Q: Why has Russia’s Far East become of key importance for Moscow?

A: It’s due to four main reasons. First of all, for its natural resources. The Far East is the most endowed yet the least developed third of the Russian territory, with its oil and gas, mining [gold, copper, coal, rare earth minerals] and biological resources. 

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The second issue regards its logistics potential. The region is adjacent to east Asia, and some of the world’s most dynamic economies, which is an opportunity for Russia to catch the wind blowing from east Asia in its sails. Third, we have agriculture. East Asia is experiencing a growing deficit of food and water, but the Russian Far East has 2.8 million hectares of arable land that can be put into production. Its coastal waters account for 70% of the country’s fish catches, and Lake Baikal alone stores 20% of the world’s fresh water. 

Fourth is tourism. Asian tourists are the single most important group of tourists in the world. People from China, Japan and South Korea spent $250bn travelling abroad last year, and they have in their immediate proximity a place such as Vladivostok, which is the closest thing to Europe that Asia has.

Q: What is the current state of development in Russia’s Far East?

A: We are still at the beginning. In the 1990s, the focus was purely on resources and this has been the case for the past 25 years. But three years ago, the government set up a dedicated branch with expanded powers, where one single envoy combines the responsibilities of the president and the government. [This person is] Yury Trutnyev, who is both presidential envoy and deputy prime minister.

The government also set up a special ministry and several funds, including the Russian Far East Fund, where we work as a private equity investor, managing about $1bn and deploying capital into infrastructure and other projects alongside other private investors.

Q: The establishment of territories of accelerated development [TADs] also belong to this new framework.

A: A new legislation was adopted to set up TADs, which are similar to special economic zones and offer unique tax breaks: no income tax for 10 years, no property tax, and payroll tax down to 8% from 30%. Some 18 TADs have already been formed and they are now in the process of collecting applications for businesses slated to open there. Since the approval of the last one in December 2014, investors have pledged to invest into 260 projects worth some Rbs1100bn [$17bn]. One-quarter of them are foreign investors, mostly Asian.

Q: Russia’s average wages are lower than China’s. Does this create an opportunity for the Russian Far East to absorb some of the overcapacity China plans to export over the next few years?

A: China announced that it will be moving 12 industries out of the country. We have already had two meetings at a ministerial level to discuss the issue, and the Chinese part is now working on a specific list of industries they would like to move into the Russian Far East. At the same time, we are already working with several private investors in China. We have been observing strong interest in sectors such as petrochemicals, construction materials, pulp and paper, anything that concerns shipbuilding, and power generation to export power across the border.