Eastern Economic Forum — Day Two Summary

The main event on September 7th at the Eastern Economic Forum was the plenary session that included President of the Russian Federation Vladimir Putin, Prime Minister of Japan Shinzō Abe, President of the Republic of Korea Moon Jae-in, and President of Mongolia Khaltmaagiin Battulga. The Russian president thanked his foreign guests for their interest in the forum and for participating. He indicated that management of the Far East is being done with innovative approaches, the results of which have seen industry growth surpass the Russian average, reaching 8.6%. Unique opportunities for business have been created in this region - tax breaks, simplified administrative procedures, reduced tariffs, development of deposits, and modernization of transportation and social infrastructure. The Russian president announced expansion of benefits for investors during his speech at the plenary session of the Eastern Economic Forum. The head of South Korea expressed willingness to sign an agreement on free trade with the Eurasian Economic Union and suggested sectors in which cooperation could be developed. The Japanese prime minister emphasized that in just one year there has already been significant progress made in cooperation with Russia. He believes that the relations between the two countries have a promising future. The Mongolian president expressed gratitude to Russia for help with export through preferential tariffs at its ports. The heads of all four countries plan to work to create a unified system of supplying electricity in the region. They also talked about common concerns like security. When it came to the situation involving North Korea's nuclear program, Vladimir Putin called for a peaceful solution to raising tensions and for North Korea to be involved in common economic cooperation. The leaders of Japan and South Korea put more emphasis on forceful measures against North Korea.

Business environment

Participants in the session titled “Advanced Special Economic Zones (ASEZ)” noted the importance of the ASEZ from the standpoint of boosting the regions’ investment appeal and the benefits for investors (cost of labor, tax benefits, etc.). At the same time, there is a range of challenges such as complications with working visas, infrastructure development in the free customs zones and shortcomings in fiscal legislation. Attendees believe that mechanisms are required to support guarantees of VAT refunds from the government as well as those subsidizing interest rates on loans. An association of ASEZ residents that compile vital systemic issues should also be established.

The session titled “Competitive Customs Regulation: Best Practices in the Asia-Pacific Region” noted that the Far East’s introduction of special customs regulations in line with the finest global practices is favorably influencing foreign trade operations of the region’s business. Representatives from the business community seek adjacent water areas to be covered by the Vladivostok free port regime. Priority tasks for federal agencies are to create the Primorye-1 and Primorye-2 international transportation corridors, in addition to their hauling regulations being significantly streamlined, along with unifying customs systems and simplifying customs procedures with nations of the Asia-Pacific Region, which correspond to the interests of the nation’s businesses and Russia’s foreign trade partners.
Foreign investors’ great interest in the Far Eastern region, shaped by the area’s abundant resources and convenient geographic location, was highlighted during the session titled “The Russian Far East: An Investor’s Perspective”. Nevertheless, there is a range of problems preventing the full-fledged use of the region’s investment potential. Primarily these are distrust of the judicial system, underdeveloped service and transport infrastructure, red tape in relations with investors, and so forth. The session’s participants mentioned creating favorable conditions for business to legally operate. They also called for responsible officials to interact much closer with investors, and named a customized approach and transparency in procedures as the principal solutions that should support an increase in the investment flow into the Far East’s economy.

Investment

Those participating in the “Support for Major Investment Projects. What Now?” session called the Far East the future of the Russian economy. The main task now is to unlock the potential of exports from the Far East Federal District to the countries of the Asian-Pacific Region. However, it requires infrastructure, the construction of which depends on the state support as regional budgets are insufficient, while regional authorities often restrain development. Also, the imperfection of the fiscal system hinders the development. In order to resolve the issue state support mechanisms have already been developed, among them direct subsidies, tax benefits and co-financing. The participants of the session proposed to select the most competitive sectors, such as agriculture, fishing, and machine building, and assume efforts to turn them around in order to enhance the investment climate.

The session “Bonds as a Means of Attracting Finance” focused on the gradual development of the market of bonds, which are becoming an alternative instrument to attracting long-term finances for big enterprises and companies. Meanwhile it was noted that the number of investors interested in putting funds in local enterprises via bond instruments is on the rise, including those in the Far East. However, so far the cost of bond issuances is too high for Far Eastern companies, whereas there are few issuers in the region that could attract the interest of big investors. In order to expand the use of bond instruments the participants of the discussion also noted the need to standardize requirements for them, which is hoped to slash the price of the ‘entrance ticket’. It was also proposed to place bonds on the same footing with loans with a provision of subsidies for issuers.
The participants of the “Sea Ports: In Good Hands” session noted a rise in cargo turnover in the region, while a huge potential for further growth remains. Investments are needed, though investors are afraid of taking decisions due to uncertain rules and terms of cooperation between investors and state regulators. A separate issue is the compliance of the state with its commitments. All this comes amid the lack of a clear state support program, which is necessary. The competition between Russian ports is also an issue, whereas some of them are underloaded. It is necessary to modernize ports in the Far East Federal District, simultaneously developing industry in the region, manufacturing in the first place. It is also necessary to develop a system of providing subsidies and a mechanism of infrastructure mortgage.

International cooperation

Participants in the roundtable discussion "Russia-China" stated that cooperation between the countries is on the rise. It's even possible to talk about the beginning of a new phase of Russian-Chinese relations. Nevertheless, speakers pointed out a number of problems. For example, when it comes to medium-sized businesses working outside of energy sectors, there is the problem of a lack of mutual trust connected with differences in entrepreneurial traditions. Trade barriers also remain on both sides, but governmental bodies are working too slowly to break them down. During the discussion, it was suggested that more attention be paid to creating joint logistics corridors, but that would require guarantees from the governments of both countries. Trust can be enhanced through the mechanism of transborder cooperation. Chinese participants advised their Russian colleagues to situate transportation corridors next to regions with technical and economic development.

Both parties confirmed in the course of “Russia–Japan” business dialogue that trade and economic relations between the two countries ultimately acquired positive dynamics. Representatives from the Russian government stated the key to that was the decision not to link business cooperation to political relations between the two states. Representatives from Japan’s business community highly valued the conditions for doing business set forth by Russia in the Far East. Among the challenges highlighted was that mutual trade figures still remained at a low level and that the bulk of sealed agreements transformed into letters of intent. The discussion’s participants see potential for further development in strengthening interaction at the small and medium enterprise levels, and cited the already concluded investment deals as an example.

During the business dialogue “Russia–Republic of Korea”, participants agreed that the potential for cooperation between the two countries is still not being used as much as it could be. For example, the trade turnover between Russia and Korea in recent times has decreased even more than it has for countries participating in sanctions against Russia. Korea has not supported these sanctions. But both sides said that decisions have been made that will dramatically change the situation. For example, the heads of both countries have a strong mutual understanding when it comes to a peaceful solution of the North Korean nuclear problem. A special committee for trade with northern countries has already been created by the new Korean president and the Far East is waiting for Korean entrepreneurs. When it comes to joint business projects, difficulties faced are the traditional ones - bureaucratic barriers, lack of information, and contradictions of interests for various companies.

Standards of living

The participants of the “Far Eastern Hectare: Initial Experiences” session concluded that the ‘Far Eastern Hectare’ program is being carried out successfully on the whole – the area of offered land plots has increased seven-fold, the procedure of application and decision-making has seriously simplified, and special credit programs have been created for the ‘Hectare’ recipients. Meanwhile, it was noted that the implementation of the program has highlighted the problem of poor map coverage of the Far Eastern regions, which makes it challenging to determine the borders of the land plots. Also, the participants of the meeting noted the position of the Russian Defense Ministry, which has been closing off parts of the Far Eastern territory without any reasonable justification. In this respect, it was proposed to hold an inventory of the Defense Ministry’s lands, as well as to intensify efforts to improve the map coverage of the region.
The session “Culture and Art. What Will Be Done?” was devoted to culture as an integral part of the economy. It improves the quality of life, spurs the population growth and even enhances the region’s investment attractiveness. Cultural projects in the Far East cannot compete with federal ones due to insufficient funding, and in order to resolve the issue it was proposed for the state to participate in co-financing of this area in the region and develop a mechanism of providing grants for cultural events in the Far Eastern Federal District. Also, the formation of new cultural events in the region was discussed.

New economy

At the session "Russky Island: The Onset of Creating a New Centre for International Cooperation and Cutting-Edge Technologies in the Asia-Pacific Region" Nobel Prize Laureate and Presidential Advisor at the Far Eastern Federal University Riccardo Valentini, who was a keynote speaker, spoke about the importance of the Industry 4.0 concept for further development of humanity as well as plans to create a university center on Russky Island with activities focused on developing technologies for a new "green" economy. Discussion participants also noted that at the moment the creation of a science city on Russky Island is inhibited by investment risks in Primorye along with the shortage of human capital. Optimal solutions for developing the innovative potential of Russky Island given were creating infrastructure to attract investors in technology, expanding scientific cooperation with foreign partners, namely with Japan, in the areas of nuclear medicine and energy.

At the roundtable discussion "Smart Energy: Balancing Demand with Capacity. New Projects" it was noted that optimization of energy consumption is taking place nowadays. New projects are expected to become self-sufficient, and new storage methods could lead to a revolution in the energy sector. But energy, being a high-tech sector, is associated with a growing risk of cyber threats. Additionally, long investment cycles mean than any mistake with energy can be critical. Participants also stressed that developing renewable energy in the Far Eastern Federal District is being held back by the lack of a wholesale energy market. In order to solve that problem, it has been proposed to introduce new technologies to increase production transparency, improve the skills of workers in the industry, and also attract support from the state.

Agriculture

At the Eastern Economic Forum session "Agricultural Investment. Feeding the Asia-Pacific Region" data was presented that showed how the Far East has virtually unlimited opportunities when it comes to increasing agricultural exports to the markets of China, Japan, and South Korea. At the same time, demand for food products in the Asia-Pacific Region is only expected to grow. Panel participants believe that it is possible to develop any kind of agricultural production in the Far East region. Meanwhile, the Far East currently does not even produce enough food for its own use. But investment projects that deal with processing raw agricultural materials, many of which have obtained support from the state, are increasing every year. A number of facilities have opened right ahead of the Eastern Economic Forum. Looking ahead short term, we can see the creation of the Primorsky agrohub which will become one of the biggest points of transshipment for grain in the Asia-Pacific Region.