Opportunities For British Businesses In China: The Russian Far East

Our firm, Dezan Shira & Associates are members of the London-Moscow based Russo-Britain Business Council and are heavily involved in providing support to British investors in Russia. As a practice, we also have a near-30 year presence in China, and have been servicing what has become thousands of British investors into China and Hong Kong since 1992.  Our firm has 13 offices across the country, including Hong Kong, and also publishes the renowned China Briefing website. We also have representation in Moscow and St.Petersburg.

Although the suggestion that existing British investors in China contemplate the Russian market is admittedly left-field, there are serious development issues that should be looked at that justify the examination of such activity. The photo shown, for example, depicts Vladivostok, the central city for the Russian Far East, now developing as a Russian version of Shanghai, with updated infrastructure, finance and connectivity handling trade between Japan, South Korea, China, Central Asia, and on to Europe via the Trans-Siberian rail. Vladivostok also possesses Free Trade and Special Economic Zones as per the Chinese model for foreign investors, in addition to tax incentives. Russian profits tax is relatively low, at 20%, while the UK also has a Double Tax Treaty with Russia,which can further reduce this if used correctly.

As a consequence of the development of Vladivostok and the multiple cross-border trade corridors it handles, the Russian Far East is now attracting 32% of all FDI into Russia. British business in nearby China should be making assessments of the opportunities.

In terms of other development pointers, these are:

• China signed off a Free Trade Agreement with the Eurasian Economic Union (EAEU) in 2019. The EAEU extends from the borders of China to the borders of the European Union. Although the FTA has not currently impacted upon China-EAEU tariff reductions, this issue is currently under negotiation. When tariffs are agreed, bilateral trade between China and Russia in particular, will boom.
• China-Russian bilateral trade is currently at US$100 billion per annum and increasing at rates of about 20% per annum. Both governments have committed to doubling this trade volume by 2024.
• Russia shares a long, 4,209km border with China and is part of the Belt & Road Initiative. Long-neglected cross-border transport links are being earmarked for upgrades. Current China-Russia teu volumes by rail are on track to reach 1 million, having jumped to 750,000 teu in 2019. Additional infrastructure and investment is needed to keep pace with demand.
• China amended its Foreign Investment Law from 1st January 2020 and now permits foreign enterprises in China to compete and/or partner with local Chinese companies for procurement and other State requirements.
• China provides tax incentives for foreign investors who re-invest profits realized in China back into investments. This means developing a Russian angle to a British business operating in China could be financed through tax incentives and applicable reductions.

Chris Devonshire-Ellis, Head of our Russia desk, has 30 years experience of dealing with China. His recent article, written exclusively for the Russo-Britain Business Council is entitled Accessing Funding & Investment Projects In Russia’s Far East Via China & Hong Kong and explains these scenarios in greater detail.

Related Reading

• Vladivostok & Russian Far East To Be Developed As Significant North-East Asian Resource & Trade Hub
• Russia’s Far East Opens Up To Heilongjiang, Jilin & Inner Mongolia