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Thursday, March 19, 2015, 10:55

Opportunities yet to be grasped

By Ashley Galina

The news from Russia seems to consist of a failing economy, a depreciating ruble and a “junk” credit rating. But what, in reality, is Russia to Hong Kong?

The Chinese mainland shared a large part of its historical legacy with the Soviet Union, but Hong Kong, as a British colony in the past, unsurprisingly remained closed to soviet citizens. Not until 1994 did the first Russian consulate of modern times open its doors. Meanwhile, the number of Russian companies in 1990s Hong Kong remained so small that the viability of the first Russia-Hong Kong trade association set up that same year was difficult to sustain.

Opportunities yet to be graspedRussia and Hong Kong have 20 years of common history, where has it brought us?

Although between 2007 and 2012 bilateral trade increased 150 percent, to $3 billion, this was largely due to Russia’s growing economic ties with the mainland.

Contrary to expectations, the potential trade in foodstuffs (especially seafood), technology (such Russian specialties as fire-resistant coatings and lasers) and consumer goods (jewelry and natural cosmetics) has yet to develop.

For the past three years trade between Hong Kong and Russia has remained stable at around $3.5 billion. This is largely based on regular transit of Russian oil, silver, platinum, iron and steel through Hong Kong ports. There are still only a few large Russian companies with direct operations in Hong Kong; the most visible being the aluminum giant Rusal, whose share price has struggled since its local IPO in 2010. Shipping company FESCO is probably the most venerable of the Russian companies here.

Yet, this slow development of business relationships between Hong Kong and Russia has not been for the lack of trying. InvestHK and the Hong Kong Trade Development Council hold annual conferences and receptions in Russia to strengthen business exchanges and develop potential cooperation opportunities. Conferences were held in Moscow, St. Petersburg, Kaliningrad, Omsk and Kazan during 2014.

But the problem of an inadequate understanding of Russia and its business opportunities remains.

The long break in relations between 1920 and 1994 cannot be blamed; the subsequent two decades should have sufficiently made up for it. The clue is that Russia opened up about the same time as the mainland. Hong Kong traditionally had a head start when acting as a middleman between the mainland and other countries; Russia was the first place Chinese businessmen did business directly, and they went there first. Further, Russian China experts had always gone straight to Beijing, never having the need to go via Hong Kong or Taiwan.  Russia indeed pointed to the future decline of Hong Kong’s middleman role. Due to the structure of Russian business, Hong Kong has been unable to replace this role with its other strengths like finance and services.

Over the past decade Sino-Russian relations have nevertheless developed rapidly in areas as wide ranging as language learning and student exchanges, through to major petroleum deals and infrastructure projects. In 2013, China became Russia’s major trade partner with trade volume reaching $88.8 billion. In 2013 alone there were over 20,000 Chinese studying in Russian universities and more than 15,000 Russians studying in China. It is repeatedly reported that the Sino-Russian relations are better than ever.

If this is possible for the mainland, there is nothing stopping Hong Kong from developing closer relations with Russia in business cooperation and other areas. Fortunately, there are hopeful signs as we are now seeing more grassroots Russian activity in Hong Kong than a few years ago.

Since the implementation of a visa-free policy for Russians in 2010 — and with direct flights from more Russian cities (St. Petersburg, Moscow, Irkutsk, Khabarovsk and Vladivostok) — Hong Kong has not only seen increasing numbers of Russian tourists — to more  than 200,000 in 2014 — but also more Russian students, expats and entrepreneurs calling Hong Kong home.

The 15-year-old “Russian Club” in Hong Kong estimates there are now some 5,000 Russian-speakers here, up 40 percent in just two years. Another group, “From Russia With Art”, is dedicated to raising awareness of Russian art and culture. Russian courses are now offered by several institutions.

Russian SMEs are just starting to explore Hong Kong as the world’s business hub. A variety of Russian-owned SMEs have been established in Hong Kong ranging from coffee shops to marketing agencies, caviar wholesalers and art galleries, restaurants, online supermarkets and banking subsidiaries.

In response, the “Russian Business Club” was launched in 2014. It already has over 800 followers and is currently working toward the establishment of a formal Russian Chamber of Commerce in Hong Kong.

These provide a foundation in local human resources and experience that was previously lacking. More young Russian expats are moving to Hong Kong with their companies or are relocating from Guangdong for jobs or internships. Young Russians see Hong Kong as a dream place to develop a career.

Both Hong Kong and Russia have much to gain from expanding their cooperation, not only in business, but in other areas. Concrete opportunities are now available outside of traditional government-driven industries, and medium-sized business projects are on the rise.

A Russian proverb advises: “Draw not your bow till your arrow is fixed.” In the case of Russia-Hong Kong relations, it seems both parties are ready for action!

The author is a co-founder of the Russian Business Club in Hong Kong. Her marketing firms focus on Hong Kong and the mainland, and Sino-Russian business exchange.

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