Russia Beyond the Headlines #3 China

Tuesday, March 27, 2012

Distributed with the

SPECIAL REPORT

RUSSIA

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AND GREATER CHINA

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Politics

Energy

Innovation

Billionaire appears to be a force to be reckoned with

Mainland benefits from pipeline and power deals

Skolkovo is Moscow’s new hi-tech centre for top brands

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

Cheung faces obstacles

EDITORIAL

Chief vows governance review, write Roman Asankin and Aleksandr Gabuev

T

he new chairman of Hong Konglisted aluminium producer Rusal, businessman Barry Cheung, is expected to strengthen the company’s relationships with its Asian partners. However, few expect him to smooth over conflicts with Rusal’s shareholders SUAL Partners, ONEXIM Group and Vnesheconomban.

None of the three supported Cheung’s appointment.

Cheung, who also heads the Hong Kong Mercantile Exchange, takes over from Viktor Vekselberg, who left the company in the wake of a scandal over profitability and leadership at the world’s largest aluminium producer. Rusal’s share price has dropped steadily since hitting a high of HK$14.10 almost a year ago and was trading last week at less than HK$6. Although investors appeared little moved by the change in leadership, analysts say the company’s future will depend more on commodities prices than on internal power struggles.

“The further outlook for Rusal’s share price in the near future is uncertain. > CONTINUED ON PAGE 4

A new name and mammoth plans

Barry Cheung is expected to strengthen the company’s ties with its Asian partners. Photo: Getty Images/Fotobank

Trouble in island paradise Mark Zavadskiy RGC Natalya Melekhina visited Sanya four times before finally moving to Hainan’s tropical paradise with her family. The Melekhins came with their belongings, having turned their backs in their native Birobidjan.

They sold their flat, car and garage, and used the proceeds to buy equipment for the island’s first 4D cinema. “[It cost] 500,000 yuan [HK$611,313] for equipment, another 150,000 yuan in annual lease fees, and films costing 20,000 yuan per copy. We bought eight films and we also paid for an upgrade from 4D to 5D,” Melekhina says.

She adds that the hall, which has just 20 seats, is normally half full during the tourist season and it can be empty at

Secrets of a double agent A new book on Kim Philby is released on what would have been his 100th birthday. It sheds new light on the Briton’s life as a KGB agent.

Russians are renting shops in malls in Sanya. Photo: Tim Sedov other times of year. Sitting alone in the empty hall, I watch a 20-minute Chinese film about the adventures of a small dinosaur – it is a far cry from Avatar, but you can feel water sprinkling right

in your face, a needle pricking your back, and smell flowers alternating with a whiff of dampness. > CONTINUED ON PAGE 7

> PAGES 12 AND 13

The big news is that there will be a Russian mammoth inside the International Finance Centre for one month, starting in mid-April. A frozen part of Russian national heritage, named Liuba, will be our cultural ambassador in Hong Kong.

How cool is this? A mammoth will no doubt be a great addition to Hong Kong, but it can’t replace a good read.

You may have noticed that our first issue in late February was called Russia Beyond The Headlines, and you might be a bit puzzled by the change in name - Russia and Greater China.

We believe that this name better reflects this supplement. With Russia hosting the Apec summit later this year, we want to focus on the wide range of bilateral issues between Russia and its Asian counterparts, with an emphasis on Hong Kong and the mainland.

We will bring you in-depth business, economic and military stories, and a broad range of Russian news and views.

In this issue, we look at what is behind Sino-Russian oil deals; how Russian investors are faring in Sanya; why some Russian experts are warning President-elect Vladimir Putin about the rise of China; and will Russia learn from Hong Kong?

We also have an exclusive interview with film director Alexander Sokurov, and a story about a Kazakh ballet star who is trying to establish a Russianstyle ballet school in Hong Kong. And there are more stories that will interest you inside this 16-page issue.

Of course, we also welcome your comments, and you can write to us at hongkong@rbth.ru and tell us what you think.

Russia and Greater China will be published on the last Tuesday of every month and distributed with the South China Morning Post.

RGC Editorial Team

2 Tuesday, March 27, 2012

RUSSIA AND GREATER CHINA

Prokhorov becomes a force to reckon with

COMMENTS Experts give mixed views on liberal ‘amateur politician’ “Prokhorov is not yet a politician, but an incomplete product. His popularity is a myth. It can be attributed to the fact that he was the only new candidate [and holds right-wing liberal views. Whether Prokhorov will remain in politics] depends on his strategy, which he has problems with. He will no longer enjoy the privileges [that he had in the presidential election].”

Ambitious businessman attracted many voters during the presidential election, writes Vladimir Ruvinsky

YEVGENY MINCHENKO, DIRECTOR OF THE INTERNATIONAL INSTITUTE FOR POLITICAL EXPERTISE

I

n Russia, businessmen do their best to keep out of the public eye.

However, former nickel baron and gold miner Mikhail Prokhorov loves being in the public spotlight.

A year ago, only 2 per cent of Russians had heard of Prokhorov. Today, 65 per cent know him. Experts are sceptical about his future chances in politics. Russia has a left-leaning electorate that wants a welfare state. But billionaire Prokhorov is a liberal, who wants to see more private enterprise.

Yet, contrary to all forecasts, Prokhorov, 46, third on the Forbes list of Russian billionaires, won 8 per cent of the vote in the Russian presidential election held in early March, and finished third. In some major cities, he finished behind Vladimir Putin and ahead of Communist leader Gennady Zyuganov, who enjoys considerable support.

Until last year, Prokhorov was like all the other new Russian billionaires: media-shy and busy making money. The gem of his assets was Norilsk Nickel, a mining and metallurgical company. It was privatised in 1995 by ONEXIM Bank, of which Prokhorov was a co-owner. At the time, Norilsk Nickel was a monopoly on the nickel market (more than 90 per cent of Russian output) and the copper market (more than 60 per cent).

The deal later prompted a lot of questions, as the new owner paid the state US$680 million for a 51 per cent stake.

The company at the time was valued at US$1.3 billion. Its present market capitalisation is US$60 billion.

The claim that he got the company on the cheap was rolled out against him during the electoral race. But, at the time, the billionaire says, everything was honest and above board, the selling price was 10 per cent higher than the market price.

Prokhorov took six years to cover the path from graduate of the Moscow Financial Institute to co-owner of the world’s biggest producer of nickel and palladium. He did not have a powerful family to support him: the future billionaire was born into the family of a university professor.

His classmates at the institute were future politicians and businessmen.

In 1987, while still a student, Prokhorov had his first entrepreneurial experience, opening a co-operative that produced “boiled denim cloth”.

When he graduated, he went into banking, in line with his training. He worked at the International Bank for Economic Co-operation, and then moved to an-

“Prokhorov sent a signal to the urban electorate and his message carried a massive liberal agenda. Public agitation and protests also helped him. Swing voters [who took to the streets] usually voted for him. Prokhorov became a new phenomenon who accomplished a sprint of a political race. He has already confirmed his intention to create a new party.

This is not the first time an amateur has turned politician. [Vladimir] Putin also began as an amateur in 1999.”

POLITICS

GLEB PAVLOVSKY, POLITICAL SCIENTIST AND EXPERT ON POLITICAL TECHNOLOGIES

other bank before leaving it to set up his own bank, ONEXIM. On joining Norilsk Nickel, Prokhorov pursued a tough policy aimed at cutting costs and boosting productivity. He cut the payroll from 125,000 in 1995 to 50,000 in 2001. “For people who could not find a job, Norilsk Nickel laid on a lot of social programmes under which people were relocated to regions where they wanted to go,” Prokhorov says. He admits that, at his production facility, he found challenging problems to solve.

“Stealing was rampant. I brought with me 50 managers on high salaries; we did not steal. In six months, the only things stolen were, perhaps, pencils,” he told Forbes.

People were attracted by the fact that the billionaire was the only new figure in the presidential election in the past 12 years Not everything went smoothly: the trade unions, whose influence was waning, kicked up a row. Many were simply unhappy with the new rules.

Prokhorov recalls that the workers called him to the factory floor in order to beat him up and he had to fight back.

“In general, we changed the rules of the whole system and the system itself changed,” he says.

As a result, the company’s capitalisation topped US$30 billion within a few years. On the eve of the 2008 global financial crisis, Prokhorov sold his shares to billionaire Oleg Deripaska and concentrated on gold mining. He was rich, young and unmarried. He began eyeing new horizons. In business, he

Mikhail Prokhorov has a liberal, pro-business political platform. Photo: AP launched a new car, financed charitable and public projects, theatres and publishing houses without much ado.

Gradually, he began thinking of going into big-time politics.

Prokhorov’s name became widely known in Russia in 2007, when the French police detained him with some young girls at the Courchevel ski resort.

The girls were suspected of being prostitutes, although no proof was found, and the billionaire was released.

The scandal would frequently be used against him and one would have thought that, with such a reputation, he would have no chance in conservative Russian politics. The unwritten rule is that a public politician should be married, have children and be a good husband. At least in the eyes of the press and society.

Prokhorov, who is a keen athlete and owns the United States NBA side New Jersey Nets basketball team, last year became the head of The Right Cause party, the only registered right-wing liberal party, which, by that time, was on its last legs and had no popular support. He promised to breathe new life into the party and consolidate the liberal electorate. But his debut in politics got off to an inauspicious start. Soon, Prokhorov left the party, accusing Vladislav Surkov, senior deputy chief of the president’s staff, of exerting power behind the scenes.

Prokhorov also had to defend himself against accusations that he was a Kremlin protégé and was controlled by Vladimir Putin. “I have no use for any mentorship. As number one, I make the decisions myself,” he has often said.

After taking time out from politics, the billionaire decided to run for president as an independent candidate and vowed to turn things around in Russia.

“The country has a gigantic potential. But we are underdeveloped. We

Tycoon’s main business assets Mikhail Prokhorov is estimated to be worth about US$12 billion and US$13 billion, according to Forbes magazine, down from US$18 billion last March. Most of the losses were because of the poor performance of his public holdings. He is owner of ONEXIM Group, which invests in mining and minerals, real estate, the financial sector and innovative projects in energy and nanotechnology. The group includes, or manages, Polyus Gold International, which is the leading gold producer in Russia and Kazakhstan (40 per cent); US Rusal, one of the largest aluminium producers (17 per cent); MMC Integro, a mining and metallurgical company (100 per cent); Kvadra, (50 per cent); Soglasiye Insurance, a major Russian insurance company (100 per cent); International Financial Club (27,7 per cent); Open Investments (100 per cent); RBC-TV Moscow (51 per cent); Renassance Capital investment (50 per cent), Optogan Group, LED lighting (50 per cent); Yo-auto, a company developing hybrid vehicles (49 per cent). have no airports, roads, and no agriculture, which is headed for collapse. And then it occurred to me that I should try my hand at politics. It came as a surprise to me, but deep down something was germinating,” he says.

Political analysts say that people were attracted by the fact that the billionaire was the only new figure in the presidential election in the past 12 years. Voters also said they picked him because the country needed a change.

“Prokhorov’s result is due to a combination of many factors. He is the first candidate to meet the requirements of right-wing liberal voters. He was somebody they did not hate voting for.

On the other hand, he was in a field where no other politicians stood out.

He entered politics in response to a request. He had no political experience. He got an offer he couldn’t refuse.

It’s possible he won’t last long in politics, because I don’t think he feels very comfortable in this role.”

YURI KORGUNYUK, POLITICAL SCIENTIST, INDEM FOUNDATION

How they fared in the election

Tuesday, March 27, 2012 3

RUSSIA AND GREATER CHINA

Breathing life into Vladivostok Preparations for event transform skyline of troubled port, writes Artem Zagorodnov

S

even months from the Asia-Pacific Economic Co-operation (Apec) summit, the far eastern Russian city of Vladivostok is undergoing a transformation – one many hope will revive the troubled port into a vibrant Asian city.

Located in an expanse of territory that hooks around China’s northwest, Vladivostok is geographically closer to Hong Kong and Macau than it is to Moscow or St Petersburg.

Far from Russia’s political centres of power, Vladivostok’s independent streak has been tested over the past few decades by declining industries and a demographic drain.

Over the past 20 years, 300,000 people have left for more hospitable regions of Russia or abroad – that’s about half of Vladivostok’s population.

“Most of the city’s infrastructure is in shambles. Roads are falling apart,” says Victor Larin, director of the Institute of History, Archaeology and Ethnology of the Peoples of the Far East branch of the Russian Academy of Sciences.

“There’s nowhere I can go for a walk with my wife. The key to getting people to want to live here doesn’t lie in building bridges to nowhere. Of the students I know who are studying Chinese, twothirds want to pursue their careers abroad upon graduation.”

This year’s Apec summit, which Vladivostok will host in October, has led to a flurry of investment and construction.

The annual summit of leaders from the 21-member economies is one of the most significant economic and trade events every year.

These days, Vladivostok blazes with welders’ flames as cranes dotting its hilly downtown reflect the billions of dollars the federal government is pumping into the city.

The narrow, potholed road from the airport has been raised up to three metres in some areas and expanded into a modern, four-lane expressway. A new airport is scheduled to open this summer.

Two Hyatt hotels are under construction. Monuments, roads and facades have been repaired. An express train line from the airport to the city centre will soon open and a new theatre is almost finished.

One of the most impressive projects is a bridge to Russkiy Island, the island closest to the city where the summit will be held.

The 3.2km bridge, partially held up by masts standing on two artificial islands, began less than three years ago.

The central mast is 320 metres high.

When completed this summer, it will be the longest cable-stayed bridge in the world and will cost US$1 billion.

“When we talk about innovation and modernisation, this is it,” says Alexander Ognevsky, press secretary for the Ministry of Regional Development, pointing towards the bridge.

“A number of international companies left the tender because they said it couldn’t be done. In the end, a firm from Omsk [Siberia] took the contract.” Russkiy Island itself is a testament to the investment and effort that are going into the metamorphosis.

Once home to defence installations and a few thousand retired military men and their families, the island was a quiet district until then-president Vladimir Putin supported a plan to merge four of Vladivostok’s major universities into a

Event is catalyst for development

Golden Horn Bay in Vladivostok, with an array of military and cargo ships. Photo: ITAR-TASS

2012 APEC SUMMIT single institution in a new campus.

The result has been the construction of an entirely new city in less than three years.

This city will host the summit and will then be given to Far Eastern Federal University as its new campus.

As many as 16,000 workers, mostly from Central Asia, transformed an empty 160-hectare plot, that is now lined with roads, dormitories, cafes, gardens, stadiums, hospitals and an oceanarium.

The use of immigrant construction workers from the region has created concerns and journalists are often kept far away from the workers, who look either fearful or confused.

“They’re afraid the workers will tell you about how they’re treated,” says Bakhodir Nurakov, an Uzbek who has been working to protect workers’ rights in the region, in the office of a Vladivostok NGO that helps immigrants and their employers.

Nurakov’s gripe is with contractors that abuse a rule allowing them to legally employ immigrants for 90 days without providing a long-term work permit.

“They promise to pay them for the first 90 days, and then simply fire them. At that point the workers have no legal recourse because they become illegal immigrants,” he says.

“Some of them want to leave altogether, but don’t have the money for a ticket.

They have to keep working so they can eat.”

That migrant labour force has made it possible for Vladivostok to be ready for the summit, a feat few thought possible after Putin put the city forward as

a potential summit host in 2006.

“Nobody believed it would be completed, especially not in time for the summit,” says Vasily Avchenko, a local correspondent for the daily Novaya Gazeta.

All this investment and construction should be good news. State-of-the-art infrastructure and a new university campus could be catalysts for economic growth, particularly since Vladivostok is in the middle of the fastest-growing region in the world.

But many fear that the buzz will follow the Apec leaders out of town once the summit is over.

Avchenko has co-authored a futuristic sci-fi book entitled Vladivostok-3000 with Ilya Lagutenko, a Vladivostok-born rock legend who many years ago took Russia’s pop charts by storm with a hit song Vladivostok-2000. “Vladivostok-3000 is a book about two Vladivostoks,” Avchenko says. “Vladivostok-2000 is the city Ilya and I know, see and love.

Vladivostok-3000 is a dream about the city I’d like to live in, the city that I hope

Vladivostok will become some day.

“Everyone’s concerned about what’s going to happen after the summit passes. We don’t even have a local seafood industry. This is especially sad given that not long ago local seafood factories such as DalMoreProdukt – which went bankrupt a few years back – were nationally famous.”

The changes Vladivostok is undergoing are more than just physical. A new governor has taken over the government after the surprise dismissal of Sergei Darkin by President Dmitry Medvedev. Darkin had been in power for a dozen years and was credited with lobbying for many of the federal funds pouring into the city.

The new governor, 44-year-old Vladimir Miklushevsky, rector of the Far Eastern Federal University since 2008, was voted in by a wide margin.

He has promised to make transparency and fighting corruption cornerstones of his governorship.

“We have to base our long-term development on the scientific and educational resources we have at our dispos-

The Apec summit will have a direct impact on the long-term development of the Primorsky region and the city of Vladivostok.

A federal investment of more than 200 billion roubles (HK$53.2 billion) will contribute to the development of infrastructure, the limitations of which are the main obstacle for attracting investment, not only from within Russia but other parts of the world.

No less important is drawing attention to, and creating publicity for, the Primorsky region, so that not only Russians but citizens of all Apec countries will know about it.

This is seen as essential and we must make use of it very efficiently.

VLADIMIR MIKLUSHEVSKY (ABOVE), GOVERNOR, PRIMORSKY REGION

al, especially the Far Eastern branch of the Academy of Sciences and the Far Eastern Federal University,” he says.

Avchenko says: “He’s a good manager and is not tied to the local business and criminal elites.

However, I question how much of a difference one individual can make in Russia’s current political system – a lot has to be changed in the economy, laws and especially the application of laws.”

City is model for the future Artem Zagorodnov RGC President Dmitry Medvedev tweeted after visiting Hong Kong last year: “Hong Kong looks like a futurist city.

We will make an international financial centre in Russia using this experience.”

With Russia hosting the Apec summit this year, all eyes are now on Vladivostok, the eastern city that some media are already calling the “Russian Hong Kong”.

Like Hong Kong, Vladivostok is in a strategically economic location and far from the political centre, giving it an independent streak and liberal thinking.

There are historical similarities as well. The gradual migration of settlers from Russia’s more-populated Western regions across Siberia and to the

terminus of the Trans-Siberian railway at Vladivostok was not unlike Hong Kong’s role as the final point for all those fleeing the mainland.

That migration led to the diversity of peoples – Ukrainians, Belarussians, Chinese – living in Vladivostok and has created pride among locals in their origins, a pride not common in other Russian cities.

Nevertheless, while Hong Kong has thrived, Vladivostok is struggling to escape stagnation and a crippling brain drain. A new university campus and renewed impetus to develop researchbased industries could help the city revitalise. It’s location, between Japan, South Korea and China, could certainly help.

Authorities hope the university campus and state grants will attract talent from around the world and establish several strong schools in fields like bi-

omedicine and information technology. Plans for a technology park to commercialise products coming out of the university and create additional jobs are in the pipeline.

“Our country’s higher education faces two major problems: universities don’t know how to produce what business wants, and business isn’t very interested in innovational products,” says Vladimir Miklushevsky, who was rector of the Far Eastern Federal University before being elected governor.

“That’s why our university will focus on creating small startups in conjunction with major world businesses.”

The city’s new university will be on Russkiy Island, venue for the Apec summit.

After the meeting facilities will be transferred to the Far Eastern Federal University and some 30,000 students.

4 Tuesday, March 27, 2012

RUSSIA AND GREATER CHINA

Cheung faces obstacles

FIRM FACTS

> CONTINUED FROM PAGE 1

This year, the price of Rusal shares hinges on the price of aluminium,” says Vladimir Zhukov, an analyst at HSBC. “If it rises, the company’s shares will go up, even though Vekselberg’s departure has highlighted the existence of a conflict within Rusal.”

Rusal’s board appointed Cheung as chairman on March 16, four days after Vekselberg, who is considered one of the few remaining oligarchs whose estimated net worth is US$12.4 billion, stepped down after accusing Rusal’s management of leading the company into a “deep crisis”.

Rusal then declared that the board had been long considering the possibility of dismissing Vekselberg, due to “improper fulfilment of duties”.

Vekselberg heads the Renova Group, which in turn co-owns SUAL Partners.

SUAL holds a 15.8 per cent stake in Rusal.

“In addition to aluminium prices, share prices will depend on what Vekselberg does with his stake – sell it and, if so, to whom,” says Andrei Mordavchenkov, director for financial market operations at Partner, a Russian investment company.

“Mikhail Prokhorov may well be a potential buyer for Vekselberg’s stake.

He already owns Rusal shares and he may well want to increase his stake.

Prokhorov was experienced in corporate wars when he was with Norilsk Nickel. He may use this experience at Rusal,” says Bogdan Zvarich, chief analyst with Net Trading.

Nevertheless, serious investors considering a stake in Rusal would have to get past its debts and legal troubles, says Valery Petrov, deputy general director of the Financial Markets Development Institute, a research institute in Moscow.

“Rusal has a big debt burden and numerous court cases on its hands and its future in general is not very clear,” says Petrov. “So the main potential bidders for the stake – if Vekselberg decides to sell it, which is unlikely – are Prokhorov and [Rusal’s CEO] Oleg Deripaska.”

Relations between Rusal’s shareholders deteriorated at the end of last year over a long-term contract between Rusal and metals trader Glencore, which holds an 8.75 per cent stake in Rusal. Rusal’s management, headed by Deripaska, prepared the agreement. SUAL opposed the agreement and tried to veto it, but the veto was ignored.

Deripaska is Rusal’s largest shareholder, controlling more than 47 per cent of the shares.

Even before Cheung’s appointment, Deripaska announced that one of five independent directors would take up the role of chairman.

Cheung was an independent director and a member of a couple of board committees. His candidacy for the top post was unopposed, sources close to Rusal’s shareholders told Russian newspaper Kommersant.

SUAL responded to the appointment by saying it was “hasty and non-optimal”. It charged that Rusal did not conduct a proper search for candidates with the help of international consultants and noted that the chairman of the board of a company with 80 per cent

Rise of a global leader in the aluminium industry

BUSINESS of its assets in Russia should be a Russian. Other shareholders also opposed the appointment. Vnesheconombank’s first deputy chairman, Anatoly Tikhonov, abstained from the vote, a VEB spokesman told Interfax news agency. The bank has a 3 per cent stake in Rusal.

“We consider Barry Cheung’s candidacy wrong and do not support it,” the spokesman said.

Nevertheless, Rusal stuck by its decision and called SUAL’s actions “destructive”. The company says an overwhelming majority of the directors, including independent ones, approved of the appointment.

“The appointment of a foreign national as chairman of the board of directors is a widespread practice among Russian companies that strive to meet the best global standards in corporate management.

As for Rusal, the company’s business involving assets located on five continents is truly international,” the company said in a statement.

“No shareholder can dictate or force his decisions on the board of directors, particularly in a situation where [a] chairman’s appointment was approved by the overwhelming majority of votes after constructive board discussion.”

Rusal had limited choices among its board members because a shareholder meeting is necessary to elect a new board of directors and the annual shareholders meeting will be held over the next two to three months, says Oleg Petropavlovsky, an analyst at BrokerCreditService.

“Cheung has become a technical candidate. At the annual meeting of shareholders, he may be substituted.”

Cheung joined Rusal’s board as an independent director as the company prepared for an initial public offering (IPO) in Hong Kong, which was completed in January 2010.

Rusal’s profit plunge

Viktor Vekselberg (left) and Oleg Deripaska Photo: Kommersant

The new chairman declared that he intends to increase the number of independent directors He has headed the Hong Kong Mercantile Exchange since 2010. In his new position, Cheung will be responsible for the development of an expansion strategy for the company as a global corporation focusing on China and other Asian markets.

He will also continue the “improvement of the system of corporate management”, Rusal announced.

The new chairman has already declared that he intends to increase the number of independent directors to take up about one third of the board. There are now five independent directors out of a total of 17.

“As an immediate priority, a comprehensive review of the company’s corporate governance practices will be undertaken and additional independent directors will be appointed in order to raise the number of such members to

one third of board membership,” Cheung said in a statement. Electing Cheung as chairman “is quite in line with the logics of the company’s development within which a bigger stake is put on the Asian markets,” says Sergey Men, managing partner of Hong Kong Eurasia Capital, which is a consultancy.

Last year, about 20 per cent of Rusal’s revenues from aluminium sales came from Asia.

“Cheung has had a good reputation ever since he worked at McKinsey and he has enormous business and political connections both in Hong Kong and the China,” Men says.

“He can help Rusal improve mutual understanding with Chinese authorities and consumers who will put more trust in Cheung’s personality.”

With a weaker market on the horizon, Cheung’s appointment could help attract more Hong Kong investors to the stock, says Artur Shamilov, a partner of Òîð Contact recruiting agency.

Rusal accounts for about 10 per cent of the total global output of aluminium.

It has branches in 19 countries and sells products in Europe, North America and Southeast Asia.

The Hong Kong IPO netted the company US$2.2 billion for 10 per cent of its shares.

World aluminium giant Rusal, which is listed on the Hong Kong stock exchange, saw its profit plunge by 91.7 per cent to US$237 million last year.

The company was dragged down by its stake in Norilsk Nickel.

Rusal said this month that its 25 per cent shareholding in Norilsk had a market value of US$7.4 billion at the end of last year, down from US$11.2 billion at the end of 2010.

The revaluation led to a fourth-quarter loss of US$974 million, according to Rusal. It paid US$14 billion for a quarter of Norilsk Nickel at the peak of the market in 2008, leaving it with an US$11 billion debt burden, creating boardroom conflict.

April 24

The United Company Russian Aluminium was set up in March 2007 through a merger between Russian Aluminium and the Siberian-Urals Aluminium Company with Swiss Glencore alumina assets.

Historically, during the privatisation push of the 1990s, Britain’s Trans World Group (TWG) gained control over the main Russian aluminium companies.

TWG introduced a tolling system into Russia through which a middleman financed imports of alumina and its processing, paid for plant operations and owned the final product. However, Russian plant managers eventually realised that this scheme favoured Western traders who made large profits. In 2000, with state support, the tolling system was scrapped, Western traders were ousted from the market and the country’s main aluminium assets were grouped under the control of Russky Aluminiy, or Rusal.

This brought together the aluminium and alumina plants of Siberian Aluminium, which had by then been founded

by Oleg Deripaska and Millhouse Capital, owned by Roman Abramovich, who later sold his stake to Derispaska Rusal came to control the Bratsk and Krasnoyarsk aluminium plants, the Achinsk alumina plant, bought by Abramovich from TWG, and the Sayansky aluminium plant - which in 1997 Oleg Deripaska founded as the first vertically-integrated industrial company in the post-Soviet era - Siberian Aluminium (renamed Basic Element, or Basel in 2001).

Siberian Aluminium controlled about 70 per cent of Russia’s aluminium industry.

Much of the remaining 30 per cent of the aluminium was produced by Viktor Vekselberg’s Siberian-Urals Aluminium Company (SUAL), established in 1996 through a merger of the equity capitals of the Irkutsk and Urals aluminium plants.

United Company Russian Aluminium was formed on the basis of SUAL and Rusal in 2007.

A third party in the merger was the Swiss mining company Glencore International, which contributed alumina plants in Ireland, Jamaica and Sweden.

Today, United Company Rusal includes 16 aluminium and 12 alumina plants, eight bauxite mining companies, three plants for powder production, three silicon plants, three secondary aluminium plants, four foil rolling plants, two cryolite and two cathode plants. It has assets in 19 countries.

The company‘s production capacity is 4.7 million tonnes of aluminium, 11.5 million tonnes of alumina and 80,000 tonnes of foil a year.

In 2010, the company accounted for about 10 per cent of the world output of aluminium and about 10 per cent of alumina. Rusal’s net profit in 2010 reached US$2.867 billion, 3.5 times more than the US$821 million recorded in 2009.

Rusal’s return at the end of 2010 stood at US$10.979 billion.

Tuesday, March 27, 2012 5

RUSSIA AND GREATER CHINA

Countries join forces to drive battery business Without foreign assistance, the venture to power electric transport could never have got off the ground, writes Howard Amos

PROJECTS

A

t first glance, Liotech’s US$413 million Siberian factory, which plans to produce 1 million batteries a year, appears to be a showcase of Russian industry, innovation and expertise.

Except that all the machinery used at the plant was manufactured by Chinese companies. All the raw materials for the LT-LYP 200, LT-LYP 300 and LTLYP 700 batteries come from China and the factory’s finished products are destined for the mainland market.

Located just outside Novosibirsk, the plant is run by Liotech, a daughter company of China’s battery manufacturer Thunder Sky in partnership with stateowned Rusnano.

Thunder Sky owns 50.0001 per cent of the enterprise, Rusnano 49.9999 per cent. Liotech’s batteries are primarily destined for the electric transport and energy supply industries and the company estimates that the world market for lithium-ion batteries will grow tenfold over the next nine years to be worth almost US$30 billion.

About 60 Chinese engineers have been in Russia since last June, training local workers to use the equipment that is labelled in Chinese.

At the opening of the factory last year, Rusnano head Anatoly Chubais said that without foreign assistance, the venture could not have got off the ground.

“When we began this project, we understood that all [of Russia’s] existing equipment and all of its existing production facilities associated with bat-

Liotech plans to produce 1 million batteries every year in its Siberian factory. Photo: ITAR-TASS tery manufacture were of yesterday’s standard,” he said. The new factory is a vehicle for technology transfer. It aims to use only Russian raw materials by 2015, Liotech’s general director Alexander Yerokhin says.

While he has a guaranteed market in Thunder Sky, Yerokhin is also free to find Russian consumers. “It’s their [Thunder Sky’s] obligation to buy, but not my obligation to sell,” he says.

Lu Shaoping says the appeal of the project for Thunder Sky was the recognition and access it gives to its name and products in Russia.

The company had intended to build the plant in China but Rusnano insisted on Novosibirsk. Liotech, registered in February 2010, believes that with a gradual global shift to electronic transport systems, its batteries will be in greater demand.

Moscow will deploy 100 electric buses next year and Novosibirsk began to use “half” electric buses - that run

from overhead lines but can switch to their own power when the lines end in June, Yerokhin says. Liotech has just one contract - a 3 billion rouble (US$95 million) agreement with new innovation company Mobel.

Yerokhin admits that the growth of

HONG KONG ELECTRONICS FAIR AND ICT EXPO

HKGCC SEMINAR “JOINT CUSTOMS UNION BETWEEN RUSSIA, KAZAKHSTAN AND BELARUS”

APRIL 13-16 HONG KONG CONVENTION CENTRE

BUSINESS CALENDAR

FIND MORE IN THE GLOBAL CALENDAR

at www.rbth.ru

The organiser is expecting about 3,150 exhibitors from more than 20 countries and regions, including Russia for the first time. Expanding to a new venue, Hall 5FG, the Electronics Fair is bringing 10 new zones to feature a wider range of the latest electronics products. Among those are eight new product zones, including the Eco-Friendly Products, Fitness & Beauty, HD Consumer Products, Mobile Devices & Accessories, and two display zones - Technology and Innovation Zone and a Small Order Zone.

WWW.HKTDC.COM

About 60 Chinese engineers have been in Russia training workers to use equipment the market in urban electric transport systems is highly dependent on the state. “A lot depends on politics,” he says.

Although Chubais said at the opening ceremony that the project had faced

APRIL 18 CHAMBER THEATRE, 22/F UNITED CENTRE

Last year, Russia, Kazakhstan and Belarus launched a Joint Customs Union, which was followed by a Joint Economy Territory in January 2012. Rustam Yuldashev, CEO of STS Asia, founder and board member of the STS Logistics Group, will discuss matters such as how the changes will affect doing business with these countries; what opportunities the union opens for growth; and how overseas companies can benefit from these changes.

WWW.HKGCC.ORG.HK

a lot of opposition, including in the choice of a Chinese partner, the involvement of Rusnano is likely to guarantee support for Liotech and its batteries.

The plant was constructed in record time.

“In Russia, a normal time frame for the building work on this type of project is one-and-a-half to two years ... [for this] we had eight months for everything,” says Oleg Mamayev, executive director of PIK Group, which put up the factory during a Siberian winter in temperatures of minus 40 degrees Celsius.

Financing was provided by loans from Rusnano (5.50 billion roubles, or HK$1.46 billion), credit from Sberbank (3.90 billion roubles), investment from Rusnano shareholders (2.08 billion roubles) and from Thunder Sky shareholders (1.45 billion roubles).

The factory is expected to be profitable in five years.

THE 7TH ANNUAL ASIA GAS CONGRESS 2012 APRIL 17-20, BEIJING MARRIOTT HOTEL NORTHEAST BEIJING, CHINA

Strong Global and Asian demand for natural gas is forecast to grow to 2030. The dynamic market will provide a huge impetus in developing the liquefied natural gas and pipeline sector and realising the potential of unconventional natural gas in the near future. The congress is designed to look into more emerging, long-term strategic issues. It will bring together the leading industry players to achieve commercial and technical excellence across the whole value chain. WWW.CDMC.ORG.CN

Nation to make rare appearance in HK fair There has never been a shortage of Russian visitors at the Hong Kong Electronics Fair. Held every April, the fair is the biggest industry event of the year and attracts thousands of buyers from all over the world.

Although they visit the event, it is hard to find a Russian name among the exhibitors. There have been a few exceptions over the years, but they have mostly been joint ventures based in Hong Kong or the mainland.

This year is different, as Russia will make a rare appearance. “This is quite unusual that we have a company from Russia,” says fair manager Clara Hung.

A new addition to the more than 3,000 exhibitors is Moscow’s Research Center Module, established in 1990 after the collapse of Soviet Union by two staterun military research companies. For more than two decades, Module has worked to build up its presence in Russia and has become a major player in the country’s microchip industry.

After establishing itself in the Russian market, the company’s management thought that it was about time to look towards Asia.

“Before, we simply didn’t have a range of products which we could offer to the mass market,” says Module’s head of marketing and economic research, Ilya Savnikov. “Now we have microchips and microchip-based products that might appeal to a wide range of consumers.”

He says the company is not afraid of competition from Chinese producers.

Some experts say that although Module’s technologies can be considered a breakthrough in Russia, they are not new to other countries.

“Module is using 90-nanometer chips, which is a first in Russia, but big foreign players are already producing 45-nanometer chips,” says one Russian industry insider.

Savnikov agrees, but points out that 90-nanometer chips are cheaper to produce and might have a bigger market.

“We are now working into a 65-nanometer version, so we are for sure moving forward, but even with the current chip, we are ready for quality and price competition,” he says.

Nevertheless, Module’s way of thinking is what the Russian government long expected from its research centres: finding a focus on the end consumer and trying to determine what the market needs, rather than focusing on pure research.

Source: RGC

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

DIGITAL BUSINESS Russia 2012 is the only major 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 speakers’ panel will feature the digital sector’s movers and shakers who are implementing digital strategies as part of companies’ business models, and those whose businesses are entirely based in the digital space.

WWW.ADAMSMITHCONFERENCES.COM

6 Tuesday, March 27, 2012

RUSSIA AND GREATER CHINA

Beijing benefits from pipeline deal

A

translation of the book The Prize, by Cambridge Energy Research Associates founder Daniel Yergin, appeared in Moscow bookstores last August. Published shortly after the-then Iraqi president Saddam Hussein ordered the invasion of Kuwait, the book is often called the most important in oil-industry history.

Readers, who include senior executives of companies such as ExxonMobil, specially enjoy illustrations depicting pivotal moments in the industry’s history, such as the establishment of Standard Oil or the founding of Opec.

The book was first published in Russia in 1999 with a foreword by LUKOIL president Vagit Alekperov. The idea to re-publish it 12 years later came from the man called the oil tsar of Russia, Deputy Prime Minister Igor Sechin, one of Vladimir Putin’s closest associates and overseer of Russia’s energy sector.

Sechin wrote the foreword and asked Yergin to write a chapter on the successes of the industry in the former Soviet Union and add a few photos specifically for the Russian edition.

Most illustrate the launch of the project Sechin considers his most important contribution - a direct pipeline from Russia to China.

The photographs depict Sechin, his patron Putin, President Dmitry Medvedev and Chinese President Hu Jintao launching the first pipe to carry Russian oil to Asia.

Late last month, the board of directors of the largest state oil company, Rosneft, and the pipeline monopoly Transneft approved amendments to the contract with China’s CNPC. According to Russian newspaper Kommersant, the essence of the amendments was the introduction of a discount of US$1.50 per barrel of oil delivered to China.

The idea to supply oil directly to China

ENERGY from Siberia emerged in the late 1980s, when the-then Soviet president Mikhail Gorbachev and China’s paramount leader Deng Xiaoping ended the “cold war” that had lasted since the 1969 clash at Zhenbao Island, which is what the Chinese call the place known as Damansky Island in Russia. The clash occurred during a seven-month military conflict between the two countries.

In the 1990s, this idea was supported by Yukos head Mikhail Khodorkovsky. He had reached agreement with Beijing on oil deliveries and pipeline

construction, but his arrest prevented the realisation of the plans.

Together with its assets, Yukos’ idea to build an oil pipeline to China was inherited by the state-owned Rosneft, the board of directors of which was then headed by Sechin. Moreover, CNPC gave a credit of US$6 billion to Rosneft which the latter needed to buy the assets of the bankrupt Yukos.

During the rule of Putin, talks with China were active but did not yield results. As noted by Erica Downs of the Brookings Institution, the reason was high oil prices. Russia was making enormous profits on the traditional European market and was not particularly interested in diversification.

Everything changed with the 2008 global financial crisis, when Russia’s oil industry desperately needed liquidity.

As a result, in 2009, an “oil-for-loans” deal was made. Beijing signed similar agreements with many oil producers the same year.

In exchange for loans of US$15 billion and US$10 billion from the China Development Bank, Rosneft and Transneft pledged to supply China with 15

KOMMERSANT

Moscow learns lesson for failure to push through pact when oil prices were higher, writes Alexander Gabuev

(From left) Vladimir Putin, President Hu Jintao and Igor Sechin million tonnes of oil annually from last year until 2030 via the Eastern SiberiaPacific Ocean (ESPO) pipeline. To do this, a separate pipeline was built off ESPO from Skovorodino to Mohe at the border on the Chinese side.

As soon as deliveries began in January last year contract problems arose.

CNPC began to underpay by US$13 per barrel, citing the fact that the oil was obtained from a branch of the ESPO pipeline, which is much shorter than the entire pipe. Transneft insisted that a single rate of US$65 be valid through-

Country to begin gas exports to mainland in 2016-2017 Russia’s biggest private oil company, LUKOIL, expects to begin exporting gas to China in 2016-2017, said vicepresident Leonid Fedun at a presentation of the company’s strategy through 2021 in London earlier this month.

“China’s growing economy will be in need of gas, which will push up gas prices on the Russian market,” Fedun said.

In September 2010, Russia and China signed a legally binding agreement on the terms for gas supplies. The

agreement envisages western and eastern scenarios, the former relying on the resources of western Siberia and the latter from eastern Siberia, the far east and the Sakhalin Shelf.

The gas supplies along two pipeline corridors are expected to reach 68 billion cubic metres a year, including 30 billion cubic metres via the western route.

At the end of this January, Gazprom CEO Alexei Miller said that the company’s priority on the eastern route was liquefied natural gas,

A network of pipes weave together countries in Europe and Asia

while for the western route, the only unsettled issue was that of price.

In June last year, he announced that Gazprom was prepared to build a gas pipeline to China.

Gazprom deputy CEO Alexander Medvedev said last month that Gazprom would seek to reach agreements on gas supplies to China before the end of this year.

The company expects to bring the percentage of gas up to 27 per cent of its overall hydrocarbon production by 2021.

out the whole pipeline. For Russian companies, losses for the contract period may be close to US$30 billion.

Russia threatened China with international court action, but was forced to concede. The Chinese have lowered their demands from US$13 to US$1.50, but still got a discount, despite the fact that all of last year Sechin kept repeating that “the contract is verified to the decimal point” and Moscow did not intend to change anything in it.

A source at Rosneft notes that the company’s losses amounted to only US$3 billion, not US$30 billion.

“One may say that we did not lose US$3 billion, but earned US$27 billion instead,” says the company’s manager.

CNPC has not commented on the changes in the contract.

As noted by Philip Andrews-Speed of Chatham House, Russian officials were responsible for shooting themselves in the foot. Persevering with negotiations during the plentiful years of high prices, they were forced to agree on constructing the pipeline on a loan secured by oil supplies. Moreover, the pipeline rested on one client: China.

“Russia needs to learn the lesson that it is the consumer that has the power over prices, and not the supplier,” he says.

Co-operation is key to nation As a leading exporter of oil and gas, Russia is interested in co-operating with big global hydrocarbon consumers, particularly China. Until recently, most oil supplies went to the West but, on the completion of the ESPO pipeline, Russia commenced shipping oil to the Asia-Pacific region.

As soon as the oil production increases in eastern Siberia, the eastward exports will expand. Today, ESPO exports 15 million tonnes of oil via the port of Kozmino and another 15 million tonnes China.

Last year, the major buyers of oil from the port of Kozmino were the United States (27 per cent), Japan (19 per cent), China (18 per cent) and South Korea (13 per cent).

Should Russia increase oil supplies to China, it risks becoming dependent on one country, as it may face the importer’s price demands.

Tuesday, March 27, 2012 7

RUSSIA AND GREATER CHINA

Mainland secures power deal Eastern Energy’s agreement will supply China with 100 billion kWh for 25 years, writes Vadim Ponomarev

T

he Eastern Energy Company (part of Inter RAO, Russia’s state-owned energy holding) has signed a long-term contract with the State Grid Corporation of China (SGCC) for the supply of 100 billion kWh of electricity over the next 25 years.

Electricity supply under the new contract started on March 1. It is expected that Russia’s electricity exports to China will reach 2.6 billion kWh this year, compared with last year’s 1.2 billion kWh).

“The company’s new electricity deal with China is the biggest and longest ever, as far as the amount of electricity supplied to China and the terms of the contract are concerned. We have laid firm foundations for further implementation of the agreements reached earlier envisaging a phased increase in Russian power exports to China to 60 billion kWh,” says Mikhail Shamshurin, general director of Eastern Energy Company.

During the Soviet era, China’s Heilongjiang province, which borders Russian territory, bought electricity from its northern neighbour. The electricity exports to China were resumed in 2009

by Inter RAO, one of the companies succeeding the federal energy holding, RAO UES of Russia, which was dissolved in 2008. Ever since, the annual export volume has been maintained at just over 1 billion kWh – the maximum the transnational electricity transmission lines between the Amur Region and the Heilongjiang province could handle. Yet,

Russia must upgrade its power lines to satisfy China’s increasing demand for electricity. Photo: Lori/Legion media

ELECTRICITY even back then, China documented in intergovernmental agreements with Russia that it was ready to “consume” some 60 billion kWh of electricity a year.

In 2010, China’s domestic demand for electricity jumped by almost 15 per cent to more than 4 trillion kWh annually.

In the past two years, the Eastern Energy Company has built a special 1,280-metre-long transition line across the Amur to a new electricity trunk line.

In turn, the Federal Grid Company has put in place this 500kW electrical trunk line, stretching 152km from the SinoRussian border to the Amurskaya electricity substation.

It has also revamped the substation so that an additional 400MW of excess electric energy could be transferred from the Amur Region, which boasts power plants with an aggregate capacity of up to 4GW and which can only consume no more than 2GW, even with such long-

term projects as the Vostochny Cosmodrome factored in, to China. This new 500kW electricity transmission line allowed the Eastern Energy Company to sign the 25-year contract for electricity exports to China on the basis of an estimated amount of approximately 4 billion kWh a year.

We have laid firm foundations for implementation of the agreements envisaging a phased increase in Russian power exports to China MIKHAIL SHAMSHURIN, GENERAL DIRECTOR, EASTERN ENERGY COMPANY

Meanwhile, the 2.6 billion kWh this year and even 4 to 5 billion kWh a year in the future is not even close to the 60 billion kWh that China is still hoping to buy. However, according to estimates, for Russia to be able to export 60 billion kWh a year to China, it will have to build

new power-generation facilities with an additional combined capacity of 10.8GW and a grid of more than 3,000km of alternating and direct current lines of various voltages in the regions bordering on China. The cost is, however, the main stumbling block. While the Eastern Energy Company has not divulged the value of the 25-year, 100 billion kWh electricity export contract with China, it is known that the price talks have been growing more difficult by the year, as China played the card of building new coal-fired electric power plants in its northeast provinces.

There are three ways to supply an annual 60 billion kWh of electricity to China at a reasonable price. The first one is to team up with China for the construction of coal-fired thermal electric plants along the border – an opportunity highlighted by Mikhail Shamshurin. “To bring our trade this high, we have to build new electric power plants in Russia jointly, coal-fired plants above all, as well as new cross-border ultra-high voltage electricity transmission lines,” says the Eastern Energy Company’s general director. New electricity transmission lines will have to be built in the southern regions of the Far East, but Russia has so far failed to agree with China on the joint construction of ther-

mal power plants. The second option for Russia is to build new hydroelectric power plants in the Far East to produce cheap energy, which would then give it room for manoeuvre during price talks.

This is what the state-run RusHydro, which owns the 1,330MW Zeya and 2,010MW Bureya hydroelectric power plants in the Amur Region, is doing.

The third option, chosen by Russia’s biggest private energy holding, Eurosibenergo, controlled by Oleg Deripaska, involves establishing a joint Russian-Chinese venture to build hydroelectric plants in Russia that would then supply excess electrical energy to China. YES Energo, a joint venture by Eurosibenergo and the China Yangtze Power Company, is now eyeing two possible projects - Lower Angara (Nizhneagnarskaya) hydroelectric power plant and the Trans-Siberian hydro-electric power plant on the Shilka River.

It is not clear which of the three options – joint construction of thermal plants along the border by Inter RAO and Chinese companies, independent construction of hydropower facilities in the Far East by RusHydro, or the YES Energo joint venture – will take the lead in Russia’s electricity supplies to China.

Most likely, it will be one of the hydroelectric options.

Trouble in paradise for ambitious investors > CONTINUED FROM PAGE 1

The Melekhins have no regrets about coming to Sanya, but they are not against selling their cinema if the opportunity presents itself. “On the whole, we spent treble what we initially planned and revenues have turned out to be smaller [than what we expected], though our business has paid itself off,” Melekhina says.

Where the Melekhins did miscalculate was their client expectations. About 200,000 Russian tourists come to Sanya every year, becoming targets for Russian businessmen trying to make their fortune in China. The Melekhins hoped to attract buses of Russian and foreign tourists, yet they have not signed a single agreement with a tourist firm in the 18 months.

Russian tour operators use a very simple scheme, selling tours at cost (or even below) and making their money from kickback payments from medical cen-

tres, jewellery and snake shops, and other tourist traps. “The average kickback is 50 per cent,” says Timofei Lanko, one of Hainan’s long-time residents, who drives across Sanya on his 150cc motorcycle.

A 20-yuan kickback per 60-yuan ticket does not appeal to Russia’s big tourist companies. And Chinese tour operators do not bring their clients here because the cinema is on the top floor of a big trade centre, where tourists to China can easily buy things their tour operators are so keen to sell to them at three times the normal price.

No one wants to take risks, leaving the Melekhins without clients and tourists, and it is unclear how to break this vicious circle. Big tour operators have their reasons.

“Russian tourists don’t want anything; we have tried to offer them salsa and calligraphy classes, but they showed little enthusiasm, so now we focus on silk and snake potions,” an employee at a

tour operator says. More successful cases of Russian investment in Sanya are few and can be counted on the fingers of one hand. One of Sanya’s longtime residents, Andrei Ivanov, opened one Chinese and two Russian restaurants – they stay afloat but have not, so far, made him rich.

Others have been less lucky. “One restaurant opened and was profitable until the building’s owners raised the rent four-fold, so they had to shut down,” Lanko says.

“Three Russian men opened a bar on the embankment; they struggled on for a couple of years, then went into debt, and the police came and confiscated everything,” recalls photojournalist Timur Sedov, who used to live in Sanya for one year.

There was a time when Russians were buying flats and villas en masse, but the central government imposed restrictions on the purchase of real estate by foreigners and the business petered out.

As a result, Dmitry Borozdenkov, owner of WIB Property, had to sell his car and buy a cheaper motorcycle. The Melekhins are determined to continue with

About 200,000 Russian tourists visit Sanya every year, but it’s not plain sailing for investors their business in Sanya, but will now focus exclusively on the Chinese, who are seen as a more lucrative option. But selling something to the Chinese is not that easy. Dmitry Garifullin moved to Sanya six years ago, when his father bought a shop on the cheap, and something needed to be done with it.

After six months of tough negotiating, Garifullin received Sanya’s first franchise to open a shop selling Hong Kong’s Bossini brand clothes. “First they did not want to give a franchise to a foreigner; I had to prove I was serious about it,” Garifullin says. Like the Melekhins, Garifullin’s business is growing, “we are not loss-makers”, but not as well as he had hoped.

Russian tourists account for about 40 per cent of customers, visitors from the mainland make up another 40 per cent, and locals fill the remainder. “To earn good money, you need several shops,” Garifullin says. Opening new shops can be risky, with competition increasing in Sanya in recent years and new shops appearing that offer other brands.

Some Russians live and run their businesses in Sanya, thanks to their enthusiasm for its fine climate and Russian community, yet Lanko hopes to meet the next New Year somewhere in the Philippines.

8 Tuesday, March 27, 2012

RUSSIA AND GREATER CHINA

New centre of attraction Technology giants from around the world are going to turn innovation village into the country’s ‘Silicon Valley’, writes Alexander Vostrov

THE PROJECT STEVEN GEIGER

Changing culture is the main goal of the institute

Innovation village will have a business park with five clusters: biotechnology, energy, IT, space and nuclear technology. Photo: Press-photo

T

he Skolkovo innovation village, often called “Russia’s Silicon Valley”, has joined forces with more than 600 partners. One of the latest companies to join is IBM, which has signed agreements to drive innovation in Russia and establish a science and technology centre employing up to 150 technical staff by the end of this year.

IBM and Skolkovo plan collaborations in the oil and gas industries, and business analytics technologies to improve road safety.

Construction of the innovation centre only began a year ago. The founders have high hopes that it will become not only the engine of the Russian economy, but a major player in global research and development.

Sceptics have branded the whole concept a pipe dream but, as more and more big-name companies sign up, their criticism appears misplaced.

The place is already making its mark in the Russian consciousness. Skolkovo as a brand is widely known; it is responsible for more words with the prefix “nano” popping up in everyday language, along with the use of the buzzwords “innovation” and “modernisation”.

Skolkovo has also revived an older Russian acronym: NIOKR, which is the Russian equivalent of research and development. It refers to a full-cycle research centre where scientists come up with a new technology, build a pilot product, test it and, if the test is successful, begin mass production.

In the United States, US$382.6 billion, or 2.7 per cent of its GDP, is spent each year on research and development.

In contrast, Russian firms spend just a little over US$23 billion, which is 1 per cent of GDP. The centre will be located near the village of Skolkovo, 3km west of the Moscow Ring Road. An area of 370 hectares - and in future, probably more - will host 1,200 partner companies and a population of 40,000. The design of the Innovation Center borrows the principles developed at the Shanghai World Expo two years ago: primarily, a combination of ecology, infrastructure and

Sceptics have branded the whole concept a pipe dream but, as more and more bigname companies sign up, their criticism appears misplaced the latest technological advancements.

The Innovation Center is one of those projects that takes time to gain recognition. It is essentially a huge business site that brings together foreign investors and start-ups, and not just young entrepreneurs but more often young scientists. In other words, it has three functions: to support the Russian scientific community, to attract foreign investments, and create a competitive environment in the hi-tech field.

Roman Romanovsky, Skolkovo’s operating director for key partners, says: “Our main task is to create the most favourable conditions for work. The Innovation Center is thought to be aimed exclusively at young start-up companies, but that is not the case. Nor are we adept only in corporate research.

We seek to make the circulation of ideas within Skolkovo constant and we would like everyone who comes here to find what they come for. Major companies find young specialists, start-ups find in-

1b US dollars a year is the cost of creating the Skolkovo Innovation Center

vestors, investors find new ideas and so on.”

It’s not easy creating this kind of cycle in Russia, as infrastructure that meets all modern requirements has to be built from scratch. The founders of the Innovation Center also face a psychological challenge, and that is to foster Russian scientists’ business streak and teach them not to be ashamed of it. For a long time the conventional wisdom in this country was that earning money through scientific discovery was something despicable, and that a true scientist doesn’t need money. Many institutions went broke because of this odd attitude. Their funding was cut dramatically after the collapse of the Soviet Union and nobody had taught these scientists how to raise money from sources other than the state.

Although Skolkovo is a government project, the government’s financial participation in it is limited. According to Stanislav Naumov, vice-president of the Skolkovo Foundation, budget injections are minimal, just enough to enable the foundation to survive until revenue from projects start flowing in. The government expects to recoup all its spending within seven or, at most, eight years. The cost of creating the Innovation Center (construction, research infrastructure, co-financing innovative projects) is, according to Naumov, US$1 billion a year.

The government puts up no more than two-thirds of that sum. That destroys one of the sceptics’ chief arguments, namely that the Innovation Center is just another corrupt mechanism for money laundering. One can hardly call an institution that shies away from government financial infusions corrupt.

Skolkovo’s investment potential is growing rapidly. At the recent MIPIM2012 international real estate exhibition, foundation president Viktor Vekselberg said more than 20 of the 600 resident companies at the Innovation Center are major anchor partners. They include international giants such as IBM, CISCO, Siemens and Nokia, to name a few.

The Innovation Center has a special tax climate that offers massive benefits to resident companies. Co-operation

INNOVATION with the international scientific community is growing. One recent achievement is successful negotiations with the Massachusetts Institute of Technology to build a number of student programmes through which Russian researchers would receive investments from Western companies and foreign start-ups would share their experience with their Russian colleagues.

“All this is very timely,” says a representative of one of the partners, Mikhail Podoprygalov, Ericsson’s vice-president for work with government agencies.

“There has been much talk about the need to develop the economy, noncommodity exports, and now we have a place where this can be done. Skolkovo creates an ecosystem - it is an important cornerstone. There are many who would say that it could be done differently. But one has to understand that considering Skolkovo’s ambitious goal and its huge number of specific tasks, it is hard to say what has panned out and what hasn’t.”

“This is Skolkovo’s main problem,” says RBC financial analyst Timofei Shatskikh. “Until the first project is implemented, the Innovation Center will remain in the minds of most Russians as just another grandiose government idea.

People consider Skolkovo to be not a scientific outfit, but a political project aimed at projecting a positive image.”

Nevertheless, foundation vice-president Stanislav Naumov maintains that a positive image can be created even before the first successful project materialises.

I’m often asked to summarise the core mission of the Skolkovo Institute of Technology. This requires only two words: changing culture.

Skolkovo is changing the academic culture in Russia by building a new graduate-level science institute, together with the Massachusetts Institute of Technology. We believe it will be the first such institute in the world to integrate comprehensively education, research, innovation and entrepreneurship. Students may not choose to start their own company when they graduate, but they will know how to.

Corporate culture is also being changed. We’re educating large Russian firms about the value of conducting contract research at this new institute, teaching them how to work with venture capitalists and how to embrace innovation as central to their success, if not their survival.

As for entrepreneurial culture, it’s easy to forget that not long ago, private enterprise in Russia was either illegal or strongly discouraged. It will take time to overcome this legacy and to let the innately creative Russian spirit flourish. Skolkovo is an accelerator in this transformation. By providing support, financing and preferences to startups, we hope to level the playing field.

Our role is also to provide moral support to nervous young entrepreneurs who want to chase their dreams.

Finally, we are aiming to change the cultural understanding of wealth creation. Russian commerce has long been dominated by its reserves of oil, gas, metals and timber. An exclusive focus on material output dominated the Soviet era, with its famous five-year plans.

Even today, virtually all of the top Russian business people made their fortunes through physical resources.

But for Russia to compete in the global knowledge economy, it needs to shift gear, and Skolkovo can make this happen. We do this by educating about intellectual property (IP); by helping entrepreneurs and start-ups to create, defend and commercialise their IP; by providing early and highly visible successes in monetising Russian IP on the world stage; and by creating entirely new IP legal frameworks which can be applied across Russia.

In short, our task is to create the mechanisms to transmit Russia’s scientific and intellectual power into globally competitive knowledge-based products and services.

Skolkovo has a number of advantages. The first is Russia’s rich scientific and technical base.

Second, we’ve studied innovation success and failure, and built what we’ve learned into our model.

Third, Skolkovo is an open platform for global co-operation in research and development.

Steven Geiger is chief operating officer of the Skolkovo Foundation, the Russian government’s programme for innovation and technology

Tuesday, March 27, 2012 9

RUSSIA AND GREATER CHINA

Programmed for success Nation’s companies are more than capable of competing on the global stage, writes Tino Kunzel

R

ussians are not the first stop on the map for outsourcing.

Compared with India, Russians are too expensive – and too inventive – which is why the majority of their good ideas require someone to implement them.

The most profitable collaborations come from abroad, if there is room for inventiveness.

Some technical inventions that make our lives simpler start out by making the life of their inventor easier. A prime example of that is Nikolay Abkairov. The computer programmer from Zelenograd, a suburb of Moscow, was simply annoyed by the traffic he encountered on his way to work. Others may have opted to simply take the train, but Abkairov decided to start working from home. He collaborated with Ramu Sunkara and Bhaskar Roy, two Americans with Indian lineage, who were planning on leaving United States software giant Oracle.

Early 2007, after nine months of developing, the Qik prototype was finally finished. The program was aimed at increasing the functionality of mobile telephones. It enables mobile-phone owners to easily upload videos and to make them accessible to friends.

The app, which is now also available for video phones and chats, is now used by more than 10 million people around the world. The start-up of the same name had a meteoric rise. In January last year, the company was purchased by Skype for US$121 million. Today, Qik employs 50 programmers.

The best part of this success story from the point of view from Russia’s IT sector is that the company’s success is proving that Russian companies can also compete in the global market. That may not be an entirely new revelation. For Qik it’s not about a Russian company, but rather an American one with its headquarters in Silicon Valley, where two dozen employees take care of marketing and sales.

Without the business acumen of its partners overseas the project would have been doomed from the start, admits the otherwise tight-lipped Abkairov. “I would have never taken such a huge risk alone.

I’m not that courageous.”

IT INDUSTRY

Odnoklassniki. The Russian IT market is experiencing some growth, but it is not yet significant. The flip side coincides with what Yevgeny Kaspersky once said, that Russia produces “a great deal of qualified specialists, but precious few successful businesses”. Still, an increasing amount of start-ups are being tailored for the international markets right from the start.

Alexander Galitskiy, co-founder and manager of the Russian Venture Fund Almaz Capital, sees a “dawn” in the sector. In each of the past three years, the fund had invested between US$5 million and US$7 million in 10 companies, including the European Bank for Reconstruction and Development, and Cisco Systems.

Venture capitalist Galitskiy feels that Russia’s greatest advantage lies in the “excellent programming institutions”,that are predicated upon providing their students with a first-class education and

trains software developers to be able to tackle complex problems. “Solving difficult problems, analytics, large quantities of data and algorithms are all areas where Russia can compete on a global scale.”

Galitskiy finds that even the juxtaposition of two popular smartphone games draws parallels here. He says the more popular “Angry Birds”, from the Finnish Rovio Entertainment Studios, is not nearly as challenging as the similarly popular “Cut The Rope” from the Moscowbased ZeptoLab. Ten years ago, many felt that Russia could become the new India for the Western IT sector’s outsourcing needs, says Georgiy Pachikov, head of Parallel Graphics, provider of 3D instructional manuals and based in Moscow. Then it came to light that Indians can speak better English and are not as expensive. But that was not all.

“Our programmers see a piece of software and think to themselves, ‘I can do better than that’.”

In outsourcing, you have to stick to the regulations, which require a certain amount of discipline.

The most prosperous collaborations come from abroad, provided that there is a setting allowing creative discussions, says Alexander Vovkula, Parallel Graphics’ technical director. Parallel Graphics conducts most of its business abroad, with such companies as Boeing and Airbus. The interest in domestic business is minimal, according to Pachikov. “The possible savings potential generated by our software is not worth the extremely large state operating costs.”

Andrei Andreyev

Grigori Schenkman

Arkady Volozh (second right), CEO of Yandex, celebrates its IPO in New York. Photo: Reuters/Vostock-Photo

Russia produces “a great deal of qualified specialists, but precious few successful businesses” Up to now, Russia has been more synonymous with talented programmers than business savvy. Every now and again, however, everything just comes together.

For example, the Moscow-based software manufacturer Abbyy had resounding success with its text-recognition program FineReader and its electronic dictionary Lingvo. At this year’s CeBIT, Abbyy is focusing on business solutions, and document and data capturing.

The most successful international Rus-

sian IT company is without question Kaspersky Lab, which produces anti-virus software. Its turnover totalled US$612 million last year alone – a 14 per cent increase over 2010 and a 57 per cent increase compared with 2009.

And 80 per cent of the turnover came from abroad.Of the 20 most successful companies in the sector, a large portion do not manufacture products themselves, but rather operate systems integration.

This basically entails adapting other manufacturer’s products to meet the needs of its clients.

Three other industry heavyweights have concentrated their efforts in the Russian-speaking realm. The search engine Yandex has numerous new features and has been traded on the NASDAQ since May last year and claims a 60 per cent market share from Google. As far as social networking sites are concerned, global leader Facebook is only third behind Russian networks Vk.com and

MULTIMILLION-DOLLAR BUSINESSES BUILT FROM SCRATCH

Alexander Galitsky

Max Levchin

David Yang

AGE: 37 RESIDENCE: MOSCOW VALUATION: US$100 MILLION

AGE: 36 RESIDENCE: SAN FRANCISCO VALUATION: US$100 MILLION

AGE: 43 RESIDENCE: MOSCOW VALUATION: US$200 MILLION

AGE: 37 RESIDENCE: LONDON VALUATION: US$800 MILLION

Alexander Galitsky sold 10 per cent of ELVIS+ to American computer giant Sun Microsystems in 1993. He took up venture investing, founding several funds in programmers’ startups. His fund, Almaz Capital Partners, sold to Skype 20 per cent of Qik, a company that develops software for mobile video-conferencing.

The company was valued at US$150 million. The company’s portfolio also includes a minority interest in Yandex and the software developer Parallels.

Max Levchin’s family moved from Kiev to Chicago in 1991. Seven years later, he and his partners founded Fieldlink, which was later renamed PayPal. The online payment service was bought by eBay in 2002. Slide, a photo-sharing service for social networking sites, was created and Google bought it in 2010 for US$182 million and Levchin became vice-president of engineering at Google. A year later, Slide was shut down and Levchin resigned.

David Yang was born in Yerevan, Armenia. He enrolled at the Moscow Institute of Physics and Technology, and founded Bit Software in 1989, while still a fourth-year student. He later renamed it ABBYY. His company’s most popular products are the optical recognition system ABBYY FineReader, with more than 20 million legal users worldwide, and the ABBYY Lingvo dictionaries. He has since opened restaurants in Moscow, and promoting restaurant business management system iiko.

Andrei Andreyev, creator of social website Badoo, founded the web analytics service SpyLog in 1999.

He later launched Begun, an online contextual advertising firm. Finam Holdings bought an 80 per cent stake for US$900,000.

Andreyev next created the dating site Mamba, in which Mail.ru bought a 30 per cent share for US$18 million in 2007. There are about 130 million registered users of Badoo, which is worth about US$1 billion.

› almazcapital.com

› paypal.com; slide.com

› abbyy.de; en.iiko.ru

› badoo.com

Alec Miloslavsky AGE: 49, 48 RESIDENCE: SAN FRANCISCO VALUATION: US$350 MILLION

Gregori Schenkman and Alec Miloslavsky met 30 years ago in San Francisco. To create the company Genesys, each borrowed US$75,000 from their parents. In 1997, Genesys launched an initial public offering and three years later was bought by Alcatel for US$1.5 billion. The partners next created Exigen Services, a programme used in Latvia, Russia, and China.

FORBES

10 Tuesday, March 27, 2012

RUSSIA AND GREATER CHINA

An age of upheaval dawns Sergei Karaganov The Moscow Times

T

he world is being shaken by tectonic changes: the continuing economic crisis is accelerating the degradation of international governance and supranational institutions, and both are occurring alongside a massive shift of economic and political power to Asia.

Less than a quarter of a century after American political scientist and author Francis Fukuyama declared “the end of history”, we seem to have arrived at the dawn of a new age of social and geopolitical upheaval.

The Arab world has been swept by a revolutionary spring, although one that is rapidly becoming a chilly winter. New regimes are combining authoritarianism with Islam, resulting in further social stagnation.

Even more remarkable are the grassroots demonstrations mushrooming in affluent Western societies. These protests have two major causes.

First, social inequality has grown unabated in the West over the past 25 years.

The spectre of revolution had forced Western elites to use the power of the state to redistribute wealth and nurture the growth of loyal middle classes. However, when Communism collapsed in Eastern Europe, the West’s rich, believing they had nothing more to fear, pressed to roll back the welfare state, causing inequality to rise rapidly.

Second, over the past 15 years, hundreds of millions of jobs shifted to Asia, which offered inexpensive and skilled labour. The West failed to implement necessary structural reforms, with Germany and Sweden the exceptions.

Nevertheless, the economic crisis has made it impossible to maintain a good life on borrowed money.

Americans and Europeans are beginning to understand that neither they, nor their children, can assume that they will become wealthier

OPINION

Niyaz Karim over time. Governments now face the difficult task of implementing reforms that will hit the majority of voters hardest. However, the minority which has benefited financially over the past two decades is unlikely to give up without a fight.

All of this can only weaken Western democracy’s allure in countries such as Russia, where, unlike the West or the Arab world, those who are organising massive anti-government demonstrations belong to the economic elite.

Theirs is a movement of political reform, demanding more freedom and government accountability. A few years ago, it was fashionable to worry about the challenge that authoritarianstyle capitalism - for example, in China, Singapore, Malaysia or Russia - presented to Western democratic capitalism.

Today, the problem is not only economic.

Western capitalism’s model of a society based on near-universal affluence and liberal democracy looks increasingly ineffective when compared to the competition.

Authoritarian countries’ middle classes may push their leaders toward greater democracy, but Western democracies will also likely become more authoritarian.

Indeed, measured against today’s standards, former French president Charles de Gaulle, British prime minister Winston Churchill and United States president Dwight Eisenhower were comparatively authoritarian leaders.

The West will have to re-adopt such an approach or risk losing out globally as its ultraright and ultra-left political forces consolidate their positions and its middle classes begin to dissolve.

We must find ways to prevent the political po-

larisation that gave rise to totalitarian systems in the 20th century. Fortunately, this is possible. Totalitarianism was born and took root in societies demoralised by war, which is why steps should be taken now to prevent the outbreak of war.

This is becoming particularly relevant today, as the clouds of conflict hang over Iran. Israel, which is facing a surge of hostile sentiment among its neighbours in the wake of their “democratic” upheavals, is not the only interested party. Many people in the advanced countries look increasingly supportive of a war with Iran.

At the same time, huge opportunities beckon.

Billions of people in Asia have extricated themselves from poverty. New markets and spheres for applying one’s intellect, education and talents are appearing.

The world’s power centres are beginning to counterbalance one another, undermining hegemonic ambitions and heralding instability based on genuine multipolarity, with people gaining greater freedom to define their fate in the global arena.

Today’s challenges offer the potential for both peaceful coexistence and violent conflict. It is up to us - alone - to determine which future it will be.

Sergei Karaganov is the head of the Council for Foreign and Defense Policy.

China should not be considered a threat Vladimir Portyakov special to RGC A report, “Strategy 2020: New Growth Model – New Social Policy”, was unveiled to the Russian public on March 16. It was conceived as an update to the 2008 Strategy for the Development of Russia up to 2020 in the light of the global economic crisis.

The report may be useful to the new Russian government that is to be sworn in after the inauguration of Vladimir Putin, who was elected president this month. The report met with mixed reaction among experts, some of whom flatly rejected it.

The section of the document devoted to China is also controversial. The main thrust is that China’s development poses certain risks for development of the Russian economy. It mentions such risks the as internationalisation of the yuan, competition from the Chinese manufacturing industry, strengthening of Beijing’s position in Central Asia and increased Chinese activism in the world “club of young leaders”.

Only one of these four arguments is sound. It is true that the competitiveness of the Chinese manufacturing industry might exert pressure on the Russian manufacturing sector. According to

the newspaper Moskovskiye Novosti, Russia imports 45 per cent of its food, 80 per cent of its clothing and 60 per cent of its medicines.

According to Chinese customs statistics, last year, Russia imported from China almost US$16 billion worth of machinery and equipment and exported a mere US$283 million.

The share of machinery and equipment in Chinese exports to Russia has already topped 40 per cent, whereas China’s share in Russian exports has dropped to 0.7 per cent. But this situation can only be turned around gradually. The reasons for this are twofold. First, Russia will have to revive its own manufacturing industry and second, nobody today can replace China as the supplier to Russia of a wide range of goods, including machinery and equipment.

According to Russian customs statistics, China’s share in Russia’s foreign trade last year exceeded 10 per cent and in imports it reached 15.8 per cent. It should be noted that the original (2008) Strategy 2020 assumed that active cooperation with China would be instrumental in reviving the Russian machine-building industry.

Significantly, the new version of the document, while its assessment of risks might be controversial, speaks about using the new op-

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portunities of co-operation with China to accelerate growth of the Russian economy.

The fears concerning the negative consequences for Russia of internationalisation of the yuan are purely speculative and are not based

Up to 2020 and beyond, Russia will not shy away from China but effectively co-operate with it on any facts or semblance of a theory. China has more chances of creating a world financial centre than Russia because of the differences in the size and structure of the two economies.

The strengthening of China’s positions in Central Asia is seen in the document as a weakening of Russia’s positions. This is a classic example of the outdated “zero sum” approach to international relations. At a minimum, there are other players, the independent Central Asian states that themselves decide how to develop

and co-operate with whom. It is not that China has “advanced” in the region, but rather that Russia has “retreated”. In late 2006, Russia’s trade with Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan amounted to US$16.4 billion compared with US$11.9 billion with China. Last year, China was already well ahead of Russia in trade with that group of countries: more than US$34 billion and about US$26 billion, respectively. However, the Central Asian countries are still more important economically for Moscow than for Beijing.

Finally, talk about strengthening the G20 format and damage to Russia from the increased influence of China in the IMF indicates only one thing: that section of the report was prepared by people who learned about China from Western sources.

Let me remind readers that the Russian prime minister and president-elect expressed the view that “growth of the Chinese economy is not a threat but a challenge that has a colossal potential for business co-operation, a chance to catch ‘the Chinese wind’ in the ‘sails’ of our economy”.

Vladimir Portyakov is the deputy director, Far Eastern Studies Institute, RAS

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Tuesday, March 27, 2012 11

RUSSIA AND GREATER CHINA

Unforgettable memories of HK Country’s nationals first sweltered in a hot and humid city, writes Kira Pozdnyaeva

I

f you visit the Hong Kong Cemetery or happen to find yourself in a traffic jam on your way out of Aberdeen Tunnel, take a good look and you’ll see three tombs with oddly-shaped crosses standing on a small hill to the left of a chapel. These are the tombs of a Russian priest, his wife and daughter.

A closer inspection reveals many more crosses of this sort scattered around the cemetery. There are more than 150 Russian graves in Hong Kong.

Russian characters are half-erased on all of the gravestones. Who were these Russians, whose lives ended at the edge of Asia? The first links between Russia and Hong Kong were forged somewhere in Happy Valley back in the mid-19th century.

It was there and then that renowned Russian writer Ivan Goncharov and diplomat and orientalist Iosif Goshkevich wrote their first notes about Hong Kong.

Both were travelling from Russia to Japan on the frigate Pallada. They described their voyage and their writings became a bedside read for generations of Russian youths dreaming of dangerous journeys and undiscovered lands far from St Petersburg and Moscow.

Northerner Goncharov arrived in Hong Kong in the early summer of 1853.

He suffered from the Hong Kong heat and wondered how people could live and work in such a climate.

“We tied up to one of the many quays of the European quarter and made our way through some merchant’s house, through a crowd of Chinese, vendors and coolies, and through a variety of odours into the street, thinking we could catch a breath of fresh air. But when we inhaled, it seemed as if we were breathing in hot steam; we made a couple of steps and had to think about a haven to take shelter in really cool shade ...

The sun burnt us even in the shade.”

He mocked the British method of balancing temperatures with the help of brandy, calling it an explicit desire to drink, masked by a plausible excuse.

Yet, he adopted the Chinese way of resisting the heat and ate delicate food moderately.

As a writer, he was fascinated by the street life – Britons in white jackets shouting commands at their servants; coolies with naked backs carrying bales to the port; Chinese ladies, who expertly stressed the beauty of their dark faces with silver accessories; and shops selling china, tea, groceries, with a multitude of fruits, of which only a couple of varieties were recognisable – pineapples and small oranges called tangerines.

Goshkevich visited Hong Kong not only on board the Pallada in 1853, but also later, in 1856, as a prisoner of war.

During the Crimean War, Goshkevich was a passenger on a ship captured by the British. All the captured passengers were sent to Hong Kong. The exile looked more like a compulsory vacation, as all the best residencies, clubs and the library welcomed him, and he gave a speech at the Asian Science Society.

What Goshkevich saw in Hong Kong was a well-organised business centre, a town of merchants and commercial agents, and a busy port with more than 60 merchant vessels at anchor at any one time. Some of his observations would seem familiar to those who conduct business with China 150 years later.

“I saw a copy of Raphael’s Madonna, smaller than the original, which was brought from Berlin, and another one,

HISTORY made by a local Chinese – you could hardly tell one from the other. Indeed, to sell something profitably, you have to make it look as if it took time and effort to complete it.”

Writer and playwright Anton Chekhov was probably the most prominent Russian who ever visited Hong Kong – he was one of those boys who read Ivan Goncharov’s The Frigate Pallada over and over again. Chekhov dreamed of visiting China, especially Hankow, now Wuhan, the centre of the tea trade.

The writer sensed a connection with that inconspicuous town through childhood memories. Son of a Taganrog merchant who owned a shop selling tea, sugar, coffee and other colonial produce, young Chekhov remembered the boxes with Hankow written on them, when he weighed out the tea. Hong Kong became his first foreign destination in the autumn of 1890.

All Russian travellers who wrote about Hong Kong mentioned the hard life of the locals. Chekhov thought that his countrymen were insincere. “I rode a rickshaw, bought all sorts of trash from the Chinese and resented my fellow Russians rebuking the British for exploiting foreigners. I thought that the British exploit Chinese, sepoys, Hindus, but give them roads, water lines, museums, Christianity. You, too, exploit people, but what do you give in exchange?”

This paragraph was censored from Chekhov’s works during Soviet times – the writer was considered a “revolutionary” in Soviet Russia.

In 1857, a Russian consulate opened in Hong Kong. It occupied for many years the beautiful building that would become the Court of Final Appeal.

Later, offices of big Russian trading houses started opening up in Hong Kong – I.Churin and Co, Moscow manufacturing company Emil Zündel, Fabergé, the Russian-Asian Bank, the Rossiya insurance society and Russian Lloyd.

The first colonies of Russian immi-

Hong Kong was home to many Russian immigrants before the second world war. Photo: Getty Images/Fotobank grants appeared in 1917, when a wave of refugees from Russia deluged the world, even reaching Southeast Asia.

Most of the “White Russians” took British citizenship and worked for foreign companies or served in the police. There was no Russian club in town and the Russian community gathered around the church and a priest by the name of Dimitry Uspensky, who had been sent on a mission to Hong Kong from Peking in 1933.

Russian writer Ivan Goncharov arrived in Hong Kong in 1853.

He suffered from the summer heat, and wondered how people could live and work here Orthodox services were first conducted at the Anglican St Andrew’s Church but, by the early 1940s, the design of a separate church had been prepared and substantial funds had been raised for the construction. The construction project

The Court of Final Appeal was the consulate. Photo: Tatyana Yansberg

was thwarted by the war. Many Russians found themselves in Japanese prison camps together with British and Chinese.

After the war, a new wave of Russian refugees came to Hong Kong, fleeing from China after the 1949 revolution. Leaving behind homes, churches, and schools, universities, hospitals and asylums built over the previous 30 years, Russian refugees fled from Harbin, Shanghai, and Dalian to Australia, the United States, and Canada via Hong Kong.

Historians claim that Russian refugees with Nansen certificates – passports given by the League of Nations – occupied the lowest rungs of the social ladder. The British government helped Russians obtain Commonwealth passports and reach new places of residence.

Tens of thousands of Russians left Hong Kong in cargo holds. Those who decided to stay in the British colony managed to live a comfortable life.

“Refugees from China did not stay in Hong Kong long – a year at the most, if some of their folks were ill,” says Sophia Viliyat Khan, who lived in Hong Kong for half a century and left for Australia only a couple of years ago. “We came from Harbin and had no plans to settle here but my father fell ill and soon died.

My mother talked to me and my two brothers and we decided we would stay.

It was very hard initially, as we spoke neither Cantonese nor English, but only Russian and Mandarin. It got better later.

I ran my own business – a Pakistani restaurant – for 19 years.”

Old Hongkongers still remember Russian confectioneries, Cherikoff’s, Chantecler and the famous Tkachenko’s, which was located near the Peninsula Hotel and mentioned in several books about Hong Kong.

Irina Pokrovskaya, a Hong Kong emigrant to the US, remembers another Russian footprint in Hong Kong business. In the late 1990s, she happened to meet Irina, a pensioner, who lived in a home for senior citizens in the New Territories.

“When we met, Irina was already in her 80s and she was very ill. Her family came to Hong Kong from Harbin, like many other Russian families. Irina had never worked but, after her husband died, when she was already more than

50, she came across an interesting offer – a young Chinese woman opened a fashion store and offered Irina work as a secretary. Irina had excellent taste and her boss often asked her advice. They travelled all around Europe together and brought collections from the best couturiers back to Hong Kong, which sparked a “fashion revolution” through the nowfamous Joyce boutique. When Irina became too old to work, her boss gave her a new car as a gift.”

In his book Gweilo: A Memoir of a Hong Kong Childhood, author Martin Booth tells the story of a heroine of the Hong Kong streets in the first half of the 20th century – the “Queen of Kowloon”.

The beauty used to be the wife of a Russian officer who was killed by the Bolsheviks during the 1917 revolution.

The widow fled from the red terror to Shanghai, where she gave music lessons and was the mistress of a Chinese mobster. Before the second world war, she left for Hong Kong and settled in a small apartment, selling her jewels and giving music lessons, until she took to the bottle and opium to mask her troubles in life. Booth met the “Queen” when she was already a down-and-out beggar who had lost all traces of her former beauty.

Perhaps the sad story of the Russian beauty suggested to Charlie Chaplin the idea for his last film, A Countess from Hong Kong, in which a stowaway Russian countess sneaks into the cabin of an American diplomat to sail to America.

Maybe Chaplin decided to make her happy at least on screen. Sophia Loren’s character, Countess Natasha Alexandrova, a club dancer, also fled to Shanghai and then to Hong Kong and was also a mobster’s mistress.

In 1970, Russian priest Dimitry Uspensky died. By that time, few Russians remained in Hong Kong and the parish council, lacking funds for its upkeep, decided to close the church. Russians eventually left Hong Kong.

However, a few decades later, a new generation of Russians has emerged.

The Russian church has reopened and new Russian restaurants have appeared.

They grow dill, make sour cream and cook borsch in apartments across Hong Kong.

12 Tuesday, March 27, 2012

RUSSIA AND GREATER CHINA

New take on the life of a hero and traitor Nikolai Dolgopolov’s new book attempts to shed further light on the notorious British double agent

B

randed a traitor in Britain and a hero in Russia, Kim Philby was a high-ranking member of the British Secret Intelligence Service and one of the Cambridge Five double agents who also passed information to the KGB. When his cover was blown in 1963, he fled Beirut, where he was working as a journalist at the time, and escaped to thethen Soviet Union where he spent the rest of his days until his death in 1988.

He was buried with full miliary honours and later depicted on a stamp by the Russian postal service.

To commemorate what would have been Philby’s 100th birthday on January 1, a new book about him, by awardwinning journalist and writer Nikolai Dolgopolov, has been published.

Philby’s life attracted a lot of attention and there have been about 200 books published about him. This new book, entitled Kim Philby, focuses on the Moscow period of his life.

He loved wondering around Moscow, his Russian fourth wife Rufina recalls, and he knew the city centre very well.

He even made a map of the toilets there – partly as a joke, although it was actually useful, since there were not so many toilets.

A number of documents were declassified by the Russian Foreign Intelligence Service specially for Dolgopolov’s book.

They include Philby’s notes about his work for the British Secret Intelligence Service, his reports to Moscow and confidential messages. “Some of them were translated into Russian for the first time,” Dolgopolov says.

The author had a rare opportunity to interview Philby’s wife Rufina and some of Philby’s students and Soviet intelligence officers.

There are two extracts from the book, including the interview with Philby’s supervisor and Philby’s notes about the circumstances he left his wife in when he fled Beirut.

The person I interviewed, until recently, served as a department head in the Russian Foreign Intelligence Service.

He was Philby’s supervisor. Everything he says is filled with such respect for Philby, making you think about his exceptional professionalism as a spy and his talent for winning people over.

Did you see Philby and his wife much?

No, it was mostly on important occasions like anniversaries and professional holidays of our service, some important

INTERVIEW dates for Kim and George [Blake, another British double agent who escaped to the Soviet Union], organising their trips around the country, solving various issues, including domestic ones.

The time I worked with him coincided with a rather interesting period for our country. Perestroika and glasnost also affected our field, forcing the Committee and First Chief Directorate leadership to lift the veil of secrecy around all those people, allowing them to go on air. I remember Kim gave a short interview to a well-known journalist, Genrikh Borovik, which was shown on TV. At that time, Kim also suggested giving an interview to [Sunday Times journalist] Phillip Knightley.

Did Knightley ask Philby tricky questions, and was he able to avoid them skilfully?

For Philby, Knightley was just a tool, a channel to transmit the information he wanted to transmit. Indeed, Philby was himself a journalist, an intelligence officer and a high-ranking manager.

We did not want Knightley to know where Philby lived. How could we know what the consequences would be? We had our own serious task: ensuring Philby’s safety.

Our approach was to exclude the possibility of getting any information about Philby. He lived not far from Gorky Street. However, when bringing Knightley to Philby, we drove around the city for quite some time to make him think that Philby lived far from the city centre. We drove him to the building and he went up in a lift. We even wanted to remove the building number. Yes, we had to think about those small things.

When you visited Philby, did you discuss any urgent issues?

Generally, no. What we discussed were interviews, preparing for them and

meeting journalists. I never received any detailed instructions for Philby from my superiors. They proceeded from the assumption that Philby himself knew best how to do things. It was left to his discretion. The Knightley interview was unedited.

Did he still work for the intelligence service?

Yes, he briefed intelligence officers going to work in Britain and English-speaking countries. They were arranged in small groups of three. He took it very seriously, preparing and making notes for use during those training sessions.

He closely monitored events around the globe, and especially in his region. He saw it as his contribution to the training of young intelligence officers.

Even if it wasn’t the main thing in his life, the profession was an important part of it ... The students would come to his place about once a week. And let’s remember how old he was: in the mid-1980s, he was over 70. And he did continue his pedagogical activity. When Philby’s advice was needed they would contact me, and I would call and discuss a timetable.

Did Philby speak Russian well?

Not really. It was different from George Blake, who embraced Russian life more fully, but he was a very different kind of person. Blake spoke Russian, though he did have an accent.

Did Philby associate with any other colleagues of yours aside from the young officers he trained for trips to England?

No, I can’t remember him coming to

Kim Philby The prominent spy was born in India in 1912. His father was a British highranking official and adviser to the rajah. Harold Adrian Russell “Kim” Philby was raised by his grandmother in England. He studied at Trinity College, Cambridge, where he became treasurer of the University Socialist Society.

After being recruited by a Soviet intelligence officer he worked as a journalist, combining journalistic assignments with the spy work for the Soviet Secret Intelligence Service. He was also recruited by MI6.

Philby married four times and had five children.

our service and visiting different departments. It isn’t accepted here. Instead, he would come on formal occasions.

In Moscow, he lived the same life as us Russians, carefully monitoring all political events. The fate of people like Philby, who switch sides, is always determined by that step, once and for all.

As a rule, they get squeezed like sponges, after which they are set free to go and live as they please. It all depends on their reasons for switching sides.

If it was all for money or some personal reasons, the outcome is clear. But it was different with Philby and his Cambridge friends. They were all idealists.

This is what really matters. They even waived their pensions, which were granted to them back in the war years when they were all working in Britain.

Although later, in Moscow, they all received good money. But those things are all relative. Anyway, Philby received a much larger pension than the average Soviet army general.

Philby was held in high regard. Even his opponents cannot reproach him in this respect. Instead, they try to downplay Philby’s role.

Judging by photos, Philby had good taste in clothes but he didn’t have expensive things, is that right?

He was modest but he always remained a gentleman.

Did you help bring things for Philby from abroad?

Tweed trousers, sweaters, and other things he liked all helped Philby feel more at home or at least comfortable and surrounded by familiar things. The Times, English mustard and some other small things mattered to him.

Tuesday, March 27, 2012

13

RUSSIA AND GREATER CHINA

Secret notes reveal the circumstances of double agent’s escape from Beirut Vladimir Ruvinsky RGC

Kim Philby with his Russian wife Rufina in their Moscow home, where he spent the last 25 years of his life. Philby would brief Soviet spies before they went on missions to Britain. Photo: private archive

Kim Philby is credited with helping the Red Army defeat the Nazis. Photo: Rex/Fotodom Our foreign colleagues would buy those things for him.

Which English people did he keep company with?

I know from others that Philby was very close to Donald McLean [one of the Cambridge Five] at one time. He was also friends with Blake. You know, it isn’t so much his private life that interests me, but something else. I remember his awards. If, from today’s historical perspective, we look at what Philby did for the victory in the second world war, we see that his personal contribution was huge. Among other things, Philby and his colleagues contributed to the successful outcome of the battle of Kursk.

And they also did many more things.

This is acknowledged by everyone, including Philby’s enemies. He provided some extremely valuable information. I started to talk about his contribution in the victory over Nazi Germany. When I examined the materials carefully, I felt a sense of injustice. How could it be that he did so much but was not a Hero of the Soviet Union? Why? I began to bring this idea to our leadership. They explained that it was not the best time for that – the year being 1987, maybe Mikhail Gorbachev didn’t want tensions with Britain. So my idea did not win support.

Then suddenly, a document came from the office of KGB chief Vladimir Kryuchkov, where it arrived from the office of Mikhail Yasnov, then chairman of the Presidium of the Supreme Council of the RSFSR [Russian Soviet Federal Socialist Republic], with a note saying: “Mr Kryuchkov, please consider the letter attached.”

In the letter, three students from Kharkov expressed their surprise that such a great man who did so much for

Kim Philby (centre), who worked as a mole for the Soviet KGB, visits the KGB Museum. Photo: Private Archive the victory was not made a hero. It was shortly after Philby’s interview with Genrikh Borovik was shown on TV, that the Kharkov students wrote their letter. Orders were given to prepare the necessary documents. We began, but Philby died in May 1988.

Is it the fate of an intelligence officer to do two or three cases?

It may even be one case. Indeed, many intelligence cases are completed and archived, and buried, and no one knows about them.

You attended Philby’s funeral. Was it all unexpected? Media reports spoke of a sudden death.

It was, there’s no mystery there. Philby was undergoing a medical examination in our hospital. He had a separate room, because of his status. He fainted and fell to the floor. Had there been someone else in his room, a doctor would have been summoned immediately.

That’s not to say that he was in a critical condition before. No, it was a regular check-up. Everything was going fine. He was going to stay in the hospital for a few more days and go home.

On meeting our friend, I was informed that the arrangements had been speeded up and that I would have to leave [Beirut] at once KIM PHILBY

After talking to you, I am even more convinced that the most important things Kim Philby did were far away from here.

Of course, he was an intelligence officer. And he completed his intelligence mission before he left Beirut. Even in Beirut, working and helping as much as he could, he was in what he called quiescent mode.

Of course, he remained close to politics, working as a journalist, and other things in other places. Compare it to his mission in the US, where he was a representative of the Secret Intelligence Service from 1949 to 1951.

However, then he was recalled to London, which was a sign of mistrust.

By that time, most of his work had already been accomplished.

Secret notes reveal the circumstances of the double agent’s 1963 escape. Philby fled Beirut to avoid arrest when his cover as part of the Cambridge Five was blown. His notes detail the impact this had on his wife.

“On January 23, my [third] wife [Eleanor Brewer] and I had a dinner engagement with the Balfour-Pauls, at which the Copelands were also to be present. At 3pm I received a signal from our friend indicating a rendezvous at 6pm for the purpose of consultation. I left our flat shortly after 5.30pm informing my wife that if I were detained she should go to the Balfour-Pauls without me and await me there. On meeting our friend, I was informed that the arrangements had been speeded up and that I would have to leave [Beirut] at once.

“I telephoned our flat and told my son to tell Eleanor I should probably be very late. Between 6pm and 7pm, Peter Lunn telephoned my wife and asked to speak to me. He did not give any particular indications of urgency. My wife said that I was out but that I would be rejoining her for dinner at the BalfourPauls and that he would be able to reach me there.

Former British spy Kim Philby in London Photo: Private Archive

Glen Balfour-Paul was first secretary at the British Embassy in Beirut.

“During the dinner my wife became increasingly anxious. The Copelands tried to soothe her by arguing that I was obviously out on some journalistic scoop. Their arguments did not succeed in calming her down because I had always previously kept her punctually informed about my movements. My wife left the Balfour-Pauls very soon after dinner and got back home at about 10.30pm. She waited until after midnight and then called [intelligence officer] Peter Lunn. Lunn then telephoned Eleanor who asked him if he knew of my whereabouts. He answered that he did not, but that he was ready to visit her to discuss this situation. He arrived at the flat at about 2am. My wife’s anxiety at that stage was that I had had some serious accident.

“My wife was unable to detect any signs of agitation in Lunn’s behaviour, but that is hardly surprising because he was a particularly cool fish and my wife had only met him on a few occasions.

It was a very stormy night and Lunn said that the Lebanese police would probably decline to take immediate action and that they might just as well wait until morning before setting inquiries

on foot, which was Lunn’s big mistake.

Early the following morning, Lunn contacted Eleanor and informed her that, acting in concert with Pierotti, the British consul, that they were asking the Lebanese police to check all hospitals and accidents that may have occurred the previous night. The story in the Observer that Miles Copeland and Eleanor spent £100 on taxis searching for me is completely untrue. The position of my wife was also complicated by a note which I had left in a drawer.

“Two or three days later Pierotti turned up with two Lebanese police officers, who interrogated Eleanor closely about what I was wearing when I disappeared. The next event was the arrival of my first letter telling Eleanor where to find 3,000 Lebanese pounds which I had left behind for her and my instructions for her to tell everybody that I was on a long tour of the area.

This letter Eleanor showed to Lunn. Late in January Lunn asked Eleanor to lunch alone with him and asked her detailed questions as to my state of health, financial position, and other possible sources of worry, Eleanor answered that she had thought that I had been worried for quite some time, but attributed it to a general run-down state of health along with worries of the previous year.

Early in February Eleanor decided to contact Miles Copeland whom she had known for 12 years; an additional reason for her doing this was that she could not find much confidence in Peter Lunn.

Copeland offered to get in touch with Nicholas Elliott who was somewhere in the area at the time and ask him to come urgently to Beirut. Eleanor agreed with the suggestion and Elliott arrived within 24 hours.

“Elliot’s conversations with Eleanor were of a general character. They consisted to a considerable extent on my whereabouts, state of health and state of mind. At times Elliott seemed to give the impression that I had been doublecrossed and had left against my will.

“Around this time the Lebanese police began to show interest in the contents of my strongbox. Throughout this period, my wife was subjected to routine persecution from press correspondents and photographers. She also states that agents of the local police force moved into an empty flat overlooking ours in order to keep the place under observation. Other normal security precautions were taken, such as bribing the porter and tapping our telephone.

“Eleanor’s secret departure from Beirut was achieved with the help of Balfour-Paul, Dick Parker of the US Embassy, Miles Copeland and the local BOAC manager, Mr Ingham, who between them kept her name off the passenger list and obtained a certificate from the airport commandant permitting her to drive up to the aircraft on the alleged grounds of illness. At the London end the airliner was met by cameramen and journalists but, through the courtesy of the captain of the aircraft, Eleanor was allowed to remain in the aircraft until the journalists had drifted off to the bar. A car was then provided for her and she slipped through unnoticed.

14 Tuesday, March 27, 2012

RUSSIA AND GREATER CHINA

Hotel Ukraina (far right), Ministry of Foreign Affairs (second right) and Kudrinskaya Square (far left) Photo: Geophoto

Seven Sisters defy effects of age Grandiose symbols of Soviet power continue to dominate Moscow’s skyline, writes Tino Kyuntsel

I

n the grey days of the Soviet era, workers raised in the spirit of atheism needed a little inspiration from time to time. And, while they had the luxurious pioneer camp Artek in the Crimea, the grand Exhibition of Economic Achievements in Moscow and the lavishly decorated Moscow Metro to uplift their spirits, the Communist paradise on earth had yet to arrive.

Soon after the end of the second world war, a grandiose new architectural project was launched.

Joseph Stalin, “the father and friend of all Soviet architects”, as he was called at the All-Union Congress in 1946, undertook a colossal construction project designed to convince the Soviet people, and the world, of the victorious nation’s increased self-awareness.

In early 1947, the Council of Ministers adopted a resolution for the construction of eight skyscrapers, one of which was never built.

On September 7 of the same year, during the celebration of Moscow’s

800th anniversary, the first stone of each skyscraper was laid.

The first building was completed in 1949, and all seven within 10 years.

Later known as the Seven Sisters, they became: Moscow State University on Sparrow Hills; two government buildings, including the Ministry of Foreign Affairs; two residential buildings and two hotels, the Ukraina and the Leningrad.

The construction of the Seven Sisters was carried out by thousands of prisoners from the Gulag, and German prisoners of war. For each building, a different technique was used to stabilise the ground under the foundations.

Costs incurred were of secondary importance. Some 2.6 billion Soviet roubles were spent on Moscow State University alone, which was the tallest building in Europe until the exhibition centre at Frankfurt-on-Main was completed in 1990.

In today’s money that would add up to about US$665 million – more than

the 2 billion roubles set aside to rebuild war-ravaged Stalingrad.

These skyscrapers surround the centre of the city like a fortress wall. All follow a similar style: a dominating central tower which narrows in stages to the top, flanked in a more or less strict order by wings.

The structure of each building differs, as does the architectural detail and the lavish decorations of their towers, statues and low-reliefs. Influences range from Renaissance and baroque to Russian church architecture and Gothic.

Historian Karl Schlögel wrote in his book, Moscow, “the new skyscrapers recreated the skyline, giving it a new vertical emphasis once held by the numerous churches and bell towers of the city so recently destroyed”.

Stalin’s death put an end to the principle that “the eye should delight” as quickly as the “father and friend of all architects” had disposed of the Soviet avant-garde in the 1930s.

The new First Secretary Nikita

TOURISM Khrushchev declared war on Stalinist extremes in city planning. Now, everything would be sacrificed to functional understatement.

Rapid construction of mass housing began, as a result of which many city dwellers received separate apartments for the first time. In the Russian mind, however, Stalinist skyscrapers still equal quality, while Khrushchev’s matchboxsize apartments equal quantity.

Country is attractive and intriguing This year was declared the year for Russian tourism in China. Russia and Greater China asks Hong Kong travel agencies about what local tourists like to do in Russia. Even after it entered into a visa-free arrangement in 2009, Russia failed to become a major destination for Hong Kong tourists. Last month, Hong Kong Airlines stopped flights to Moscow, leaving the market share to Cathay Pacific and Aeroflot. Nevertheless, Russia remains an interesting and intriguing place to visit for Hong Kong tourists.

Vikram Nanda, Nanda Travel Troika rides and other fun activities can be done in winter. If not, summer is the best option. The Hermitage Museum, The Winter Palace and Mikhailovskiy Palace are very enjoyable places to see.

Robert Mayhead, Concorde Travel We have sent our clients to Russia, mostly to St Petersburg. They usually travel by ship, but we have had requests for the river cruise from Moscow to St Petersburg. The biggest trip

was one from Vladivostok to St Petersburg aboard the luxury train Golden Eagle, with an additional four nights in St Petersburg.

But we had a bad experience when tourists took a luxury private train from Vladivostok to Moscow and the only way to get the clients to Vladivostok was by train from China. At some point the train stopped and the guard got off, uncoupled the engine and then the engine and left, leaving our clients on the train with no power and no information as to why it had stopped. They managed to find a railway employee who could speak a little English and found that they were about 20 miles outside Vladivostok. By paying a lot of money, they managed to hire an old car to take them to the city and the hotel.

Sindy Kwong, Miramar Travel Hong Kong people usually go to Moscow and St Petersburg, and prefer to visit Russia in the summer, when the weather is good.

Cherie Fong, HongThai Travel Most people prefer to travel as a group, since

the perception of Russia is that it is not as safe compared with other destinations, and the language barrier is another difficulty for Hongkongers.

They find this trip worthwhile, as Russia is a country with a long history. Some may think Russia is quite monotonous with palaces, squares and museums. But some think that Russia is quite a “cool” place to visit. I think people might be interested in the culture and also the history of the country’s Communist past.

Elena Fedina, Kalinka Tours Hong Kong tourists are different from mainlanders - they want to get everything that is in the contract and even for small changes in the itenary you have to agree with them in advance. Surprisingly, now they tend to be more budget-conscious, choosing to stay at three- or four-star hotels. Hong Kong tourists usually know more about Russia than mainland visitors. They read beforehand and often ask for attractions outside a usual package of Moscow and St Petersburg.

The eighth skyscraper, intended to be the most impressive of all, located next to Red Square and soaring up to 275 metres, never materialised.

Instead, on the foundation of the would-be Zaryadye Administrative Building, the Rossiya Hotel was built, the largest in Europe, which was demolished in 2006.

Fate was not kind to Stalin’s planned Palace of the Soviets either, which was to be in the classical “Stalinist Empire” architectural style. Its 420m tower was to be crowned with a 100m statue of Lenin, but construction was suspended during the war. When Khrushchev learned how much it would cost to complete, he supposedly said: “Better build chemical combines [chemical/radioactive plants] instead.”

Today, the Seven Sisters have lost some of their old lustre. Nevertheless, their statuesque presence across the city provides a grandiose aura and serves as a constant reminder of a bygone by.

Tuesday, March 27, 2012 15

RUSSIA AND GREATER CHINA

It’s a fist full of drama

WATCH IN HK

Journalist and film critic Valery Kichin speaks to director Alexander Sokurov about his 10th film and the final instalment in a quadrilogy about power

More from Russia at Film Festival

BIOGRAPHY Alexander Sokurov was born on June 14, 1951, in the Irkutsk region’s village of Podorvikha. He graduated from Gorky (Nizhny Novgorod) University in 1974 with a degree in history. He also graduated from the All-Russian State University of Cinematography in 1978 with a degree in directing. In 1978, Sokurov shot his first documentary, Maria, along with the 11 other films he made over the next nine years, in 1987.

Sokurov’s The Lonely Voice of Man (1978) won the Bronze Leopard at the Locarno Film Festival in 1987. He began work on his films about dictators in the late 1990s. Moloch won best screenplay at Cannes.

CINEMA

F

aust, which was in collaboration with scriptwriter Yuri Arabov, is the final instalment in a quadrilogy about power.

The first three films were: Moloch (Hitler), Taurus (Lenin) and The Sun (Hirohito). Shot in German, Faust won the Golden Lion at last year’s Venice Film Festival. On presenting the award, United States director Darren Aronofsky, who is head of the Venice jury, called Faust a film that “changes you forever”.

Why didn’t you include in your investigation a fifth and no less sinister figure: Stalin?

Stalin was simply a student of Lenin, one who reached a bestial perception of society and people. A sort of bestial psychophysiology. For a creative work that isn’t very interesting.

Although I realise it would be impressive to show the bestiality of and twists in that man’s character. I have a different angle in mind: how could a man like that have taken over so many brains?

The answer to that question is in Faust. Men run society – and that’s how everything gets out of hand. All decisions are based not on one’s intellect, not on the recommendations of experts and scientists; they are motivated by the male character. Words of advice and wise arguments have no influence. We tried long and hard to talk [Russia’s first president] Boris Yeltsin out of starting the first war in Chechnya [in December 1994]. After all, there were ways of avoiding war. That the revolt would be suppressed, I had no doubt.

The important thing was, at what cost?

But neither logic nor historical precedent worked. What worked was the element of will. On the basis of personal character traits the decision was taken to wage war. That was not an intellectual decision, do you understand? And this is a global problem, as circumstances are only becoming more complex, but the motivations for resolving them remain inside a person’s character. For drama, for Shakespeare, this is magnificent. But for life, for responsibility before history, this is a dead end.

Director Alexander Sokurov’s latest film Faust “changes you forever”.

Photo: Press-Photo

Director brings mythical figure to life I came up with the idea of making the film back in the 1980s. I consider Faust the foundation of 19th century culture in the arts. In Russia, Alexander Pushkin, Fyodor Dostoevsky and Leon Tolstoy all felt his influence.

It’s hard to imagine what would have become of our literature without the late German writer Johann Wolfgang Goethe. But we did not make a screen version of Goethe.

This is part of the quadrilogy – with its own design, its own purpose.

Yuri Arabov wrote the screenplay, but when we translated it into German and began to immerse ourselves in the reality of another culture, we had to change a lot and go back to the texts of Goethe.

Faust, which is fist in German, was never a mythological figure for me.

He is a real, living person.

In German legend, Faust is a scholar who is unhappy with his life. He decides to sell his soul to Satan in return for vast knowledge in addition to worldly pleasures.

It’s a heavy price to pay as Faust,

who is given magical powers, is eternally damned after enjoying a brief period of happiness.

He is just as real as the other characters in my other films: Hitler, Lenin and Hirohito.

These are living people, and their place in history is an addendum to their characters, their personalities.

The choice of environment in which to develop the action is fundamentally important. The environment is a key part of the drama.

The final part of the film was shot in Iceland, a country that creates an impression difficult to put into words. There you feel the breath of something final.

As if the most terrible thing that could happen to our planet had come about.

It’s a land with a painful past, a difficult present and a tragic future.

The places where we shot Faust no longer exist: that is where the volcano erupted and paralysed Europe.

Another key aspect of the film is its visual authenticity.

Screening Schedule

his books and articles. I consider that when a film is shown again to viewers one should take stock of one’s mistakes and correct what one couldn’t do right the first time round. And you’re right.

The whole quadrilogy should be released at the same time — as a unity.

But, alas, that’s impossible.

GENERATION P Your quadrilogy consists of films that are connected in one’s consciousness by images. I see Faust as the prelude of what happened in the films about Hitler, Lenin and Hirohito, am I right?

THE GRAND CINEMA MARCH 27, 5.15 PM

ELENA HONG KONG CITY HALL THEATRE MARCH 25, 9.30 PM

TWILIGHT PORTRAIT I felt a certain awkwardness when those earlier films came out. I understood that they were like chapters of a book. Now, if it were possible, I would go back and edit them.

A writer or journalist has the luxury of revising his work for new editions of

UA LANGHAM PLACE MARCH 31, 5 PM APRIL 3, 9.30 PM

FAUST HONG KONG SCIENCE MUSEUM LECTURE HALL APRIL 7, 9.30 PM

How did the film take shape?

We collected the authenticity bit by bit from paintings, drawings, memoirs by Russian and Western travellers, and from our love of German culture.

If as a director I turned Faust from a

mythological character into a real one, it would be strange not to submit Mephistopheles to the same sort of transformation. I maintain that the role of the diabolical principle is decidedly exaggerated. If we consider the devil to be a fallen angel and, at the same time, see him as a serious opponent, are we not making a mistake?

Are we not trying to put between God and man a character on whom all problems can, if need be, be blamed? We don’t know how far a man can fall, and every time we’re surprised: how could he have done that, how could he have unleashed a war and publicly lied to nations, how could scholars have given people knowledge that was dangerous to civilisation?

But man can fall even lower, can behave in still baser and baser ways.

Most terrible of all is man’s infinite ability to betray, forget and surrender to the power of delusions.

The structure of the film’s sound is unique. The music is amazingly balanced with the background noises, with the dialogues — it’s a single symphony, right?

I wanted classic motifs. I wanted the music to have an evolutionary principle. I wanted to make people feel that before the contemporary composer Andrey Sigle there were progenitors.

I wanted the melodies to remind audiences that we have a leg to stand on.

This allowed me to also include in the musical context a contemporary theme.

Along with Sokurov’s Faust, Generation P, Elena and Twilight Portrait were considered the best Russian films of 2011.

GENERATION P

This independent film project, a screen adaptation of Victor Pelevin’s novel of the same name, was directed by Victor Ginzburg.

Synopsis: Vavilen Tatarsky works at an advertising agency responsible for promoting Western brands. His job is to adapt the advertisements for Russian audiences.

Director Victor Ginzburg says: “This story has no plot in the classic sense, everything is tied to the dynamics, and the force of attraction. I am glad that critics are taking it as a verbatim adaptation – I was able to convey the spirit and essence of the work to the viewer.”

ELENA

Critics say this drama, directed by Andrei Zvyagintsev (The Return, The Banishment), is in the tradition of Andrei Tarkovsky’s existential cinema. The film received a Special Jury Prize at the 64th Cannes Film festival.

Synopsis: Wealthy elderly businessman Vladimir marries his nurse, Elena, after nearly eight years of living together. Bickering over Vladimir’s will gives Elena the idea of poisoning her husband.

Director Andrei Zvyagintsev says: “When the lights go out, to the average person it’s just fuses burning out, but to Elena, it’s the bell tolling for her. Now she is face to face with her own hell in her soul.”

TWILIGHT PORTRAIT

And what was the reason behind making such a film?

People ask me; why did I suddenly decide to film Faust? But what I can’t understand is why German directors haven’t done this.

The Germans reply: probably because a person from Russia has a better foundation in culture and, perhaps, greater cultural ambitions.

Yes, we’ve always had an almost deeper knowledge of European culture than the Europeans themselves. We are a country with a fantastically high level of culture.

All of world literature has been translated into Russian, and beautifully so.

Where else would you find that?

We, potentially, are a country of colossal cultural possibilities, which we now risk losing.

The directorial debut of US-based Russian director Angelina Nikonova, and this film won many awards.

Synopsis: Marina, an attractive, upper-class social worker, is raped by three policemen on the outskirts of Rostov.

She decides to take revenge, but she falls in love with one.

Director Angelina Nikonova says: “For me and (lead actress) Olga Dykhovichnaya it was challenging. I had to combine the functions of executive producer, assistant director, production manager, art director and make-up artist.”

María Fadeeva

16 Tuesday, March 27, 2012

RUSSIA AND GREATER CHINA

Joy of art narrows cultural divide Hong Kong exhibition features paintings that emphasise dedication and quirky humour, writes Bonnie Engel

Kazakh star hopes to show real ballet to HK students Olga Kozlova RGC Leila Alpieva is often praised as the princess en pointe in her own country. The ever-cheerful prima ballerina from Kazakhstan turns serious during an interview about Russian ballet, Hong Kong and her life.

An honoured artist and an awardwinning international star, she has played more than 10 heroines during her 20-year career before leaving the stage and moving to London and just recently to Hong Kong.

How would you compare Hong Kong and your native country?

It’s very different here as Hong Kong feels tiny and the climate is varied .

How did you end up in Hong Kong?

I lived in England for three years with my husband and two kids. At some point he was offered a job in Hong Kong, so we all followed him.

How do you like Hong Kong compared with Britain?

It is very different. Now I have plenty of plans and ideas, while when I was in London there wasn’t much going on, and I was not too comfortable living there.

My elder son also seems to enjoy the city as people are more affable and he made a lot of friends already.

So we are all more than happy to be in Hong Kong and we would like to stay here for as long as possible.

Describe your professional life here I worked as a guest teacher at the Christine Liao School of Ballet, but it was problematic to teach as the school employed the methods of the Royal Academy of Dance [in Britain], which is very different from Russian ballet schools.

How do they differ?

Red Square Gallery’s Anastassia Katafygiotis (far left) hosts the Russian art exhibition. Photo: Tatyana Yansberg

U

sing art as an international language that transcends differences in culture and language, a show at a Hong Kong gallery brings together four young and talented Russian artists.

Russia Beyond the Headlines (RBTH) co-sponsored the opening of the Monologue exhibition with Red Square Gallery in Happy Valley. It will be on display until April 30.

The show features paintings by Irina Kotova, Andrey Petruxin, Ekaterina Kiseleva and Elena Klimova, who share a passionate and emotional immersion in their work.

Although very different in style, they all exhibit a joyfulness and quirky humour that communicates dedication to their art.

Celebrating the exhibition and the soft launch of RBTH’s new monthly supplement in the South China Morning Post, entitled Russia and Greater China, last week’s opening attracted many people from all over Hong Kong.

They were treated to the vibrant and lyrical works by the four painters, a concert by Perform Now – violinist Frederick Koon and pianist Ernst So – and a telephone interview with 31-year-old Kotova, who lives in Moscow. Anastas-

ARTS sia Katafygiotis, an artist and CEO of Red Square Gallery, chose the art for the exhibition and invited the musicians.

Mark Zavadsky, Asia bureau chief for RBTH, spoke to Kotova, whose colourful and sensuous paintings feature beautiful young women as the focal point. “Maybe they represent my ideal of beauty.

“They have an iconic quality. I studied with the old Russian masters so am still under the influence of our native iconography,” Kotova said.

Attracted to Hong Kong’s stature as an international arts hub, Katafygiotis started Red Square in 2007, soon after

arriving in the city. The first gallery was in Sai Kung. After three years, she opened a second gallery in Repulse Bay and, in 2010, opened an exhibition and concert space in Happy Valley, where she can sponsor art, music and other cultural events.

“Russian art is quite popular in Hong Kong, not only with Russian expats, but locals and others as well. I really feel that I need to do more to promote young Russian artists, so I have exhibited many kinds of art to educate the public as well as sell the art,” she said.

Meanwhile, Russia and Greater China will appear in the South China Morning Post on the last Tuesday of every month.

The publication, part of RBTH’s growing list of titles, in Hong Kong adds to a number of similar projects in countries around the world, from Argentina to China.

“We see our goal with [RBTH] in Hong Kong as increasing the Russian presence here, and be a mobiliser to create exhibitions and musical events that highlight Russian culture,” Zavadsky said.

“RBTH is a global project and will appear as supplements in New York, Washington DC and other capitals around the world.”

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Russian schools are unknown to locals.

The difference between the two schools lies in the teaching method. The Russian method is meant for professionals, while the British one is more hobby-like.

The roots lie in the fact that in Russia every big city has a professional ballet school. Those schools were built during the Soviet era and everyone could apply as the education was free. In Britain, the ballet schools are for only the rich. I would add that Russian ballet schools are praised around the world.

Which heroine roles are special to you?

My best part was always Kitri from the Don Quixote story. I believe we share some features, so I always related to this role.

How does your character work with your profession?

In many ways, it can help or impede progress – as in Giselle. I was very young when I took part in this ballet in 1990.

Ballet star Leila Alpieva is enjoying life in Hong Kong and hopes to start a school here. Photo: Private archive

Do you plan to keep teaching here?

I am planning to open a school of Russian ballet in Hong Kong, bringing the greatest school to this city.

Russia and Greater China online

The copies of the March supplement are available at: Russian Consulate in Hong Kong (2106-2123, 21/F, Sun Hung Kai Centre, 30 Harbour Road, Wanchai)

Russian Language Center (701, Arion Commercial Centre 2-12 Queen’s Road West Sheung Wan)

Sun Studio (Unit3, GF, Westley Square, 48 Hoi Yuen Rd, KwunTong) Red Square Gallery (11 Yuk Sau Street, Happy Valley )

ATC AVIA (Room 3105, 31/F, Tower 1, Lippo Cen-

www.hk.rbth.ru

tre, 89 Queensway Please write to saleshk@rbth.ru if you want to add your company name to this list.