Russia

Chinese Investment In Crimea Is *Political* Backing For Russia

Since Crimea became part of Russia, China is the first foreign country looking to invest. In light of Moscow's standoff with the West, this is about much more than money.

Waiting in Sevastopol, Crimea
Waiting in Sevastopol, Crimea
Egro Polov and Denis Skorobogatko

MOSCOW - The first international players interested in investing in Crimea since it became part of Russia are from China.

Kommersant has learned that a Chinese state-owned company and private investment fund are looking to back a $1.3 billion transportation corridor to Crimea over the strait that separates it from the rest of Russia.

It is primarily a political move, sources with knowledge of the negotiations told Kommersant, seen as a demonstration that the relationship between Moscow and Beijing is strengthening in the face of the West’s sanctions against Russia.

The Russian Transportation Ministry is preparing to sign a memorandum with the Chinese companies for the transportation project that would connect Crimea and the Krasnodarsk region of Russia. It’s still not clear what kind of project is on the table - it could be a bridge for rail and automobiles or it could be a combination of a bridge and underwater tunnel.

As a result, China could gain access to other large projects in the region, which some in Moscow worry could lead to Russian investors being shut out of deals.

The Transportation Ministry refused to comment officially on the deal. One source said the final details are still being worked out, but it’s very likely that Chinese companies that have experience with large infrastructure projects will participate. The same source added that the project might be financed in the Chinese RMB currency.

A feasibility study for the different potential ways to link Krasnodarsk and Crimea is supposed to be completed by November 1. Top major Russian companies are interested in participating, but they won’t make any decisions until after the feasibility study has been completed.

Several sources acknowledged the “political” nature of the arrival of Chinese partners in Crimea. “The Chinese have a lot of experience with infrastructure projects, but most importantly, this is the first major project we’ll undertake with them since the worsening of relations with the West,” one source said.

In its Ukraine days

China had planned to invest in Crimea before it was annexed by Russia. At the end of 2013, Ukraine signed an agreement with China for the construction of a deepwater port in Crimea. Chinese companies were also counting on being part of the reconstruction of Sebastopol’s fishing port, the construction of a new airport and other projects. “Participation in the transportation corridor project could be a guarantee that those projects will move forward, which is not at all assured,” one source said.

In addition, in 2013 the ship-building factory in the Crimean city of Feodossiia delivered an amphibious military vessel (worth $350 million) to the Chinese, and is in the process of building a second one. Sources say that China had tried to transfer that contract to Russia, but hasn’t been able to reach an agreement.

Mikhail Blinkin, director of the Institute of Transportation Economics and Politics, said that the profitability of the projects is still unclear, so the Chinese might be mostly interested in strengthening their position in the region. “At the same time, at least in the long run, the Russian government will pay back whatever investment they make,” Blinkin said.

He said that at the moment, China is the world leader in the construction of roads and bridges with a cheap labor force, but that the Chinese don’t have any new construction technology. “Usually the Chinese bring their own technological resources and workers, so it will be hard for Russian companies to find a niche if the contract goes to a Chinese company,” he said.

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