Hejun Consulting Group: Vladivostok will become Singapore and Shanghai of the 21st century. And USA is not an obstacle Daniel Bootman Follow Sep 13, 2016 · 4 min read

What will the second East Economic Forum (EEF) bring to Russia and the world, and why Western businesses grow tired of American sanctions?

These days Russki (Russian) island, which is located a couple miles off the coast near Vladivostok, is buzzing with activity. Everyone is getting ready to a much anticipated event: the second East Economic Forum (the first one took place in 2015). The event is much talked about in Vladivostok and there are optimists, who anticipate lotos blooming in a few days. No, it is not a biological anomaly, the beautiful flower is the forum’s emblem, and its bloom is a symbol of development, reliability, trust, honesty, and, as experts say with their tongue in cheek, huge investment in Russian Far East.

It isn’t That Far…

It’s an open secret by now: from a lagging and God forgotten region Vladivostok is fast becoming a growth territory. Russian state programs for Far East development are working since 2013, and EEF is becoming a new mingling ground for world business elites. If last year’s results are taken as indication, for global investors Russian Far East is becoming close enough.

The state guarantees preferential treatment for banks and corporations. Russian government and President Putin himself on many occasions indicated, that development of Russia’s periphery is a long-term program that the state is committed to. The projects are many: from targeted industry-specific investments to the “Far East hectare” (an opportunity for Russian citizens to get free land with the obligation to develop it) to subsidized interest-free mortgage financing.

Speaking of results of the first EEF in 2015, Russian Vice-Premier Yury Trutnev boasted of about 80 signed deals for a total of 1.3 trillion rubles (US$ 20 billion). He said it was exceeding expectations by a wide margin.

And international forum participants largely agree. Chairman of China’s state energy giant CNPC Wang Yilin expressed confidence that Russia’s economic strategy will positively influence energy cooperation between Russia and Asian economies. However, the results could have been even more impressive if European companies were more active at EEF. Yes, many came despite pressures of their governments’ economic sanctions against Russia, which are a true torture for international business. For most business people and even some politicians business interests and development of new markets is more important than short-term political goals. And it was proved time and again that cooperation with Russia easily converts into attractive profit margins, EEF provides means for such conversion. This year the situation is similar: there is a strong drive from business, but politicians are damaging prospects by keeping sanctions in place.

“Fantastic Event”

Chairman of Japan Association for Trade with Russia & NIS (ROTOBO) and President of Kawasaki Heavy Industries Shigeru Murayama says that for success in global economy special economic status districts and implementation of international standards are essential.

Founder and Director of Hejun Consulting Group Wang Mingfu is sure that Vladivostok can become a world class regional hub of free trade — “Singapore, Shanghai of the 21st century”. Analysts and experts described EEF as “honest, open, free of hidden agenda, and without any hint of lobbying at all”.

Popular in Vladivostok Russian language news portal vladnews.ru reported that EEF and city of Vladivostok itself received positive feedback from international guests. EEF participant from Australia, CEO of Tiger’s Realm Coal (the largest Australian investor in Russia) Craig Parry called the forum a “fantastic event”, where businessmen got “full access” to Russian government and could see firsthand the high level of government support for business. A participant from Brazil, Roberto Alvarez, stated that Vladivostok is a beautiful city with great views, beautiful landscape, and excellent potential.

Investors and Businessmen are Sanctions’ Hostages

Lost opportunities are not something Russian EEF organizers can do much about. Everyone was welcome at the first EEF in 2015, and there were over four thousand participants. There could have been more participants and signed deals, but sanctions are weighing on business. The sanctions were discussed at the first EEF, CEO and Executive Managing Director of Japan Bank for International Cooperation (JBIC) Tadashi Maeda openly stated that sanctions are an obstacle for full-fledged cooperation.

“Japanese companies working in the US became hostages of American sanctions against Russia” — he stated.

There is also another real world fact: American energy giant Exxon Mobil participates in “Sakhalin-1” and “Sakhalin-2” projects in the region and is actively looking for legal loopholes in the anti-Russian legislation in order to continue working on Russia’s Far East projects. Will others follow the example? It is a purely practical question: nobody is willing to compensate business losses, and sanctions don’t help the bottom line.

One more fact is obvious: extracting oil along Russia’s Far East shore is a profitable business, it is certain and transparent both in terms of reserves and business model. And on top of that there is a growing number of voices in the West proclaiming falling demand for the alternative American shale oil.

It seems possible that “cheap shale oil” is a bubble that will burst sooner or later because of the huge debt load of American shale oil industry. This topic will surely get discussed on the forum’s sidelines, and we may witness these discussions growing to become decisions of historical proportions. We will learn it soon.