BOFIT Weekly Review 2016/12

Russian firms seek financing from China



In response to sanctions imposed on Russia by Western countries that have limited access to financing, Russian firms have stepped up talks with the Chinese to find new sources of financing. Progress has been stiff for the most part.

Chinese investors are interested in Russia’s natural resources and local market potential, but they see also many weaknesses and risks in Russia. E.g. an Ernst & Young survey last year found that Chinese firms see Russia’s regulatory environment and infrastructure as weaknesses. Biggest obstacles to investment relate to legislation, uncertain economy, the lack of investment guarantees and sanctions.

Some projects have moved forward recently. The Silk Road Fund has sealed the purchase of a 10 % stake in Novatek’s LNG project on the Yamal peninsula (CNPC already owns a 20 % stake). Sinopec has agreed to purchase a 9.9 % stake in the petrochemical company Sibur. Both Russian firms are involved in major investment projects that have received funding also from Russia’s National Welfare Fund. Gazprom has also taken sizable loans from Chinese banks. Gazprom needs funding for e.g. construction of the Power of Siberia natural gas pipeline to China and bringing gas production on stream in order to supply the pipeline. The Chinese have, however, also sold stakes in Russian enterprises (e.g. a stake in the Moscow stock exchange).