special report russia and greater china · 2 russia and greater china tuesday, may 28, 2013 special...

Tuesday, May 28, 2013

RUSSIA ANDGREATER CHINA

Monthly supplement from Rossiyskaya Gazeta (Moscow, Russia) which takes sole responsibility for the contents A product by

Toast to new era Day at the movies

Country’s wine producers are raising standards

> PAGES 8-9

Film festival portrays ‘dynamism of modern Russia’ > PAGE 15

Haven for Buddhists

Ivolginsky Datsan is spiritual capital for the faithful

> PAGES 12-13

Warm welcome Warm welcome for leaderfor leaderPatriarch Kirill makes historic trip to ChinaPatriarch Kirill makes historic trip to China

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SPECIAL REPORT©

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RUSSIA AND GREATER CHINATuesday, May 28, 2013

SPECIAL SUPPLEMENTS AND SECTIONS ABOUT RUSSIA ARE ALSO PUBLISHED BY RUSSIA BEYOND THE HEADLINES, A DIVISION OF ROSSIYSKAYA GAZETA (RUSSIA), IN: THE WASHINGTON POST AND THE NEW YORK TIMES (UNITED STATES), THE DAILY TELEGRAPH (UNITED KINGDOM), LE FIGARO (FRANCE), SÜDDEUTSCHE ZEITUNG (GERMANY), EL PAÍS (SPAIN), LA REPUBBLICA (ITALY), LE SOIR (BELGIUM), DUMA (BULGARIA), GEOPOLITICA (SERBIA), EUROPEAN VOICE (EU), LA NATION (ARGENTINA), FOLHA DO SAO PAOLO (BRAZIL), EL OBSERVADOR (URUGUAY).

“DMITRY SAUTIN - THE KING OF DIVING”

“HOW IS IT - RIDING A BICYCLE IN MOSCOW?”

“RUSSIAN OFFICIALS AGAINST HACKERS”

“RUSSIA, INDIA FORGE AHEAD WITH FIFTH-GENERATION FIGHTER”

tsrus.cn

In Huanqiu Shibao (China) In Mainichi Shimbun (Japan) In JoongAng Ilbo (South Korea)In The Economic Times (India)

roshianow.jp russiafocus.co.krindrus.in

RUSSIA BEYOND THE HEADLINES’ SUPPLEMENTS AND SECTIONS IN ASIA: GET THE BEST STORIES FROM RUSSIA EACH MONTH IN YOUR FAVOURITE NEWSPAPER

PICTURE OF THE MONTH GOVERNMENT HUMANITARIAN AID

President Vladimir Putin has accepted the resignation of long-time ally and former chief ideologue Vladislav Surk-ov from posts as deputy prime minis-ter and government chief of staff, ac-cording to the Kremlin’s press service.

The statement says that Surkov, 48, left at his own request. No other details were provided.

Surkov was deputy head of the pres-idential executive office from August 1999 until December 2011, when he was appointed deputy prime minister. He said he had handed in his resignation on April 26.

Surkov’s resignation came a day after Putin criticised Prime Minister Dmitry Medvedev’s cabinet for being too slow in implementing a set of keynote de-

crees he signed after taking office last May. Surkov said the cabinet had been working “quite flawlessly”, but admit-ted progress on 50 out of 151 executive decrees had been “unsatisfactory”.

Underground movementKey Putin ally bows out 70TONNES

Commuters turn up in droves to celebrate the Moscow Metro’s 78th anni-versary. The underground opened in 1935 with one 11km line.

Lukoil is to begin exports via Russia’s eastern pipelines.

Two planes from the Russian Emer-gency Situations Ministry, loaded with humanitarian aid, departed on May 7 for quake-hit Sichuan province in southwest China.

Some 57 tonnes of essential goods were delivered, including blankets, canned food and electric-ity generators.

Russia also sent more than 13 tonnes of aid on April 28. A 7.0-magnitude earthquake struck Lushan county in Sichuan on April 20, killing about 200 people and injuring more than 12,000.

Vladislav Surkov resigned.

Oil giant eyes eastL

ukoil, Russia’s largest public-ly-owned oil company, has ob-tained permission from oper-ator Transneft to access the Eastern Siberia-Pacific Ocean

(ESPO) pipeline, enabling it to export oil at a US$4 per barrel price premium compared with the Urals blend. But in order to make use of this opportunity in the long term, Lukoil will have to show that its blend is high quality and that eastward shipments are more profita-ble than western or southern routes.

Although Lukoil has secured approv-al from the pipeline operator, “the final approval must be issued by the Energy Ministry, which draws up the export schedule”, a Transneft representative says.

The Energy Ministry has not com-mented. Lukoil has said it wanted to export oil to eastern markets.

According to a source close to the company, the Russian oil giant is plan-ning to ship 100,000 tonnes of oil in July through the Kozmino ESPO terminal on the Pacific coast.

It is not clear who the customer is, or whether Lukoil has already signed any contracts with Southeast Asian buyers.

In late February, Lukoil asked the En-ergy Ministry to put it on the ESPO ex-ports schedule, but was refused because the company had not secured consent from Transneft.

At the time, the pipeline operator said

ROUND-UP

DEAL OF THE MONTH

Lukoil’s blend did not conform with ESPO standards. A source familiar with the situation says the initial plan was to export oil from central Siberia, but Lukoil now intends to export a differ-ent blend from its western Siberian fields. In addition, the requested tran-shipment volume is only one-sixth of the total in the original application.

Following an intergovernmental agreement to boost Russian oil exports to China, another oil giant, Rosneft, plans to increase oil supplies to the country by 800,000 tonnes via the ESPO pipeline starting July 1. Annual exports now stand at 15 million tonnes.

Transneft has confirmed that the pipeline has the capacity to handle the Lukoil and Rosneft exports at the same time.

COMPETITION

World’s top programmers in Battle of Giants

Russian computer programmers pipped their Chinese counterparts ear-lier this month in the Battle of Giants, a contest featuring the top student pro-grammers in the world and hosted by the Urals Federal University in Yekat-erinburg.

Programmers from the two countries are widely regarded as the best in the world.

The Battle of Giants serves as a warm-up for the World Finals of the ACM In-ternational Collegiate Programming Contest in St Petersburg in July.

The Russians comprised students from Moscow State University, St Pe-tersburg State University, St Petersburg National Research University of Infor-mation Technologies, Mechanics and Optics, Urals Federal University and Moscow Institute of Physics and Tech-nology.

China was represented by BlackBlade from Sun Yat-sen University, Again and Again from Tsinghua University, Ragn-arok from Peking University, ArcadiaC-onvent from Zhejiang University, and Mithril from Shanghai Jiao Tong Uni-versity.

The competition saw teams of three being given a computer and five hours to find solutions to as many problems as they could.

Contestants solved mathematical problems by creating a separate pro-gram for each problem.

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Presidential greeting

NEWSMAKER

3FACTS ABOUT

THE ORTHODOX

CHURCH IN CHINA

1 Orthodox Christia-nity in China rea-ched its peak in

the late 19th and early 20th century. It was cen-tred around the northern Chinese city of Harbin, which was dominated by Russians.

2 After the Bols-hevik revolution in October 1917,

many Russians emigra-ted to China, where lar-ge Christian communities sprung up. There were over 300,000 Orthodox Christians in China.

3 In 1957, the Rus-sian Orthodox Church gran-

ted autonomy to the Chinese Orthodox Church, which was left without a leader in 1965 following the death of Bishop Simeon of Shanghai.

Russia and China cemented their close ties this month during an official visit by the leader of the Russian Ortho-dox Church. Moscow hopes

the historic visit by Patriarch Kirill will enable the Orthodox Church to win rec-ognition by Beijing, and also boost bi-lateral ties.

It was the first visit to China by the head of the church, and it culminated in Kirill meeting President Xi Jinping.

“You are the first supreme religious leader of Russia to visit our country,” Xi said.

“This demonstrates the high level and the special nature of Chinese-Russian relations.” Chinese state television cov-ered the May 10-15 visit as a diplomat-ic event. The state news agency Xinhua quoted Xi as speaking mainly about the “strategic nature of relations between Russia and China”.

China’s Foreign Minister Wang Yi and Russia’s new ambassador to Beijing An-drey Denisov attended the meeting, along with Wang Zuoan, head of the central government’s department for religious affairs. Wang Zuoan’s presence was the only indication that the visit had some religious significance.

During his private meeting with Xi, Kirill raised the issue of granting Ortho-dox Christianity official status in China, sources who were involved in organis-ing the trip said.

This would be a long process that could yield results in several years, but the present situation is favourable for the Russian church. Religion is under-going a renaissance in China and Or-thodox Christianity could prove a good partner for Beijing.

“Only one or two years ago few could even imagine Patriarch Kirill visiting the People’s Republic of China,” says Met-ropolitan Hilarion of Volokolamsk, head of the Moscow Patriarchy’s foreign re-lations department.

“It was not just a private or semi-of-ficial visit. He was received at the high-est state level, and met the Chinese lead-er, which is the first event of its kind in the entire history of the People’s Repub-lic of China.”

The 66-year-old patriarch visited Be-ijing, Shanghai and Harbin during his trip.Unlike the Roman Catholic Church, the Russian Orthodox Church is unlike-ly to cause conflicts with authorities over the ordination of priests.

In addition, China views Catholicism

Orthodox church leader meets Xi on historic visit, writes Alexander Gabuyev

and Protestantism as teachings that could be used by the West to promote human rights issues, but Kirill says the interpretation of human rights cannot be dictated by any single model.

“I am not saying that any single civ-ilisational model can claim universal status,” he says.

“There are many civilisational mod-els, and no one has the right to say that their model is the best and should be universally accepted.

“That is exactly why we need dialogue between religions and cultures – includ-ing dialogue on human rights and free-doms.” Improving relations between Beijing and Moscow was key in the de-cision to go ahead with the trip.

Kirill visited China in 1993, 2001 and 2006 while he was head of the church’s foreign relations department prior to his election as patriarch.

This time he was also acting as Rus-sian President Vladimir Putin’s repre-sentative.

Growing trade between Russia and China, which reached almost US$90 bil-lion last year, and an energy alliance in the works are not the only reasons be-hind the amount of media attention given to the visit by the leader of a church with a limited role in China.

There are about 300 million in China who adhere to some form of religion, in a country of 1.3 billion, according to official figures.

The central government’s department for religious affairs says this includes about 100 million Buddhists, 40 million Protestants, 13 million Catholics, and 20 million Muslims.

The Russian Orthodox Church says there are only 15,000 Orthodox Chris-tians in China. Unofficial estimates put the figure even lower.

It was not just a private or semi-official visit. He was received at the highest state level

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Wealthy prospects Leaders of industry and finance eye potential in Asia, writes Alfred Romann

People link officials’ wealth to crimeOlga Doronina

Russians are increasingly intolerant of wealthy government officials and par-liamentarians, particularly when they link their riches to embezzlement, polls show.

People consider it wrong that officials live luxurious lives, and they make a di-rect connection between high-paying government jobs and crime. Only 13 per cent of all Russians consider it nor-mal for a state official or Duma deputy to be wealthy, according to a recent poll by the Levada Center. One-third of re-spondents (33 per cent) say it is offen-

Russians are unhappy that govern-ment officials live a life of luxury.

MONEY

Despite close links and a long list of similarities, the rap-idly growing ranks of billion-aires in Russia and China have long avoided each

other. This may be changing, as fortunes grow beyond the confines of any single state, and economic growth pushes gov-ernments and companies in the two countries closer together.

Long focused on simply selling their assets to buyers in the West, Russia’s leaders of industry and finance seem to have woken up to the vast potential that Asia represents.

In 2011, the East Siberian-Pacific Ocean (ESPO) oil pipeline started mov-ing oil – as much as 300,000 barrels per day, from Skovorodino, Russia, to Da-qing, China. A second pipeline opened in December, well ahead of schedule. The pipeline is operated by Transneft, a state company.

Another example is that of Oleg De-ripaska, the man behind Hong Kong-listed Rusal, the largest aluminium pro-ducer in the world. Last year, Deripaska’s Basic Element signed a US$1 billion agreement with China’s state-owned North Industries Corporation (NORINCO) to build a rolling mill for metal production, to boost aluminium exports from Russia to China. Rusal was the first Russian company to issue shares in Hong Kong – presumably to tap Chi-nese investors. (See story on Page 6) Speaking during the Asia-Pacific Eco-nomic Co-operation Summit in Vladi-vostok last September, Deripaska said his companies were discussing projects with Chinese partners in ports, logis-tics and mining.

“China will be an important player on the market,” Deripaska said.

In January, Russia’s oil company Lu-koil, controlled by Vagit Alekperov, said it would like a Chinese partner to work together on projects in Iraq.

Despite increasingly visible links be-tween the two countries, mutual trade and investment remain vastly underu-tilised. Bilateral trade doubled in the past five years to US$83 billion last year, but it is one-fifth of Russia’s trade with the European Union and a fraction of China’s total trade of US$3.87 trillion.

Nevertheless, growth in trade has picked up speed, while business and political leaders are increasingly look-ing for ways to boost mutual investment. To date, Chinese companies have in-vested US$4.4 billion in Russia.

Last April, Russia’s First Deputy Prime Minister, Igor Shuvalov, announced the Russia-China Investment Fund, with each government investing US$1 billion and the remainder from Chinese insti-tutional investors. The fund was revealed during a visit to Moscow by Premier Li Keqiang, who was then vice-premier. During that trip, new contracts for trade and investment worth US$15 billion were signed. Last year, the China Investment Corporation (CIC), China’s sovereign

sive for them to be so wealthy and al-most half (44 per cent) describe it as criminal. Respondents did not explain their notion of “rich”, but past polls sug-gest it might be someone who earns at least 110,000 roubles (HK$27,233) per month.

Most respondents (62 per cent) fa-vour a cap on government officials’ in-comes, as lower salaries could put those officials more in touch with the people. “Russians are firmly convinced that state officials and deputies do the work they do solely to line their own pockets,” says Denis Volkov, an expert at the Levada Center, which describes the results of the poll as “expected”.

The sheer amount of wealth visible in both countries is likely to help this drive for greater links. China’s Hurun Report, which tracks fortunes in China and internationally, says there are 1,453 people with more than US$1 billion around the world and with a combined wealth of some US$5.5 trillion – as much as Japan’s gross domestic product. Hurun says 608 of them are in Asia, 440 in North America and 324 in Europe.

Moscow has more billionaires than any other city in the world, according to the Boston Consulting Group, as many as 78 of Russia’s 96 last year. And Russia has more billionaires than any other country in Europe. China, with 317 billionaires, has more than any other country in Asia-Pacific.

A recent report by Forbes, “Global Wealth and Family Ties”, suggests there

Billionaires from China and Russia are aiming to work closer together to tap the vast Asian market.

are many similarities between billion-aires in Russia and China. None of the billions in question in either country are family money.

These ultra-rich are about 15 years younger than the global average and many of them are self-made, accord-ing to Forbes. Billionaires in Russia and China tend to be hands-on in running their empires and they are more likely to have made their money in the past couple of decades rather than inherit-ing it.

Most of the ultra-rich in Russia are in industries such as natural resources, which they moved into following the collapse of communism. Many have benefited from privatisation. And they are spending around the world. As much as US$80 billion may have left Russia in 2012, according to Forbes.

wealth fund, announced plans to in-crease investment in Russia through a dedicated US$1 billion Russia Direct In-vestment Fund (RDIF). The amount is small, considering that CIC controls US$410 billion.

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Further price cuts unlikely

Oil companies have cut petrol prices, but higher excise taxes in July may put the brakes on any further price reductions.

Last month, Russia’s largest privately-owned oil company Lukoil cut prices at oil depots and refineries, and at its own filling stations in Russia.

The move took pundits by surprise since oil companies don’t usually cut prices in spring, when demand for re-fined oil is at its highest.

A Lukoil spokesman attributed the decision to a fall in global oil and pe-troleum prices, adding that market forc-es have always determined the com-pany’s oil prices.

Two state-run companies – Rosneft and Gazprom Neft – followed suit short-ly afterwards.

Rosneft cut petrol prices from 1.8 to 5.4 per cent, while Gazprom Neft’s fell from 1 to 3 per cent. These were the first major price reductions in the past 12 months.

There is another reason for the fall in domestic petrol prices. Petrol inven-tories of oil companies were at an all-time high of 1.9 million tonnes as of April 1.

Belarusian refineries have raised their petrol output. Imports of petroleum products from Belarus are projected to reach 3.3 million tonnes this year – with 2.1 million tonnes of petrol, 1 million tonnes of diesel fuel and 200,000 tonnes of jet fuel.

“We have more than enough gaso-line now, everyone’s filled to the brim,” Alexander Korsik, president of Russian oil producer Bashneft, told Russian lan-guage business daily Vedomosti.

Two years ago, the domestic situa-tion was vastly different. In early 2011, Russia placed a ban on sales of Euro-2 petrol, leading to a shortage hitting the country in the spring.

Petrol could not be found anywhere and prices soared.

Many independent filling stations went bankrupt because refineries sus-pended supplies.

The state then allowed sales of Euro-2, but banned them again in January this year.

In order to prevent unauthorised ex-

ports, the government imposed a pro-hibitive export duty on gasoline amounting to 90 per cent of the duty applied to crude oil. The move proved effective, and producers focused on building inventories.

For its part, the Federal Antimonop-oly Service kept an eye on prices. Last year, there were no shocks on the do-mestic oil market.

Officials are confident there will be no crisis this year, although oil prod-uct prices are likely to rise. The Energy Ministry expects a 13-14 per cent in-crease in prices. IFC Solid analyst Dmit-ry Lukashov refuses to rule out that the price cuts are a response to a recent Finance Ministry demand that the Fed-eral Antimonopoly Service better con-trol retail petrol prices.

Given the present excise taxes, the ministry believes oil companies are gen-erating abnormally high profits of about 7 per cent of the sale price.

The move by oil companies to cut petrol prices have taken many by surprise

Lukashov says the ministry sees high petrol prices as an impediment to re-ducing inflation. Alexey Kokin, an an-alyst at Uralsib Capital, says oil com-panies follow the global trend when prices rise, but hardly ever do so when prices fall.

“Petrol output may have increased following the upgrades of refineries, and the domestic market is more con-sumer-driven now,” he says. Yevgeny Arkusha, president of the Moscow Fuel Association, agrees that oil companies are reluctant to cut prices despite the tendency towards lower retail prices. Nevertheless, higher excise taxes on fuel to be introduced on July 1 are like-ly to limit further cuts.

Galina Starinskaya

Russia wants to expand gas exports by 2030, but it may have to overcome challenges.

Despite demand, gas exports talks between Moscow and Beijing are moving slowly, writes Viktor Kuzmin

Tough hurdles to overcome

Asia-Pacific markets could ac-count for 20 per cent of Rus-sian gas exports by 2030, ac-cording to the latest Russian Energy Strategy, but new re-

search by the Analytical Centre of the Russian Cabinet argues that the goal will be difficult to achieve despite fa-vourable market conditions.

Moscow wants to diversify its energy exports by ramping up sales to Asia-Pacific, where China, in particular, is seen as a very promising market. But experts say these plans may be ham-pered by two problems. The first is that Russia’s export infrastructure is not yet ready to accommodate the market. The second is that China is in no hurry to enter into any firm commitments.

China’s demand for energy is boom-ing. In the first quarter of this year, the country’s oil consumption reached 9.8 million barrels per day, up 5.4 per cent from the same period last year. In Eu-rope, meanwhile, oil consumption fell 4.4 per cent, while in the United States growth was a mere 0.5 per cent. The global growth figure was only 1.1 per cent. If China’s energy demand contin-ues to expand so rapidly, Beijing may well be forced to seek a speedier con-clusion of oil and gas talks with Russia.

The latest report by the Analytical Centre says that if Russia is to meet its Energy Strategy targets by 2030, it must launch production on several large gas

ENERGY

fields without delay and build new pipe-lines and liquefied natural gas (LNG) terminals. But for the time being, most of the China-oriented projects have yet to be launched, the report says. The cen-tre’s experts estimate that China ac-counts for only 0.2 per cent of Russian gas exports. Eastward exports are lim-ited to the Sakhalin-2 LNG projects, and no pipeline exports to China have yet come on-stream.

That is not an encouraging state of af-fairs, especially since Moscow began gas export talks with Beijing even before the signing of the Eastern Gas Programme in October 2004. Russia has selected two routes for gas exports to China: the west-ern Altay pipeline route and the eastern Siberian Power pipeline.

The plan is to pump about 30 billion

cubic metres of gas every year from western Siberia via the western route, and up to 38 billion from the Chayan-dinskoye and Kovyktinskoye fields in eastern Siberia via the eastern route.

Work on the western route began in earnest in 2006, when Russia and China signed a protocol outlining deadlines, the size of shipments, routes and a price mechanism. A memorandum of under-standing outlining the same details with regard to the eastern route was signed in March. The document will be fol-lowed by a 30-year contract, which the two countries are hoping to sign before the year’s end.

Experts at the Analytical Centre say Chinese companies have always been keen to secure additional guarantees in their relations with suppliers, pref-erably by acquiring a stake in the pro-ject. But Moscow remains reluctant to let the Chinese own any Russian ener-gy assets.

Other complications include the high prices demanded by Russian exporters, the availability of alternative export des-tinations and a lack of mutual trust. As a result, the talks are slow.

“One of the reasons why the Chinese lack confidence in the western route is that supplies can be rerouted to Europe. The new emphasis on the eastern route is improving the chances for a success-ful outcome to the talks,” the latest study says.

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Demand for metal expected to rise

Glut creates ‘crisis’

Viktor Kuzmin

Japan’s manufacturers of cars and elec-tronics continued to move their oper-ations to Southeast Asia, North Amer-ica and Eastern Europe to cut costs last year. That has undermined Japanese demand for aluminium. In addition, a flare-up in tensions between China and Japan has affected manufacturing of casting machinery.

A correction in aluminium stockpiles in the first quarter of this year led to a reduction in imports, but the econom-ic stimulus measures announced in De-

cember, which have led to a 13 per cent devaluation of the Japanese yen, will stimulate exports. That should sustain demand for aluminium.

At the same time, South Korean de-mand for aluminium could rise by 3 per cent this year following weaker de-mand in the fourth quarter of last year after demand for semi-finished alumin-ium materials from North America and Europe dropped.

Domestic demand for aluminium is expected to grow, thanks to stronger government investment in infrastruc-ture projects and renewable energy.

Demand will also benefit because the metal is used in power transmission lines for the new generation capacity.

Indian consumption of primary al-uminium rose 5.5 per cent last year. The largest consumers were the electron-ics and power generation industries, which accounted for 40 per cent of de-mand.

In the medium and long term, de-mand could benefit from the continu-ing expansion of India’s national elec-tricity grid.

Another large consumer of alumin-ium is the transport industry, which

Read more atwww.rbth.asia/46843

There is an overproduction crisis in the aluminium sector.

could generate the fastest growth in de-mand for the metal. Meanwhile, Chi-nese demand could rise by 9.5 per cent to almost 24 million tonnes this year. Most of China’s aluminium producers are working at a loss with aluminium prices at their current level. But the gov-ernment continues to subsidise them and to replace old smelters with ad-vanced new production capacity in the northwest of the country.

Tough debut on stock exchangeAluminium giant Rusal was the first Russian company to list on the Hong Kong stock exchange, but not with-out controversy.

The company, controlled by bil-lionaire investor Oleg Deripaska, was allowed to issue shares in Hong Kong from January 27, 2010, after it re-structured massive debt obligations with 72 international banks.

For some time, it was uncertain whether the Hong Kong Securities and Exchanges Commission (SEC) would even allow the listing.

In the end, the SEC allowed the float, but only permitted institutions

and professional investors to buy in-to it. United Company Rusal (0486.HK) raised US$2.2 billion by issu-ing 1.61 billion new shares priced at HK$10.80, a 10.6 per cent stake in the company.

As of early May, Rusal was trading at below HK$4.

Another Russian company, Lukoil, had intended to list on the stock ex-change this year, but delayed the of-fering due to legal complications in Hong Kong – Russia is not on the SEC’s list of accepted jurisdictions. Rusal made it through because it is incorporated in Jersey.

ALUMINIUM

Rusal director says that world’s largest producers are slashing production, writes Viktor Kuzmin

China became the dominant force in the aluminium mar-ket last year. According to es-timates, it now accounts for anywhere from 44 to 50 per

cent of global output.Throughout last year it remained a net

importer of unrefined aluminium, al-though only by 7,000 tonnes, after export-ing 433,000 tonnes more than in 2011.

Even though Chinese manufactur-ers incurred big losses due to overca-pacity and falling prices, output of pri-mary aluminium continued to grow at the beginning of this year – it is up 15 per cent. Without China, output of the metal would have dropped by 3 per cent, according to International Aluminium Institute experts.

Russia has not stood still either. Ex-ports of unrefined aluminium rose 5.8 per cent in the first quarter of this year. However, the gain amounted to a mod-est 1.6 per cent for the whole of last year.

“We can already talk about an alu-minium overproduction crisis, which is impacting prices negatively,” says Rus-al’s strategy and business development director Oleg Mukhamedshin.

“Around 25 per cent of the global al-uminium capacity is losing money today, which is forcing producers to

slash output and shut down inefficient capacity.”

The Russian aluminium giant – the biggest in the world in terms of output – plans to cut production by 300,000 tonnes this year.

The company expects overall produc-tion cuts of 1 million to 1.5 million tonnes worldwide, with the exception of China. The cuts should see a fall in output by the second quarter and help lift prices from US$2,200 to US$2,300 per tonne. Rusal’s first deputy CEO, Vladislav Soloviev, expects China to make a decision on aluminium produc-tion in July or August.

“The entire world is approaching ca-

pacity expansion with caution,” Mukha-medshin says. “We can see that only two producers in the Middle East are planning to introduce new capacity over the next two years.”

Emirates Aluminium intends to in-crease capacity by 350,000 tonnes by 2014, and Maaden, a Saudi Arabian min-ing company, is expected to launch a 700,000 tonne-per-year project.

Mukhamedshin believes the world’s

largest producers need to slash produc-tion by 10 to 12 per cent to create a sit-uation where prices would be driven by demand within three years.

“Otherwise, the crisis in the industry will only get worse,” he says.

Overproduction has had a beneficial effect on demand for aluminium.

Rusal only projects a fall in consump-tion in Europe – by 2 per cent for this year.

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Clock ticking on Gazprom’s bid to enter AsiaOlga Senina

Russia wants to expand into new LNG markets.

The flow of investment between Russia and Asean may be skewed.

Russia aims to capture 10 to 15 per cent of the global market for liquefied natu-ral gas (LNG) by 2020 by liberalising ex-port policies and attracting more pri-vate-sector investment. And the main market for future exports would be in Asia-Pacific.

Gazprom, the world’s leading export-er of natural gas, accounts for about 30 per cent of global pipeline gas supplies and generates one-fifth of the revenues for the Russian treasury – US$84.5 bil-lion out of US$428.7 billion last year. The Russian giant is finding it tough to maintain its position on top of the glob-al pecking order, however.

Almost all Gazprom’s exports go to Europe, where economies are stagnat-ing and competition is fierce. As a re-sult, it has been forced to offer signifi-cant price cuts. Having already secured large discounts from Gazprom, the EU continues to make new demands.

Last September, EU energy commis-sioner Günther Oettinger said the pric-es the Russian supplier charged differ-ent European countries should be very

Last year, Russia invested US$2.2 billion in Asean countries and received some US$1.4 billion in return. Experts believe these numbers should rise along

with the need to tap into the growth potential of Asean and boost investment flows in both directions.

A Russia-Asean business forum of some 500 business players on June 22, on the sidelines of the 17th St Peters-burg International Economic Forum, could be a move in that direction.

The aim of the forum is to attract in-vestment into Russia while making Rus-sian companies aware of opportunities in the 10 member countries of Asean, says Viktor Tarusin, executive director of the Russia-Asean Business Council. This is a realistic objective given that Asean economies remained in far bet-ter shape than their European or Rus-sian counterparts during the 2008 glob-al economic crisis.

Co-operation began in 1996 and has been growing since. The Russian For-eign Ministry says trade between the two sides has expanded from US$1 bil-lion in 2000 to US$15 billion by 2011.

There are many successful collabo-rations. Russian mining companies have started to make serious investments in the development of mineral and ore de-posits in Vietnam, Indonesia and else-

by 2020. Russian companies may in-crease production fourfold to 35-40 mil-lion tonnes by then if they meet targets set by Russian energy minister Alexan-der Novak.

Russia has launched only one LNG plant as part of the Sakhalin-2 project, which is co-owned by Gazprom (50 per cent +1 share), Shell (27.5 per cent), Mit-sui (12.5 per cent) and Mitsubishi (10

per cent). The plant’s output is destined for Japan (63.89 per cent), South Korea (16.17 per cent), and the western sea-board of the United States (19.94 per cent). The plant’s nominal annual out-put is 9.6 million tonnes. The operator, Sakhalin Energy, is looking to increase that figure to 15 million tonnes.

The expansion would enable Russia to ramp up its LNG exports from 2015

to 2020, before other large exporters launch new capacity. The Sakhalin-2 project alone, however, has only enough resources to run until 2041, and that will not be enough to sustain the ex-pansion plans.

In mid-April, President Vladimir Putin said those plans could be imple-mented if the existing LNG plant were also to draw upon the output of the Sakhalin-1 project, in which ExxonMo-bil owns 30 per cent, Rosneft 20 per cent, India’s ONGC 20 per cent and Ja-pan’s Sodeco 30 per cent.

But Valeriy Nesterov, an analyst with Sberbank Investment Research, says production at Sakhalin-1 will take at least another five to seven years to launch. This means that the LNG plant won’t have access to any new gas until after 2020, by which time the existing window of opportunity in the Asia-Pa-cific will have closed.

Gazprom will face stiff competition in Asian markets, where many of the world’s leading exporters are estab-lished. Andrey Polishchuk, an analyst with Raiffeisen Bank, says the compa-ny should have entered those markets years ago.

Gazprom will face competition in Asian markets, where many exporters are well established

All aboard the Asean trainForum seeks to attract funding and discuss regional opportunities, writes Maria Prikhodina

INVESTMENT

where. The White Tiger oilfield on Vi-etnam’s continental shelf, 200km from Ho Chi Minh City, has been operating since 1986.

“This co-operation saw its logical con-tinuation in the launch in 2009 of a joint Russian-Vietnamese enterprise, Rusvi-etpetro, 51 per cent of which belongs to Russia’s Zarubezhneft and 49 per cent to Vietnam’s PetroVietnam.

This company is developing a clus-ter of oilfields in the Central Khoreyver-sky deposit in the Yamal-Nenets Auton-omous Area,” Tarusin says.

In addition to mining projects, there has been considerable headway in in-frastructure projects.

“Co-operation with Indonesia on the

SuperJet project is developing. This year, 12 aircraft will operate on the country’s domestic routes. Russian Railways is building a railway line and two coal ter-minals on the island of Kalimantan, di-vided between Indonesia, Malaysia and Brunei.”

And there is still room to expand co-operation. Experts say the amount of Russian capital invested in Asean ex-ceeds the amount of Asean capital com-ing into Russia.

Asean countries accounted for 1.5 per cent of Russian foreign investment in 2012, about US$2.2 billion a year.

Investors from Southeast Asia make up just 0.1 per cent of total foreign in-vestment into Russia.

Such figures can be explained by the huge geographic, historical and cultur-al distance [between Russia and South-east Asia], says Anton Soroko, an ana-lyst with Finam Investment.

Consumer markets may be the most promising area for investment, thanks to enormous capacity for growth in Rus-sia and Asean.

“Besides, Asean countries prefer to invest in ... neighbours: China, Japan and South Korea,” Soroko says.

“Given the large growth potential of China’s domestic demand, it is clear why Russia is not that popular among Asean countries.”

similar, whereas they can vary by up to 30 per cent. Moscow responded by ban-ning Gazprom from offering importers any discounts without government con-sent. That move is unlikely to change the overall pricing. The 30-year-old sys-tem of long contracts is teetering.

Tapping into the Asian markets the company has long ignored will not be easy, however. Competition from for-mer customers and international pro-ducers could make it difficult to meet growth targets. Russia produces about 10 million tonnes of LNG every year, only 4.5 per cent of global sales of 240 million tonnes last year. Global demand is projected to reach 380 million tonnes

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RUSSIA AND GREATER CHINA8


Toast to a new era of wine Producers are raising standards in a home market that is dominated by cheap sweet whites, writes Denis Puzyrev

5MOSCOW’S

FINEST

WINE BARS GAVROCHEOn Friday evenings, Gavroche is popular with the fashionable middle class. Some 25 wines are available by the glass and more than 100 by the bottle. A 150ml glass of Hugel Gen-til 2010 is around US$9, while wines by the bottle are rather pricey. Most wines are French, but Italian names are also prominent. The 2011 Elena Walch Pinot Grigio costs about US$45, and a Jacquesson Brut Cuvée is about US$140.

Timura Frunze Ulitsa 11, Nearest metro: Park Kultury. Tel: +7 (499) 558-08-38www.thewinebar.ru

GRAND CRUThe Grand Cru chain of wine shops includes two “real wine bars”. The best, which also serves excellent food, is on Ma-laya Bronnaya Ulitsa next to Patriarch’s Ponds, featured in Mikhail Bulgakov’s satire The Master and Margarita. The wine bar was established by Maxim Kashirin and serves as the retail division of his Simple Wine im-porting company. Spanish chef Adrian Quetglas supervises the menu at Grand Cru.

Malaya Bronnaya Ulitsa, 22. Nearest metro: Mayakovskaya.Tel: +7 (495) 650-01-18www.grandcru.ru

VINTAGEIf you’re looking for the best price spread, the Vintage bar, tucked away in a courtyard near Mayakovskaya, with a modest interior and efficient service, is a good choice. The owners are regulars in the bar, which is a sign of their commitment. To handle its low-priced range of wines (starting from as low as US$13 a bottle), Vintage ini-tially removed the “wine by the glass” option, but it’s now avail-able again.

Ulitsa Krasina 7/3. Nearest metro: Mayakovskaya.Tel: +7 (499) 766-7244 www.barvintage.ru

DISSIDENTOne of Moscow’s most elite wine bars, Dissident, across Lu-byanka Square from the FSB headquarters, is more of a cosy wine restaurant with a relaxed atmosphere than a trendy wine bar. Customers tend not to be connoisseurs, but be prepared to spend about US$20 on a glass of red Argentine Terrazas de los Andes. Despite some high wine prices, the food is well-priced and good.

Nautilus business centre, 5th floor, Lubyanka. Nearest metro: Lubyanka.Tel: +7 (495) 500 2767www.dissident.msk.ru

BONTEMPIAlthough Marco Cevretti is not in charge of Bontempi’s wine list, he really makes this place work: the bar always seems to be packed and lively. After 6pm, almost every wine has two prices – a higher one if you want to drink at your table, and a lower one if you want to leave the bar with the bot-tle you liked most. You can also bring your own bottle. For din-ing, the Florentine steaks are highly recommended.

Nikitsky Boulevard 8/1. Nearest metro: Arbatskaya.Tel: +7 (499) 346 4103www.barbontempi.ru

VINICULTURE

The emergence of “great Rus-sian wines” is approaching, as a growing number of vine-yards produce excellent tip-ple with imported grapes and

modern technologiesRussia and vodka, yes. But Russia and

fine wine? Until recently, wine aficio-nados would not have bothered with Russian wine because the quality was, simply put, bad. This is changing.

Over the past few years, visitors to Russia could expect either imported wine or Soviet-style sweet and semi-sweet wines of dubious quality. Eighty per cent of wines sold in Russia remain poor quality semi-sweets and use con-centrate. But a growing number are home-grown and of excellent quality, produced with French or other import-ed grapes and modern technologies.

Most of Russia is unsuitable for grape cultivation, but the warmer climes of the Krasnodar and Rostov regions, in the South Caucasus and near the Black Sea, can produce grapes and wines that can hold up alongside good European wines. Grape cultivation in this southern region predates even Ancient Greece.

Russia’s wine industry started seri-ously in the late 19th century, when Tsar Alexander II and the nobility imported French winemaking techniques. This tradition suffered a setback during So-

viet times, when a taste for semi-sweet and sparkling wines was formed. Joseph Stalin, an ethnic Georgian, did plenty to foster this practice. Many Russians still dislike dry wines to this day.

By midway through the 20th centu-ry, the Soviet Union had the fifth-larg-est area in the world under vines and the seventh-largest wine output. The winemaking industry found enthusias-tic support from Stalin and Anastas Mikoyan, his Armenian minister for food production.

Before the Bolshevik revolution in 1917, only the aristocracy drank wine. Stalin, who believed every Soviet citi-zen should be able to afford wine, changed this habit.

Scientists recruited to resolve the problem managed to produce high-yielding, frost-resistant grape varieties. But quality suffered. Wines from such grapes were barely palatable because of the high acidity and lack of taste. To remedy this flaw, grape sugar and often ethyl alcohol were added to the wines – practices that are still widely used.

“Plants in Iran or Italy use bad grapes or juice-making waste to produce a con-centrate that is essentially poorly refined grape sugar,” says Yelena Denisova, chairman of the board at Château le Grand Vostock, one of a dozen quality Russian wine producers.

“This is an ideal camouflage for swill. This concentrate is added to poor, sour, semi-wine at the fermentation stage or mixed in with ready fermented wine material in an attempt to correct its awful taste. On top of that, artificial fla-vours and colours are added.”

In Soviet times, Stalin was toasted with wine that would horrify any Bor-deaux native. In the 1980s, under for-mer Soviet leader Mikhail Gorbachev, most vineyards were closed or convert-ed to other uses. But since the early 2000s, good wineries have emerged, such as Abrau-Durso near Novorossi-ysk, and Château le Grand Vostock.

“A sparkling wine that was once the toast of the Russian tsars can now be

enjoyed across London,” says Pavel Titov, owner of Abrau-Durso. “From the outset, we wanted to provide Britain’s discerning wine drinkers with some-thing different and original.”

Last year, a first Russian wine guide was published. It described 55 wines

from 13 wineries. Russian winemakers have long been pushing for minimum retail prices.

“Why keep the jobs of bad winemak-ers or Iranian producers of concentrate?” Denisova says. “Why not create jobs for good winemakers in Russia’s south?”

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(Clockwise, from left): Picking grapes at the Rostov festival; Frank Duseigneur tastes Le Grand Vostock; the vineyards and cellars of Abrau-Durso

COMMENT

Poised for grape success

DEREK SMEDLEYSpecial to RGC

Big-volume production in Russia is in the low- to medium-priced wines, but there is an ever-growing focus on the premium end. To succeed in this com-petitive sector, investment was needed to update wineries, vineyards and work-ing practices.

The industry has moved forward, with new wineries, up-to-date equipment, gleaming tanks, sorting tables and new oak. Great improvements have taken place in the vineyards, ensuring that vines are planted in suitable soils, crop sizes are limited to improve flavour, and grapes are picked at optimum ripeness.

To support this investment, help was necessary, and many wineries now em-ploy consultants from France, Spain and Britain. The investment is paying off, with premium wines happily rubbing shoulders with those from the rest of the wine-producing world.

The two main wine regions of Kras-nodar and Rostov have a range of in-ternational varietals such as sauvignon blanc, chardonnay, riesling and aligoté in white, and cabernet sauvignon, mer-lot, syrah and pinot noir in red.

The white styles lean more to Euro-pean flavours with crisp, not over-crunchy sauvignon, greengage and melon chardonnays and fresh-fruited

rieslings. The reds are more European than New World. The cabernet sauvi-gnons have depth of flavour but are not overly heavy, while the merlots are sweet-fruited and full of black plums. Syrahs have more of a red-fruit character with the peppery spice typical of the grape.

Russia also has a great opportunity with its wealth of indigenous vines.

The white rkatsiteli is fresh-fruited yet has a mid richness while the sibirk-ovy is zesty with hints of citrus and spice. The two best-known reds have lots of character. The saperavi has a basketful of hedgerow fruits and the krasnostop is black-fruited with a lovely chocolate richness.

Sparkling wine production in Russia is massive. Although many of these wines are too sweet for the European market there are drier wines made in the traditional bottle-fermented meth-od. Like table wine, quality is improv-ing and many wines have style and bal-ance. Russian wines are not readily available outside the country because exporting the produce is not easy and the home market can absorb all that is produced.

Derek Smedley is a wine writer, con-sultant and master of wine.

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Beijing is likely to become world’s policemanSergei Manukov

Alexey Dolinskiy

Is it China’s turn to take over as the world’s po-liceman, and is Beijing capable of taking on such a role? Over the years, a global power vacuum has developed, as the United States seems to be preoccupied with looking after its own affairs, while Europe is in a state of financial and eco-nomic chaos.

In 1998, former US secretary of state Made-leine Albright called the US “an irreplaceable na-tion”. Fifteen years later, the US seems to be a su-perpower in decline. It’s economy is sluggish and Washington is more focused on domestic policy than foreign affairs. In his second inaugural ad-dress, President Barack Obama made no refer-ence to John F. Kennedy’s famous words from his own 1961 inauguration: “In the long history of the world, only a few generations have been granted the role of defending freedom in its hour

of maximum danger. I do not shrink from this responsibility – I welcome it.” Obama’s prede-cessor, George W. Bush, had a messianic vision for US foreign policy, but Obama seems to fa-vour the Dwight D. Eisenhower doctrine, whose proponent, despite being a war hero, did his best to avoid shedding blood – or at least American blood – during his eight years in power (1953–1961).

A paradigm change is under way. It is not the end of the world, but it does make it difficult to predict what will happen if America continues to step back from this role.

There is nothing surprising about US exhaus-tion. Since the end of the cold war, US soldiers have spent twice as much time at war as they had in preceding decades.

Washington has injected unprecedented amounts of money into defence.

The US spent more on defence in 2011 than the next 19 biggest-spending nations combined. Mil-

itary spending played no small role in creating the country’s astronomical US$16.8 trillion debt.

The message of Obama’s latest inaugural speech was that the decade of wars was about to end, but he did not offer a succinct concept of a modern national identity. Still, this identity could be spelled out as follows: The welfare and well-being of Amer-ica are much more important than that of the rest of the planet.

So who will take over America’s role on the glob-al stage now that it is no longer in a position to remain as the world’s policeman, a difficult and expensive role?

The options are limited.China has been distracted from foreign policy

by its obvious economic problems. Russia has long lost the erstwhile might once possessed by the Soviet Union, which would have certainly taken advantage of such an opportunity.

For India and Brazil, it is far too early to think about world leadership.

International organisations are dogged by se-rious problems as well. The UN, Nato and the Eu-ropean Union are all looking for a place in the modern world. In the US, the prevailing opinion is that Europe can and must replace it as the glob-al policeman. But the fact that Americans want it doesn’t mean Europeans agree. The most unpleas-ant thing for supporters of Europe’s new role is a lack of unity in Europe. This has been clearly dem-onstrated by the debt crisis and disputes over aus-terity policies to combat it.

The bottom line is that the US doesn’t want to remain the global leader, while Europe is unable to become one. This means China is the most like-ly candidate. As soon as Beijing sorts out its eco-nomic problems, its hands will become untied. And China has never lacked the will to outdo the US in everything.

This article was first published in Russian in Expert magazine.

Alexey Dolinskiy is a partner at Capstone Con-nections consultancy. At present, he works in corporate diplomacy in the Asia-Pacific region.

Nation looks for a new global role

OPINION

Russia can play a crucial role in global politics, provided it clearly defines its policy in the region.

China’s publication of a national De-fence white paper last month complet-

ed a series of major foreign policy and defence initiatives in the first four months of this year. It followed the state of the union address in the Unit-ed States in February. Russia published a new for-eign policy strategy the same month. Increased economic, political and, potentially, military com-petition in the Asia-Pacific is becoming a core theme of global politics.

China’s tremendous economic growth has be-come a standard point in the global agenda. If present trends continue, the world’s most popu-lous country could become the largest economy in a few years. Beijing’s announcement in April, that it will continue developing its armed forces to “meet the needs of its security interests ...”, drew plenty of attention.

Russian international affairs experts are recon-sidering Moscow’s role in the new global power structure, focused on Sino-American rivalry that is expected to last for decades.

In 2010, the US released a Quadrennial Defence Review Report that describes a changing global situation and admits China’s rise, saying: “China is developing and fielding large numbers of ad-vanced medium-range ballistic and cruise mis-siles, new attack submarines equipped with ad-

vanced weapons, increasingly capable long-range air defence systems, electronic warfare and com-puter network attack capabilities, advanced fight-er aircraft and counter-space systems.”

Russia has a more considerate view of China increasing its military power.

According to Ivan Safranchuk, deputy director of the Institute of Contemporary International Studies at Russia’s Diplomatic Academy, “the most likely conflict China may have is one involving US allies and US weapons – that is the reality China lives in”. Since its 2010 report, the US has been reviving relations with allies to balance China’s growing power. The US network of alliances in the northern hemisphere is based on two major pillars: Nato in the Atlantic and bilateral arrange-ments in the Asia-Pacific.

Moscow has not had a military alliance with

the US since the second world war, but it is reluc-tant to join security agreements with other pow-ers. Russia’s foreign policy concept shows that it sees itself as an independent power in a multipo-lar world as a member of the G8, along with West-ern powers, and the BRICS (Brazil, Russia, India, China, and South Africa) bloc of emerging nations.

“Russia is not interested in joining any of the sides in the US-China competition and it proba-bly won’t unless it is forced to,” says Ivan Timo-feev, programme director of the Russian Council for International Affairs. “Moscow can not risk its economic ties and good neighbourly relations with China by joining Japan and South Korea in an al-liance, but it is also not going to become China’s junior partner.”

President Barack Obama’s administration has focused on establishing economic alliances sim-ilar to existing security arrangements. The Trans-Pacific Partnership (TPP), for example, is a free-trade agreement in the Pacific Ocean. The Asia-Pacific Economic Co-operation forum be-came a policy priority in 2011 when the US held the rotating presidency. During his state of the union address in February, Obama announced talks on a “comprehensive Transatlantic Trade and Investment Partnership with the European Union” to complement a future US-centred free-trade zone in Asia.

TPP talks are widely seen as an alternative to China’s Asean+6 integration project. “China has

been involved in East Asia since the 1990s, [with ventures] such as the Asean Regional Forum (ARF), Asean+3, Asean+1, East Asia Summit, Asean De-fence Ministers Meeting,” says Kei Koga, a research fellow on international security at the Harvard Kenney School of Government. “Their aims are to increase China’s balance of influence vis-à-vis the United States, and to accommodate/reassure those states which might be threatened by Chi-na’s rise.”

Russia’s East Asia policy has been inconsistent. It has been mildly supportive of the Asean+6 for-mat but not eager to fully participate in either. This balancing of partners, policy and regional priori-ties is often seen as a lack of commitment, but in terms of Asia-Pacific and global strategy, a certain ambivalence may be a productive policy.

“For its economic development, Russia is in-terested in an evolving status quo, not radical changes in the region,” says Victor Sumsky, direc-tor of Asean Centre at Moscow State University for International Relations.

Being a smaller economic and conventional military power than the US and China, Russia can still be an important player if it makes greater use of soft power in the Asia-Pacific to be a smart power.

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Nation’s economy must find its balanceVladimir Mau

Alexei Kudrin

Russian economic growth is somewhat depend-ent on a carefully managed financial sector, which should shun the loose monetary or credit policies adopted by a number of countries. The financial sector should help with economic growth and not drive it.

The Russian Central Bank has pursued a fair-ly tight monetary policy over the past three years, holding the base rate high at 8.25 per cent to curb inflation. Unlike most Western econo-mies, Russia faced stagflation after the global economic crisis of 2008.

But this policy has limits, because present in-flation is driven by institutional factors along with monetary ones. It is not only interest rates or the money supply that are determining infla-

Policies need to be simple

OPINION

Russia’s economic policy desperately needs simplicity and predictability. The previous economic model, based on proceeds from hydrocar-bon exports and 20 to 40 per cent an-

nual growth in public spending, has not en-sured the necessary rate of growth.

Meanwhile, all attempts to spur growth by in-jecting public money have been stymied by the low efficiency of such expenditures.

And the national projects and modernisation programmes for health care and other sectors have yielded little in the way of substance.

A new model should not envision continued stimulus of demand by all kinds of “creative” means.

Instead, it should entail seemingly trivial tasks, such as improving the competitiveness and the quality of work and services; increasing the effec-tiveness of capital expenditures driven by a re-duction of risks inherent in Russia’s economy; and reducing interest rates by reining in inflation.

There is no need to rush – reducing risks and improving the appeal of Russia’s economy should be a step-by-step process.

A basic yet mandatory principle of economic policy – not budgetary policy – is that growth in spending should not outpace growth in reve-nues.

Last year, however, revenue rose 3.5 per cent compared with the pre-crisis year of 2008, while spending increased 27 per cent.

The business community – including invest-ment banks – generally views such an imbal-ance as inevitably leading to swelling debt or rising taxes.

Once oil prices decline over the medium term, the logic behind the government’s budget rule will become apparent.

However, the recent talk about revising the budget rule is undermining the confidence of the business community, which supported its enactment.

Some of the biggest concerns that investment bankers have include a softening of the mone-tary and credit policy, a revision of the budget rule and falling short of inflation targets.

At the same time, in its forecast through 2030, as part of the “innovative” and “forced” scenarios, the government has assumed a sub-stantial softening of its monetary and credit policy and an increase in public spending, and an increase in international reserves, which

rules out inflation targeting. In fact, the gov-ernment has signed off on a forecast predicting a repeal of the targeting policy, although this falls within the purview of the Central Bank.

What this means is that the policy has not been set, forcing businesses to build relevant risks into their planning.

The business climate is not limited to the economy.

Legislative restrictions on social and politi-cal life make the active entrepreneurial class feel like they are trapped in a period during the worst of the Soviet era.

The situation with non-governmental organ-

isations is perceived as the suppression of civil society.

Yet, this is exactly the category of people we are counting on for investment and innovation – modernisation should have allies among the active class.

According to the latest data on global entre-preneurship monitoring, the percentage of Russians willing to start their own business is only 2.2 per cent.

This is the worst since 2006, and about half of the 4.3 per cent who were self-employed last year.

If we must transition to a different model, that transition must be organised. A change in policy must be thoroughly planned.

Moreover, since this work is not just for show, but to achieve a quality outcome, some-one must be held accountable.

A critical mass of government officials con-cerned with something more than their own bureaucratic survival must emerge – and that is far from a trivial task.

Alexei Kudrin chairs the Committee for Civil Ini-tiatives. First published in Kommersant.

Vladimir Mau is rector, Presidential Academy, National Economy and Public Administration.

tion, but prices charged by monopolies and weak business activity as well.

Prices charged by the infrastructural monop-olies are growing at 10 to 15 per cent per year, fuelling growth in utility tariffs and related pric-es. Meanwhile, the economy has been slow to react to price stimuli. By mid-2012, output had returned to pre-crisis levels, but producer prices were up 32 per cent over 2008. The economy now needs greater co-ordination between mon-etary, structural and institutional policies.

The Central Bank will have to adjust its strate-gy and try to find a better balance between fi-nancial stability and economic growth, even though it is responsible only for monetary poli-cy and price stability, and not for economic growth. And there is no reason to expect any surprise moves or drastic policy changes when Elvira Nabiullina replaces Sergei Ignatiev as the

head of the bank. Nabiullina’s main objective will be to plot a course that maintains macroe-conomic stability while fostering growth. It is a challenge, but central banks in developed countries are increasingly beginning to target jobs and growth. The Russian Central Bank cannot ignore these problems for economic and political reasons.

The bank will also face colossal pressure from many quarters to sacrifice macroeconomic sta-bility for the sake of economic growth. It could prove difficult to persuade opponents that growth triggered by such a trade-off is unlikely to last, and that in the longer term it would al-most certainly lead to a new crisis.

In the present institutional environment, an economic stimulus policy with higher spend-ing, lower rates and more liquidity in the bank-ing system will lead to rapid growth. But any

gains in economic output would then be lost to future financial turmoil amid growing systemic financial risks and structural imbalances. Sever-al other social and economic problems will have to be addressed before Russia can enter a sustained period of growth. Macroeconomic stability is a top priority. The government can not risk financial and monetary destabilisation.

A new economic policy could be based on a transition from the “demand side economy” to the “supply side economy”. Stimulating de-mand – especially from the public sector – in the present circumstances would mostly stimu-late imports and inflation rather than domestic output. Sustainable growth should come from a radical improvement of the business climate.

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5 THINGS TO

DO AT THE

MONASTERY

1. Consult a doctor. All Buddhist universities train specialists in Tibetan medicine. The doctor will

diagnose ailments by checking your pulse and make herbal tea to treat your illness.

2. Talk to a lama. Lamas are very friendly and are happy to an-swer any questions you might

have. You should know that after you talk to a lama, it is customary to make a donation.

3. Light a candle. Candles are lit in a special way in Buddhist temples. First, you put a note

with a name on it inside candles that are large spirals of incense. The can-dle is then lit and hung on the cei-ling. Eventually, the note inside be-gins to flap in the smoke or wind, and that is considered similar to sa-ying a prayer.

4. Spin the khurde drums. Accor-ding to tradition, visitors are expected to walk clockwise

around a Buddhist temple before they go in. Along the way, there are khurde drums containing scrolls with mantras. Buddhists believe that spin-ning the drums is the same as saying a prayer.

5. See Dashi-Dorzho Itigilov. The leader’s incorruptible body is located in a separate building

of the datsan.

Nestled in a rural area of east-ern Siberia, near Lake Baikal, Russia’s most important Bud-dhist monastery is a little-known reservoir of culture.

Founded in 1945, not far from Ulan-Ude, as a refuge for a handful of Bud-dhists in the country, Ivolginsky Dat-san has grown into a complex of eight buildings comprising temples, a library, a greenhouse with a sacred Bodhi tree, and Russia’s only Buddhist university, where students can study philosophy and traditional Tibetan medicine.

The datsan is famous for the qual-ity of its contemporary spiritual edu-cation, but it may be best known among Buddhists for its connection to Dashi-Dorzho Itigilov, who was the 12th Pan-dido Khambo Lama – the leader of Rus-sian Buddhists – in the early 20th century and a close associate of the 14th Dalai Lama.

Before his death in 1927, Itigilov asked monks to do two things: to read a special requiem and “visit his body in 30 years”.

He then assumed the lotus position, started reciting a prayer and then passed away.

He was buried in that same position in a cedar sarcophagus in nearby Khukhe-Zurkhen.

In 1957, when monks followed Itig-ilov’s wishes and exhumed his body, they could find no signs of physical decay. The monks performed rites and changed the clothing on the body and reburied the master.

In 1973, the body was exhumed, ex-amined and reburied again.

TRAVEL

Siberia’s haven for BuddhistsIvolginsky Datsan is the spiritual capital for the small group of faithful, writes Dan Pototsky

When the sarcophagus was dug up again in September 2002, sceptical sci-entists examined the body.

An analysis showed that Itigilov’s joints remained flexible, and his skin soft.

Scientific experts could not explain the phenomenon, but the monks knew the answer.

They carried Itigilov’s body to the datsan and, with the help of volunteers, erected a new building to house their leader.

That building turned into the most beautiful traditional structure in the monastery.

Through the decades, Ivolginsky Dat-san grew from a small blue house, as new temples were built, in addition to housing for the expanding number of monks and lamas.

Pilgrims now come to the datsan from both nearby regions and faraway countries to see the incorruptible body of the Pandido Khambo Lama.

Itigilov is said to assist those who ask him for help.

It’s not widely known, but Russia has a long

How to get thereUlan-Ude is more than 4,000km from Moscow. A one-way flight costs around US$650 and takes six hours. If a scenic trip is more appealing, take the train. The fastest train will get you from Moscow to Ulan-Ude in three days. Ticket prices start at US$140.

Buddhist tradition. Buddhism has been practised for more than 700 years in the Tuva Republic, which became part of the Russian Empire in 1914.

During the 18th century, Buddhism enjoyed a brief period in the national limelight when the leader of Buryat Buddhists announced that the Russian empress, Catherine the Great, was an incarnation of the omniscient healing goddess White Tara.

At the turn of the 20th century, there were 150,000 Buddhists, some 150 smaller temples and 30 datsan, or larg-er temples, across the country.

The word “datsan” in the Buryat lan-guage can be translated into English as “the monastery, where the wheel of teaching turns, filled with joy and bringing happiness”.

In Tibetan tradition, datsans are con-sidered to be faculties of Buddhist uni-versities where philosophy and med-icine are taught.

However, in Russia, the term is ap-plied to not only a Buddhist universi-ty, but also a monastery, probably be-cause of the long isolation of Buddhism from external influence.

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Located in a rural area of Siberia, Russia’s most important Buddhist mon-astery (left and above) is a place where one can see ancient culture.

Buddhism has been practised in Russia for more than 700 years.

Believers grow in numberAlexandra Garmazhapova

Every year, at the end of May, Russian Buddhists celebrate Buddha’s birth, en-lightenment and passing into nirvana, with three days of prayers.

While these celebrations are visible in the datsans (Buddhist university monasteries) of Buryatia and Kalmykia, they also take place in Datsan Gunz-echoinei in St Petersburg.

Russia’s northernmost Buddhist tem-ple is outwardly very different from the datsans in the other two regions, where Buddhism is more common.

Inside, however, the similarities are abundant.

The St Petersburg Datsan sits in a small, accessible plot of land that al-lows visitors to feel the appeal of Bud-dhism.

The datsan is unpretentious and vis-itors can walk in, pray and walk out with-out any problems.

The Buddhist community in St Pe-tersburg is far smaller than the Ortho-dox Christian community, but it is grow-ing as ethnic Russians are increasingly attracted to Buddhist practices.

People of Slavic ethnicity can be reg-ularly seen at the St Petersburg Datsan. Visitors can often be seen circumam-bulating the temple in traditional prayer rituals.

Another attractive feature of the dat-san is a basement canteen where food such as buuz, a traditional Buryat dish of steamed meat dumplings, is availa-ble.

Visitors may also browse through an assortment of meditation beads on sale in the temple. Russian Buddhism is his-torically represented by the Mahayana, or Great Vehicle, branch.

The Russian Sangha (community) observes eight major holidays, all marked by solemn prayers and normal-ly lasting three days.

The first day is devoted to reading excerpts from the Ganzhur, the 108-vol-ume canon of Buddha’s teachings. On the second day, there is a service on the occasion of the particular holiday. On the third day, from three to 10 priests say a prayer to Dharma protectors or sakhyuusan.

Most people in Russia turn to Bud-dhism “through books and lectures”, says the press secretary of the St Peters-burg Datsan Alla Namsaraeva.

“Perhaps this is due to the fact that ... our religion does not require people to convert from a different faith. A per-son may be [Orthodox] Christian, but if they want to take part in a Buddhist ritual or visit a lecture, nobody is going to say no to them”.

There are Buryats and Tuvins who can easily explain the meaning of each and every element of a prayer in reli-gious terms.

There are others, however, who have a general perception of Buddhism and only follow the religion out of custom. Most Buryat families have a special place in their home for a small Buddha stat-uette, to which they bring offerings of milk and candy.

Tibetans to build tallest Buddha

Tibetan sculptors will create a stat-ue of Buddha for Russia’s east Sibe-rian republic of Tuva. It will be the tallest in the country, said Buyan Bashky, chairman of the Tuva Bud-dhists Union, last month.

The announcement was made af-ter Russian President Vladimir Pu-tin promised “100 per cent support” for Russian Buddhists during a visit to the country’s Buryatia republic.

The monument, which is being erected on Dogee Mountain in the predominantly Buddhist republic’s capital of Kyzyl, will be of a Buddha sitting on a throne.

The work to build the six-metre-high throne began in 2011 and the total height of the monument after completion is expected to reach 15 metres, Bashky said.

“The statue of Buddha him-self will be built in Tibet, and it is planned to be put up on Dogee Mountain in Kyzyl this fall,” he said.

The cost of the project, accord-ing to various estimates, is between US$383,000 to US$415,000. The statue is being funded by donations.

Tuva has a population of 319,000 people and, according to recent sur-veys, 53 per cent of them are Bud-dhists.

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Country’s queen of the ringRussian Thai boxing champion Anastasia Yankova tells Igor Lazorin how she started her fighting career

Russia’s Thai boxing cham-pion Anastasia Yankova thrives in one of the most violent martial arts around. She describes her fascina-

tion for the ring.

How did you find your way into mar-tial arts?

It all began when I was very young. I loved watching films with Bruce Lee and other tough guys. I wanted to be as strong as they were, and to help people.

And I kept telling my mother: ‘Mum, I want to learn to do all that too’. After much debate, my mother finally gave up and took me to a karate club, where I stayed for several years.

And what happened next?

At 14, I had to decide what future oc-cupation to choose. I had always been interested in journalism, acting and de-sign. In the end, design won.

I spent the days drawing and sewing. At that time, sport was something I was doing for myself.

Then I came to a fitness club and met a muay Thai instructor. I was standing next to the guys, trying to remember my low kicks and mawashi-geri (spin kicks).

And I realised that I had been miss-ing it all.

I spent some time going there and then moved to a muay Thai club called Varyag, where I began to make rapid progress.

From there I was soon sent to a com-petition, the Russia Cup. To everybody’s surprise, I won it.

Is your mother a martial arts fan now? Does she give you professional advice?

She is. In recent years, my mum has seen more fights than I have. She watch-es my rivals’ fights and ordinary com-petitions, too. Even I do not always have time to follow them.

Are your sparring partners all male?

When I trained at Varyag, they were all men. But now I am training at the Box-ing Academy, with Aleksandr Pogore-lov, and my sparring partner is a woman. But she is the kind of woman who can throw many guys down on the floor. Her name is Ekaterina Izotova and she has

won many world championships. She is lighter than me, but she has a very good technique.

A sparring partner like that, who can also teach you, is perfect. She can ex-plain, tell me, show me what to do and what not to do, tell me when to raise my arm, and how to block.

Do you have any favourites among martial artists?

Gina Carano is a great martial artist. She was the first and she is cool. It is the same with Fedor Emelianenko. No matter what is said about him, his sta-tus remains unchanged. Emelianenko is the emperor and will remain one.

There is also Mike Zambidis, he is very cool. Zambidis is one of those mar-tial artists whose fights can be watched again and again. Batu Khasikov trains

in the same gym as me and I am proud of it.

I can see with my own eyes what I should aspire to. Batu is at that high level when an instructor can explain some-thing to him, but he can also share his experience.

Martial artists who have such a wealth of experience have an opinion of their own. In the end, a compromise is reached and it results in a beautiful fight.

Do you do any other sports?

A change of activity is the best kind of rest. On my days off, I prefer to do some-thing different. I love horses and eques-trianism. When I have a free day, I go out for a ride.

Would you like to try your hand at mixed martial arts?

INTERVIEWAnastasia Yankova has made muay Thai into a feminine sport and she wants to do much more.

Yes, I would like that. Mixed fighting is an old dream of mine. I like fighting. But there, I will have to start from the very beginning. That means a differ-ent workload, a different kind of train-ing.

Have you come across men who are weaker than you?

I see them in the street every day. I used to help guys lift weights but I don’t do it any more. I train with an instructor, one-on-one. Of course, people are dif-ferent and I am not saying that every-one should be able to lift a 150kg bar-bell in a clean and jerk. This not what strength is about. But if a man is puny, it is not my kind of thing either.

The interview with Anastasia Yankova first appeared at Gazeta.ru.

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Film festival portrays ‘dynamism of modern Russia’ for Hong Kong audiences, writes Yan Markov

Day out at the movies

CINEMA

This year has been good for Rus-sia’s cultural profile in Hong Kong. First, the Sedov, a 117.5-metre-long sailing ship, stopped at Ocean Terminal in

Tsim Sha Tsui on its journey round the world as part of the 1,150th anniversa-ry celebrations of the founding of the Russian state.

Then Russian rock stars Mumiy Troll wowed concertgoers at a packed Kitec Music Zone @ E-Max.

Now, it is time for the movies. From June 14, Hongkongers will have a chance to see some of the best Russian films of the past two years, in addition to meet-ing leading directors and actors.

The First Russian Film Fes-tival in Hong

Movie showcase for fans of all ages

The first Russian Film Festival in Hong Kong, will be held at the Grand Cinema on June 14-20.

Sponsored by Rusal and organ-ised by Academia Rossica, the event will show eight fiction movies and an animation programme for kids.

Tickets are available at the Grand website

Mincias rem quos esequiaspic tet et laccatur aut liquae mi, cuptatet doluptat et pario bere natis es etur

Red carpet ready for Asian premieres

Date Time Cinema

June 14 19:15 Opening Film - (1) Legend No. 17, followed by a Q&A with the movie director

June 15 17:20 Love with an Accent

19:30 (2) Kokoko

June 16 14:30 (3) The Best Russian Kids Animation

17:20 Chapiteau-Show. Part 1: Love and Friendship

19:30 Chapiteau-Show. Part 2: Re-spect and Co-operation

June 17 19:30 Elena

June 18 19:30 I’ll Be Around

June 19 19:30 How I Ended This Summer

June 20 19:30 Rita’s Last Fairy Tale

(www.thegrandcinema.com.hk). The festival is supported by the Russian Consulate in Hong Kong and Russia Beyond the Headlines Asia and co-produced by Asia To Go Limited.

Kong is spon-

sored by Rusal (the world’s largest al-

uminium company and the only Russian company listed on the

Hong Kong stock exchange) and organ-ised by British non-governmental or-ganisation Academia Rossica, which run similar festivals in London.

The Russian Consulate in Hong Kong is providing official support and there is participation from local organisations, such as Russia and Greater China, the Russian Club in Hong Kong and the Russian Language Centre, which has

run a Rus-sian movie club

for several years. The host of the event – The Grand

movie theatre – has been extreme-ly active in promoting international films and has hosted film festivals from Egypt, Italy, Japan and Spain.

“This Film Festival takes cultural re-lations between the regions to the next level and responds to a recent decision by the governments of Hong Kong and Russia to work together to strengthen cultural dialogue,” says festival direc-tor Svetlana Adjoubei.

UC Rusal director Vera Kurochkina says this festival will be about “break-ing the clichés” and feeling the “crea-tive originality, diversity and dynamism of modern Russia”.

The festival will start with the Asian premiere of the latest Russian box-of-

fice hit Legend No

17, released in April.

Other award-winning films include Rita’s Last Fairy Tale, by Re-

nata Litvinova; I’ll Be Around, by Pavel Ruminov; Kokoko by Avdotya Smirno-va; Elena, by Andrei Zvyagintsev; and How I Ended This Summer, by Aleksey Popogrebsky.

The Russian movie industry is on the rise.

The Movie Research company says Russian films will account for 17.4 per cent of the domestic box office this year, up from 15.1 per cent last year.

One of the most popular movies is likely to be Chapiteau-Show, an intri-cate two-part film narrative by Russian director Sergei Loban.

A prizewinner at last year’s Moscow International Film Festival, the film tells the tale of a circus of outsiders whose lives are as chaotic and carnivalesque as the show that brings all of them to-gether.

The four interrelated novellas about love, friendship, respect and collabo-ration can be watched in any order.

Legends of the ice come back to lifeIn the 1970s, the Soviet Union lived and breathed ice hockey. Whenev-er the national team – the legend-ary Red Machine led by head coach Anatoli Tarasov – played, the streets emptied.

People were glued to their TV sets to see Boris Mikhailov, Alexan-der Yakushev, Vladislav Tretiak and

Valeri Kharlamov in action. Hockey fever reached its peak from 1972 to 1974, when the national teams of the Soviet Union and Canada faced off in the Summit Series.

Each game was a battle and each win took a toll in blood, sweat and tears.

This sports drama comes back to

life in Legend No 17, a film about the life of the legendary Valeri Kharla-mov, one of the most remarkable sportsmen of his time.

The popular biopic, which stars actors Danila Kozlovsky and Oleg Menshikov, earned US$8 million in its first week and received positive reviews.

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Meeting of minds in MacauYan Markov

Russians living in China will gather for their annual conference on June 3 in Macau.

The one-day forum will also feature a festival of Russian talent in China, in-cluding writers, translators, artists, pho-tographers, collectors, web designers and travellers.

This year’s conference theme is “World of Hobbies and Interests of the Russian Diaspora in China: Projects, Achievements, Trends”.

The list of participants includes heads of public associations, diplomats, visi-tors from Russia, and Russians living in China, who will showcase their hob-bies, arts and other projects.

The forum will also feature a presen-tation of Vladimir Marchenko’s new book, China: How to Become Xiongdi, while Igor Yegorov will give a talk about his work translating writings by Mo Yan, winner of the 2012 Nobel Prize in liter-ature.

Mikhail Drozdov, head of the Com-patriots’ Co-ordinating Council in China, will present his new internet pro-ject, “Collection of a Russian from Shanghai”.

Several more presentations and talks are planned, along with a round-table discussion that the organisers hope will lead to constructive ideas for creative initiatives for Russians living in China.

The first conference of the Russian diaspora in China was held in 2007 at the Russian embassy in Beijing, and was devoted to the issue of preserving the Russian language.

Resolutions adopted at these confer-ences have become a foundation for Russians living in China.

Russians will showcase their hob-bies at their conference in Macau.

CITY

An exhibition featuring Marc Chagall’s works is on

display at the Opera Gal-lery in Wellington street.

The ‘colour The ‘colour of love’ of love’ Exhibition of Chagall’s works reflects ‘dual citizenship’, writes Olga Kozlova

Marc Chagall famously said, “that in our life there is a single colour, as on an artist’s palette, which pro-vides the meaning of life

and art. It is the colour of love”. This vision has been on display in

Hong Kong since May 21, when Opera Gallery on Wellington Street opened Chagall’s exhibition, “A vision in my dream”, bringing 70 of his works. The exhibition is being held in conjunction with Le French May festival.

This is the first event on this scale in almost a decade. The University of Hong Kong was the last to show Chagall’s paintings in 1994. Some of the paint-ings will be shown in Hong Kong for the first time. Originally from Paris, France, Opera Gallery focuses on Eu-ropean artists and new Chinese artists.

Chagall’s works reflect his “dual citi-zenship” of the art world. His works are Parisian avant garde, but his art and life are deeply rooted in Russia, especially Vitebsk (today the capital of the Viteb-sk oblast, Belarus).

He grew up and met his wife Bella there. Images from Vitebsk stayed with him throughout his life and can be seen in many of his paintings as settings or symbols. Chagall even called Paris the

second Vitebsk and was always trying to return for another glimpse. He found inspiration in Russian village life, hard work and simple surroundings, that are the background for spiritual and alle-gorical plots. As a Jew living and study-ing in the Russian empire, Chagall ex-perienced discrimination when it came to matters such as school or immigra-tion, but he never stopped acknowledg-ing his nationality or representing Jew-ish culture in his art. Using his legacy as inspiration and including Bible ref-erences in his creations later in his ca-reer, he reflected on the spiritual side

of life and relationships. Insatiable cu-riosity and an unusual background came together with European art influ-ences into his inimitable style infused with echoes of cubism, fauvism and fu-turism.

During his life, Chagall witnessed two world wars and one revolution. He fled fascist, pre-war Berlin and survived the death of his beloved Bella, but the world reflected in his art is magical, dream-like, bright and colourful with a hint of mysticism. The hardships transferred into emotions splashed out on the can-vas resulting in seemingly chaotic por-

Marc Chagall’s works are inspired by the simplicity of Russian village life.

trayals of horses, musical instruments, dancing people, Vitebsk scenery, and France, followed by Chicago and many other places. A resident of Vitebsk, Mos-cow, St Petersburg, Berlin, Paris and New York, Chagall was skilled at seiz-ing the beauty of the moment.

During Chagall’s lengthy and prolif-ic career the artist explored countless techniques and media. He communi-cates directly with his audience, using colour as the main language and his feelings as the characters in the stories he is telling, bringing an unrestrained celebration of life.

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