“There was a certain level of optimism regarding Chinese companies. It was thought they were coming to the Russian market to spend big money. But the Chinese turned out to be very rational and very good businesspeople, so they wouldn’t give money away for nothing,” declared Victor Vekselberg, one of Russia’s richest and most powerful men, talking in late March at a high-level business conference attended by President Vladimir Putin. 

Vekselberg’s words captured the mood of the Russian elite two years after Russia proudly announced a “pivot to Asia” in the midst of its struggle with the West over Ukraine. 

The phrase “pivot to Asia” became popular among the Russian elite in May 2014, following Putin’s triumphant visit to Shanghai right after the takeover of Crimea and the imposition of the first Western sanctions. Half of Russia’s ministers and many its wealthiest men came home from the trip with memoranda of understanding and friendship—if not actual agreements or contracts. 

The biggest advocate of Sino-Russian friendship was Gazprom CEO Alexey Miller, who brought back a $400 billion contract (oil was worth almost $110 per barrel at the time). By September 2014, Miller was saying at the Sochi investment forum that one can’t apply European standards to doing business in the Asian gas market and that “just in one day, our esteemed Chinese partners did business on the same level as Germany, our major gas consumer.”

The Gazprom chief is known to exaggerate, but his words reflected the general optimism in Moscow. Many were confident that the Chinese would flock to take advantage of Russia’s rift with the West by buying up assets, issuing loans, and sharing technology. There was a scramble to do business with China, or other parts of Asia. 

The year of 2015 was one of sobering reality, however. Russia’s trade with China kept growing in 2014 by 6.8 percent to $95.3 billion, but the following year it collapsed by 28.6 percent to just $68 billion. Trade with South Korea dropped by 38 percent and with Japan—by 40 percent. 

The first reason behind these dismal statistics was the collapse in commodity prices, which are the core of Russian exports everywhere. The second factor was the shrinking purchasing power of Russian companies and households due to the devaluation of the ruble and the consequent drop in imports.
 
There are no complete statistics on the relationships between Russian business and Asian financial institutions, where Russia had high expectations in light of Western sanctions. However, circumstantial evidence suggests that the situation is in many ways worse now than before the pivot. In 2015, Russian companies did not carry out a single public offering or debt placement on Asian exchanges. 

The only big success with Chinese commercial banks was Bank of China’s announcement that it was providing Gazprom a loan of $2 billion—the largest loan from a single bank in Gazprom’s history. However, attempts by Alexei Miller’s team to search for money elsewhere in the East didn’t bring much fruit. Instead, the company announced that it would be decreasing the scope of its fundraising activities in the Asia-Pacific region and returning to seek investors in London and New York.

The reasons are obvious. It turns out that even the Big Four Chinese banks have been complying with Western sanctions, although Beijing officially condemns the sanctions. Given the choice between the opportunity to increase their presence in Russia’s high-risk market (previously small and now even more shriveled with GDP in constant decline) and the potential to strengthen their positions in the huge and stable markets of the United States and the EU, Chinese banks are opting for the latter. A “strategic partnership” does not rule out financial judiciousness. Rare cases when Chinese credit is available for Russian companies are mostly syndicated loans involving Big Four banks on board with other international players. This money is offered only to prime borrowers like Novolipetsk Steel, which are not under sanctions and don’t have problems tapping Western credit.

The only Chinese financial institutions that have been aggressively signing agreements with Russian partners are China’s two “political” development banks—China Development Bank (CDB) and the Export-Import (ExIm) Bank of China—and the Silk Road Fund (SRF), established in 2014. All three are less connected to the international financial system and thus can take greater risks. In private conversations, Russians have described the terms on offer from CDB and ExIm Bank as “highway robbery” and said that it is often easier to evade sanctions and get money in the EU. SRF participated in just one transaction, buying 9.9 percent of Yamal LNG for 1 billion euros—a deal that involved longtime friends of Vladimir Putin and thus got blessing at the highest level in both countries.

Private Asian funds see more risks than opportunities in Russia. Asked what Russians could do to raise money in Hong Kong and Singapore, local financiers have responded along the lines of, “once the Financial Times can go a couple of days in a row without mentioning Russia, we’ll think about investing there.” 

The cool reaction of Asian businesses and government agencies to the Russian pivot was quite predictable given that Asia has been low on the priority list for the Russian elite for 15 years. Moreover, Moscow made several needless missteps in Asia.

Given Putin’s central place in the Russian system, the president’s personal participation was crucial for the success of the pivot. However, Russia failed to take full advantage of this valuable resource. At the first Eastern Economic Forum in Vladivostok in September 2015, Putin’s meeting with major businessmen from the Asia-Pacific region who manage more than $5 trillion in assets was cancelled due to some scheduling conflicts. Instead, the president only made a brief speech and then spent the rest of his time in the company of U.S. actor Steven Seagal. Many prominent businessmen who had rearranged their schedules twice were quite vexed.

The second blunder occurred in November, when Vladimir Putin made a last-minute decision to skip both the East Asia Summit and the APEC summit (missing the latter for the first time since 2002). Putin is famous for disliking multilateral events and only attending them for the sake of one-on-one meetings. But Putin’s snub of APEC, where symbolic gestures are fundamental to policy and international relations, was interpreted to mean only one thing: Russia was not pivoting to Asia, it was pivoting to becoming China’s junior partner.

Last but not least, a lot of Russian initiatives in Asia have collapsed due to poor execution of the bureaucracy. For example, the team of First Deputy Prime Minister Igor Shuvalov fought hard against resistance in Moscow to join the Asian Infrastructure Investment Bank (AIIB) and managed to change the government’s skeptical position in a matter of two weeks, right before a deadline to join the bank as a founding partner. And yet the Russian government failed to win itself a role in the new institution and acquire the position of vice president for a Russian national. Due to the inability of the Russian elite to agree on a candidate and Putin’s personal lack of interest in the issue, China looked elsewhere for a candidate. 

The same inability to follow up on major agreements let the steam out of last year’s announcement that China’s One Belt One Road project would be linked with Russia’s Eurasian Economic Union. This was hailed as Moscow and Beijing’s formula for avoiding a clash in Central Asia and engaging in a division of labor where China could be the big spending power while Russia could maintain its role as the major security provider. But since the much-lauded signing ceremony with the smiling Putin and Xi in the Kremlin, nothing has been really achieved. 

Russia’s private sector is perhaps the only constituency that has worked hard at pivoting toward Asia. Small- and medium-sized companies that can’t count on financing from Russia’s leading state-owned banks—such as the producers of Splat toothpaste and Alenka chocolate—were resolute in their efforts and were rewarded by getting their products onto the shelves of Chinese supermarkets. But their successes contrast with the growing disillusionment in the Kremlin and among loyal oligarchs with the declared Asia strategy, despite continued talk about “strategic partnership with our Chinese friends”.