The Russian Direct Investment Fund, a Russian sovereign
wealth fund, has announced two partnership arrangements with
Chinese counterparts in a move that will further deepen
investment activities between the two countries.
In the first of two announcements, RDIF said it was
establishing a new fund with 68 billion in renminbi ($10
billion) with the China Development Bank. The fund will be
designed to invest in the One Belt, One Road and Eurasian
Economic Union initiatives. One Belt, One Road is a project led
by China and designed to improve trade and development between
China and Eurasian countries. Russia, meanwhile, established
the Eurasian Economic Union, a Russian-led geopolitical and
trading bloc, in 2014.
RDIF followed this with the news that it plans to further
bolster assets in the existing Russia-China Investment Fund
(RCIF), a private equity fund designed to develop bilateral
economic, trade, and investment relations between Russia and
China. In a joint media statement, RDIF and the China Investment Corporation, Chinas
$813 billion sovereign wealth fund, announced they plan to
invest an additional $1 billion in RCIF.
That fund, which launched in 2012, invests in assets in both
countries as well as in opportunities in the Commonwealth of
Independent States. To date, the fund has committed to 19
investments in a wide spectrum of sectors, from manufacturing
and transport infrastructure to finance and technology.
Qing Zhang, executive vice president of CICs direct
investment arm, said in the statement announcing the moves that
RDIF had proved to be a trustworthy investment institution and
reliable partner since RCIF launched in 2012. The Russian
state-owned news agency TASS reported on Monday that the fund
was to invest an unspecified amount in Chinese online steel
trading exchange Zhaogang.
Sergey Dergachev, senior portfolio manager for
emerging-markets debt at Union Investment Privatfonds in
Frankfurt, tells Institutional Investor the announcements
underscore an increasingly strengthening partnership between China and Russia on
economic matters. And because the funds are renminbi
denominated, they will not fall under the jurisdiction of U.S.
sanctions on Russia, according to a Financial Times report.
The current geopolitical environment is relatively
tense, and there are some alliances forming, Dergachev
says. The bond between Russia and China has emboldened
over the past ten years. Since Russian sanctions were
introduced by the West, we have seen China playing a much more
He says evidence of this strengthening alliance was visible
at the recent One Belt, One Road summit in Beijing in May, when
Russian President Vladimir Putin was pictured beside Chinese
President Xi Jinping in the photo op. But while Chinas
Belt and Road initiative is universally applauded for its
ambitions, investors have become increasingly concerned about
debt levels in the country. In a report published Tuesday,
Jason Pidcock, portfolio manager at fund firm Jupiter Asset
Management, warned that debt levels in China have grown
considerably over the past eight years, while countries that
were burned by the global financial crisis in 2008 have been
keen to pay down debt. This, he warns, will increasingly become
an issue for China in the months ahead.
Chinas total debt-to-GDP ratio soared to nearly
280 percent by the end of 2016, he wrote.
Unprecedented levels of leverage are building up in the
system and, in my opinion, Chinas debt-fueled growth is
Dergachev says any deterioration in Chinas economic
environment could have a significant negative impact on the
completion of its Belt and Road initiative.