Changing the Focus

‘Don’t put too much stock in politics, believe in the pragmatism of your partners, and be patient.’ This is the recipe for success in Asia, according to Artem Konstandyan, the President of Promsvyazbank (PSB).

Today, Asia is often described as a replacement for the West, if not ideologically, then at the business level. It is expected that after a while, Russian businesses and the Russian economy will be able to turn to Asia both for short-term loans and long-term money. How do these ideas relate to reality?

The Asian focus could be seen in Russia even before the sanctions were imposed, but with the advent of economic restrictions, the attention we pay our Eastern neighbors has increased significantly. When Western financial markets are virtually inaccessible, it is only natural that banks and companies have great hopes to find funding from their Asian partners, although it is still too early to say that the Asian markets will be able to fully replace those of the US and Europe.

Let us start with the fact that Vnesheconombank, VTB Bank, and Sberbank of Russia just recently signed an agreement with the China Development Bank. This clearly shows that despite the overall convergence, our Eastern partners are only willing to provide funding to the largest state-owned banks and companies, if anyone at all. Furthermore, they are not financing current activities and projects, as was done in the Western markets, but projects related to the supply of goods and services from China under government or quasi-government guarantee.

In addition, the Asian market is booming, and the region, led by China, is the driving force of the world economy. But the magnitude of the local financial market is not comparable with the magnitude of the financial markets in Western Europe and the United States. For comparison, in the West, Russian Eurobonds are traded for a total of $200 billion, while in the East, this number barely scratches $1 billion.

Also, do not forget that China, India, and other countries in Southeast Asia are emerging economies that are primarily interested in attracting new capital. All of them, except for China, are net recipients of international financial resources, and China only recently became a net creditor in the international investment market. But its investments primarily go to its major economic partners. They, unfortunately, are not Russia, but the United States and Western Europe, as can be seen from the volume of foreign trade turnover – it’s not even $100 billion between China and Russia, while it exceeds $1 trillion with the Western countries.

Why is so much less invested in Russia?

It’s very simple: for all of the Russian financial market’s progress, the difference in reliability compared with its Western counterparts is just too high. Moreover, against the backdrop of positive dynamics in the United States, that country looks attractive for investment, while Russia is not as appealing to foreigners because of its relatively weak economic dynamics.

So Russia and Asia grew closer out of desperation?

I would not make that generalization. We are only talking about the current situation. Yes, it is true that Asia will not replace the West today. But that does not mean that the situation will never change. I think that the dynamics of the Russian economy will be much more positive; there is already work underway to improve the reliability of investments, and relationships at the government level are strengthening. Therefore, we will work in this direction more and more. But, really, we should not forget that Russia is forced to take such measures because of the current situation; our our Asian partners do not have such compelling factors. And I must say that they are using this moment rather pragmatically, which in general is quite normal for business.

PSB offers its clients international funding. If we inspect different segments of our economy using your bank as a magnifying glass of sorts, which Russian businesses are truly interested in cooperation with Asia?

PSB is one of the most active banks in the area of foreign trade financing, so our observations and conclusions are relevant, if not for the entire Russian economy, then for the majority of it. We see a growing interest in the Asian region, regardless of the sanctions and currency devaluation. For the past year, the volume of transactions in this area has increased by 50 percent. That is impressive, and in and of itself demonstrates huge potential. Above all, of course, the increase was from imports of different goods and services: from cheap accessories to heavy machinery, as well as exports.

When we talk about Asia, we are mainly referring to China, South Korea, Hong Kong, and Singapore. At the same time, the last two play the role of convenient financial and logistics centers, while companies located there play the role of consolidators of trade flows from other countries in the region. We can single out China and South Korea. The mechanisms of trade financing in these countries are quite standard – letters of credit, guarantees, and letters of credit with post-financing. Therefore, leading Russian banks can continue to provide good terms on these transactions, including ruble financing to hedge currency risks. In other words, there is definitely financial support for these activities on the part of leading Russian banks, and demand for financing in these areas is growing.

How familiar are Russian businesses with the rules of the game in Asia? What is worth knowing for anyone planning to do business in Asia?

Any international and overseas economic activities have their own important particulars, even more so when working with Southeast Asian countries. Nobody should have any illusions that they will enter this market quickly when starting from zero. You have to understand that for the people of this region, there are no politics – they are absolutely pragmatic. And, let me repeat myself, our Asian partners do have alternatives, which is difficult to say about us. Therefore, any partners wishing to enter the Chinese market should not see their prospects through rose-colored glasses, because they’ll have to prove their reliability. Profitability is important in Asian business, but reliability of operations, contractors, and investments come to the fore.

Personal relationships play a big role in any business, and Western countries are no exception. But in China and India, personal relationships are crucial – knowing the right people, building relationships, and maintaining communication is the key to success, and sometimes these factors are vital conditions for business. Building relationships with Southeast Asia takes time. Predictability, consistency, and patience are the keys to forming mutually beneficial economic ties with our Eastern neighbors.

They say that there is nothing better to ensure success in Brazil than to learn Portuguese. Is this rule true for China?

Knowing your partner is absolutely the right thing to do. It shows you have common sense and respect for the job, but you don’t need to go overboard. Even 15 years ago, the language barrier was still a serious problem when trying to enter the Chinese market. But the world does not stand still, and it is impossible to assess the current state of affairs and even more so, future prospects, using 20- or 30-year-old terms of reference. China has made a huge leap forward. While China’s previous generation had extensive knowledge of the Soviet Union, because some of them studied here and/or spoke Russian, today Chinese citizens are taught English, not Russian.

There’s no question that speaking the language gives you a big advantage, but properly doing business in fluent English is much more effective than speaking rudimentary Chinese.

Official partners

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