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New Crisis Brings New Opportunities for Chinese Business and Russia

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On 20 March 2022, Chinese Ambassador to Russia Zhang Hanhui said that Chinese business in Russia should “seize the opportunity to fill the void in the Russian market”. This statement was made at a meeting with Chinese entrepreneurs living in Moscow. “Big companies face major challenges, including disruptions in payment and supply chains. There comes a moment when private, small- and medium-sized enterprises could play a role,” the ambassador concluded.

Unexpectedly, the rather cordial meeting, attended by just eight Chinese businessmen and three representatives of the Confucius Culture Promotion Association in Russia, which hosted the event, received significant media exposure from all over the world. An alarmist article was published by Bloomberg, whose thesis was as follows: “Despite warnings from the White House, Chinese diplomats are urging Chinese businesses to become more active in the Russian market, thereby supporting Moscow.”

The Chinese diplomats themselves are probably unhappy that they got embroiled in such a media story, given that Beijing continues to take a balanced stance, maintaining room for maneuver in relations with both Russia and the U.S., despite threats and attempted provocations from Washington. Ambassador Zhang Hanhui merely repeated what is now being extensively talked about on both sides of the Russian-Chinese border, namely that Russia has little choice but to go for even greater rapprochement with China in the new foreign policy and socio-economic environment.

Against this background, Chinese business is perceived as a force capable of bridging the gap with the West for the Russian economy. But is it all so clear-cut? Will these expectations be justified? Let’s find out.

Cautiousness of Big Business

Amid unprecedented sanctions the West has imposed on Russia, big business faces many and varied challenges, as Ambassador Zhang Hanhui pointed out in his speech. Therefore, business tends to take a wait-and-see attitude, if not stop operating in this difficult situation for the time being.

Most of their concerns have to do with the fear of secondary sanctions. The U.S. regulator now has the right to impose restrictive measures on anyone who continues to work with companies on the sanctions lists. Thus, it is not only unwanted companies, such as the VTB Bank, but in some cases all of their foreign counterparties that are affected by sanctions.

China’s financial institutions have been careful not to do business with Russian counterparties, even in less nerve-racking situations. Since 2017-2018, for example, opening an account with a Chinese bank has become a real problem for Russian companies, and this despite the Beijing–Washington trade war.

Besides, trade, logistics and production chains have now been severed, many of which have been linked to Western shipping lines or financial-credit organizations. The situation is fraught with many uncalculated risks, and even those companies that seem to have nothing to fear are acting cautiously against this background. Oil corporation Sinopec, for example, has said it is suspending talks with Sibur on a new gas chemical plant.

Certainly, all of the above are problems of the moment. Businesses will eventually find loopholes, and there will be intermediaries in logistics and banks who can help some to earn and others to spend their money.

However, this will be a long and painful process due to both the caution of Chinese enterprises and the ill-preparedness of Russian partners to interact with China in an effective manner, given a Western-centric mentality, lack of competence and experience. It will take years, unless something extraordinary happens, such as a similar rift between China and the West.

What are the niches that China’s big business could occupy in the future?

First, high-tech production, including cars, household appliances, etc., where Western and Japanese companies were involved, having now announced a “temporary suspension” of their activities in Russia.

Second, projects in retail and service, primarily in the hotel line of business, which will lose Western capital. In practice, the companies that have put down roots in Russia in earnest, such as Auchan or Leroy Merlin, are not leaving, but niches in this area will definitely be vacated.

Third, advanced mining projects that require both large capital investments and technology. There is a precedent, namely JSC Yamal-LNG, where the Chinese CNPC corporation owns 20% and the Silk Road Fund almost another 10%. There is a successor project already, Arctic LNG-2, in which the Chinese capital so far owns 20%, but there is a feeling that another 20% owned by France’s Total and Japan’s Mitsui will soon become available.

However, there should be no inflated expectations of attracting China’s big and high-tech corporations. The approval process for any such project takes many months, if not years, even in a stable and predictable situation. Things will not move from the dead point until the outcome of the special operation is clear, until the “printer of U.S. sanctions” calms down, and until there is an understanding of what the Russian government is prepared to support when it comes to foreign investors.

Small Business Hopes

If things are difficult with big businesses, maybe it would be easier with smaller ones?

In fact, Ambassador Zhang Hanhui’s idea is precisely to actively involve small and medium-sized enterprises (SMEs). However, it is often only a “small business” by Chinese standards. For example, Huaxin, originating from the small border county-level city of Dongning in the Heilongjiang province, has long been the largest Chinese investor in the Russian Far East.

It is the Chinese SMEs that own numerous restaurants and hotels in Russia, most of which focused on Chinese tourists before the COVID-19 pandemic. It is the micro-enterprises from the Chinese border regions that are seeking to obtain resident status in various preferential areas in the Far East, namely the Territories of Advanced Development and the Free Port of Vladivostok.

However, China’s small and medium-sized businesses have been facing serious problems in recent years:

First, they have gradually been squeezed out by major players, both Chinese and Russian, in the most profitable sectors. The example of the Huaxin company is quite illustrative. In 2016, its de facto subsidiary Armada-Land sold all its assets to the Russian corporation Rusagro and left the market.

Second, the difficulties in hiring Chinese workers due to the depreciation of the ruble, as well as administrative measures to get foreign businesses out of the shadow sector, have put many of the smaller Chinese companies in a very uncomfortable situation. They could no longer work the old way, relying on Chinese labor and tenebrous schemes, but were unable and unwilling to work the new way.

Third, the coronavirus pandemic dealt a serious blow to the Chinese SMEs. The flow of Chinese tourists, thanks to which many Chinese firms profited, ceased. After it became clear that the epidemiological situation in Russia was much worse than in China, ‘returnees’ streamed back home. According to subjective estimates, between a third and a half of Chinese entrepreneurs doing business in Russia have physically left the country. Many of them have sold their businesses.

Will they return to Russia now? There are no formal obstacles. In June 2021, Moscow unilaterally lifted all entry restrictions for Chinese citizens, but the turbulence of the current situation and the stereotype of Russia as a “country incapable of coping with the pandemic” (even though we have already abolished most of the restrictions, while China still puts one city after another on lockdown), seriously affect the desire to live and work in our country.

My interlocutors who work with Chinese businesses confirm that the interest in the opportunities that are opening up in the Russian market is huge. Everyone is now getting a lot of requests from Chinese colleagues for giving a breakdown of the situation in a particular industry. The explanation for this interest is very simple: goods and services are becoming much cheaper for the Chinese with the current exchange rate of the Russian ruble.

So far, however, words are not turning into deeds. Small and medium-sized businesses follow suit in typically taking a wait-and-see attitude and observing not only the fluctuations of the ruble but also the government’s willingness to make compromises to foreign investors.

As eight years ago, in the wake of the “post-Crimea” wave of sanctions, China’s principal calculation is that Russia would supposedly offer “special and privileged” terms of operation to Chinese business. Translated into economic pragmatism, this means: 1) obtaining state guarantees for investment deals, insuring the investor against being cheated by the Russian partner; 2) admission to strategic industries – ports, mineral resources extraction; 3) simplification of procedures for processing workers from China and duty-free import of equipment and machinery for investment projects; 4) implicit advantages over investors from other countries.

In eight years, the Chinese have never received such concessions. By the way, in private conversations, they would offence at this, saying that Russia got more from China than China got from Russia after the deterioration of the two countries’ relations with the West.

Will the situation change now? I would hazard a guess that it will not. What is certain is that the situation will not change dramatically.

First, it is not in the interests of Russia, which does not want to swap one dependency for another. Protecting strategic industries from falling under the control of foreign capital, prioritizing domestic specialists and localizing production are the pillars of Moscow’s investment policy. So far, there have been no exceptions, even for such an important partner as China.

Second, Chinese capital still has the option of investing in countries with low purchasing power and a yet weaker state, which is unable to rigidly dictate its rules to foreign partners. The Chinese work much more comfortably in such countries than in Russia.

Therefore, I see the situation for the next decade as follows:

There will be more and more Chinese goods in Russian shops, and they will replace Western products in most market niches. Eventually, Chinese tourists, attracted by cheap prices, will also return. It is likely that two or three flagship projects, like Yamal-LNG, will be implemented. However, there will be no mass attraction of Chinese investors on the special conditions that China hopes for. This, however, will in no way affect the vibrancy of the Russian-Chinese strategic partnership.

From our partner RIAC

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Economy

World Order Is Old Order: New World Order Is No Order

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The grand hallucinations: When there is any order, it always becomes visible as an orderly progression, when it is supposed to be a secret or an invisible order, then it is grand hallucinations for a cult of illusionists. Observe how the World Order is an old order, and notice how the new world order is no order. The random engagements in illusionary cultish acts of chaos sold as order. Fakery sold and resold as victory, illusions pushed as hallucinations of success. Courage is needed to see the big magical acts of grand hallucinations.

The feel of afternoon-high: Across the world, free economies are already bent, twisted or broken, while procedures, policies and laws, everything on sale for the right price. Mighty-money, delivered crisply stacked, shrink-wrapped as freshly printed solutions, to buy more chaos, spread misery and create the economic hallucinations and stage the smoke and mirrors, all without any totals, balances or columns. Sold to feel a real afternoon-high.

The interchange: When integrity gone, fakery dominates, when real value-creation gone value-manipulation regulates, when vision gone illusions thrives, when national economics gone hallucinations declared as great success and reality interchanges to fakery.  

The elasticity left: Needed across the free economies of the world, no further proof required, a total change, no further verification needed, as political power no longer economical power, no further help needed, as most nations in need of basic diaper change. Visible damage to skills and competency, inability to understand and articulate the real problems with grassroots solutions is now a big tragedy of our times. Nations already stretched via rubber band economy, some with elasticity left before going bust.

The truth: Which nation has the capacity to face the truth? Which nation can fix itself not just top reshuffle, but rather from top to bottom to the real core? Which nation can uplift its citizenry to stand up to global age skills and cope with global speed and competitiveness? Which nation is capable of understanding and has the right to mobilize its hidden national entrepreneurialism and provide a future for the next generation?

No electricity and missing bulbs: Is there any value left in the most cherished Machiavellian style political power without ever creating any economic power? Is there any remaining value in economic power play of today without entrepreneurial growth models? What good are economies when stuck in waste paper baskets still without digitization like a nation being without electricity? What real economic value is created when odd mindsets playing with economic development procedures like creating light but with no bulb?  

Welcome to cold facts and warm realties.

The branded nations: Why each and every single nation of our planet is now branded every single day of the year? Like it or not, agree with what is said, disagree with what gossiped, simple fact of the day,  each nation is branded, between each sunrise and sunset. Here is some advanced level insight for the national leaderships on global corporate communication challenges, as what may be altering their efforts on global affairs, what might mold their global trades as the deep undercurrents of global ‘likes’ and ‘dislikes’ from the global populace shape their national global image and rate of popularly and any level of respect on world stage.

The global opinion: Observe how fast the world changed, how the ocean of “global opinion” is now drowning ponds of “national opinion”. Notice, nations already intoxicated, in joy over the popularity of their own national opinion, while having just an opposite global opinion on the world stage. What does this mean to a nation’s image supremacy, how does this translate into economic impacts? Why is any global opinion of any kind important anyway? Be cautious, if such important topics are not discussed in your boardrooms, check out the restrooms.

The fabric of humankind. Every huge, little, deadly, serious or funny incident of any kind, becomes ‘alive’ in global social media, where despite all controls its is processed with common sense with common emotions, commented and circulated around the world, many times, registered, measured, analyzed, criticized and humanized as good, bad or ugly in the minds of the global populace.  No one can stop it. Facing truth is now a new global challenge of moral strength, something that increasingly demands insight and awareness. Shunning, arguing or defending and fighting has little or no power, as the real power hidden is in critical thinking to solve common good, humankind issues.   

The 200 nations, now under their own global digital spell, responding, and adjusting their own feedback and updating reality checks, influenced by the five billion, connected populace driving the world opinion.  The voices are no longer the big old-media, as they have already lost their credibility and power,  but across the world the new known and unknown big and small clusters of people sharing their thoughts amongst their local and global connectivity and surroundings. The truth rises, because this is how the critical needs for common good and social justice advances. The fabric of humankind stretches, starts to cover all nations.

Weaponization of Ideologicalism:  Why are most nations increasingly unable to control their restless citizenry? How much more will the citizens of these nations, continuously influenced by the global opinion, facing common sense, chasing truth, turning internal tribalism, into cultural wars defining limits of ideologies, as Weaponization of Ideologicalism slowly ripping local social fabric and crushing economies. Where are the repairmen, where are the solutions, which leadership is ready to articulate and bring national mobilization of entrepreneurialism as an untapped national treasure. Which nation is ready to face reality and show their advanced skills?

The aimless directives: When nations appear aimlessly drifting into hallucinations, the lack of vision, absence of social justice, unable to control internal tribalism, cultural wars move to ideological wars. Nations fragmented and splintered, now facing street by street mental wars. The visible lack of skills at the top management, lack of speed of execution at middle level and the absence of any motivation at remaining workforces now seriously limits all new options.

The coming revolution: The next global revolution, driven by economic chaos based on social failures, while the middle classes already disappeared, may not be about the mobs of commoners with broom-sticks but most likely the imploding calm and silent systemic collapse of bureaucratic administrative blockades and fall of economic intellectualism for destroying the fabric of humankind.

The absence of dialogue, only proves lack of real pragmatic solutions, skills and competence. Electioneering, sloganeering and fakery of wars to remain in power with no real economic solution, in global opinion a colossal failure.  Therefore, “Self Mastery” urgently needed to differentiate between a mesmerized mind with an enlightened one will possibly be a way to face the new challenges. Economies will only improve when old methodologies declared broken

The new world order: No other time in the history of civilization, so many globally connected will hold responsible the so few in power for destroying the remains of world order and bringing the world to a nuclear war.  A war, suggested to eliminate five billion people. It is possible, the coming revolutions to be less about anarchy but more about establishing real meritocracy. The need to search, find and strive for real value creation to answers grassroots prosperity affairs and eliminate lingering bureaucracies with fermented layers of incompetency. How soon will the five billion connected reach a critical point to select the right players with right policies and declare common good the new ultimate goals? This may eventually lead to a new world order. Pandemic was just a sneeze, economy, now like a hole in the empty pocket, leadership like a circus show, while billions looking up. Acquire mastery. Get ready for major global shifts of major economic behaviorism. The rest is easy. 

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Mosul’s recovery moves towards a circular economy

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Five years since the end of the ISIL(so-called Islamic State in Iraq and the Levant) conflict in 2017, the International Organization for Migration (IOM) in Iraq and the UN Environment Programme (UNEP), with funding from the Government of Japan, has established a debris recycling centre in Mosul. After its initial use, the centre has now been handed over to Mosul Municipality for its continued, sustainable operation.

“On behalf of the Iraqi Government, the Ministry of Environment expresses its gratitude to the Government of Japan for generously supporting this important project and to UNEP and IOM for enabling the sustainable management of the huge quantities of conflict debris and restabilization of the liberated areas in an environmentally sustainable manner,” said Iraq’s Minister for Environment, Dr. Jasim Abdulazeez Humadi.

The handover of the Mosul debris recycling centre marks a significant step in the sustainable management of the huge volumes of debris — an estimated 55 million tonnes — created by the ISIL conflict. It also opens the way for the recycling of routine construction and demolition waste, contributing to ‘building back better’ and an increased circularity in Iraq’s development.

UNEP West Asia Regional Director, Sami Dimassi, emphasized that “by reducing waste, stimulating innovation and creating employment, debris recycling also creates an important business opportunity.” Indeed, construction companies in Mosul have expressed interest in purchasing the recycled aggregate, thereby underscoring the longer-term sustainability of debris recycling.

“This project supports recovery and livelihoods by drawing on principles of a circular economy, wherein waste and land pollution is limited through production processes that reuse and repurpose materials for as long as possible,” explained IOM Iraq Chief of Mission, Giorgi Gigauri. “Collaboration and sustainability are key priorities in IOM’s work toward durable solutions to displacement, and we are pleased to have partnered with UNEP and the Government of Japan so that this is represented not only in the function of the plant itself, but also in its functioning, by supporting local authorities to be prepared to effectively operate the plant moving forward.”

On 28 July 2022, Mosul Municipality hosted an event to officially hand over the debris recycling centre, attended by senior government officials and academia, as well as representatives from IOM, UNEP and the United Nations Assistance Mission for Iraq (UNAMI).

Masamoto Kenichi, Charge d’Affaires, Embassy of Japan to Iraq stated: “We are glad to know that the project funded by the government and people of Japan has contributed to cleanup of debris and reconstruction of Mosul. We would like to commend UNEP, IOM and the city of Mosul for their tremendous efforts of turning the legacy of ISIL’s devastation into building blocks of reconstruction”.

Through the rubble recycling project, nearly 25,000 tonnes of debris have been recovered and sorted, of which around half was crushed into recycled aggregate. Material testing of the recycled aggregate endorsed by the National Center for Structural Tests of the Ministry of Planning confirms its compliance with the Iraqi State Commission for Roads and Bridges design standards for road foundational layers and its suitability for several low strength end-use applications such as concrete blocks and kerbstones.

The project created 240 much-needed jobs through cash-for-work schemes targeting vulnerable persons, including 40 women.

Building on this experience, IOM has set up two other debris recycling operations in Sinjar and Hamdaniya in Ninewa Governorate, and a third in Hawija in Kirkuk Governorate, where a pilot phase using a mobile crusher was implemented in al-Buwaiter Village in 2021. In addition, two other conflict-affected governorates — namely Salah al-Din and Anbar — have  also shown a high-level of interest in replicating and scaling up debris recycling in their own regions. 

UNEP has been supporting Iraq in cleaning up the huge volumes of debris created by the ISIL conflict since June 2017. Initially, this included carrying out technical assessments and planning workshops with UN-Habitat, and subsequently designing and implementing debris recycling pilot projects to support returns in Mosul, Kirkuk and other conflict-affected areas in cooperation with IOM.

UNEP

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Digital Futures: Driving Systemic Change for Women

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Authors: Erin Watson-Lynn and Tengfei Wang*

As digital technology continues to unlock new financial opportunities for people across Asia and the Pacific, it is critical that women are central to strategies aimed at harnessing the digital financial future. Women are generally poorer than men – their work is less formal, they receive lower pay, and their money is less likely to be banked. Even when controlling for class, rural residency, age, income, and education level, women are overrepresented among the world’s poorest people in developing countries. Successfully harnessing digital technology can play a key role in creating new opportunities for women to utilise formal financial products and services in ways that empower them. 

Accelerating women’s access to the formal economy through digital innovations in finance increases their opportunity to generate an income and builds resilience to economic shocks. The recently issued ESCAP guidebook titled, Harnessing Digital Technology for Financial Inclusion in the Asia Pacific, highlights the fact that mechanisms to bring women into the digital economy are different from those for other groups, and that tailored policy responses are important for women to fully realise their potential in the Asia-Pacific region.

Overwhelmingly, the evidence tells us that how women utilise their finances can have a beneficial impact on the broader community. When women have bank accounts, they are more likely to save money, buy healthier foods for their family, and invest in education. For women who receive Government-to-Person (G2P) payments, there is significant improvement in their lives across a range of social and economic outcomes. Access to safe, secure, and affordable digital financial services thus has the potential to significantly improve the lives of women.

Despite the enormous opportunity, there are numerous constraints which affect women’s access to financial services. This includes the gender gap in mobile phone ownership across Asia and the Pacific, lower levels of education (including lower levels of basic numeracy and literacy), and lower levels of financial literacy. This complex web of constraints means that country and provincial level diagnostics are required and demands agile and flexible policy responses that meet the unique needs of women across the region.

Already, across Asia and the Pacific, governments are implementing innovative policy solutions to capture the opportunities that come with digital finance, while trying to manage the constraints women often face. The policy guidebook provides a framework to examine the role of governments as market facilitators, market participants and market regulators. Through this framework, specific policy innovations drawn from examples across the region are identified which other governments can adapt and implement in their local markets.  

A good example of how strategies can be implemented at either the central government or local government levels can be found in Pakistan. While central government leadership is important, embedding tailored interventions into locally appropriate strategies plays a crucial role for implementation and effectiveness. The localisation of broader strategies needs to include women in their development and ongoing evaluation. In the Khyber Pakhtunkhwa province, 50,000 beneficiary committees comprising local women at the district level regularly provide feedback into the government’s G2P payment system. The feedback from these committees led to a biometric system linked to the national ID card that has enabled the government to identify women who weren’t receiving their payments, or if payments were fraudulently obtained by others.

In Cambodia and the Philippines, governments have implemented new and innovative solutions to support remittance payments through public-private-partnerships and policies that enable access to non-traditional banks. In Cambodia, Wing Money has specialised programs for women, who are overwhelmingly the beneficiaries of remittance payments. Creating an enabling environment for a business such as Wing Money to develop and thrive with these low-cost solutions is an example of a positive market intervention. In the Philippines, adjusting banking policies to enable access to non-traditional banking enables women, especially those with micro-enterprises in rural areas, to access digital products.

While facilitating participation in the market can yield benefits for women, so can regulating in a way that drives systemic change. For example, in Lao People’s Democratic Republic and India, different mechanisms for targets are used to improve access to digital financial products. In Lao People’s Democratic Republic, the central government through its national strategy, introduced a target of a 9 per cent increase in women’s access to financial services by 2025. In India, their targets are set within the bureaucracy to incentivise policy makers to implement the Digital India strategy and promotions and job security are rewarded based on performance.

These examples of innovative policy solutions are only foundational. The options for governments and policy makers at the nexus of market facilitation, participation and regulation demands creativity and agility. Underpinning this is the need for a baseline of country and regional level diagnostics to capture the diverse needs of women – those who are set to benefit the most of from harnessing the future of digital financial inclusion.

*Tengfei Wang, Economic Affairs Officer

This article is the second of a two-part series based on the findings of the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP) Policy Guidebook: Harnessing Digital Technology for Financial Inclusion in Asia and the Pacific, and is jointly prepared by ESCAP and the Griffith Asia Institute.source: UNESCAP

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