China to Invest in Russian Fund
China's sovereign-wealth fund agreed to invest $1 billion in a Kremlin-backed investment vehicle during a visit by Russian Prime Minister Vladimir Putin, though the two sides still appear to be unable to resolve long-delayed negotiations over planned natural-gas pipelines between the countries.
China Investment Corp.'s agreement marks the first commitment by an investor to the Russian Direct Investment Fund, a private-equity vehicle set up in June by Mr. Putin and President Dmitry Medvedev as a way to spur foreign investment in Russia even as widespread political, economic and other investor concerns have caused foreign capital to dry up.
The deal is a small one for CIC, which made $35.7 billion in new investments last year, but is helpful for Russian and Chinese leaders who are eager to show progress in a relationship that has long suffered from mutual mistrust. It also helps to divert attention from the questions surrounding the gas deal which has stalled over pricing.
Chinese companies have long struggled to invest in Russia, where they have faced popular and political hurdles. Concerns over inefficient and corrupt Russian institutions have also served as a deterrent to Chinese investment. Kirill Dmitriev, chief executive of the Russian Direct Investment Fund, said in an interview Tuesday that Moscow was working to address obstacles for Chinese investors.
"Clearly, bureaucracy, courts and transparency are real issues, and the Russian government is addressing them," he said. "People perceive Russia as more risky than it actually is, and I believe that is actually a big driver of the lack of investment."
The Russian Direct Investment Fund will match the $1 billion investment from CIC, according to a statement by the fund, and will put the money into a new offshoot fund called the Russia-China Investment Fund. The new fund aims to raise an additional $1 billion to $2 billion in Chinese investment, though Mr. Dmitriev declined to name other potential investors.
Early fund projects would begin by the third quarter of next year, Mr. Dmitriev said, and would likely include logistics, infrastructure and agriculture, underscoring the countries' attempts to diversify economic ties, which have long relied on resources like oil and gas or minerals.
"We believe that there are numerous deals in nonresource sectors to be pursued," he said.
The countries appeared to remain far apart in talks on the planned gas pipelines, which both countries had earlier hoped to conclude before Chinese President Hu Jintao's state visit to Russia this past June.
Mr. Putin—who arrived in China Tuesday for a two-day visit, his first overseas trip since he announced last month plans to again seek the Russian presidency—said following a meeting with Premier Wen Jiabao that the two sides were still working through a variety of economic and trade issues.
"Issues of a pragmatic nature are being resolved, and this is good," Mr. Putin said. "Those who sell always want to sell at a higher price, while those who buy want to buy at a lower price. We need to reach a compromise which will satisfy both sides."
Russia's OAO Gazprom and China National Petroleum Corp. remain deadlocked over the price China will pay for imported natural gas from Russia. The planned pipelines could pump 70 billion cubic meters of gas to China each year. Gas pumped through the lines could amount to 2% of Russia's gross domestic product each year, analysts have said.
Beijing and Moscow have been keen to talk up economic ties, while diplomatic relations have seen some strains. The Chinese state-run Xinhua news agency quoted Mr. Putin as saying the two sides would seek new solutions in solving "occasionally occurring" problems.
Last week, Moscow revealed it had arrested a Chinese national on allegations of espionage, after it said he had attempted to purchase documentation for Russian S-300 missile systems. At a briefing Monday, Foreign Ministry spokesman Liu Weimin declined to comment on the arrest.
Russian officials have also expressed concerns over China's apparent copying of Russian military hardware, including the Su-27 fighter jet. Chinese officials have previously declined to comment on the issue.
The countries have coordinated recent votes at the United Nations Security Council, where they both have veto power. Both sides abstained on a vote authorizing air strikes led by the North Atlantic Treaty Organization to help Libyan rebels seeking to overthrow Col. Moammar Gadhafi.
More recently they both vetoed a Security Council resolution that would have condemned Syria's violent crackdown on protesters.
On Tuesday, Mr. Liu, the Foreign Ministry spokesman, said the Syrian government needed to listen to its people's calls for reform. "The Syrian government should respond to people's reasonable expectations and appeals, and resolve issues through dialogue and consultations," Mr. Liu said.