Russia and China lay economic foundation for future mutual investments

The roughly $4bln fund, established jointly by the Russian Direct Investment Fund (RDIF) and China Investment Corp (CIC), aims to generate strong returns from equity investments in projects that will take advantage of the increasingly robust economic relationship between Russia and China, said the signatories to the Memorandum of Understanding (MoU) during the RCIF penning ceremony in Beijing. The occasion was one of the key highlights of Putin’s official debut visit to China as the new Russian president. 

RDIF CEO Kirill Dmitriev and CIC chairman and CEO Lou Jiwei signed the MoU on completing the establishment of the joint fund and outlined the key principles for managing and investing its capital as their presidents stood by, all in smiles, a gesture that underscored the high level of political patronage the fund will certainly enjoy in both capitals. According to the MoU, both RDIF and CIC will contribute $1bln each to the RCIF coffers, whilst $1-2bln of additional investment commitments will be solicited from third parties from across the globe to give the new fund a starting working capital of $4bln. 

“The presence of both Russian and Chinese presidents at the official launching of the fund underscored the high level of political patronage it will certainly enjoy in both capitals.”

In remarks following the signing, Dmitriev and Lou emphasized that the RCIF will, amongst others, focus its key activities on advancing bilateral economic, trade and investment relations between Russia and China, with the strategic aim of delivering competitive returns for its principal investors. Specifically, over 70% of the fund’s capital will be invested in businesses and projects across Russia and other CIS countries, and 30% will focus on Chinese businesses and projects with Russian involvement, according to the MoU’s future business plans.

Specifically, Dmitriev was effusive in its praise of the work done, noting that the creation of the fund underscores the transition in Russia-China relations from a lopsided trade-based partnership to an investment-technology-based partnership. 

“Today, we are pleased to have the RCIF fully up and running. Our primary focus now is on making investments that deliver strong risk-adjusted returns,” he added. “We are fortunate in that Russia and China are both big, rapidly growing markets that offer a wealth of investment opportunities across a variety of sectors,” Dmitriev noted, adding that he expects the fund’s first investments to focus on sectors like engineering, agriculture, forestry, transportation and logistics. 

“The creation of the fund underscores the transition in Russia-China relations from a lopsided trade-based partnership to an investment-technology-based partnership.”

Concrete projects and the timelines for their executions will be announced later this year, Dmitriev added. From his side, Lou was equally in an effusive mood, as he expressed open delight in working with the RDIF, going forward. “Together, we will seek to tap investment opportunities through the new fund, in the quest for good returns and win-win solutions.”

RDIF was set up by the Russian government in 2011 as a $10bln private equity fund that will act as “co-investors” with leading global investors — global private equity players and sovereign wealth funds – primarily in Russian companies. In each investment it makes, RDIF is mandated to secure co-investment that as a minimum matches its commitment, thus acting as a catalyst for direct investment into the Russian economy, according to the fund incorporation mandate.

Its Chinese vis-a-vis, the CIC, founded in September 2007, is a state-owned company established as an investment vehicle to diversify China’s foreign exchange holdings to achieve higher risk-adjusted financial returns. It invests globally on a commercial basis across a diversified range of asset classes, including equities, fixed income, property, private equity and commodities.