigration.

The first would be a focus on tempo-rary immigration of unskilled workers, if the resources industry keeps grow-ing. Second, Russia must start compet-ing for skilled workers in the world mar-ket. Third, to focus on white-collar immigration by attracting specialists with university degrees.

The first approach is close to what is

happening now, but the stabilisation of domestic markets in Central Asia, part-ly due to Chinese investment, may limit the availability of migrant labour.

The second approach – to attract skilled migrants – may also be difficult because Russia has no mechanisms to bring in medics or teachers who can work in the country. At the same time, the country is unlikely to implement models tested in Qatar, Bahrain, Kuwait and the United Arab Emirates in the 1990s, when technical personnel in

may be lower than the official 6.5 per cent.

The actual employment figures should become clearer during the 2014 Winter Olympics in Sochi, when Mos-cow will find out if manpower from the north Caucasus region will be enough to stage the world’s biggest sporting event.

According to leading managers of the Olimpstroy Corporation and the Olym-pic Steering Committee, it has been hard to find local workers for the con-struction and hotel sectors. Olimpstroy is considering looking for workers in Turkey and engaging English-speaking workers from eastern Europe and the Baltic states in the hotel sector.

This could be a way to tackle the Sochi-2014 problem, but not the Mos-cow-2025 or Russia-2030 challenges.

Foreigners may be needed to fi ll key jobs

Ambivalent policies slow immigration

Late last month, Moscow recorded an unemployment rate at 0.64 per cent, an all-time low for the city.

As the number of able-bodied peo-ple in the capital could shrink by 50,000 to 80,000 per year over the next five years, foreign workers may be needed to make up for any short-fall in manpower.

At present, foreign workers account for 7 to 9 per cent of the workforce.

Chances are slim that the number will increase soon, as immigration

Despite unfavourable demograph-ics and a clear demand for work-ers, Russian immigration authorities maintain ambivalent policies. In one of his executive orders after his in-auguration, President Vladimir Pu-tin called for mandatory testing for migrant workers in subjects such as Russian language, history and the basics of legislation.

Putin also instructed the govern-ment to prepare draft laws with tougher punishments for violating immigration laws. The move is based

is lower than in countries such as Spain, Germany, Britain, Australia and Canada.

The peak of Russia’s immigration was in 1992-94, when immigration exceeded the population decline.

Inflows then fell until 2003, but picked up again in 2004, promoting annual GDP growth of 6 to 9 per cent. Between 2009 and 2011, immigration generally made up for population de-clines by settling at 300,000 per year, a third of Australia or Canada.

on popular feelings. The slogan “Rus-sia for ethnic Russians!” is increas-ingly popular (see chart), while the flow of immigrants is heavily tilted towards low-skilled workers. While about 80 per cent of Russians seek college degrees, low-skilled jobs are filled by immigrants.

Experts say that a tough stance cannot solve the Kremlin’s immigra-tion headache unless it can stop the population from shrinking further or encourage Russians living overseas to come back.

At stake is economic growth. Significant economic growth is unfeasible without an all-out drive to attract foreign manpower

manufacturing were replaced by immi-grants.

Russia will likely have to consider im-porting manpower from Southeast Asia, where it will have to compete with China. There are some trial programmes under way. During a visit to Moscow in March, Philippine Foreign Affairs Sec-retary Albert del Rosario discussed the possibility of sending Filipino workers to Russia. At the moment there is a plan to employ Filipino workers at agricul-tural engineering companies in the Vladimir Region.

Another option to import labour from China into Siberia and the far east has not been seriously considered for po-litical reasons - and the fear of an “eco-nomic invasion” by China. Both factors are still entrenched in Russia’s immi-gration policy.

The third approach, attracting high-ly qualified professionals, is now lim-ited to hi-tech projects in defence, IT and management.

There has been some discussions about introducing a points system, such as ones in Australia and Canada, but the problem is fierce competition from the United States and the European Union. Both offer better employment terms and living standards. Finally, the point-based immigration system would seriously limit any mass immigration by unskilled manpower, despite Rus-sia’s need for such workers, irrespective of economic growth rates

As things stand today, Russia has about five years to solve its manpower-shortage woes, provided that immigra-tion inflows remain stable amid a sta-bilised population in the country. At 140 million, Russia’s employment data is ambiguous and the unemployment rate


Source: Federal Migration Service

10 Tuesday, May 29, 2012

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Siberia may hold answers

Russia’s need to connect to Asia’s ac-celerating economic growth is a pri-ority, as is the parallel need to rede-velop Siberia and regions lagging behind east of Lake Baikal.

The United States and advanced European countries have latched on to Asia, having found new sources of growth. Only Russia, a close neighbour, has been treading water with much masochistic hand-wringing over the depopula-tion of Siberia and scaring itself with non-exist-ent Chinese human expansion, or the prospect of Chinese dominance.

There are many reasons for this thinking. The main one is objective. Throughout the

past century, Siberia and the far east developed through the socialist semi-gulag system. The collapse of communism led to painful restruc-turing.

Other reasons are more subjective. The main ones are the inability of the Russian elite to de-part from obsolete Euro-centrism and a gross underestimation of the rate and depth of Asia’s rise. It’s also embedded in the minds of many that Asia is a neo-communist alternative to the democratic European path of development.

In the past two or three years, Vladimir Putin and Dmitry Medvedev have been speaking about the need to lean towards Asia. Trade has increased but investments are still close to zero.

In the past six months, an idea has cropped up to create a state corporation with real capa-bilities to develop eastern Siberia and the far east.

I would not like to join the argument as to

The worsening territorial disputes in the South China Sea have highlighted the weakness of mechanisms to guarantee international security and keep nations from exercising their military might.

The situation has existed for more than 40 years. Disputes over islands, shelves and reefs have led to serious tensions between China and Association of Southeast Asian Nations (Asean) countries, or the Asean bloc as a whole. Viet-nam, the Philippines, Malaysia and Brunei have all locked horns with Beijing, as has Taiwan.

One of the main reasons for the South China Sea’s territorial problems and the poor pros-pects for solving them is the region’s huge oil reserves. Estimates range from several billion to 200 billion barrels of oil. Given the acute short-age of energy resources for all countries in the conflict, the stakes are very high.

Almost all the region’s countries depend heavily on transport routes across the sea. More than 80 per cent of China’s oil supplies go through the South China Sea. Therefore, control of the sea means control of the flow of goods and resources into coastal countries.

Scarborough Shoal after the Philippines tried to detain Chinese fishermen allegedly poaching in the disputed waters.

Manila was supported by the United States, which started joint military exercises with the

of the conflict goes against Russia’s interests, that are to try to persuade partners to resolve the situation diplomatically.

Russia’s position is complicated by the fact that Beijing is putting pressure on Moscow, seeking the withdrawal of Russian business from the conflict zone. Chinese newspaper Jen-min Jibao published a critical article branding Gazprom as a factor in the destabilisation. The Chinese Foreign Ministry has called on third parties unrelated to the South China Sea to stay away until the conflict is settled.

Withdrawing would mean the loss of lucra-tive contracts and ruin Russian efforts to boost its economic presence in Southeast Asia.

Showing weakness in the eyes of the Asean community would be a humiliation. But Russia risks its strategic partnership with Beijing, which is dear to Moscow.

The only concession to Beijing was Russia’s agreement to take part in military exercises in the Yellow Sea from April 24 to 27. They were aimed at practising joint actions against terror-ism and piracy, and joint search and rescue operations.

tion with the West or a “front” in the confronta-tion with China. These phantoms of the past still distort thinking and politics.

It will also require attracting as much foreign investment as possible from China, the US, Japan, South Korea, Asean and Europe. The main criterion of the performance of local lead-ers should be the amount of foreign investment attracted.

Another approach should ensure preferential living and working conditions for talented peo-ple so that they don’t leave the region.

To make Russia part of a rising Asia and ele-vate the Trans-Baikal area, people there must be able to live a freer and more affluent life than in central Russia. The state must create condi-tions for such a life, develop plans and invest in infrastructure. But it should not interfere in the economy more than it can help.

There is one specific policy I would like to mention. The inertia in regarding Siberia as the “rear” or “front”, or as a natural resource-rich semi-colony, is strong and will be hard to over-come. To do this it is necessary to proclaim the transfer of some of the capital’s functions to a city in the far east and to build a new capital

Another factor adding to regional tensions is the lack of effective international conflict resolu-tion mechanisms to solve disputes in a civilised manner. The Declaration on the Code of Con-duct adopted by China and Asean countries in 2002 was merely a political statement. It was not until 2010 that the parties began negotiations on adopting the code of conduct, which would impose legal obligations on its signatories, in-cluding an obligation not to use military force.

The prospects for signing the code of conduct remain unclear. Within Asean, there is no con-sensus as to the time frame and format of Chi-na’s participation. Besides China, other coun-tries in the region have different approaches to freedom of maritime navigation. Beijing be-lieves that international seafaring rules do not allow military ships involved in intelligence gathering to pass through the special economic zones of other nations.

The destabilisation of the situation in the South China Sea has accelerated. In 2009, China published a map making clear that it claims up to 80 per cent of the South China Sea’s waters. Last year, Chinese warships moved to disrupt the operations of a Vietnamese oil ex-ploration platform. Last month, a new crisis led to a stand-off between Manila and Beijing in the

High-stakes game in territorial dispute

Dmitry Streltsov is head of the department of oriental studies, MGIMO-University, Moscow.

Sergei Karaganov is head of the Council for Foreign and Defence Policy.

Philippines off the Spratly Islands, which are known as the Nansha Islands in China. The ex-ercises were called Balikatan (meaning “shoul-der to shoulder”) in a warning to Beijing that Washington would step in if things escalated.

Moscow faces a tough choice. Almost all par-ties to the conflicts are key partners. While Rus-sia distances itself from supporting any party, its economic interests in the region are directly af-fected. Russia’s Gazprom runs a joint project with Vietnam’s PetroVietnam, and an escalation

there rather than to astonish everyone by ex-panding Moscow, which is already sucking re-sources out of the rest of the country.

In Brazil, the shift of the capital from Rio de Janeiro to a purpose-built city in the hinterland gave a powerful boost to development. In Ger-many, the shift from Bonn to Berlin dramatical-ly speeded up the real reunification.

The creation of a city vested with some of the capital’s functions in the far east would pull in talented and ambitious young people and busi-nesses and would make Russia part of a rising world.

To be a modern global country, culturally and socially European but successful in the Asian way, Russia needs three capitals: a political and military-diplomatic one in Moscow; a cultural and legal one in St Petersburg; and an econom-ic one in what may be called “New Vladivostok”.

An announcement of such a plan at the forth-coming Apec summit in Vladivostok would dra-matically add to the country’s international cap-italisation.

what instruments should be used to engineer a new upsurge of Siberia. I will confine myself to proposing principles for this policy.

It must not proceed from a desire to restore the past, but from real opportunities available now and in the future. We should not wring our hands over the worsening trade balance with Asia and harp on a new industrialisation, while having as a neighbour a region with hundreds of millions of far cheaper workers, a region that is sucking factory after factory and sector after sector out of countries far more developed and productive than Russia. We must realise that the new industrialisation of Asia, coupled with its growing shortages of water and food, presents unprecedented competitive advantages and op-portunities for Russia to produce and export ag-ricultural products with maximum added value.

The policy should create conditions for the maximum economic opening of the area east of the Urals. This requires renouncing the idea that Siberia is a “strategic rear” in the confronta-

OPINION

Given the acute shortage of energy resources for all countries involved in the conflict, the stakes are very high

11


Slumbering giant awakensFifty years after its heyday, city regains its shine for aviation graduates, writes Elena Shipilova

Industry seeks private investorsElena Shipilova RGC

Does space exploration play an impor-tant role in the global economy?

The market for space technology is es-timated to be between US$300 and US$400 billion annually. The biggest segments are satellite communications and telecommunications (over US$100 billion), and navigation. Russia’s share in these areas is less than 1 per cent.

What is preventing Russia from increasing its share in the space in-dustry?

State financing has more than trebled over the past five years and is still grow-ing. But there is virtually no private sec-tor involvement.

Sergei Zhukov is the CEO of the Skolkovo Space Technologies and Telecommunications Cluster. Photo: Kommersant

Will people spend their holidays in orbit rather than on sandy beaches some day?

The case of Virgin Galactic, which has received payment from hundreds of people for a future sub-orbital flight, shows that space tourism has a future. Russia is planning to enter the market, but we have other promising projects.

Are any other domestic “breakthrough products” in the pipeline?

Russian energy and engine technolo-gies have a good chance, meaning rock-et engines and space nuclear plants. I also don’t rule out solutions in small space platforms and on board service systems.

Members of the Skolkovo project are working on such projects.

Is Skolkovo attracting private capi-tal?

Our strategic goal is to attract scientists, engineers, industrialists and entrepre-neurs from various countries.

Will man be able to mine minerals on the moon or other planets?

I do not rule that out and it might hap-pen in a few decades. There is water, manganese and aluminium on the moon, and asteroids. These could be used for fuel and structural elements of spaceships and space stations.

American businesses have ambitious plans ... I am referring to Peter Diaman-dis and his colleagues, who set up Plan-etary Resources in late April this year. The world space business in develop-ing rapidly.

Starting salaries, double what they can expect elsewhere, are attracting engineering graduates to the ISS, which has retained the training system for young specialists that it used in the days of the Soviet Union.

In the depths of the Siberian forest, on the bank of the Yenisei River, stands the closed city of Zhelez-nogorsk, surrounded by barbed wire. Nobody can just go there, while

residents need a pass to travel home. The city itself feels just as it did in the

days of the Soviet Union in the 1950s and 1960s. There are wide avenues flanked by five-storey blocks of flats painted in different colours. The Rodi-na (Motherland) cinema, a standard feature of small provincial cities in So-viet times, stands at the centre and there is the factory which, before perestroika, built the powerful Kosmos and Moln-iya satellites.

After perestroika, at the beginning of the 21st century, the city gained a new lease on life thanks to a programme to develop the GLONASS navigation sys-tem, attracting young specialists once again to Zheleznogorsk.

“In the 1960s the whole Soviet Union dreamed of space,” says Vladimir Kha-limanovich, director of the Industry Centre of the M.F. Reshetnev Informa-tion Satellite Systems company (ISS). “It was an honour and privilege to work in the industry.”

He came to Zheleznogorsk 47 years ago after graduating from the Acade-mician A.N. Tupolev Aviation Institute. Back then, every student dreamed of a place like this because only the best were recruited to closed cities with secret mil-itary establishments. Life in such a city imposed a few restrictions. If you want-ed to invite relatives or friends to visit, you had to get special permission.

“That procedure applies today, too,” says Yelena Prosvirina, an engineer who moved to Zheleznogorsk on the eve of perestroika. “At first it’s inconvenient to have to ask permission every time, but you soon get used to it.” The benefits outweigh the inconveniences. Zhelez-nogorsk received centralised supplies of goods that were impossible to obtain elsewhere.

Zheleznogorsk fell on hard times in the 1990s. Supplies of foodstuffs all but stopped and people were plunged into the harsh realities of capitalism. ISS lost most of its financing. The factory con-tinued building satellites for military purposes and improved the Uragan nav-igation system, forerunner of the mod-ern GLONASS. But there was a sharp slowdown in development and the workforce of more than 8,000 was halved.

It was only at the start of this century that engineers were able to breathe more easily. The government again began in-vesting funds for the GLONASS satel-lite navigation system. A year ago, the system’s 24 satellites were brought into full operation and now compete with the US Global Positioning System (GPS). The state accounts for two-thirds of the ISS’s annual turnover of 20 billion rou-bles (HK$4.93 billion). The rest comes from commercial orders.

It would all have been fine, but ISS was so busy addressing internal issues that it missed an important moment at the end of the 20th century when sat-ellites became an important commod-ity on the global market. Russians found themselves almost 20 years behind the curve and effectively out of the game.

In 2008, ISS started getting interna-tional orders. First, Israel’s Space-Com-munication ordered the AMOS-5 sat-ellite. In 2009, Indonesia’s PT Telekomunikasi bought the Telcom-3 telecommunications system. Contracts

SPACE

Vladimir Khalimanovich, director of the Industry Centre of the ISS. Photo: Ruslan Sukhushin (2)

a technical university graduate can earn elsewhere. ISS has retained the train-ing system for young specialists it used in the days of the Soviet Union. After their fourth year in an institute, students come to the company and work for two years in various roles on full pay. They can graduate after that.

“ISS is an excellent place for training staff. If we could, we would buy up most of its specialists,” says the manager of a Moscow company involved in satellite construction.

The emergence of “new blood” is bringing Zheleznogorsk back to life. There is a new housing estate, but serv-ices in the city are still not developed. A population of almost 100,000, includ-ing residents of surrounding villages with access, is served by just a few cafes, a restaurant, a single nightclub and a cinema with prices as expensive as those in Moscow.

“It’s difficult to start a business in a closed city. The process requires stacks of agreements,” says an ISS staff mem-ber. Every week she and her husband drive 60km to Krasnoyarsk for a break and cheaper food.

Each year we take part in four or five tenders, of which we win one. One per year is enough for us. That’s all we can handle at the moment

were later signed with the Ukraine and Kazakhstan. “Every year we take part in four or five tenders, of which we win one,” says Khalimanovich. “One inter-national contract per year is enough for us. That’s all we can handle at the mo-ment.”

About 40 satellites are in production today, including military systems, GLO-NASS, telecommunications and geod-esy satellites for operators such as the Russian Satellite Communications Company and Gazprom Space Sys-tems.

The increase in orders has helped raise staff numbers. In 2005, 5,000 peo-ple worked here. Now there are 8,500, most of them young. Graduates from aviation universities in Kazan, Tomsk and even Moscow are again drawn to Zheleznogorsk, not for romantic rea-sons but for money. The starting salary for an engineer is US$1,000, double what

12


New wave takes world by storm

Vogue’s top three models

MODELCITIZENS

The first wave of Russian models head-ing west began back in the 1920s. After the revolution, many aristocratic Rus-sian women fled to Paris, complete with their Slavic charm. The second wave was in late 1980s-1990s, following the opening of the country’s borders. And now, a new “Russian wave” is hitting the modelling industry. The latest in-terest in Russian models is thought to have been inspired by Natalia Vodian-ova. She is one of the world’s most want-ed models. Along with another Russian, Valentina Zelyaeva, she was listed by Forbes as one of the top 10 highest-paid models. Other Russian models are also climbing up the fashion industry, with Sasha Pivovarova, Natasha Poly, Anna Selezneva and Daria Strokous ranking among the most popular for the new season, according to Vogue.

Sasha Pivovarova

Born in Moscow in 1985. Her career started in 2005 when a photographer friend introduced her to IMG in New York. She is best known for her six-sea-son run with Prada.

Natasha Poly

Natasha Polevshchikova (Natasha Poly) was born in Perm in 1985. She made her catwalk debut in 2004 and has been the face of campaigns at Gucci, Gi-venchy and Lanvin.

Daria Strokous

Born in Moscow in 1990. At the age of 17, she debuted in the Fashion Weeks in Milan and Paris. Strokous has done campaigns for Prada, Chanel, D&G, Louis Vuitton and H&M.

Blondes steal the showsChina’s expanding modelling industry offers opportunities for models to earn decent money, especially when com-pared with the hyper-competitive and overcrowded European scene. While Russian models have long been pop-ular in China, it is only recently that modelling agencies have established themselves as key players. With stand-ard fees that range from 40 to 50 per cent of a model’s pay, agencies have been the real winners of the model-ling boom.

Modelline, an agency, was estab-lished in 2002 by Anna Kiryukhina, from Vladivostok. It was one of the first international agencies in Beijing. Today, as a subsidiary of M Group, it has grown to become the largest agen-cy in Asia. With offices in Beijing, Shanghai, Hangzhou, Guangzhou and Hong Kong, the Russian agency is heav-ily represented in China and expand-ing rapidly.

“Fashion is booming in China, and with that comes soaring demand for model expertise,” says David Hu, man-aging director of Modelline’s Shang-hai branch. “We have 200 contract-ed models, and a large number of those come from Rus-sia. We work with ‘moth-er agencies’ – scout-ing departments located throughout Russia to bring girls to China, usually on three-month con-tracts. We pay for their flight tick-ets, accommo-dation and test photo shoots, and give them a living allowance. We’re investing in people, so there’s an inherent risk, but the demand for models in China is strong enough to ensure decent returns,” Hu says.

But some worry models are exploit-ed by this arrangement.

“The three-month contract offered by international agencies like Model-line is too short for models to build a solid client base and get regular work,” says Marina Tkachenko, 25, a freelance model in Beijing. “Models arrive in debt to their agencies. If they don’t get jobs straight away, they’re made to work in nightclubs, where the stand-ard pay for a five-hour shift is 200 to 300 yuan (HK$245 to HK$367). They’re told off if they’re not dancing or ‘hav-ing fun’. Many go home owing thou-sands of yuan to their agencies.”

Nevertheless, the modelling indus-

Russian models are everywhere. Clients assume that if you’re a tall, European-looking model, you’re from Russia

try in China has grown rapidly in the past decade. Five years ago, there were just a few international agencies op-erating in Shanghai and Beijing. Now-adays, more than 50 agencies compete for business in the twin fashion capi-tals of China. A host of domestic play-

ers are making name for themselves, and practices are being improved, thanks to organisations such as the China Modelling Association. “Chinese agencies are content with

gaining ground in the rapidly expanding domestic industry. They know the econ-omy is better here than in most parts of the world, especially Europe. There’s no need for them to try Europe yet. Euro-pean brands come to China,” Hu says.

Russia’s models can make a good living in China, but many have

been exploited by their agen-cies. Photos: Xinhua, AFP/Eastnews

Russian models add international glamour to Chinese brands, and play a key role in the mainland’s boom-ing catwalk sector.

FASHION


We’re investing in people, so there’s an inherent risk, but the demand for models in China is strong enough to ensure decent returns

Ironically, international luxury brands prefer locals to model their goods, while smaller local clients seek out foreign faces for that vital interna-tional look.

Within China, the maturing of the industry has cemented a north-south fashion divide. Beijing is the home of high-end products and where luxury brands, fashion shows and magazines source their catwalk talent. Vogue, Ba-zaar, Elle and Cosmopolitan all have a presence there. Shanghai, as China’s hub for international advertising agen-cies and TV and film production, has a more diversified scene.

“Russian models do well in [cities],” Hu says. The presence of Russians in the industry is overwhelming, says Ya-goda Starba, who was working at the at Dongfeng’s motor-show stand. Star-ba, almost 16, is on her first modelling trip to China. As a Poland native she feels like a minority here.

“I’ve worked at Beijing Fashion Week and now here, and Russian models are everywhere,” she says. “Clients assume that if you’re a tall, European-looking model, you’re from Russia.”

13


Financial Fair Play rules could hit Russian clubsTimur Ganeev RGC

Reviving glory days of the EuroAdvocaat banks on experience as his players take aim at prestigious championship, writes Ilya Zubko

The Uefa 2012 European Cham-pionship will be a very special one for Russia. Scheduled for Poland and Ukraine from June 8 to July 1, this is only the sec-

ond time such a major tournament will be held in Eastern Europe. The 1976 showpiece was staged in then-Yugosla-via (modern-day Bosnia and Herzegovi-na, Croatia, Macedonia, Montenegro, Serbia and Slovenia).

With an array of established talent from domestic and foreign clubs, Rus-sia could be a threat to the more fan-cied sides. The Russians qualified for the finals by topping their group.

Coached by illustrious Dutchman Dick Advocaat since July 2010, the team has an experienced line-up.

“I had already worked [in Russia] and, of course, I knew the players well,” Ad-vocaat says. In 2007, he became the first foreign coach to win the Russian Pre-mier League with Zenit St Petersburg and went on to win the Uefa Cup and the Uefa Super Cup in 2008.

Russia has been handed a kind draw in Group A, which includes co-host Po-land, the Czech Republic and Euro 2004 champion Greece.

But the same factors that could help Russia could also work against the team. Advocaat’s team topped its pool in qual-ifying, but played only two quality games - both against Ireland - during qualify-ing. In the other games, the Russians picked up points pragmatically, but struggled to beat weaker teams, such as Macedonia and Armenia. The fact that they won the group may reflect the weaknesses of their rivals more than their own strength.

All four countries were pleased with the draw.

“The draw was what the doctor would

Russia’s soccer clubs could be hard hit by new rules that require them to show they do not spend more than they earn.

The Union of European Football As-sociation (Uefa) Financial Fair Play rules, approved by Uefa president Michel Plati-ni, mean that clubs wishing to take part in the Champions League or Europa League must balance their soccer-relat-ed expenditure over a three-year period up to the 2014–15 season.

A Uefa report shows that Russian clubs spent an average of 92 per cent of their budgets on players and coaches’ sala-ries, making profits practically out of the question.

Several clubs in the Russian Premier League report huge losses, mostly due to player transfer fees. Zenit St Peters-burg and Anzhi Makhachkala are known to spend big money without much to show in return.

Guus Hiddink (left) is one of highest paid coaches in world, with an annual salary of €8.6 million. He heads the Anzhi team. Cameroon striker Samuel Eto’o’s record breaking move to Anzhi makes him the fourth highest earn-ing player on €23.3 million. Photo: Maxim Bogodvid/RIA Novosti

Dick Advocaat has won the trust of Russian fans. Photo: ITAR-TASS

Anzhi bought Hungarian player Balazs Dzsudzsak for US$17 million and sold him to Dinamo Moscow a few weeks later for US$21 million. Anzhi’s best-known player, Cameroonian striker Sam-

uel Eto’o, makes more than Dutch cham-pion Ajax Amsterdam generate annually from the sales of shirts and other promotional items. According to transfermarkt.com, four of the 12 most

expensive transfers during the winter transfer window were in Russia.

Russian clubs also spend lavishly on coaches. Zenit St Petersburg coach Lu-ciano Spalletti makes US$5.2 million a year, a price none of the clubs in his na-tive Italy can match. Ruud Gullit worked for only five months as coach at Terek Grozny, but made enough to be able to afford to stop coaching for a few years. Michael Laudrup, Nevio Scala, Artur Jorge and Juande Ramos have also been paid exorbitant salaries for short-term contracts, without being able to lift play-ing standards in Russia.

It is hoped that the regulations will eventually lead to a more “level playing field” by preventing clubs with wealthy owners who make substantial cash gifts to their club from gaining an unfair ad-vantage over those who may be run on a more sustainable basis.

The FFP rules provide for sanctions to be taken against clubs who do not spend within a set budgetary framework. The ultimate penalty is disqualification

from European competitions. Other pos-sible penalties include fines, the with-holding of prize money and transfer bans. Uefa has shelved plans to ban play-er transfers following legal advice, and it remains to be seen if other threatened sanctions will ever become reality.

It is not yet clear how Uefa will treat money from sponsorship deals. In Rus-sia, the main sponsors hold stakes in clubs and some teams are financed from regional budgets, a different situation from most European clubs.

CSKA president Yevgeny Giner says: “The Uefa initiative is necessary not only for our club, but also to Russian football in general. Ninety per cent of clubs in Russia report losses, and we need to do something about it.”

Dinamo Moscow president Yury Isayev agrees, saying: “I like the Uefa idea. I guess we will eventually come to the point when all clubs have to disclose their budgets. This point is not far off. Clubs mostly disclose their expenditure, while keeping their revenue secret.”

SOCCER

have prescribed,” says Russian captain Andrei Arshavin, who appears refreshed after a four-month loan spell at Zenit from his English Premier League club Arsenal. “It would be called ideal if the group was moved to Ukraine, where I wanted to play very much.”

But things may not be so simple. Greece was European champion in 2004 and, while it has struggled in recent times, won’t be pushovers. Co-host Poland will be lifted by its home fans, and always raise its game when it takes on Russia. The same is true of the Czech Republic,

which has had scores to settle with Russia since the August 1968 inva-sion, and has a promising team.

Sceptics say Group A may not be the easiest, but the most difficult, be-cause anything might happen.

“The European championship is a special event where all teams are highly motivated,” says Rus-sia striker Alexander Kerzhakov. “Poland, which is playing at home, will be the most difficult oppo-nent, though the Czechs and Greece are also tough.”

The line-up could pose anoth-er challenge for Advocaat, who is reluctant to make changes, mis-trusts young players and relies on battle-tested warriors even if they are not in top form.

The “old guard” considers it-self indispensable, though the players are not at their best. Arshavin has not scored for Russia for more than two years, but his place is not threatened.

“We will try to win the champion-ship. If you take part in a tournament, you will, in any case, try to win,” Advo-caat says.

“Russia is in the most difficult group, precisely because everybody says with one voice that it will be plain sailing for us.”

The Russian Football Federation has set a target for its players to make it past the group stage.

If Russia can finish first or second in the group, it faces a showdown against one of the two qualifiers from Group B, which includes Germany, Holland, Por-tugal and Denmark.

Russia has arranged a friendly against four-time world champion Italy in Swit-zerland on June 1, days before it travels to Warsaw.

Bid to build on 2008 ‘miracle’

The performance of Soviet and, lat-er, Russian teams has been less than stellar during World Cup tourna-ments.

The best result was in 1966 in Eng-land, when the Soviet Union finished fourth, losing 2-1 to the Franz Beck-enbauer-inspired West Germany in the semi-finals.

Its performance in the European Championship has been better.

The Soviet team won the Uefa Eu-ropean Nations Cup in 1960 and was runner-up in 1964, 1972 and 1988.

In the 2008 tournament, held

in Austria and Switzerland, Russia was eliminated in the semi-finals by eventual winner Spain.

Indeed, Russia’s performance of four years ago was the highlight of post-Soviet football history.

Russia’s 3-1 defeat of Holland in the quarter-finals still makes fans roll their eyes as they try to explain that “miracle”.

The present Russian team is 11th in the Fifa world rankings, and built around a group of players from 2008 Uefa Cup champions Zenit St Peters-burg and CSKA Moscow clubs.

Andrey Arshavin (left) in action against Germany’s Philipp Lahm. Photo: Getty Images/Fotobank

14


Great places to see

EXPAT’S VIEW

There is no place on earth with more secrets than Moscow. Any tourist will have 10 different ideas of what to do in the city.

Since I am one of the cheapest peo-ple on the planet, these personal favour-ites are likely affordable choices.

The Museum of Soviet Arcade Ma-chines on Baumanskaya Street blew my mind. Communism and video games are not often linked, but the games speak for themselves. There are different op-tions, some familiar some extremely unusual.

The Monorail outside Timir-yazevskaya Metro station is a great way to see the city for less than US$1. It will also take you along the Ostankinskiy district, where Russia’s top TV channel is produced.

The ride will end at Sergey Eisenstein Street, near the famous Worker and Col-lective Farm Woman, a large metal mon-ument of a man and woman holding a hammer and sickle.

Another great attraction is the Mos-cow subway system, which is not famous, but should be. For the cost of a ticket, a little more than US$1, you can see more than a day’s worth of architectural mar-vels. Pretty much any station on or in-side the Ring Line has something to offer. Both sides of the Komsomolskaya sta-tion are amazing, especially given that it was made by volunteers.

Another attraction is the Vodka Mu-seum on Izmailovskoye Shosse.

Although vodka has had some very negative effects on recent Russian his-tory, it can be a window to a piece of the nation’s mysterious soul.

Another great side of Moscow is the cuisine. The city has many great res-taurants. A good option for Georgian food is Kabanchik (The Baby Boar), at 27 Krasina St. Prices from US$25 to US$40 per person, are average for Mos-cow, but the hachapuri po-adzharski is superb.

A good little place for Russian food is Pelmeni, at 6/7 Lenivka St. Pelmeni are Russia’s national dumpling. A lot like pierogies or tortellini, they are meat-filled wonders that you must try to con-sider your trip complete.

For Central Asian food, a good option is Chebureki, at Ostozhenka 53/2.

Imagine taking a soft shell taco and deep-frying it. In many central Asian countries, people have been doing this for quite some time and you can watch them in action at this little place. They are freshly fried and it is probably the cheapest cooked lunch in the city.

For Russian drinks, try Aist (The Stork) at 25/2 Lubyanskiy Lane. Sadly, there isn’t much that is old school left in Mos-cow, but there are some amazing small places around.

This “shot hall” is a great place to get a beer and a shot and have some laughs. In Soviet style, everyone stands to drink and there is nothing like an ice-cold beer to help take the heat out of Moscow’s brutal summer. The people, the archi-tecture and the flavour are the best parts of Moscow, but as Russians tell me every day: “Moscow isn’t Russia”.

Tim Kirby works at Russia Today TV channel and also hosts a Russian lan-guage social/political talk show on Mayak Radio

Moscow captivates visitors with its ornate fountains and landmarks (above), and historic boulevards. Photos: Lori/Legionmedia and Alamy/Legionmedia

Captivated by capital’s pleasuresVenture off the beaten track and discover another face of Moscow in three days, writes Maria Bakhareva

TOURISM

Day one in ‘Soviet Moscow’

The All-Russian Exhibition Cen-tre is the perfect place to spend your first morning in Moscow. It is a giant exhibition com-plex that once showcased the

achievements of Soviet life and is now a shopping centre. The magnificent So-cialist Classicist (Stalin’s Empire- style) buildings and fountains are almost in their original form.

Next to the main entrance is the enor-mous Worker and Kolkhoz Woman sculpture, a focal point of the Soviet pa-vilion at the 1937 World’s Fair in Paris. Look around the pedestal to learn more about the Soviet landmark.

The Glavpivtorg restaurant at 5 Bolshaya Lubyanka, a stone’s throw from the KGB headquarters, is an ideal venue for a Soviet-style dinner. The res-taurant has Soviet interiors and serves dishes from the traditional Book of De-licious and Wholesome Food.

After dinner, set out to the Moscow suburbs and to Lyublino, where the Mu-seum of Industrial Culture opened re-cently at 3A Zarechye Street. It is the best place to get acquainted with the everyday life of Soviet people – from five-year plans to perestroika, automo-biles and Christmas ornaments. You are allowed to touch and try almost any-thing you see, including the hats. A kiosk sells tea and pancakes in the yard.

Back in the city centre, take a walk to Krivoarbatsky Lane to admire the resi-dence of prominent architect Konstan-tin Melnikov – a constructivist building formed by two intersecting cylindrical towers. Constructivism was the most popular style during the first years of the Soviet Union, but it was declared “a relic of bourgeois formalism” and banned after Joseph Stalin took power.

Few buildings from that era have sur-

vived. Most that did are decrepit. Mel-nikov House survived because the ar-chitect’s descendants still live there.

It is worth ending the day in Petro-vich Club, on Myasnitskaya Street, where you can drink vodka and dance to So-viet pop hits from the 1970s and 80s.

Day two in aristocratic Moscow

The day starts on Tverskaya Street in the centre of Moscow, in the building of the former Moscow Club of the Nobility that is now home to the State Central Muse-um of Contemporary Russian History (formerly Museum of the Revolution).

Behind the club there is a network of lanes where many elegant manors built at the turn of the 20th century for Moscow aristocrats have been preserved between Tverskaya and the New Arbat. After the revolution, most of these build-ings were taken over by embassies or Soviet institutions, which is why they have survived. The Central House of Ar-chitect occupies the former palace of

Pushkin Café at 26-a Tverskoi Boule-vard. The building and the cafe went up in the late 1990s and recreate the atmosphere of the 19th century.

Moscow’s nobility used to spend eve-nings at the ballet or operas.

If you fail to get a ticket to the Bolshoi Theatre, don’t lose heart. Instead, go to the Stanislavski and Nemirovich-Danchenko Moscow Academic Music Theatre. You won’t find the same luxu-rious interiors of imperial times at the Danchenko, but this theatre is just as good as the Bolshoi, if not better,

Day three in merchants’ Moscow

Start your journey in Kitai-gorod and walk down Nikoloyamskaya Street to Taganka. The surrounding humble yet comfortable houses were once the homes of well-off merchants.

At the end of the street stands the un-assailable fortress of the Andronikov Monastery – you should go there to see the Cathedral of the Saviour, the oldest building in Moscow outside the Krem-lin, whose walls were painted by An-drei Rublev.

The monastery now hosts the Mu-seum of Ancient Russian Culture, which takes pride in its magnificent collection of icons and frescos, most of which have been saved from demol-ished churches.

Turn to Shkolnaya Street – a tiny open-air street museum, which has re-constructed an old town suburb, with facades, pavements and gas lamps. Mu-nicipal authorities planned to make this street as popular as the Arbat, but never fulfilled those plans.

Afterwards, go to the 200-year-old Sandunovskiye Baths (14-4 Neglinnaya Street) and be sure to get an experienced bath attendant to beat you with birch twigs. You can have dinner in the same building – the Sanduny restaurant serves traditional Russian dishes.

Read more at Moscow travel site: en.travel2moscow.com

It is worth ending the day in Petrovich Club where you can drink vodka and dance

Well-preserved buildings reveal the grandeur of pre-revolutionary Russia.The Church of the Ascension in Kolomenskoye area is one of the first stone hipped cathedrals in Russia. Photo Lori/Legionmedia

Bolshoi theatre. Moscow has a vibrant culture, from the finest ballets and exquisite art to superb restaurants. Photo: Lori/Legionmedia

the Marshal of the Nobility Pyotr Bazi-lyevsky (at 7/9 Granatny Lane) and is among many interesting buildings.

As soon as you feel hungry, walk to-wards Boulevard Ring, which has sev-eral buildings worth seeing, and try the

TIMKIRBY

15


YEKATERINBURG is where the last tsar, Nicholas II, and his family were shot during the revolution. It is also known for its original modern monu-ments, such as the biggest computer keyboard in the world, which was un-veiled in 2005.

Made of concrete, its keyboard is 30 times bigger than a standard one. It comprises 104 keys weighing 500kg, all of which are set into the ground at 15cm intervals. The con-crete “keyboard” can be seen as a comment on the computer age or an industrial rock garden.

YAKUTSK is one of the northernmost cities in Russia, where winter tem-peratures sometimes fall to minus 60 degrees Celsius. Many mammoths once inhabited the area around mod-ern-day Yakutiya and the permafrost has preserved their remains. The Mammoth Museum in Yakutsk is the only museum in the world entirely devoted to mammoths and includes the first mammoth skeleton discov-ered, the body of a mammoth un-earthed in 1901–1902, the Churapcha rhinoceros (1972) and the body of a Selerikan horse (1968).

IRKUTSK is the fifth-biggest city in Siberia and located on the banks of the rivers Angara and Irkut, 66km west of Lake Baikal, the biggest freshwater lake in the world. This is the home of the icebreaker Angara – the oldest in the world. The Angara was built in Britain and delivered in parts by railway. It was launched on July 25, 1900. In 1920, 31 politicians opposed to the government of Kol-chak were murdered on board the Angara. In 1987, the icebreaker was turned into a museum, with the his-tory of the ship taking pride of place among the displays through photo-graphs, documents and personal ef-fects of crew members.

VLADIVOSTOK, which will host the Asia-Pacific Economic Co-operation summit this year, has more to show than the longest cable-stayed bridge in the world. The S-56 submarine, a marine museum, is worth a visit. The S-class craft was the most success-ful and achieved the most significant victories of all Soviet submarines in the second world war. Visitors can get acquainted with the exposition, “Development of Submarines of our Native Land”, and see the inside of a boat restored to pre-war condition, including a marking of “14” identify-ing the number of the sub’s “kills”.

KHABAROVSK, the “capital” of Rus-sia’s far east, is located on a bank of the River Amur, close to the bor-der with China and about 65km from Fuyuan. The region is famous for its natural environment and is home to the amazing “flower lake”. In late July and early August, the lake is virtually covered by flowering lotus plants. Growing to about 25cm in di-ameter, the pink and yellow flowers extend over five hectares. Around the lake, on the bank of the River Us-suri, there are cave drawings dating back two millennia and ancient set-tlements.

AIR TRAVEL

Demand for flights to mainland cities continues to grow, writes Tatiana Schenkova

An irresistable connection

Russian airlines are boosting the number of direct flights to China to capture a larger share of this fast-growing market.

Three Russian airlines have an-nounced plans to launch new direct flights to the mainland this summer. Aeroflot will launch 14 additional flights per week, S7 Airlines will add six and Ural Airlines will add two.

Demand for air travel between Rus-sia and China has been growing. The number of passengers has jumped 43 per cent in the past two years, accord-ing to the Russian Ministry of Transport. Last year, more than 900,000 passengers flew between the two countries.

Russian airlines are launching routes to new cities to capitalise on this growth. Aeroflot has plans for a Moscow-Guangzhou flight. S7 started flying routes from Khabarovsk to Hong Kong and Yakutsk to Beijing in March, and plans to launch flights to Beijing from Omsk, Ulan-Ude and Petropavlovsk-Kamchatsky.

Also this summer, Ural Airlines will launch Yekaterinburg-Harbin and Irkutsk-Guangzhou flights. Last autumn, Far Eastern Airlines started a direct flight between Hong Kong and Vladivostok.

A recovery in bilateral trade between the two countries has played an impor-tant role in boosting demand. By last year, trade had recovered to pre-crisis levels and hit US$83 billion.

Tourism plays a big part in the growth of air traffic and the “Years of Tourism in Russia and China” in 2012-2013 should provide a boost.

“We will continue to increase the tran-sit passengers’ flow to China and look for new destinations in that country,” says Sergey Bugrov, general represent-ative of Aeroflot in Beijing.

China has become a strategically im-portant destination for Ural Airlines, says Sergey Antonov, a company spokes-man. “Over the past two years, we have launched six new flights. We are plan-ning to continue this expansion and to launch more flights from Russian cities to China.”

Russian airlines have traditionally en-

joyed a leading position in traffic be-tween Russia and China, but Chinese airlines offer a greater choice of desti-nations. Russian carriers have a larger market share in passenger traffic be-cause China is an attractive destination for Russian airlines, whereas Chinese carriers are more interested in flights to the United States, Asia-Pacific and Europe.

There are hurdles, however. One key barrier to the development of air links between border cities in Russia and China is that few regional airports in Russia comply with international stand-ards.

S7 Airlines was able to launch its flight from Ulan-Ude to Beijing in June only after IFC Metropol acquired the Baikal international airport from Austria’s Meinl Airports International and rebuilt it. Vyacheslav Nagovitsyn, president of the republic of Buryatia, says the air-port is key for the development of Baikal Harbour, a special economic zone. The government says the project could boost the inflow of Russian and foreign tour-ists to Buryatia to 2 million by 2020.

Other regional airports are in worse shape. Viktor Gorbachev, CEO of the Airport Association, says that only 315 out of 1,450 airports in operation in 1991 remain operational. Siberia and the Far East have lost more airports than any other regions.

New routes open up amazing places

Aeroflot plans a Moscow-Guangzhou flight as Russian airlines increase their direct links with China. Photo: Ruslan Krivobok/RIA Novosti

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Time to have a ball this summer

Stylish obsession Mark Markoff RGC

If you think that the only kind of ball you get in Hong Kong is made of fish, you are mistaken. Balls have long been a focal point for aristocracy, wealth and power, and a prominent social event.

Russian balls date back to the 17th century, when one of the first of such events in history was held to mark a royal wedding.

The tradition has been carefully pre-served. Authentic Russian ball culture is also available in Hong Kong when the “Summer Ball” takes place at the Excelsior Hotel on June 23.

“There is a crucial difference between the famous Viennese ball and the Rus-

sian ball,” says Danila Deliya, a quan-titative analyst at an investment bank. “In addition to the standard set, the lat-ter features polonaise, Russian quadrille and small stream dances, which are

more suitable for meeting new people and are a lot of fun.” Deliya, who has had a passion for dancing since he was very young.

After moving to Hong Kong he found most “balls” turned out to be official dinners with some disco music. Disap-pointed, he organised his own and is getting ready for the fifth instalment. He also gives dance lessons to help guests learn the easy patterns and twirls needed for the ball.

A strict dress code sets this event apart from other social gatherings. Women are required to don long evening gowns and gloves, while the men wear tuxedos.

More info at dance.danila.hk/SummerBall2012

Russian rowers will use the Five Cities International Series in China to pre-pare for the World Championship. Photo: Private archive

Crews eye Five Cities series raidRussian rowers set for annual dragon boat festival, writes Irina Drobysheva

Competitors from Primorye are confident of returning home with medals when they rep-resent Russia at the annual International Dragon Boat

Festival - Five Cities International Se-ries - from June 15 to July 1.

“We have been promoting dragon boat rowing in our district since 1998, when we first visited China,” says Jan Kuznetsov, president of the Primorye Rowing Federation. “Our crews are among the strongest teams, not only in Russia but also globally.

“Professional rowing teams and am-ateurs take part. We started racing long ago and perform consistently well, win-ning medals and prizes every year, de-spite having to compete against the strongest local and foreign teams.

The festival, to be held in Weizhou, Nanning, Chongzuo, Fangchenggang and Guangzhou, includes races and a host of cultural events.

Teams are expected from as far afield as Australia, Britain, Canada, the Unit-ed States, the Philippines, the Nether-lands and Germany, in addition to those

from the mainland, Hong Kong and Macau.

“This year, racing in the festival events is especially important, as we are get-ting ready for the World Championships, which will be held in Hong Kong in early July,” Kuznetsov says.

“Ahead of the Apec summit in Vladi-vostok this September, it is only natu-ral that we should do our best to win gold medals.”

Kuznetsov is a member of the Vladi-vostok Tigers team, which has won

SPORT

Olga Kozlova RGC

many world titles. He says there are plans to hold exhibition races off Russky Island during the Apec summit.

As many as 1,500 participants nor-mally compete in the festival. The Pri-morye district rowing federation has strengthened its contacts with the main-land and Hong Kong rowing federations, and athletes visit each other every year.

This year, a team of 56 Russian rowers will be sent to the prestigious interna-tional event.

The men’s and women’s teams will compete in dragon boats with 20 pad-dlers in all the distances (from 250 me-tres to 1,000 metres) and at all venues (sea, river and lake), and in a 108km en-durance race on the Zuo River.

A MODEL WITH VISION

Russian model-turned-photographer Olesya Romano made her photo-graphic debut with the opening of the “VISION TRANSITION” exhibition at The China Club, in Central, on May 19. Photo: Private Archive

The Russian “Summer Ball” will be on June 23. Photo: Private Archive

Famous for her street shows and fash-ion outings, Japanese artist Yayoi Kusa-ma started creating dresses in 1967. In-spired by Kusama’s main theme, “polka dots”, Hong Kong Opera Gallery collab-orated with renowned Russian fashion designer Sultanna Frantsuzova on a spe-cial fashion show from May 15 to June 1. Polka dots also inspired Frantsuzo-va’s last collections. “I share this obses-sion,” she says. “I did a special dress for this show, it is eight metres long and we are not sure what we will do with it after the show ends, maybe [we] will give [it] to a Russian fashion historian,” she says.

The dots became her form of crea-tive expression, her secret language and obsession, which brought to life beau-tiful fashion art, and became her direct link to Kusama.

Frantsuzova graduated from Slava Zaitsev Fashion Lab in Moscow and won first prize in the Nadezda Lamanova Young Designer Contest. She studied design at the Accademia Scuola di Mi-lano, participated in the fashion awards in Switzerland, and in 2005 was named “Designer of the Year” by Glamour mag-azine. For the past few years Frantsu-zova has split her time between Hong Kong and Moscow.

Polka dots have inspired fashion designer Sultanna Frantsuzova. Photo: Private Archive

Russia and Greater China #5

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