RBTH in SCMP #1

Wednesday, February 29, 2012

Distributed with the

SPECIAL REPORT

www.rbth.ru

Asia

Opinion

Science and Technology

Plenty to consider at this year's Apec summit

Leadership changes and bilateral ties

Eugene Kaspersky is the virus warrior

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

Rich pickings in China

THE PROJECT

Russian companies are becoming far more inventive in their determined drive to profit from the lucrative market, writes Mark Zavadsky

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here is more to Sino-Russian business ties than meets the eye, and that’s because “part of Russian investment goes through offshore companies and it is impossible to assess how big a part [that investment is]”, says Russian trade representative to China, Sergei Tsyplakov.

When a typical Chinese middleclass consumer buys meat for dinner at the New Co-operative Shop in Yanbian in Jilin, four out of every 10 yuan (HK$12.3) from each transaction goes to the direct investment fund, My Decker Capital One (MDCO), created by Russian businessman Gleb Fetisov two years ago.

“Immediately after the [2008 global financial] crisis, when people in China had less disposable income, we managed to agree with the Chinese Supply and Marketing Federation to set up a joint venture to which the Chinese partner would transfer more than 600 > CONTINUED ON PAGE 8-9

A new voice in Hong Kong

Rusal's owner, Oleg Deripaska (centre), says China is a crucial strategic market. Photo: Reuters/Vostok-photo

Putin faces uphill road to Kremlin It appeared to be a foregone conclusion that Prime Minister Vladimir Putin would win the nation's top job when he announced in September that he would run in the presidential election.

At the time, it seemed that he would return to the position he held from 2000 to 2008, thanks to his high approval ratings. But the United Russia Party’s poor showing in the State Duma elections and subsequent protests may pose problems for Putin.

“People are demanding more respect from the authorities,” says Andrei Ryabov of the Carnegie Centre in Moscow. Besides United

EUGENE ABOV PUBLISHER

Russia, there are six nationally registered political parties, but there does not appear to be a strong candidate in any one of them.

Creative use of space

> WHY WE ARE HERE IN HONG KONG : PAGE 2

The government will spend 346 billion roubles (HK$88.7 billion) until 2020 to maintain, develop and use the national global positioning system, GLONASS, according to the federal programme adopted by the Russian Federal Space Agency and Ministry of Economic Development.

INSIDE

> PAGE 13 > PAGE 3

Real estate bounces back Will Putin overcome his rivals?

Photo: Reuters/Vostock-photo

Greetings from Moscow. Welcome to Russia Beyond the Headlines (RBTH).

This is a monthly supplement that will appear in the South China Morning Post on the last Wednesday of every month.

Our aim is to bring you compelling stories from Russia and offer you insights into the country. Our growing team of journalists report from all over Russia to bring you topical and balanced stories. RBTH features diverse opinion writers who don't always agree on the future direction of the country.

Russia is in the midst of an exciting transition in every sphere, from politics to culture. Like China, Russia is a member of the BRICS (Brazil, Russia, India, China and South Africa) community and our business coverage explores the Russian marketplace. Our award-winning website, rbth.ru, is updated daily with additional articles, and dramatic and diverse multimedia. We can’t wait to hear from you.

Last year, with a growth rate of 41 per cent, Moscow became the fastestgrowing office rent market in Europe, second only to Beijing. The country's real estate sector, which was booming before the global financial crisis, is rapidly recovering as the economy is gain-

ing momentum. The growing market and promising prospects are attracting foreign investors, especially mainland companies that are now becoming active players in this sector. > PAGE 7

Kalmykia Revival of faith in Buddhist region Religion

Restaurants Country's cuisine is rare in HK City

March 28

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2 Wednesday, February 29, 2012

RUSSIA BEYOND THE HEADLINES

All eyes zoom in on election Young people are becoming involved in monitoring a fair poll through online activism, writes Pavel Koshkin

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llegations of vote fraud during last December’s State Duma elections will mean a close scrutiny of the March 4 presidential poll.

However, some experts question whether the protest movement has the staying power to thwart any possible voting irregularities in next month's election.

Elena Panfilova, the head of Transparency International - Russia - says that while she welcomes election observers, she warns that “what really matters is whether the observers are able to fulfil their duties”.

Since early December, new and existing civil society organisations are becoming increasingly involved in ensuring that the presidential election is free and fair. RosVybory, a new organisation created by Russia’s vocal anti-corruption blogger, Alexei Navalny, enrolled more than 10,000 volunteers by the end of January to monitor the election. The liberal opposition party, Yabloko, also saw its

POLITICS ranks of monitors swell to between 20,000 and 25,000, according to the party's deputy chairman, Sergei Mitrokhin, who disclosed the figures in an interview with web-based magazine Slon. In addition, Russia’s Association of Lawyers has enlisted 4,500 observers and hopes more will join. The League of Voters, an internet-based watchdog founded by prominent Russian journalists and bloggers, is also engaged in recruit-

Observers keep a close eye on the vote counting at a Moscow polling station on December 4. Photo: ©RIA Novosti ing and training volunteers. At the same time, Prime Minister Vladimir Putin’s headquarters is expected to provide about 35,000 observers, according to Slon.

Russia has also seen an increase in grassroots watchdog activity among internet users who are creating social networks and special websites to monitor the elections.

Interest in vote monitoring is increasing, particularly among students.

“I am going to monitor the election because I want to see for myself that at least one polling station in Russia will have no fraud,” says Roman Medvedev, a second-year student at the Moscow State Institute of International Relations.

Yury Korgunyuk, of the Indem think tank, views the rise of civil activity among Russians as a good sign, although he questions how much it will actually affect the election. “There are a lot of remote regions, ‘hidden corners’, in Russia that are difficult to reach

Right time to make debut in gateway to China Russia Beyond the Headlines’ publisher Eugene Abov says Hong Kong is an obvious choice for a paper covering Russia's current affairs.

portant business and financial centre where hundreds of Russian companies are active.

And who is funding this publication?

Why Hong Kong? Is Russia no longer interested in crisis-hit Europe?

No. We also have new European projects in the pipeline. Nevertheless, Russia is also a part of Asia. So far, India and Japan are the only Asian countries where we are present, but we would like to expand our activities in the Asia-Pacific region, particularly China. As Russia begins its Apec chairmanship, I think the timing is perfect to bring out this publication.

Why start in Hong Kong, not the mainland, and why in English?

Hong Kong has always been a gateway to China. Why don’t we also use it? Very soon, we’ll be publishing in a mainland newspaper and we already have a Chinese website (www.ezhong.ru).

Nevertheless, Hong Kong is an im-

The project is funded from revenues of the government-owned Rossiyskaya Gazeta. As the official publisher of Russian laws, government regulations and presidential decrees, it is also Russia’s biggest general-interest newspaper.

So it’s government funded? How did other foreign newspapers in which you publish your supplements react?

At first everyone was wary that they were being lured into a risky venture and that the Kremlin would start pushing its propaganda in their newspapers. But our job is journalism – and quality journalism leaves no room for propaganda. We seek to provide coverage on Russia and its problems from every angle and give a variety of opinions without imposing any single one.

We provide information about Rus-

and monitor,” Korgunyuk says. “They may be out of the reach of observers who can succeed only in big cities where you can easily monitor. We also should keep in mind that there are a

If more people participate in politics, the less fraud we shall see YEVGENY MINCHENKO, INTERNATIONAL INSTITUTE FOR POLITICAL EXPERTISE

lot of fake organisations supported by the government that only create the illusion of social action.” Yevgeny Minchenko, from the International Institute for Political Expertise, says that regardless whether the election is free and fair, “if more people participate in politics, the less fraud we shall see”.

He adds that today in Russia, there is a high level of competition among such watchdog organisations, and that encourages them to be professional and effective.

“Unfortunately, I didn’t sign up as an observer for the parliamentary elections, but now I want to be enrolled as [one],” says Kira Tverskaya, a journalism student from Moscow State University.

“It’s very interesting to look at the presidential election from the inside, keep track of possible violations, and thus minimise the possibility of vote fraud. After all, it has proved to be effective during the State Duma elections, when observers filed a lot of complaints to the court, even though it remains unclear whether these [pleas] will be successful.”

The increase in the number of organisations working to involve people in the political process is encouraging ordinary Russians to be more politically aware, even if the trend is only a temporary one.

Russia Beyond the Headlines — A GLOBAL MEDIA PROJECT

sia that we believe bypasses foreign readers.

Do you think that Hong Kong readers don’t know enough about Russia or that their knowledge is superficial?

That’s our belief. In Moscow, there are dozens of Chinese media centres, but not a single one from Hong Kong.

And who writes the stories for you?

Our authors are professionals writing for well-known independent Russian editions – Vedomosti, The Moscow Times, Kommersant, gazeta.ru – and in foreign media – American, British, German, French and Italian.

When we start publishing in Hong Kong, we will be eager to involve local writers.

Do you think it will be interesting for SCMP readers?

Our experience has shown that information about Russia is in great demand among foreign readers.

Since 2007, Rossiyskaya Gazeta, the largest national Russian daily newspaper, has produced monthly national supplements that appear in major newspapers around the world. This supplement is now published in the South China Morning Post.

We believe that Russia is a diverse and complex country in a state of

major transformation, still coming to terms with its long – sometimes painful, sometimes curious – history that can only be understood through in-depth analysis of the nation. We would like to present significant facts and ideas that fall under the “radar” of major international news outlets.

Wednesday, February 29, 2012 3

RUSSIA BEYOND THE HEADLINES

Putin faces tough hurdles Opposition takes aim at prime minister and hopes to win as many votes as possible, writes Nika Guitine

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ho can take on Prime Mi n i s t e r V l a d i m i r Putin in next week’s presidential election?

This question is being asked by those in power and his political opponents, who are demanding a free and fair election on March 4.

Former president Putin, who is viewed as the real power in Russia, seems to be the favourite to take back his job.

However, it does not appear to be a smooth road to power for him.

Following the December 4 legislative elections, allegations of widespread electoral fraud surfaced, which was witnessed and reported by local and international observers. The election gave the ruling United Russia Party a landslide victory.

However, a wave of protests erupted in Moscow.

Despite freezing temperatures of minus 20 degrees Celsius on February 4, tens of thousands of Muscovites turned up to voice their outrage at the election results. They demanded the cancellation of the election results, release of political prisoners, and the introduction of democratic reforms. In just a few weeks, the message was loud and clear – “Out with Putin.” The protesters, who gathered in Bolotnaya Square, were also angered at what they felt was an autocratic regime, a police state mired in lies and corruption. They also believed that as long as Putin was in power there was no hope of democracy in Russia. “Putin is leading us to stagnation and the collapse of our country, his system is corrupt to the core,” charges Dmitri Gudkov, a

POLITICS member of the Russian parliament who represents the Just Russia Party.

However, at the other end of the city, Putin’s backers gathered in large numbers with their rallying slogan: “We have a lot to lose.” According to eye-witnesses, many of the demonstrators were civil servants who were ‘encouraged’ to join the pro-Putin demonstration with their bosses.

Putin’s backers accuse the anti-Putin forces of trying to rock the boat and attempting to plunge Russia into chaos.

They claim that Putin is the face of stability, and the architect of a powerful country. “Under Putin, Russia has experienced one of the most prosperous periods in its history,” says political analyst Vyacheslav Nikonov.

“Annual growth stood at 7 per cent during his first term of office, and many people remember the total disorder that prevailed in the 1990s.”

With the presidential campaign now in full swing, opposition candidates are facing each other in a series of debates live on television. The only notable absence from these de-

Protests erupted in Moscow following claims of electoral fraud in December’s polls. Photo: Vasiliy Maksimov/Ridus bates is Putin, who is using leading newspapers to publish articles.

The anti-Putin forces are not naive enough to believe that the former president won’t be elected. However, the strategy is to ensure that he gets as few votes as possible. But the opposition fears that if Putin fails to garner an overwhelming mandate to rule Russia, his team may turn to election fraud to ensure he gets the right number of votes.

Putin’s opponents are joining forces to ensure that it will be a free and fair election. Facing them, the proPutin camp is resorting to Cold War rhetoric and scare tactics, warning that the country will spiral into chaos if the prime minister fails to win the election.

Putin’s backers are attempting to discredit the opposition by accusing them of being financed by the Amer-

ican government, which allegedly has only one aim, that is, to weaken Russia. “[United States Secretary of State] Hillary Clinton set the tone for the activists inside the country who have begun to act with the help of the US State Department,” Putin said in December during the first days of the protests.

“Putin is a revolutionary, he is causing a revolution throughout the world, a revolt against the system constructed by the US,” says Maxim Mishchenko during a televised debate.

Mishchenko is the leader of the proKremlin Young Russia movement.

Putin's backers allege that if the opposition came to power, the country would bow to the US and the country would be plunged into a civil war, an economic crisis, nationalist violence, leading to a “humanitarian disaster”.

As for Putin, he promises an extensive programme of reforms, putting stability as a top priority. “Putin’s message is clear – Russia is entering a new phase in its development. The post-Soviet era is over. And we all should pass between the extremes of revolution and stagnation in favour of gradual progress,” says Dmitry Polikanov, deputy head of the central executive committee of the United Russia Party.

Putin's critics are sceptical and point out that he could have brought reforms during the past 12 years, but failed to do so.

According to Kremlin-friendly pollster VTsIOM, 58.6 per cent of Russians say they will vote for Putin. Other opinion polls, however, show 48 to 53 per cent, but Gennady Zyuganov and Vladmir Zhirinovsky are still far behind the leader with 9 per cent.

The presidential candidates unveil agendas and make their positions clear to voters

VLADIMIR PUTIN is widely tipped by political analysts to win the election. His trump card is his previous achievements. He first came to power during a period of instability in the late 1990s when the country was gripped by crime and property redistribution. At the same time, the Caucasus region was gripped by war, and terrorist attacks were common.

Today, Putin is still seen as a confident politician backed by a strong administration. He promises a peaceful life, stability and evolutionary development for the country.

GENNADY ZYUGANOV is the Communist Party of Russia's (KPRF) candidate. He narrowly lost the 1996 presidential election to Boris Yeltsin. The Communists hold the second-largest number of seats in the State Duma after United Russia. But supporters of the party are mostly the elderly who have fond memories of the Soviet Union. The Communists promise jobs, the rebirth of industry, a better life for farmers and workers, and a smaller role for big business. However, experts believe that Zyuganov is not a strong opposition leader.

VLADIMIR ZHIRINOVSKY, head of the Liberal-Democratic Party of Russia, is making his fifth attempt at the presidency. However, he is not popular. He has positioned himself as a radical opposition leader, focusing on social benefits, pensions, education and employee rights. His campaign slogan is: “Zhirinovsky, or it’ll be worse.” He is Russia’s most eccentric politician, having insulted his opponents - and sometimes voters during election debates. While many see him as just a clown, experts say he is a professional politician.

SERGEI MIRONOV, head of the Just Russia Party, is also seeking the presidency. Since his party was created six years ago, he and his team have failed to counter the party’s reputation as an opposition created by the Kremlin. Mironov has repeatedly stated that he supports Putin, while criticising the ruling United Russia Party. “This dual position is still fresh in people’s minds. This is something voters cannot understand,” says Valery Khomyakov, general director of the National Strategy Council.

MIKHAIL PROKHOROV is a billionaire businessman and the only candidate not affiliated with a party. His lack of political experience is not the only way he stands out from the crowd. At 1.95 metres, he is easily recognisable.

His programme includes developing small and medium-sized businesses, boosting industrial technology, and fighting corruption. Experts doubt that voters will support him. “A man who has so much money is dependent on the authorities,” says Sergei Mitrokhin, chairman of the liberal Yabloko Party.

4 Wednesday, February 29, 2012

RUSSIA BEYOND THE HEADLINES

Apec leadership is a turning point for the country The focus of this year's summit in Vladivostok will be on economic assimilation, boosting connectivity, food security and promoting innovation, writes Igor Ivanov

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yeing its integration into the Asia-Pacific community, Russia is finalising its ambitious plans to host September’s summit in Vladivostok.

There are some who believe that Russia has a split personality. Is it Asian or European? One look at the map is enough to see that Russia has the continent’s largest landmass, with an eastern seaboard occupying a sizeable chunk of Asia’s Pacific coast.

Asia is home to Russia’s largest trade and economic partners, most importantly China, which has advanced to top spot in terms of total trade turnover with Russia.

Russia is a member of major Asian multilateral organisations, including the 21-member Asia-Pacific Economic Co-operation forum (Apec).

Nonetheless, many in Asia still consider Russia to be “not quite an Asian” country.

Perhaps this is because ethnically, religiously, culturally and politically, Russia has traditionally gravitated more towards Europe, or because the bulk of the population live in the western part of the country.

The country has largely remained on the sidelines of the emerging AsiaPacific community, despite efforts to take a place in it, and its potential for being an Asian power remains largely unrealised.

This can be attributed to the fact that Russia is too slow and, at times, inconsistent in rebuilding the economy of its eastern regions, and doesn’t create the required incentives for foreign investment. The Asian part of Russia faces unresolved issues in infrastructure, stimulating small businesses and managing migration processes.

In international affairs involving the region, it doesn’t always manage to grasp the logic of its Asian neighbours, which occasionally results in unfortunate misunderstandings.

That said, our Asian neighbours are not beyond reproach. It appears that for some of them the Cold War never ended, as they continue building their Russia policy on principles dating back 50 years.

Others view Russia as nothing but a source of commodities from which to pump the resources they need – preferably on the most preferential terms. Still others believe that developing relations with Russia can be delayed until better times because the priorities of Asian policy lie elsewhere at present.

Russia’s chairmanship of Apec this year presents a unique opportunity to take a new look at the country’s prospects for integration into the Asian-Pacific community.

The leadership attaches the utmost

IGOR IVANOV

ASIA importance to its chairmanship. Recent months have seen meticulous preparatory work to flesh out the agenda with real content.

Not only ministries but also many regions are taking an active part in this work.

Russia’s chairmanship of Apec should be the starting point for developing multilateral co-operation in the Asia-Pacific region on a whole range of issues that are crucial to the country. First there is the liberalisation of trade and investment, and regional economic integration. Certain steps in this direction have been taken under the chairmanship of the United States, and Russia is ready to move forward on this path towards free trade and investment in the region.

Whereas the November summit in Honolulu mainly discussed the issues of trade liberalisation, it would make sense to focus on the long-term outlook for the integration of Apec economies, including taking into account the Commonwealth of Independent States’ integration initiatives carried

NATIONALITY: RUSSIAN AGE: 66 CIVIL STATUS: MARRIED

Igor Ivanov is president of the Russian Council on International Affairs. He previously served as minister of foreign affairs from 1998 to 2004 and secretary of the Security Council of Russia from 2004 to 2007. out by Russia, and on preventing financial and economic crises in the region and globally.

Strengthening food supply security is another priority for this year.

This issue will likely become central to the global policy of the 21st century, and Apec’s role in this can’t be overestimated.

However, multilateral co-operation is only just beginning in this area.

Russia lacks a co-ordinated regional approach to food supply security risk management.

Vladivostok is preparing for September’s Apec Summit. Photo: ©RIA Novosti The time has come to deal with matters such as reducing food price volatility, cutting losses resulting from the transport of agricultural products within the region, and co-ordinating national efforts to improve crop yields.

Russia’s other priority is developing the region’s transport and logistical capacity. Russia is a country of transit between Asia and Europe, but its intercontinental transport capabilities are still far from fully utilised.

Cutting costs and wait times at border crossings and implementing major infrastructure projects through private-public partnerships are all matters the country hopes will be dis-

cussed both during the year and at the Vladivostok summit. The event also represents an opportunity to promote an innovative agenda for Russia and the entire Apec region.

How to ensure the most effective forms of interaction between science, business and government; how to bring co-operation among innovation centres, universities, research institutions and science towns to a new level; how to increase geographic mobility for scientists, educators, and innovators; and how to ensure the protection of intellectual property rights are becoming increasingly important, not only for Russia, but also for its neighbours in the region.

Initiative for technology transfer Mark Zavadsky RBTH Russia is using its leading role at Apec this year to input some ideas into the global agenda. The first signs of it came at the Honolulu Apec summit in November last year.

Now it is Hong Kong’s turn. Last week, the Russian National Center for Apec and the Hong Kong University of Science and Technology (HKUST) held talks on technology transfer, which also attracted participants from Europe and Apec countries.

The Russian side believes that its technology transfer initiative will foster Asia-Pacific growth potential and enhance economic and social wellbeing for all Apec economies by

bringing technologies that can stimulate economic development to the emerging economies where they can make a difference. “We need a practical instrument that will allow us to disseminate technology around the world,” says Leyla Mamedzadeh, executive director of the Apec Business Advisory Council.

Russian businesses propose establishing a national technology transfer fund that would enjoy the full support of the government.

That entity would have sufficient expertise to identify technologies that are not being developed in national academic institutions and, at the same time, constitute significant value for the national economy.

Finally, the fund should possess a private-sector approach to financ-

We need a practical instrument that will allow us to disseminate technology LEYLA MAMEDZADEH EXECUTIVE DIRECTOR, APEC BUSINESS ADVISORY COUNCIL

ing technology transfer projects. Foreign experts in general welcome the idea, though some predict difficulties ahead.

“The main problem is that donor

countries and technology recipient countries do not trust each other," says the author of the best-selling book World 3.0, Pankaj Ghemawat.

“Each of the parties suspects that the new platform will not operate to its benefit.”

Nevertheless, Russia hopes that it can be done.

“This is crucial for us,” says the vice-president of the Skolkovo Instititute of Technology (SIT), Mikhail Myagkov.

The SIT is starting several international research projects and already sees problems ahead.

“Participating parties are very concerned about intellectual property protection and a new body would be quite handy to handle these worries,” Myagkov says.

Wednesday, February 29, 2012 5

RUSSIA BEYOND THE HEADLINES

Iran not a friend or enemy of Moscow

BRIEFS Trade reaches record volume Sino-Russian bilateral trade last year reached a record high of US$80 billion (HK$621 billion). Despite turbulent global economic conditions, relations between the two countries continue to grow steadily, according to Li Hui, China’s Ambassador to Moscow.

Deal for military planes reignited

Only a diplomatic solution can stop the country from producing nuclear weapons, writes Dmitry Trenin The Bushehr reactor is Iran’s first. Photo: Reuters/Vostock-photo

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hen Russians look at Iran, they see a country that has been their neighbour and rival. To Iranians, Russia is perceived as a powerful threat.

It was a long time ago, but Russians remember their own embassy crisis at the hands of Iranians in 1829.

Alexander Griboyedov, the tsar’s ambassador to Persia and an eminent Russian author, was murdered, along with his entire embassy staff, by an enraged mob in Tehran.

This bit of history is vital to understanding Russia’s approach to Iran's nuclear programme.

Although Russia has backed limited sanctions at the United Nations, it has clashed with the United States and Europe over much tougher ones, and it strongly opposes any use of military force.

Many Russians reason that if their neighbour wants to acquire nuclear weapons, it probably will.

Bombing known facilities would only set back the nuclear programme,

ASIA not eliminate it. The only way to prevent Iran from having nuclear weapons is to craft a deal under which the country would agree to stop further development after achieving nuclear weapons capability, while the world’s leading powers would agree to reintegrate Iran into the international community.

The Russians are not resigned to the prospect of a nuclear Iran perfecting its missiles to carry nuclear warheads.

Given their close proximity, Iran’s medium-range systems can reach deep inside Russia.

Russian diplomats have been trying hard to nudge the Iranians towards a compromise with the world’s powers. However, all their attempts have so far failed.

Russia is often portrayed as Iran’s ally. Yet that notion is unfounded.

True, Russia has been selling arms to the regime, but Russian weapons dealers are looking at it purely from a business point of view.

Moscow sees nuclear energy as one of the few areas in which it is globally competitive and would be loath to cede the Iranian market to rivals.

Russia is continuing its nuclear energy co-operation with Iran, but on one condition: Iran has to return all spent fuel rods to Russia for processing, thus preventing their use in a nuclear weapons programme.

However, Russia’s assessment of the Iranian threat differs from that

of Washington, in terms of capability and intention.

Russia’s frequent references to the “lack of hard evidence” of the military nature of the Iranian nuclear programme are probably meant to keep the door open for dialogue.

Russians are watching warily as tensions around Iran continue to rise.

Further sanctions, they think, would weaken Iranian moderates and empower its hardliners.

Russia believes that tougher sanctions imposed by the US and its European allies won’t accomplish what the West wants – stopping the Iranian nuclear programme or turning the Iranian people against their government.

Nor will they fail to stave off an Israeli air strike, which would inevitably drag the US into the conflict.

This means that unless diplomacy is given a chance, the two things that concern Russian leaders most – a US war against Iran and an Iran armed with nuclear weapons – may become a reality soon.

China has signed a contract with Russia to buy three IL-76 military cargo planes. This is the first military cargo plane deal after a US$1.5 billion Russia-China contract for IL-76 and IL-78 planes was frozen in September 2005 because of disputes between the parties. The People's Liberation Army has already purchased 18 IL-76 planes from Russia.

Russians pour into Hong Kong

Pakistan ‘plans nuclear fleet’ sian Academy of Sciences. Is Pakistan ready to finance its ambitious nuclear submarine programme? According to Shaumyan, this is unlikely as the country’s nuclear arsenal is

Vladimir Skosyrev Special to RBTH Days after Russia handed over the Nerpa nuclear submarine to India last month, media reports surfaced about Pakistan planning to build its own fleet. Experts, however, doubt if Pakistan is up to the task. A spokesman for Pakistan’s navy refused to comment. However, the project is said to have been approved by Islamabad, with the first submarine expected to go into service in five to seven years.

Mansoor Ahmed, an expert on nuclear and missile weapons at the University of Islamabad, speculated that this information could have been spread intentionally by navy headquarters to send a message to India.

Pakistan is concerned about the lease of Russia’s submarine to India for 10 years. Renamed INS Chakra II, it is the only nuclear submarine in the Indian navy and will be based at Visakhapatnam. It will also provide a training platform for sailors who will serve on the first Indian-made nuclear submarine named Arihant.

The Nerpa nuclear powered Russian attack submarine was leased to India for 10 years. Photo: Reuters/Vostock-photo

Russia’s lease of Nerpa to India has sparked speculation about an arms race

The lease deal has led to speculation about an arms race in South Asia.

India, with its growing military and economic clout, is keeping a close eye on a much more powerful rival, China, whose navy is a potent force.

Pakistan, however, sees India as its primary threat. This explains why Pakistan, despite its deep political and economic crisis, is spending millions to upgrade its nuclear arsenal. According to online global security mag-

being closely monitored by the United States.

But the scenario of a nuclear confrontation between India and Pakistan appears to be exaggerated as both countries are aware of the catastrophic consequences.

Back in the late 1980s, they signed an agreement not to attack each other’s nuclear targets – an agreement both nations still observe, Shaumyan says.

azine Bulletin of Atomic Scientists, Pakistan has more nuclear warheads than India. Early last year, Pakistan had 70 to 90 warheads. However, most of Pakistan's and India’s warheads are not fully operational.

If reports of Pakistan’s nuclear plans are true, it means both countries will have to increase their defence spending, says Tatyana Shaumyan, head of the Indian Studies Centre at the Institute of Oriental Studies, the Rus-

Russian tourists are pouring into Hong Kong. According to the Hong Kong Tourism Board, more than 131,000 Russians visited the city last year. The figure represents a 51.5 per cent increase from 2010 and a threefold growth compared with three years ago.

Beijing eager to increase oil imports Beijing is in talks with Moscow to increase oil imports from Russia by purchasing all 30 million tonnes shipped on the Eastern Siberia Pacific Ocean pipeline, according to Transneft vice-president Mikhail Barkov. China is eager to lock in longterm contracts on the greatest possible volume, particularly given the political risks facing imports from Iran. China will have to compete with other consumers of east Siberian oil, such as the US, Japan and South Korea.

6 Wednesday, February 29, 2012

RUSSIA BEYOND THE HEADLINES

HK is key to regional markets Executive director of the business association is confident that more Russian firms will list in the city Are Hong Kong investors familiar with Russian firms? If so, how confident are they in Russian businesses?

At the moment, Russian companies are not well known in Hong Kong.

Nevertheless, investors will no doubt be familiar with aluminium giant Rusal, owned by Russian billionaire Oleg Deripaska. The company listed on the Hong Kong stock exchange in January, 2010, and the initial public offering (IPO) raised more than HK$16 billion.

However, since then, there has not been a single Russian IPO in the city. Nevertheless, the Hong Kong stock market will be more significant for new Russian IPOs, as the city is becoming a better alternative for IPO-inclined Russian companies than London. This is because Russian companies feel that Hong Kong will give them access to some of the fastest-growing Asian capital markets in the world.

Another important factor is that local foreign exchange regulations allow for a free flow of capital. As far as I know, we will see at least one more Russian IPO here before the end of the year.

Regarding Hong Kong investors trusting Russian companies, it depends on the involvement of these companies’ assets in Asia, meeting market trends, expectations and strategic initiatives inside China. Analysts say that most Russian companies meet these criteria.

Apart from Rusal, what other firms are represented in Hong Kong, and is the presence of Russian business here significant? Who are the members of Russia-Hong Kong Business Association, and what do they do here?

The expanding presence of Russian

Hong Kong trade fairs attract hundreds of business people from Russia. Press photo

INTERVIEW business is conspicuous compared to 20 years ago, but lagging behind countries such as the United States, Britain and France, who established their presence in Hong Kong a long time ago.

Russian companies, actively operating in Hong Kong, now include Far East Shipping Company; Alrosa, the diamond industry monopolist; and Norilsk Nickel, which is the largest mining company in the country.

When it comes to the toys and garment sectors, nearly all Russian market players are represented here. Of course, Russian business is also using Hong Kong as an infrastructure centre, a platform for operating in the Chinese market and those of Southeast Asia. Hundreds of Russian companies run affiliated structures in Hong Kong to work with contractors in China and Southeast Asia.

As far as the association is concerned, there are about 50 active members. They include big and medium-sized firms working in service, commercial, production and technology sectors. The association includes well-known Russian brands, such as the Scarlett and Binatone groups, and the big Sportmaster and O’Stin Russian retail chains.

GUANGZHOU INTERNATIONAL TRAVEL FAIR 2012 MAR 1-3, 2012, JINHAN EXHIBITION CENTRE GUANGZHOU, CHINA

BUSINESS CALENDAR

FIND MORE IN THE GLOBAL CALENDAR

at www.rbth.ru

You have been communicating with Hong Kong businessmen a lot and accompanying delegations of investors. What draws them to Russia, what difficulties do they face, and what are their prospects?

Hong Kong investors who come to Russia see that the situation is different from the markets where investors are actively invited, such as African or South American ones. In Russia, they have money and there is a competition between domestic capital and investors from the US and the European Union for attractive projects.

Nevertheless, the Russian market has its appeal – in terms of the scope of its economy and the fact that, against the current global economic backdrop, Russia remains a “light spot” if not an island of stability, compared to today’s Europe.

As for difficulties, they are the same for all investors in our country: red tape, excessive economic regulations and the uncompetitive environment.

In my opinion, the service sector has considerable potential for Hong Kong investments, especially infrastructure and logistics, in Russia's far east. It is into this sector that bilateral investment efforts should be channelled.

Certainly, there are some difficulties but, hopefully, the development of the region will gain momentum, especially at the upcoming Apec summit in Vladivostok. The changes Vladivostok has seen over the past

TOYS & KIDS RUSSIA 2012 MARCH 14–16, CROCUS EXPO, MOSCOW, RUSSIA

GITF has been recognised as one of the most significant international travel fairs in the Asia-Pacific region.

Russia’s exposition at GITF, managed by the Russia Federal Agency for Tourism, will be dedicated to the Year of Russian tourism in China held in 2012. The business programme features presentations highlighting the most popular national tourist destinations, business meetings and negotiations, tours, and a cocktail reception.

The leading fair for the Russian toy industry takes place for the sixth time and offers optimum facilities for market entry. Russia stands out as a toy market for the great interest shown in international products and its high growth rates. Besides toys, the event will present baby and infant articles, baby fashion, prams, children‘s furniture, playground equipment, Christmas articles, creative design, stationery, outdoor and sports articles, gifts and many other products.

WWW.VISIT-RUSSIA.RU

WWW.TOY-RUSSIA.RU

two years should convince Hong Kong businessmen and investors from Southeast Asia.

LEONID ORLOV

Russia and Hong Kong have not yet signed an agreement to avoid double taxation. Is this going to happen soon?

Work on this agreement is under way. During the past two years, the Hong Kong authorities have stepped up their work to conclude agreements to avoid double taxation with Europe, South America and Southeast Asia.

An agreement of this kind with Russia will happen in the near future, especially since we have a regulatory framework for our relations. We have signed an agreement on legal assistance and have fully agreed on stock exchange regulations.

What is your forecast for the development of bilateral trade and economic relations in 2012?

We do not anticipate any breakthrough events. We hope for a period of sustainable development.

The Russian consumer market keeps growing and there is an obvious consolidation trend on the Russian fastmoving consumer goods market.

This means fewer players and a more competitive market. The number of players will dwindle amid growing volumes of purchases. This enhances the appeal of the Russian market and increases its competitiveness for Hong Kong suppliers.

1ST RUSSIA INNOVATION WEEK EXPOINEX 2012 APRIL 17-20, EXPOCENTER, MOSCOW, RUSSIA

NATIONALITY: RUSSIAN AGE: 43 CIVIL STATUS: MARRIED

Born July 1, 1968, in Moscow region.

In 1992 graduated from Moscow Pedagogical State University. From 1992-1994, worked in Alpha Consulting. From 1994, headed Moscow office of the Hong Kong Trade Development Council. Owner of Eurasia Link consulting bureau.

Member of the Russian Journalists’ Union. Member, from 2004, of the Board of the European Forum in the Federation of Hong Kong Foreign Business Associations Worldwide.

Earned second degree in economics and management. Consultant to InvestHK, the investment arm of the Hong Kong government, and Hong Kong and Russian firms.

DIGITAL BUSINESS RUSSIA 2012 MAY 21-22, 2012, RENAISSANCE MONARCH CENTRE HOTEL MOSCOW, RUSSIA

This year, Expocenter combines a number of exhibitions in innovative technologies into a three-day EXPOINEX forum. Within the framework of this event, Expocenter will hold the international forum “High Technology in XXI Century”; the business forum “New Electronics 2012”; the international exhibition “Navitech 2012”; the sixth international forum on satellite navigation exhibition “Photonics. The World of Lasers and Optics 2012”; and others.

DIGITAL BUSINESS Russia 2012 is the only elite event that looks at how leading businesses manage digital projects as part of their strategies. This is a meeting place for business owners and managers seeking to boost their revenue from digital projects. The elite speaker panel will feature the digital sector’s movers and shakers, who are implementing digital strategies as part of companies’ business models, as well as those whose businesses are entirely based in the digital space.

WWW.EXPOCENTR.RU

WWW.ADAMSMITHCONFERENCES.COM

Wednesday, February 29, 2012 7

RUSSIA BEYOND THE HEADLINES

Sector enjoys steady growth Real estate continues to attract investors despite global economic volatility, writes Viktor Kuzmin

R

ussia emerged as a global leader in commercial property investment growth last year. Yet, the overall trading volume is still fairly modest: the entire country has just managed to catch up with tiny Hong Kong.

Russia’s real estate, along with its natural resources, has continued to attract investors even against the backdrop of global economic volatility.

Last year, it set a new record, with investment in commercial property doubling to reach US$8.3 billion, according to real estate services firm Jones Lang LaSalle.

This figure is not, however, overwhelming compared with global leaders – it is roughly equal to Hong Kong’s similar showing, ranking sixth among the world’s biggest investment markets in terms of commercial property, with London (US$24.3 billion), New York (US$19.2 billion), Paris (US$14 billion), Tokyo (US$13.9 billion) and Singapore (US$9.1 billion) taking the lead.

The growth was mainly driven by the recovery of the debt capital market in Russia. Loans to legal entities surged 25 per cent last year, according to Knight Frank’s research department.

Investment was almost equally divided between the retail and office segments, each claiming a 40 per cent share.

Hotels and warehouses traditionally enjoyed a lower demand, with 13 per cent and 7 per cent, respectively.

In the Moscow market, the office segment topped the list in trading volume, as it did in previous years. The difference is linked to the high investment appeal of regional retail property, according to global property network Knight Frank.

Companies from the United States, Britain, Scandinavian countries and Russia traditionally made the biggest investments in Russia’s commercial property.

Chinese companies proved to be the most active investors from Asia.

In 2009/2010, China contributed some US$480 million to Russian property, with the bulk of this amount (roughly, US$350 million) sunk into

PROPERTY

The property sector is buoyant, thanks to the recovery of the nation's debt capital market. Loans surged 25 per cent last year. But the country’s real estate market lags behind world leaders. Photo: Ilya Varlamov the Greenwood Business Park on the outskirts of Moscow. The Baltic Pearl, a major commercial property investment project in Russia’s second largest city, St Petersburg, is yet another project supported by the Chinese gov-

ernment that deserves special mention.

President of the Russian Builders Association Nikolai Koshman announced last year in Beijing that Russia was ready to provide extensive

Investment in real estate worldwide

project opportunities to Chinese companies in exchange for investment.

According to Koshman, the association had already entered into more than 20 co-operation agreements with Chinese subcontractors regarding projects in Russia, the total value of the contracts reaching some 3.6 billion roubles (HK$116 million).

When asked to assess the contribution by Hong Kong-based companies to the Russian property market, consulting companies merely shrugged their shoulders.

Only a few cases of Hong Kong investment in Russian commercial property projects are known. As such, only one major project involving Hong Kong capital is known to be under way in the closest Russian city to Hong Kong, Vladivostok: a residential area on Fedorov Bay. In April last year, Russian President Dmitry Medvedev urged Hong Kong companies to join co-operation programmes with Russia’s Eastern Siberian and Far Eastern regions, and

preparations for the Apec summit in Vladivostok.

Jones Lang LaSalle expects that this year the “Asian tigers” might join the pool of Russia’s biggest investors, providing an impetus for Hong Kong investors to enter the game.

According to Bloomberg, citing Barclays Capital Research, Hong Kong’s property market might slip into a recession in the next few years, with prices likely to drop by 35 to 45 per cent in the worst-case scenario.

Against this backdrop, the Russian commercial property market might emerge as a safe haven. Analysts estimate that, although the trading volume will not be as high this year as it was last year (at merely US$6.5 billion) in Russia, it will still be significantly above the 2010 showing – almost by a factor of 1.5.

This year, the state of the global economy and the euro zone sovereign debt crisis are expected to be the main drivers for the investment market. International investors are most likely to adopt a wait-and-see attitude, which will take its toll on the Russian market, including investment activity.

Despite the persistent activity in the rental market, financing is growing more expensive and less easily available, which might influence cap rates, says Olesya Cherdantseva, head of Jones Lang LaSalle retail and capital market research.

She says: “Compared to the previous year, when we saw positive trends on the market – high activity by tenants and affordable bank loans – closing deals with foreign investors is likely to be more difficult this year.”

Lending rises as interest rates decrease Vladimir Ruvinsky RBTH Mortgage lending continues its resurgence in Russia, according to forecasts and, by the end of the year, home loans will be close to pre-crisis levels.

The real estate sector’s recovery is being aided by a reduction in mortgage interest rates, now at an historic low of 9.6 per cent, according to data from Penny Lane Realty.

Although mortgages are increasing in Russia, they are not the most popular way to buy housing.

According to the state agency for housing mortgage lending, AIZhK, mortgages make up only 17.4 per cent of all housing transactions.

After living in Moscow for six years,

Ksenia, 28, who works as an art director for an advertising agency, decided to buy an apartment.

The 200 sq ft, one-room apartment near a metro station and convenient for her workplace, cost 3.7 million roubles (HK$933,653). She borrowed 3 million roubles from a bank, on standard terms, and used 700,000 roubles she had saved as the deposit.

Surveys show that Russians don’t generally consider mortgages to be a good deal because of the interest payments. Those who do take mortgages try to pay them off ahead of time.

Ksenia doesn’t think she will be able to pay back the loan in advance, but she can easily afford the monthly payments. “I used to pay 25,000 roubles a month in rent. Now, my housing

expenses have grown a little, but they are part of my apartment’s cost.”

Most Russians participate in equity construction projects or by co-investing in a building under construction. The system works like this: A construction company planning a new apartment complex will announce the beginning of construction and sell apartments in a building that doesn’t yet exist, then the building is constructed from the amount of money collected.

It is beneficial for both the buyers and developers, since the price of apartments at this stage ranges from 30-60 per cent less than the cost of a finished apartment, and the developers do not have to take out a loan to pay for the construction.

If a buyer finds that he cannot pay off the entire amount or changes his mind, he can resell his apartment under construction to someone else.

The Levashovs bought their apartment this way.

In 2008, they agreed to buy a 400 sq

Mortgage market

ft, two-room apartment on the outskirts of Moscow for 3.05 million roubles. “It was the crisis time, banks ceased giving mortgage loans,” says Tatyana Levashova, 54.

The couple agreed to pay 60 per cent of the cost immediately and the rest in instalments of 72,000 roubles per month over 18 months.

As a result, their interest payments raised the price of the apartment only 7 per cent over the initial cost.

This kind of deal appeals to Russians who don’t have a lot of savings and don’t plan to live in the same apartment forever. The main drawback is that the construction is not guaranteed, and the developer may run out of funds to finish building, or may be running a scam.

8 Wednesday, February 29, 2012

RUSSIA BEYOND THE HEADLINES

Ambitious firms look for opportunities > CONTINUED FROM PAGE 1

shops and supermarkets in six Chinese regions,” says the fund’s manager Zheng Song.

The fund, 90 per cent owned by Russians, accumulates US$50 million and is US$15 million more than the official Russian figure of non-financial investments in the Chinese economy in the first half of last year.

Russia accounts for just 0.03 per cent of foreign investment in China, according to the Russian embassy. However, one should take that figure with a pinch of salt.

The major foreign investors in China, which has a US$11 trillion economy, are based in economically advanced jurisdictions such as Hong Kong and the Virgin Islands, so it is virtually impossible to track the origins of that money.

“Russian businessmen shun publicity and try to deal as little as possible with official agencies,” says the representative of the Russian Chamber of Trade and Industry in Shanghai, Artem Vdovin.

However, big businesses also have their share of problems. Yet big Russian businesses, that are gradually discovering China, are not afraid of the state and, indeed, make active use of the state to lobby their interests in China. Rusal, Evraz, Petropavlovsk, VTB, Akron, Rosneft, Sibur and Rosatom are either already running investment projects in China or are actively discussing them with Chinese partners.

In the absence of a master plan, big Russian businesses in China are proceeding on the basis of an intricate combination of political interests and practical considerations. The biggest bilateral project on Chinese territory is set to be the joint RosneftChina National Petroleum Corporation oil refinery. Further down the road for the Eastern Petrochemical Company, set up to build the refinery (Rosneft has a 49 per cent stake in it), is the building of some 500 petrol stations. Yet that project, too, may be considered to be a long-shot as, for now, China controls internal fuel prices, so money cannot be made through retail.

Rusal in China has a more focused development strategy. “China is extremely important for Rusal, the company is banking on it, and it is no accident that it was the first Russian company to float its shares on the Hong Kong stock exchange,” a source in Beijing told Russia’s leading business magazine Expert . Rusal started supplying aluminium to China in the late 1990s and went on to build two plants for producing cathodes, enabling it to cut costs at its main production facilities in Russia.

“Chinese plants meet 85 per cent of the holding’s need for cathode blocks,” a company spokesman says.

Rusal’s latest investment is to be the purchase of 33 per cent of the company, Shenzhen North Investments.

Expert’s sources in Beijing are vague about the prospects of a joint venture with Rosatom, as the project is in the early stages of development. Sinopec and Sibur signed a protocol of intent in October, whereby the companies will build two rubber production plants in Shanghai and Krasnoyarsk.

Yet a memorandum is not a binding document, so it is too soon to speak about the project seriously.

Production or outsourcing?

Very few Russian companies decide to start production in China, most confining themselves to placing orders with Chinese factories.

There is a logic to this. “Legal and tax risks are high in China, the laws are different and liable to change, and the changes are sometimes difficult to track down,” says Obuv Rossii director Anton Titov. “The second reason is the mentality and the language barrier.

“Managing workers in Russia and managing workers in China are two very different propositions. We have no intention of opening our own production in China.

“It is easier to outsource an order and to develop a partnership with a factory in China than to own enterprises there.” Obuv Rossii buys 1 million pairs of footwear from 20 factories every year.

The choice of an outsourcing model is fraught with risks as great as in setting up one’s own factory.

BUSINESS First, there is the quality of the products. Not infrequently, the quality is good when you receive a sample or small batch, but when the order is big, the Chinese workmanship is often substandard.

Among other risks are failure to meet deadlines, design-theft and unreliable suppliers, who may abruptly refuse to co-operate the moment they get a more solid and lucrative order.

That is why companies try to become major partners of a factory and, sometimes, even its informal coowner. Sometimes Russian investors do not want to spend money to create a foreign company in China and, therefore, register in the name of a Chinese citizen they know. That simplifies the registration procedure, but there is a risk that the company might be taken away from its real owners.

“A Russian coming on an inspec-

tion mission may be surprised to discover that he is no longer the owner,” Vdovin says.

Less than half of Russian production projects in China have been moderately successful, says Mikhail Drozdov, a partner with the China Window consultancy.

The reason is ignorance of local realities, managerial mistakes and poor location. “China is ceasing to be a cheap factory,” says OPORA Rossii’s East Asia representative, Dmitry Chuprakov.

“The Chinese today claim ‘normal’ world-standard wages and working and living conditions. It no longer makes sense to produce cheap consumer goods here.”

For a major company, it only makes sense to enter China as part of an overall strategy Direct and indirect investments The path of Russian investments into China is sometimes tortuous and the reason is not just a reluctance to dis-

Banking laws are tough hurdles Mark Zavadsky Expert magazine Formerly known as Vneshtorgbank, VTB opened in Shanghai in December 2007 and, by November last year, had a credit portfolio of US$56 million.

It hopes to increase the portfolio to US$170 million by the end of this year.

“We mainly finance trade operations of Russian companies and credit investment activities of their Chinese subsidiaries,” says branch director Alexander Milyukov.

KuibyshevAzot, one of the biggest clients of VTB China, is successfully developing production of polymers at a plant near Shanghai.

Until now all transactions have been in US dollars.

Nevertheless, VTB expects to obtain a licence to conduct transactions in yuan later this year.

Banking on the mainland calls for major financial investments, whereby 200 million yuan (HK$246 million) is required to open a single branch.

To obtain a yuan licence increases that sum by a further 100 million. VTB is not in a hurry to develop its net-

work and plans to open branches only where clients are sufficiently numerous.

“We also plan to co-operate with Chinese companies that have interests in Russia and the CIS,” Milyukov says.

VTB has a key function in China to promote rouble as a currency of global trade

VTB is the first Russian bank to open a branch in China, and is not ruling out a retailing presence there. Photo: Getty Images/Fotobank

The Russian bank is not ruling out going into retailing in China. “We will think about it in 2013,” he says.

Other Russian banks are unlikely to enter China any time soon, although many have placed representatives in Beijing in order to understand the lie of the land.

“There simply will not be enough clients for them. VTB is a state-owned

bank and it can claim to have customers among state-owned companies.

Others will be left with crumbs from the table. Perhaps Gazprombank might do some business if a gas contract is signed,” a former representative of a Russian bank in Beijing told Expert magazine.

In addition, VTB has a key function to perform in China through promot-

ing the rouble as a currency of global trade and trying to persuade Chinese companies to trade with Russia in roubles. “From a legal viewpoint, dollars and roubles are the same for Chinese exports.

“A company can also get a VAT refund but, if trade is in renminbi, that is possible only for authorised companies,” Milyukov says.

Wednesday, February 29, 2012 9

RUSSIA BEYOND THE HEADLINES Largest Russian projects in China

Oil pipeline from Skovorodino to Daqing is one of the largest Russian projects in China.

Photo: Photoshot/Vostock-photo close the origins of the money. Russian business went global a long time ago and often enters China via other countries. Russian interests are behind a joint venture between the American producer of lithium cells Ener1 and the Chinese company Wanxiang.

Ener1 is owned by the Russian Z1 direct investment fund, founded by Russian businessman Viktor Zelderovich.

The Norwegian producer of battery-driven cars, Think, also owned

by Z1, is considering joint projects with the Chinese. If the two projects get off to a good start, Russian battery-driven buses may be seen on the roads of Hangzhou in the future. A new joint venture may be set up to implement the project.

Businesses associated with the Russian entrepreneur Yuri Milner are also eyeing China. Milner holds

It is not easy to make good investments in China, which is awash with its own and foreign money stakes in the Chinese Innovation Works incubator, the 360buy online magazine and the Alibaba.com trading floor. Milner’s managing company DST Advisors opened an office in Hong Kong last spring. He is planning to set up venture funds to invest in start-ups in China and India.

My Decker Capital One is also planning to expand. It is about to complete subscription for a second investment fund.

“It will be larger than the first,” says Zheng, though she declines to give the exact figures. The fund will invest in retailing, medicine, the media and the entertainment industry. “Our task is to buy significant but not control-

0.8 BILLION US$ accumulated Russian direct investment

ling stakes in Chinese companies to give us a say in management”, Zheng explains.

Entry and exit Exit from the country if things do not go well is every bit as difficult as entering China.

Not infrequently, the managers of foreign companies have been detained at the border because they had been sued by Chinese partners and suppliers, and have been forced to stay in the country until all debts are paid.

Russian companies continue to broaden their presence in China, but proceed cautiously. Early in the previous decade, many in Russia believed that China was a land of unlimited opportunities.

It is now clear that unlimited opportunities entail infinite difficulties.

China is an arena of fierce competition for the local consumer, while the attitude to foreign investments is cooling.

For a major company, it only makes sense to enter China as part of an overall development strategy.

“If you sit on the board of directors of a supply company, you can influence the cost and obtain cheaper products,” says the head of the Chinese unit of a major Russian holding company.

The Russian Far East has long ceased to regard European Russia as a promising area of development and, increasingly, entrepreneurs and investors are seeking a niche in China.

Innovative technology is key to business development Mark Zavadsky Expert magazine Of late, Russia has been creating a new type of production facility in China. Its products are intellectual.

The pioneer was the Kaspersky Lab, which has about 150 staff in the country. The anti-virus software maker is one of the market leaders in China, with its adverts displayed on stands at computer markets, in specialised journals and on buses in Beijing.

Kaspersky is not, however, the only intellectual Russian presence in the country.

The staff at the Beijing office of the St Petersburg IT company, i-Free, which produces games and advanced mobile phone applications, increased from two to 25 during the past year.

“We have invested US$2 million in developing our Chinese division,” director of i-Free Asia Yevgeny Kosolapov told Expert magazine.

In addition to Beijing, i-Free has an office in India. “We are going to roll out the applications we create in China to the Indian market. We are also working with Latin America and

Africa, and we have joined the billing business in Nigeria,” Kosolapov says.

Within China, i-Free makes money by distributing its own software and games and the software of other Russian companies. Kosolapov believes the presence of Russian companies producing software and games for mobile phones in China will increase dramatically.

Russia is acknowledged as a world leader in the field, second only to the Americans.

“We are aware that we can represent their interests only in the initial phase, before they understand the promise of this market and enter it directly,” Kosolapov says. “Nobody needs Russian money. What they need are ideas, ideas that China does not yet have.”

This philosophy is shared by Riki Group China, which promotes the Smeshariki brand. “The company was set up by a group of Russian and Chinese investors, including the founder of Riki Group in Russia Ilya Popov,” says Riki Group China director general Eduard Konovalov. The

Popular Smeshariki characters ‘learn’ to speak Chinese.

shareholders have contributed more than US$20 million to the authorised capital Riki Group China is going to use for a massive promotion of Smeshariki on the Chinese market, ranging from comics and mobile applications to kindergartens and theme parks.

“In China, we want to play in the same league with Disney,” Konovalov says.

Smeshariki has already enjoyed its first season on Chinese TV, to be followed by the second one this year.

One of the main problems when entering a foreign market with such a product is adapting the series to local realities and customs. That's why new episodes of Smeshariki will introduce two new characters to the plot - a dragon and panda. The drawing of the characters will be outsourced to China.

Comparatively small IT enterprises are also discovering China.

For instance, one-eighth of the staff of the Russian Internet marketing agency Sterno work in China.

“I came to Beijing and, to start with, worked remotely before suggesting putting together an international team consisting of one Russian, one Chinese and several Europeans,” says the director of the Beijing office, Yevgeny Demchenko.

Initially, the project recruited 10 people, but today only five staffers remain because the global financial crisis slowed business down.

Sterno’s Chinese branch is trying to gain a foothold in the country and is planning to hire local sales personnel and sell its services on the Chinese market.

“We will try to make quality our competitive advantage, because our prices are likely to be somewhat higher than those of Chinese companies,” Demchenko says.

10 Wednesday, February 29, 2012

RUSSIA BEYOND THE HEADLINES

Solid basis for partnership Alexander Lukin Special to RBTH

T

his year will be momentous for Russia and China. Both countries will see a change of leaders. Russia will elect a new president next Sunday and, in China, the 18th Congress of the Communist Party will hand over power to the “fifth generation” of leaders in the autumn. People in both countries are wondering whether the changes will make a difference to Moscow and Beijing’s foreign policy, and, in particular, their bilateral relations.

There are reasons to believe that relations will continue to progress under the new leaders. The likely leaders, Xi Jinping and Vladimir Putin, have much in common.

They are of a similar age; they made their careers in party and government structures; and both have been promoted to leadership positions by the respective elites.

It was during Putin’s first presidential term that Russia invigorated its Asia policy, especially relations with China. The framework bilateral Treaty of Good-Neighbourliness Friendship and Co-operation was signed in 2001.

The Shanghai Co-operation Organisation (SCO) was officially created in the same year. In 2004, a mutually acceptable compromise was reached on the remaining disputed issues of border demarcation, ending territorial disputes. The official status of “strategic partnership of coordination” was conferred on relations between the two countries.

Sino-Russian relations go back almost 400 years. The models have varied. The present strategic partnership is one of equals, requiring close co-operation. The two countries have gone through great changes in the second half of the 20th century in attaining that model. It was aided by the normalisa-

OPINION tion of relations that started in the late 1970s, after a reformist government came to power in Beijing, and was crowned by Mikhail Gorbachev’s historic visit to China.

At the time, in May 1989, the paramount Chinese leader, Deng Xiaoping, uttered a wise phrase: “let’s close the past and to open the future.” History has shown that allied relations between the two are hardly possible.

A succession of governments in Russia and China entered into allied relationships at least three times: in the late 19th century, in 1945 and in 1950. Each time, the union proved ineffective and lost its meaning long before the treaties expired. Suffice to say that, in the late 1960s, when bloody clashes occurred on the Soviet-Chinese border, the Sino-Soviet Treaty of Friendship, Alliance and Mutual Assistance, signed for a term of 30 years, was still valid.

At the same time, strategic co-operation between Moscow and Beijing, falling short of an alliance, has a good chance of suc-

ceeding, because it is based on real geopolitical and economic interests, not on ideological unity or similar political systems.

Russia needs good relations with China for political and economic reasons. China is an important strategic partner. It is thanks to links with China and other Asian partners that Russia can become a centre for world influence. China is a key economic partner for Russia, which needs to co-operate with it to develop Siberia and its far eastern regions.

China is Russia’s important regional partner. Both countries are working together in the SCO to solve problems in Central Asia, fight religious extremism and terrorism, support secular regimes, and economic and social development of the states in the region. Co-operation with China within the BRICS (Brazil, Russia, India, China and South Africa) group is also very important.

China also needs Russia as a geopolitical and economic partner. Beijing would like to see Russia as a counterweight in its complicated partnership-rivalry relations with the United States and Europe, as guarantor of its “independent” foreign policy. Stability on the border with Russia is important for China’s economic development. Finally, Russia is a key source of some goods that China cannot buy from other countries – weapons – or, in sufficient quantities, oil, timber and other commodities. That is why China has been working persistently to solve border, migration and bilateral trade problems.

Even though there may be differences, and despite the natural rivalry between companies in the two countries, there is a solid basis for a strategic partnership. That is why it is sure to progress, no matter who assumes power in Moscow and Beijing.

Alexander Lukin is Vice-president of the Diplomatic Academy, Russian Foreign Ministry.

Emerging markets get clear growth message Eswar Prasad The Moscow Times It is worth reflecting on how a decade of strong economic growth in emerging markets led to last year’s resounding political transformations.

From the dramatic events in the Middle East, to the groundswell of support for the anti-corruption crusader Anna Hazare in India, leaders in emerging markets are getting a clear message from the streets that growth is not everything. Emerging-market economies delivered solid growth during the 2000s and even survived the global financial crisis without a growth collapse. But the spectre of rising corruption is compromising the legitimacy of their economic gains and eroding support for further reforms needed to sustain their growth momentum.

Corruption takes many forms, but in emerging markets a combination of factors has turned it into a cancer that ultimately topples regimes. Relentless low-level corruption is a major irritant for poor people in many of these countries. Indeed, it limits their access to the social services and basic government functions that they often de-

pend upon for their very survival. Another type of corruption involves siphoning enormous sums of money from large-scale projects.

For ordinary people, large-scale corruption is less visible because, while the sums involved are mind-boggling, the costs are not as directly felt as they are in the case of lower-level graft.

In countries such as China and India, rapid economic growth has lifted a huge number of people out of poverty. But the fruits of globalisation and rapid growth have not been evenly shared. The rich become super-rich, even as a large fraction of the population remains destitute.

Rising income inequality is hardly limited to emerging markets, but their combination of open corruption and pervasive inequities creates a toxic brew that is undermining support for reforms that would strengthen and consolidate their economic gains.

In many emerging markets, a lack of political freedom adds to the combustible mix.

The combination of corruption, inequality and political repression builds up enormous pressure, and there are no institutional channels through which to release it.

LETTERS FROM READERS, GUEST COLUMNS AND CARTOONS LABELLED “COMMENTS” OR “VIEWPOINTS”, OR APPEARING ON THE “OPINION” PAGE OF THIS SUPPLEMENT, ARE SELECTED TO REPRESENT A BROAD RANGE OF VIEWS AND DO NOT NECESSARILY REPRESENT THOSE OF THE EDITORS OF RUSSIA BEYOND THE HEADLINES OR ROSSIYSKAYA GAZETA. PLEASE SEND LETTERS TO THE EDITOR TO EDITORHK@RBTH.RU

But freer political regimes are not a panacea. In a democracy like India’s, the politically well-connected benefit from skewed growth, thus increasing the resentment of those left behind.

An exclusive focus on GDP growth may not be good for economic and political stability It is difficult to predict what triggers popular protest, but economic factors are key. For example, rising food prices tend to hurt the poor, especially the urban poor, who spend a large share of their income on food. Unlike agricultural workers, they receive none of the benefits of higher food prices. With swelling urban populations, it will become increasingly difficult to keep a lid on these pressures.

Some governments have reacted to recent events with political repression, information

blackouts or a combination of authoritarian measures. China, for example, blocked media coverage of the Egyptian protests. The Arab Spring, however, reveals the fragility of repressive political regimes that try to maintain their legitimacy by limiting information flows. The main lesson for dynamic emerging market countries is that an exclusive focus on GDP growth may, ultimately, not be good for economic and political stability.

These economies need measures that help to keep the poor out of poverty traps and that give them realistic opportunities to improve their economic well-being.

These lessons apply equally to advanced economies, which also suffer from rising inequality and subtle forms of corruption. But for those wealthy economies, restoring decent growth is now the major priority.

Emerging markets have a golden opportunity to build on their economic gains by tackling deep-seated problems like corruption.

As the past year’s events have shown, the costs of inaction could be calamitous.

Eswar Prasad is a professor of economics at Cornell University.

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Wednesday, February 29, 2012 11

RUSSIA BEYOND THE HEADLINES

A novel approach

COMMENTS

Mikhail Shishkin’s Letter-Book won the Big Book prize last year.

Liza Novikova explores why the book's success was greeted enthusiastically

LITERATURE

R

ussia’s reading population welcomed the 21st century with shelves full of boring detective novels. These dry whodunnits, poorly edited and hurriedly written, along with the popular mysticism genre, a la Paulo Coelho, topped the best-sellers. Editors of the literary journals were on the lookout for new talent, but quality prose was unable to distract people from the appeal of “popular” literature, page-turners designed for the mass market.

No one could have predicted that Mikhail Shishkin would help to reintroduce intellectual prose to mainstream Russian culture. In 2000, he won the Russian Booker prize for his novel The Taking of Izmail. Then, last year, his novel Letter-Book (Pismovnik in Russian) won the main Big Book Award and the “people’s version” of the award, where the public vote for their favourite book online.

There is a certain logic to the fact that Letter-Book was met with such enthusiasm. The role of a writer in Russia is often linked with that of a teacher, or prophet, whom people can turn to as someone who promotes truth and justice. This is what Russian literature was like in the 19th century. Shishkin has tried to continue this in his work, and his books maintain a clear thread of post-modernist irony. He does not feel constrained by his predecessors. Once he had made a reputation for himself as a writer, Shishkin took on the mantel of “educator”.

The protagonists in Letter-Book may not be princes, but the parallels with Hamlet are striking: for them too “the time is out of joint”; destiny has been knocked off course and things are not as they should be. For all his love of the intricacies of language, of pithy phrases loaded with meaning and context, Shishkin describes objects and events that are simple, sometimes coarse and down to earth. He focuses on ordinary people patching things up, he shows them trying to reinstate the natural order.

The title was borrowed from the 18th-century writer Ephim Kurganov, who wrote a popular epistolary handbook entitled Pismovnik. This was a collection of exemplars for letters, ranging from business notes to declarations of love. It is hard to imagine a book like this today, since the traditional letter form has been replaced by social networking sites with their torrent of meaningless digital noise.

However, for many, a well-thoughtout, hand-written correspondence; a meaningful conversation continued one letter at a time, remains the revered form of heart-felt communi-

Literary prizes Hong Kong is home to a big literary prize – The Man Asian Literary Prize.

Winners will receive their awards on March 15. The directors of both prizes explain their missions and goals.

In my novel, the suppression of the Boxer Rebellion is a metaphor. It is a symbol of wars past and present

The National Literature Award ‘Bolshaya Kniga’ (Big Book) is known as a leading Russian literature award.

It was founded to inspire talented writers to make a substantial contribution to the artistic culture of the country, to raise social significance of modern Russian literature and to make reading popular activity.

This award represents several generations and unites people of various professions to show the importance of reading.

There are no restrictions: every year hundreds of authors, writing in different genres, present books and manuscripts to compete for the most prestigious award in the country. Among honoured recipients are both known and unknown writers.

The single criteria is human talent, which has sparked dozens of stars in literature.

GEORGIY URUSHADZE, BIG BOOK PRIZE DIRECTOR

Mikhail Shishkin gives a speech during the awards ceremony for the Big Book prize in 2011. Press photo

There’s nothing to be really scared of When you are a child, some words seem very frightening. China is one of these frightening words. I am eight years old.

The grown-ups are always talking about battles on Damansky Island, that it is the start of a war, which the Russians have no chance of winning.

The first glimpse we got of China was a film shown on television. We saw countless soldiers, brandishing “little red books”.

I am scared because these people are our enemies; they are fanatical and merciless.

Many years have passed. The Soviet Union no longer exists, the China of that time no longer exists, and that little boy no longer exists. He has grown up and become a writer.

I have now had a chance to visit cation, the sort we would all use in an ideal world. Shishkin must have sensed this. He created a brilliant lesson in written conversation.

The lesson is not a simple one.

The novel’s protagonists, Sashenka and Volodenka, are not your average people. The two main characters are also lovers, but they are not destined to meet. The actual setting is left intentionally vague. Sashenka lives in abstract “Soviet” times. Volodenka seems to be writing more in the early years of the 20th century.

The only clear indication of the

Beijing, and I took an evening walk down Hohai Bar Street. There was a stall selling memorabilia for tourists, and, among all the souvenirs and kitsch, I found these same “little red books” of Mao quotations – and they even had them in Russian.

I bought one. These books were published in 1966. How many were printed back then? Hundreds of thousands? Millions?

And 40 years on this particular little book had found its reader.

In China, I was surprised to find out that Russian troops had stormed Beijing. No one in Russia, neither before nor after the fall of Communism, liked to be reminded of this war.

Every nation generally wants to be proud of its victories in war, but what was there to be proud of here? background are the references to the Boxer Rebellion. Volodenka plays a part in suppressing it. He goes to China in June 1900, and dies after the storming of Tianjin. “The only thing I really want to do is to forget everything as soon as possible. But I am still going to write about all that happened anyway. After all, someone has to make sure it is never forgotten.

Maybe the reason I am here is to see and to record,” Shishkin says.

When he was working on the novel, Shishkin used letters written by a German military doctor working in China,

which were discovered in the German Historical Museum archives in Berlin. The diaries and memoirs of Russian soldiers serving in China at the time, first published around 19021904, were rarely republished.

A chronicle of the terrible conflict becomes part of the lovers’ dialogue.

As circumstances deteriorate, interaction between the protagonists becomes more tender, and readers can appreciate the preciousness of life lived in peace.

However, after the fictional “couple” are able to establish a mutual connection, they then have to try to come to terms with the “passage of time” and what it means. This is the main message of the novel. Judging by what Shishkin wrote about the “Chinese” theme in the story – his next book may well turn out to be more politically orientated.

“In my novel, the suppression of the Boxer Rebellion is a metaphor. It is a symbol of wars past and present.

Global wars are a thing of the past, but somewhere in the world there will always be strong people trying to teach the weak humanity and civilisation. Back then stalwarts from Russia, the United States, Germany, Japan and other developed countries ‘silenced’ the Chinese.

“In our lifetimes we have seen the stronger parties use bombs to teach democratic principles to nations such as Serbia, Afghanistan, Iraq and Libya.

There will always be wars. As far as Russia is concerned, if these are not in Chechnya, then they will be in Georgia, if not in Georgia then in Abkhazia, or in the Crimea, or in Moscow.”

The Man Asian Literary Prize has several major goals, the most fundamental being to bring the best of Asian writing to the world. This entails other aims: encouraging publication, as well as translation into English, of more gifted Asian writers. We also see our prize as giving recognition to both individual writers as well as the cultures from which they come.

We aim to encourage readers to read the best Asian literature, to talk about it, to take part in the discussions going on in the press and blogs and to promote reflection. We aim to see the millions of educated Asians who are literate in English deepening their perspectives about human well-being and the fundamental moral and political questions facing humanity, all of which will be encouraged by reading.

DAVID PARKER, THE MAN ASIAN LITERARY PRIZE CHAIR DIRECTOR.

Big Book v Man Asian Literary Prize The Man Prize

US$30,000 US$200,000

Number of jurors 3 Foundation year Who can nominate?

What can be nominated

The Big Book

100

2007

2006

Publishers

Publishers, writers and advisers

Fiction

Any book

In English and published

In Russian and may be unpublished

Where the money The Man comes from Group Plc

“Nobel Prize principle” and interest on capital donated by major Russian firms

12 Wednesday, February 29, 2012

RUSSIA BEYOND THE HEADLINES

Empire expands global reach Cybercrime expert’s firm develops programs to eliminate threats, writes Jessica Bachman

E

EUGENE KASPERSKY NATIONALITY: RUSSIAN AGE: 46 CIVIL STATUS: MARRIED STUDIES: Institute of Cryptography, Communication and Informatics (Moscow) AWARDS: 2009 – The State Award of the Russian Federation in the Field of Science & Technology 2010 – SC Magazine Award Europe (www.scmagazine.com) WORK EXPERIENCE: Research institute with the Ministry of Defence Programmer at Kami, a Moscow-based informationtechnology company

Stock options won’t be on the cards for some time.

But the financial downturn hasn’t dampened Kaspersky’s ambitious organic growth-strategy, which, he is eager to point out, does not include any mergers and acquisitions. It will focus on expanding the company’s designated enterprise segment, targeting small businesses and emerging corporates.

Eugene Kaspersky proves it’s possible to build a Russian IT start-up from scratch. Photo: Photoshot/Vostock-photo

SCIENCE AND TECHNOLOGY So when the offer came up, he jumped at it.

“I thought to myself, ‘wow, I can buy a car with the money they’re offering’,” he says. “Well, I could have bought a used car but a car’s a car, and it was 1991. The economy was not doing well.” The project, however, was a temporary one and, soon after it ended, a former teacher offered him a job doing similar anti-virus work for Kami, one of the first Russian hard and software firms. The company gave him a computer and paid him about US$100 a month, and Kaspersky considered himself lucky.

“I was a one-man band doing anti-virus work at Kami until two old friends approached me, asking about a job,” he says. “I knew they were brilliant engineers, so I convinced the owner that we needed to bring them on board.”

best anti-virus scanner in the world, the phones began ringing.

Kaspersky’s three-man team was soon inundated with anti-virus software licensing requests from European and American computer companies, but the volume of administrative and sales work involved soon became overwhelming.

It was cutting into their lab time, which they could not afford.

Kami was barely breaking even at the time, and it didn’t have the funds to get a seasoned sales director. So Natalya, Kaspersky’s wife at the time – who also came from a technical background – agreed to join. She proved extremely adept at sales and public relations, and became the driving force behind the team’s decision to leave Kami to set up their own exclusively anti-virus software firm in 1997.

As Kaspersky was already well-

known in Europe and Asia, Kaspersky Lab’s stock grew dramatically.

From 2000 the company launched operations in all the major markets and it now employs more than 2,300 people internationally and is continuing its expansion. It is now active in over 100 countries.

Mounting interest in Kaspersky anti-virus software in the United States, a traditional Norton and McAfee stronghold, has prompted the company to set up an office with an expert analyst team on the West Coast.

Without a re-evaluation of compensation packages, however, convincing Silicon Valley professionals to join will prove challenging.

“We’re still a private company, so we can’t offer stock options. But our compensation programme is one of the most important issues discussed at board meetings, and we’re fine-tuning it,” says an upbeat Kaspersky.

Planning for the future

From the ground up In the first few years, the team’s prowess in developing virus detection and disinfection software flew under the radar. “Kami was indeed selling domestically, but the software market was practically non-existent in Russia,” Kaspersky says. But in 1994, after Hamburg University’s computer science department recognised Kaspersky’s anti-viral toolkit as possibly the

PRESS PHOTO

ugene Kaspersky began studying computer viruses in the late 1980s, when personal computers in Russia were restricted to elite government institutions. Now, he’s built a US$329 million business empire, designing and producing software that identifies and eliminates bugs and viruses before they wreck his clients’ computer systems.

Founded in 1997, his namesake company, Kaspersky Lab, is now ranked the world’s fourth largest anti-virus and anti-malware software company. With a whopping 38 per cent growth rate from 2009 to 2010, it’s also the only Russian firm that holds a place on a list of the world’s top 100 software companies, in terms of revenue.

Kaspersky Lab still lags behind American anti-virus giants Norton and McAfee, and Japan’s Trend Micro, in terms of revenue. These companies netted US$6.0 billion, US$2.1 billion and US$1.09 billion in revenue in 2010, respectively.

But Kaspersky shrugs off the competition. “We all know from sports that the winner is not the team with the largest budget, but the one that plays better,” he says.

In the anti-virus business it’s said that it is the company with the most “brains” that prevails. And in the cerebral department, Kaspersky scores highly. The lab’s security experts and malware analysts are always on the move, developing new programs to speed up the detection and neutralisation of threats.

Kaspersky lists the varying types of malware – malicious software – that often have intriguing names, including: “worms, Trojan horses, spyware botnets, rootkits, backdoors and zeroday attacks”. More than 3,500 signatures that detect threats are added daily to the company’s database.

With new malware being spawned literally every second, Kaspersky claims that recruiting top-notch virus-busting programmers to his stellar international team is a priority – you must know how a virus is built in order to create its antidote.

In 2009, a new group of software engineers signed on from St Petersburg. Before they joined, however, they made it clear that they wouldn’t relocate from Russia’s second city.

Kaspersky and the lab’s human resources department never attempted to convince them otherwise.

“They wanted to switch companies but didn’t want to move to Moscow.

So we said fine, and set up a research and development office in St Petersburg just for them,” Kaspersky says.

“How could we have done otherwise? People are our most valuable assets.” Harnessing mathematical and engineering prowess has been the key to Kaspersky’s entrepreneurial success.

In 1991, when the Soviet Union was dissolved, and four years after Kaspersky graduated with a degree in mathematical engineering from Moscow’s Institute of Cryptography, Telecommunications and Computer Science, he was offered a job designing antivirus programs for a Ukrainian company that imported computers.

“I had been studying viruses as a hobby, but I never knew that I could make money from it,” Kaspersky says.

In 2009, Vice-Premier Wang Dejiang presented Eugene Kaspersky with China's National Friendship Award for his work in the information security sector. Photo: www.kaspersky.ru

Securing more corporate contracts will drive long-term growth, Kaspersky explains. “Success in the consumer segment is important too, but there is little brand loyalty with home users.

People don’t believe it matters much which antivirus product they use,” he says.

With businesses, he notes, it’s a different story. Once they find a security system they trust, they will stick with it. This means a more sustainable revenue stream for Kaspersky Lab. This would have meant overtaking Trend Micro, which is roughly three times the size of Kaspersky Lab. Although the lab is number two in Europe, it has only captured 5 per cent of the global market share.

This year, Kaspersky Lab celebrates its 15th anniversary. The main value of the company is the unique knowledge and experience accumulated over decades of fighting against computer viruses and other computer threats. Today, the company has local offices in 29 countries and its products and technologies are used by more than 300 million users worldwide. The company averages more than 10 million product activations per month.

Kaspersky believes the firm’s global approach holds the key. “For our American competitors, the domestic market is the major cash-cow,” he says.

“But we’re different. We’ve never been a Russian company because our major markets have always been outside Russia. We know how to behave differently in different countries and pay close attention to local features.

“It’s our global approach that will move us forward.”

The article was first published in Exceptional magazine, produced by Ernst & Young

Wednesday, February 29, 2012 13

RUSSIA BEYOND THE HEADLINES

All systems go for exports GLONASS and BeiDou challenge GPS in the satellite navigation market, writes Vasily Kashin

SCIENCE AND TECHNOLOGY

L

ast December, the GLONASS Russian satellite navigation system achieved full global coverage for the second time.

There are at present 31 satellites in the GLONASS constellation, including the 24 operational satellites required to transmit signals, three spare satellites and four satellites under maintenance and flight tests.

The original GLONASS constellation was completed in 1995, but then the system fell into a long period of decline because of lack of funding.

Investments in GLONASS resumed in 2001 and, over the next decade, Russia spent US$4.7 billion on the navigation system, about a third of its space exploration budget for that period. Another US$11.7 billion will be invested in the system by 2020, in line with the GLONASS expansion programme prepared by the Russian Federal Space Agency earlier this month.

GLONASS became the second generally accessible satellite positioning system after GPS. It is clear that China’s BeiDou-2 Navigation System will be the third, capable of covering all of China this year and achieving global coverage by 2020. Although the European Galileo system was expected to be launched in 2019, the programme is stalled by continuous financial disputes. So far, China has 10 satellites in orbit, while Europe has launched only two.

Both GLONASS and BeiDou were originally military projects. The military application of satellite positioning systems will continue to expand throughout the world. Even secondary military nations, such as Iran, create weapons that use satellite navigation solutions for their guidance systems. Russia and China aim to equip each infantryman with a satellite navigator and plan to launch large-scale production of cheap guided bombs analogous to the American JDAM smart munitions, which have a GPS guidance control unit.

The risks of Russian material using American GPS signals became obvious during the Russian-Georgian war of 2008, when the Americans blocked the GPS signals in the conflict zone to help their Georgian allies.

Yet GLONASS and BeiDou will have to secure a strong presence in civil markets, which is a challenge when the market is already orientated on GPS-compatible devices. The Russian government which is, for the first time, faced with competing with GPS, has to take unpopular measures, some of which may be repeated in China.

Specifically, the Russian authorities have obliged all municipal transport companies to equip their buses with GLONASS receivers. Although this move has made transport companies disgruntled, since it causes ad-

Russia has sent 31 satellites into space to secure a strong presence in the civil global-positioning market. Photo: ©RIA Novosti ditional expenses, buses are being actively equipped with GPS units. In some Russian cities, such as Velikiy Novgorod, the mandatory installation of GLONASS receivers in municipal buses has been given as the main reason for the rise in fares at the start of this year. The Russian authorities also approved a 5 per cent increase in import duties on all mobile devices with GPS receivers, unless they are also compatible with GLONASS. Furthermore, it will be mandatory to install GLONASS receivers in all vehicles operated by state agencies and special services, including the police, firefighters, medics and rescue workers. This policy has delivered its first

results – Nokia and Apple have announced plans to develop GLONASScompatible devices. Talks over use of the GLONASS system are under way with Motorola and Qualcomm.

Apparently, the Chinese authorities, which control a much larger consumer market, will be able to promote their navigation system through global telecommunications equipment producers more effectively.

The increasing number of global navigation systems means more freedom and additional opportunities for the entire world. When used simultaneously, several global satellite positioning systems improve the accuracy of positioning and minimise

political risks. The United States, Russia and China have various views on global issues and the likelihood of a simultaneous shutdown of the three systems over some part of the world is minimal. In April last year, Sweden’s Swepos, which provides accurate positioning services, started using GLONASS solutions, saying that the Russian system worked better than GPS in northern latitudes.

GLONASS is also used more actively by the military in large developing countries wishing to avoid excessive dependence on the American GPS system. Russia has already signed GLONASS co-operation agreements with India, Brazil, Venezuela and

GLONASS navigation system

Chinese position latest technology

Other satellite navigation systems GPS is completely deployed The US’ GPS at present has 31 satellites in orbit. GPS provides navigation and accurate time services to 95 per cent of users.

Galileo to be operational in 2014 Only one of the first two test satellites of the Galileo system is operating. It is expected to begin transmitting navigation signals from 2014.

Cuba. Russia is successfully promoting use of the domestic navigation system throughout the former Soviet Union, especially in Kazakhstan and Ukraine. Such agreements envisage supplies of Russian equipment and technical consultations on integrating GLONASS systems.

Even so, the navigation system can already be used without special agreements with Russia, as GLONASS navigation equipment is available on the commercial market. As soon as BeiDou and Galileo have been launched, accurate satellite navigation services will be available around the world, irrespective of changes in international politics.

IRNSS is in commissioning phase The Indian Regional Navigation Satellite System's (IRNSS) comprises seven satellites and is expected to be operational by 2014.

BeiDou/Compass was launched as a pilot project last December. According to Ran Chengqi, director of the China Satellite Navigation Office, navigation and positioning services are now available in China and neighbouring countries.

“Our system not only shows your exact location and tells what time it is, it also enables users to exchange short messages,” Ran says.

The BeiDou satellite constellation includes 10 satellites and covers an area from Australia to Russia. The signal reaches the Xinjiang Uyghur Autonomous Region of China and the Pacific.

Next year, six more satellites will be launched to cover a larger area and, by 2020, the constellation will have 35 satellites.

The BeiDou system is accurate to within 25 metres but next year, accuracy will increase to within 10 metres.

BeiDou is expected to boost the national navigation industry.

14 Wednesday, February 29, 2012

RUSSIA BEYOND THE HEADLINES

Citizen journalist draws debate Ilya Varlamov’s agenda-free Ridus website attracts all shades of political opinion, writes Clémence Laroque

S

lumped in his chair, the young man stares at his Mac computer, almost the only object tolerated on his table. The room is spacious and minimalist, despite a few figurines scattered here and there. What is he doing in this office up here on the third floor of a business centre?

Is this where the Ridus news website was created? “I’m not doing anything,” he replies nonchalantly. He taps rapidly on the computer keyboard and exclaims in French: “I’m a real lazybones!” His face then breaks into an angelic smile.

The 28-year-old is a well-known character on the Russian web. His mass of curly hair and his camera never go unnoticed, especially not at demonstrations. Ilya Varlamov combines the talents of a photographer, a “start-up manager” – as he likes to call himself – but he is above all, a highly influential blogger in Russia and one of the brains behind Ridus.ru which claims to be a “citizen journalism” agency.

Seeking the truth “In Russia, there is a problem with television, it no longer shows reality,” Varlamov says. “That is why everyone is now seeking truth on the internet.” According to this bloggerbusinessman, lack of trust in the traditional media is the main explanation of this citizen-journalism phenomenon, though it is not the only one.

“With all the recent technologies, anyone can become a reporter. On

In fact, the site was recently classified as the 10th most important source of internet information used by Russians.

The young man explains that eventually he hopes to “organise an expanded and serious network for citizen journalists” and acquire fame.

That is because this new form of journalism has its own rules and needs to prove its professionalism.

SOCIETY Libya, for example, where did the first images of the dictator Muammar Gaddafi’s death come from?

Local Libyans who were on the spot,” he says, adding, “ordinary citizens are taking over the news, the phenomenon is gaining in importance”.

And Russia is no exception.

An innovative platform In founding the site Ridus.ru last September, Varlamov wanted to “create a wider information platform, that functioned in a new way but that did not promote a particular political line”. In short, an agency for citizen journalists.

The blogger, who is popular in the journalism profession, is considered by many people to be “the brain of reliable information”.

This is a title acquired thanks to his Livejournal, which doesn’t seem to displease him and which he hopes will serve to expand the site and achieve recognition for it. This should not pose too many problems for him.

Citizen informing citizen What makes Ridus different from the traditional media “is that we publish all the articles offered to us”, Varlamov says, “whether they are for or against the present government.

“In a wider perspective, we try and help citizens to participate actively in the process of news-gathering, analysis and broadcasting of news so that they become information activists and not merely its targets,” he explains, still staring at his screen.

There are, nevertheless, limits to publication, however, because “only articles and photographs that comply with the Russian Constitution are accepted”.

This rule explains why this new site, its creator says, suffers no governmental pressure while the electorate – which is asked to rate each article with a score – seems to favour the opposition.

By presenting his site as a “platform for free expression with no political agenda”, Varlamov has found a way of being taken seriously by all sides.

Ilya Varlamov says ordinary citizens are taking over the news. Varlamov is an influential blogger in Russia. Photo: Personal archive

Architect builds on his success After studying at the Moscow Architecture Institute, Ilya Varlamov founded a 3D graphics company in 2002, that is now known as iCube.

In 2008, he set up his business with 50 employees in the centre of Moscow and became the company of reference in his field. He created his

Livejournal blog the same year, using Zyalt as his username.

Varlamov launched the online media site Ridus in September last year.

As of last December, he had 47,000 subscribers to his blog, classifying it as the sixth most consulted Livejournal blog in Russia.

Blue buckets movement fights injustice delayed pay cheque is to slap down a deposit on a new car, for example.

Sergei Kanayev, the founder of the Federation of Car Owners, laughs when he thinks back to how the Blue Bucket protests began.

Olaf Koens The Moscow News It’s a question they’re asking themselves in the Kremlin, over and over.

Where has this wave of protests come from, and how did it start?

One answer is, of course, the alleged falsified results of the December 4 State Duma elections, and perhaps the opposition protests played a role. But most likely, it’s the “Blue Buckets” movement that really got the ball rolling.

Over the years, officials and rich businesspeople in Moscow have caused havoc on the roads by flashing their blue lights (migalki in Russian) and flouting road rules.

The resulting series of fatal accidents involving Mercedes-Benzes and other posh cars led to a series of protests, as ordinary drivers fumed as they spent hours in traffic jams caused by official motorcades.

Then something snapped – and a couple of people decided to protest against the migalki in a creative, nononsense, and rather brave way.

One of my best friends was killed.

I vowed to get justice, and here we are Moscow’s blue buckets protests have been viewed as a success. It’s a unique way of venting anger at injustice. Photo: ©RIA Novosti

SERGEI KANAYEV, THE FOUNDER OF THE FEDERATION OF CAR OWNERS

They simply purchased little blue buckets and installed them on the roofs of their cars. Strictly speaking, the blue buckets themselves don’t break the law.

Carrying a blue bucket is not an offence, and the only problem most drivers faced was a 100-rouble

“More than 10 years ago, one of my best friends was killed in a traffic accident involving a drunken police officer,” Sergei says.

“So I vowed to get justice, and here we are.”

In his little one-room office, he fights injustice on the roads, and says

(HK$25.70) fine for “carrying luggage inappropriately”. There’s something special about cars in Moscow. Not only are there way too many of them, but they are often bought as expensive status symbols.

It’s about pride – the first thing many young Muscovites do with a

that now he’s making real breakthroughs.

Every other day, Sergei hits the streets to check up on problems at crossroads, dangerous highways and avoidable traffic jams. Armed with just a video camera, he gets the traffic police to work properly, and when necessary maintains order himself.

After years of hard work and dozens of angry officials, nowadays, the traffic police themselves inform Sergei about violations, and wherever he shows up even the most corrupt traffic police get nervous.

“The Blue Bucket protests were a great success, but it’s a kind of flash mob,” Sergei says.

“You can’t keep repeating it all the time. We have to think ahead and plan other things.”

Soon, he’ll be driving look-alike police cars through Moscow to help, assist and prevent any road problems.

The first two cars are already on the road, and more will follow, he says.

“We’re waiting to get permission for green flashing lights,” he says. “And that’s just the start of it.”

Wednesday, February 29, 2012 15

RUSSIA BEYOND THE HEADLINES

Faith survives persecution Buddhist revival manifests itself in a corner of the country, writes Anna Nemtsova

A

third of the population of Kalmykia was deported during Stalin’s reign of terror. Today, the struggling southern region draws on its ancient belief system.

“Let all our wishes come true. Let all living creatures be free of suffering, of danger, of diseases and sadness. Let peace and happiness govern on earth.”

More than 2,000 Buddhists chanted this mantra, kneeling on mats before the Golden Abode of Buddha temple in Elista, capital of the republic of Kalmykia, one of three traditional Buddhist regions in Russia. They repeated words of prayer after the Kalmyk Buddhist leader, Telo Tulku Rinpoche.

Finally, the square grew quiet as the group entered a state of deep meditation. As night fell, thousands of candles were lit. Buddhist monks visiting from Tibet, Thailand and the United States, as well as Russian Buddhist regions of Buriatya and Tuva, blessed those who gathered from all over Kalmykia and the neighbouring southern regions of Russia.

They sent candles flying skyward in paper balloons, illuminating the dark night sky with a serene beauty.

The ceremony, an offering of light to Buddha, was introduced to Russian Buddhists for the first time as a symbolic event celebrating the beginning of the international forum, “Buddhism: Philosophy of Non-Violence and Compassion”, held in Elista.

Despite objections from China, a group of 30 Tibetan monks from the Gyudmed Monastery, assigned by the Dalai Lama, arrived to bless the republic’s main temple and 17 sculptures of eminent Tibetan Buddhist scientists inside.

At the ceremony, the candle kites formed a path of light in the pitchblack sky. “That is our white road,” somebody whispered in the crowd.

“Have a white road” is the most sincere greeting people traditionally give each other in Kalmykia.

It’s a fittingly modest wish for people in this poor region.

The republic of Kalmykia, with its population of more than 300,000, chose to revive the traditional philosophy and culture of Tibetan Buddhism.

The religion was adopted by their predecessors, the Oirat tribes in Mongolia, in the 13th century and imported to the Russian empire when Oirats migrated there in 1609.

It was violently destroyed, together with all Buddhist prayer houses, temples and holy relics, during Stalin’s brutal repressions of the 1930s. The entire indigenous Kalmyk population spent 17 years in exile in Siberia.

Today, Kalmykia is the second poorest region in Russia, after nearby Ingushetia.

Visiting Kalmykia last March, President Dmitry Medvedev described the situation as “difficult”, with the 15 per cent unemployment rate in Kalmykia twice that of the national average.

Buddhism teaches tolerance and loving-kindness, so Kalmyks have learned to cope with their harsh realities. “We have seen it much worse,” Yevdokiya Kutsayeva, 84, says.

She has tears in her eyes as she recalls Stalin’s deportations.

“One October night in 1943, they packed the entire population of the republic into dirty train wagons and

Kalmyk monks observe a ceremony.

Photo: ©RIA Novosti

help me”, Buddhist leader, Telo Tulku Rinpoche, says. “In a way we are a spiritual, psychological centre giving people hope, moral support and spiritual guidance.”

According to Yulia Zhironkina, director of the Moscow-based Save Tibet Foundation, Telo Tulku Rinpoche has become Russia’s major spiritual leader for Buddhists.

“He goes to India to consult with the Dalai Lama about most of his important decisions for Kalmykia education and cultural programmes,” Zhironkina says.

Kalmykia is one of the 19 Russian regions introducing experimental pro-

RELIGION

Phoenix rises from the ashes Every religion was persecuted under Soviet policies, but Kalmykia's Buddhists were subjected to particularly harsh treatment. By 1941, all the region's Buddhist monasteries and temples had been closed or destroyed, and all the senior monks and Buddhist scholars were executed or sent to concentration camps. A second wave of repression took place in 1943, when about one-third of the community's population was deported to Siberia.

Buddhism is the main religion in the republics of Buryatia, Kalmykia, Tuva, Altai Republic, Zabaykalsky Krai and Irkutsk Oblast. Buddhism came to Rus-

sia in the 17th century; in 1764 it was officially accepted as one of the state religions.

Today, there are about 1.4 million Buddhists in Russia, according to the most recent census. And Buddhists comprise 1 per cent of the population. The Dalai Lama made his first visit to the Soviet Union in 1979. The Dalai Lama was enthusiastically received when he visited Russia’s three Buddhist republics in 1994. But as Moscow’s relations with China became increasingly important after 2004, Russia stopped granting visas to the Dalai Lama.

sent us to Siberia. Thousands died on the way. I remember the stacks of dead bodies along the platforms.”

Until the late 1980s, it was dangerous for Kutsayeva and her family to light a candle for Buddha, much less send one into the sky in a hot air balloon.

To Kutsayeva’s joy, Kalmykia has built 55 new Buddhist prayer homes and some 30 temples during the past decade.

“That is all we have left to make people happy and peaceful today,” says Alexander Nemeyev, a local businessman.

Nemeyev points at the golden statue of Buddha in the temple that he has built for his village, Ulduchiny, two years ago. About 100 Buddhists prayed together with Tibetan monks visiting the republic. Not everybody in the village participated in the religious ceremony. “The temple is not giving me

food for my two children,” says Khondor, a 47-year-old widower and an electrician who did not want to give his last name, showing the modest tworoom house that he shares with his two teenage children.

Khondor says he is proud to be one of only two people who have full-time jobs in Ulduchiny. “Kalmyk people historically tolerated troubles,” he says, adding what could be said about the circumstances of many different people in Russia, “to cope with difficulties is our tradition”.

Khondor’s children, Aveyash, 14, and Nagaila, 13, say their dream is to leave Kalmykia, perhaps by going to study in Moscow, St Petersburg, or elsewhere.

Their father says he does not mind this as he sees no future for them if they remain in the republic.

Kalmyk Buddhist leaders say that today, their efforts are not about simply rebuilding the temples, something supported by the government, but about the revival of Kalmyk Buddhist mentality and culture more generally, along with basic secular human ethics such as compassion, love, kindness and forgiveness.

Exhausted after having to cope with two decades of economic and social crises, Kalmyks often come to the republic’s main temple, or Central Hurul, saying: “my soul is damaged, please

grammes on basic ethics for the fourth and fifth grades at Russian state schools.

“The Dalai Lama consulted Telo Tulku Rinpoche about the concept for the school history and basics of Buddhism in Kalmykia,” Zhironkina says.

But there are areas where the Dalai Lama and his followers are powerless to help. On one of his visits in Kalmykia, Barry Kerzin, a Buddhist doctor from Philadelphia, says he was shocked by the scale of the problems which local doctors face simply to try and do their work. “The entire hospital, including the surgery rooms, had no running water that day,” he says.

This year, local activists criticised the authorities for failing to finish reconstruction of the republic’s only hospital for children. About 300 Kalmyks, calling themselves “a partisan internet movement”, wrote a letter to United States President Barack Obama, asking him to restore the hospital, which is presently in disrepair. The letter was also designed to shame the Russian federal government while at the same time calling attention to their own plight.

Doctors at the children’s hospital had trouble listing exactly what the most needed medicines and equipment were. “We need everything,” says Tomara Nemchirova, the hospital’s administrator. Kalmykia has not seen any bounty, nor promises of any infrastructure from deals that Royal Dutch Shell signed this year for the exploration of oil fields on the steppe.

The former Kalmyk president, Kirsan Ilyumzhinov, was on hand for the ceremonies, having stepped down in 2010. The controversial former leader says that Buddhist teachings he supported during his rule saved Kalmykia from getting involved in the terrorist wars in neighbouring Caucasus republics.

Despite their plight, Zhironkina says: “The peaceful and kind philosophy of Buddhism is a solution for the Kalmyk people amid the chaos and harsh reality they live in.”

16 Wednesday, February 29, 2012

RUSSIA BEYOND THE HEADLINES

In search of rare cuisine in HK Nation's food has yet to take-off, but will the culinary delights tempt locals? Mark Markoff reports

CITY

No more drinking in the freezer bar - Balalaika closed down, like most of its predecessors. Photo: www.velotut.ru

O

nce upon a time there was Yelts Inn, which had photos of the first Russian president, Boris Yeltsin, on top of a tank alongside snapshots of homeless people. The Troika restaurant was famous for its posh decor and complimentary vodka shots. Shi da Kasha, cabbage soup specialist, disappeared after only several months in business, and, finally, Balalaika in Lan Kwai Fong. It was shut down this month.

Hong Kong is famous for its varied

cuisine and the city is well-known as a “food-lover’s paradise”. Italian, Spanish, Vietnamese, French, Greek, not to mention the plethora of dishes from the mainland. Nevertheless, high rents mean that restaurants come and go, but you can always find a place for a decent tom yum goong or thin-crust pizza. But what about pelmeni? Or piroshky? Russian cabbage, anyone?

The dust is settling after Balalaika’s closure, so now it’s time to count the losses. The only place left, as of

FEBRUARY

the end of this month, is a rather dingy eatery, Ivan the Kozak, hidden behind more upmarket restaurants in the middle of NoHo. It specialises in eastern European cuisine with strong Ukrainian and Russian flavours.

“I opened it in 2001 with the help of my Ukrainian wife,” says restaurant owner Ivan Wang. The place caters mostly to locals, and most of the Russians found the cuisine a bit unusual for their taste. But even Ivan the Kozak is now in danger of folding as its lease is ending this year and

Wang is not sure whether he can afford a rent hike.

Balalaika’s owner, the Kings Parrot Group, blamed high rent for the closures of both Balalaikas (there used to be another one in Tsim Sha Tsui).

“We are looking for a new place now, this time we will go ahead with the Ice Bar concept with a less extensive menu,” says former Balalaika manager Herbert Chau. However, Balalaika needed to change, says musician Gennady Agruch, who used to play Russian harmonica at both Balalaika outlets. Now he performs every Friday at a new international restaurant serving piroshky, “like in the old days at Lan Kwai Fong”.

One long-time Russian resident in Hong Kong, Yury Simakov, recalls going to Queen’s Cafe in Causeway Bay in the mid-1990s. Back then it was the only Russian eatery in town.

“The legend is that it was opened by one of the White Russians, but by the time we went there the menu was rather dull,” Simakov says. Russian

cuisine started in Hong Kong with the influx of immigrants in the mid-1950s.

They came here from the mainland after the Communist take-over of Shanghai. Among the names long forgotten now are Greg’s and Cherikoff bakeries, serving the best Russian pastry in town. Then there was the popular social hangout Tkachenko’s, which was right behind the Peninsula. Tsarina still exists, but has lost its Russian atmosphere.

So is Russian cuisine about to go extinct in Hong Kong? Some would disagree as “Russian cuisine has it’s followers in Hong Kong, plus there are more Russians coming here every year”, says Alexander Prus, ex-cook from Troika and Balalaika, now working at a French restaurant. “You need to do it properly, hire a Russian chief and interpreter to translate the names of the Russian dishes correctly.”

With the absence of real Russian cuisine in Hong Kong, one has to pick Russian-looking items out of local menus. There is a legend that says White Russians were to blame for introducing borscht to locals.

Nowadays, the Russian soup is an integral part of many menus in Hong Kong, but it has nothing to do with the real deal. So one has to wait until a real Russian restaurant opens here, hopefully it will not be too long.

Question Is there space for authentic Russian cuisine in Hong Kong?

Please tell us what you think by writing to editorhk@rbth.ru

MARCH

Musicians vow HK return

Spotlight on ‘mad monk’

The performers of “A Night of Russian Music” promised to return to Hong Kong after their sell-out success of their City Hall event on February 25.

“We're not sure if [the event] will be a pure Russian night, but we want to continue our exploration of Russian music,” says Frederick Koon, cofounder of non-profit group, Perform Now.

Oxford Russian literature professor Mick Nicholson will talk about “Oxford student murders “mad monk” Rasputin” on March 14, at Club Lusitano.

Yes, a bit less in the United States where interest dropped after the end of the cold war, but in Oxford we have 110-120 students every year.

So who is the killer? And why? Is it a scary story?

Tell us more about your favourite Russian writers?

The story goes back to the early 20th century when a rich Russian aristocrat comes to Oxford to study. His name is Felix Yusupov. He parties and drinks all the time, but still manages to finish his studies, and goes back to Russia, where he gets involved in killing “the mad monk”, or Grigoriy Rasputin. Are you scared now?

I like Solzhenitsyn, Shalamov. I’m nostalgic for the 1960s, when only two to three decent books were published every year and you could get all of them in “samizdat” or “tamizad”. Nowadays, there's more choice.

The lecture is jointly presented by the University of Oxford China office and the Russian Club.

Details: www.russianclubhk.org/ events

Why Russian music? Is it that popular in Hong Kong?

Many people know Russian music in Hong Kong, but usually it’s Tchaikovsky or Rakhmaninov.

We wanted to present to the public less-known names, including

still-living composers such as Kapustin and Rosenblatt.

We explored a lot of Russian composers and chose the most interesting pieces. Most of them were played in Hong Kong for the first time.

What do you like the most about Russian music?

We like its nostalgic character, plus Russian music carries a lot of very beautiful melodies.

However, the most touching thing about it is the emotional depth, especially if you compare it with the music from other countries.

French music can be very transparent, but not as deep as Russian music.

Professor Mick Nicholson.

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