Tuesday, April 30, 2013

SPECIAL REPORT

RUSSIAANDGREATER CHINA

Monthly supplement from Rossiyskaya Gazeta (Moscow, Russia) which takes sole responsibility for the contents A product by

Business Vietnam’s potential

From atom bombsto Apple stores

> PAGES 8-9

Customs Union sees Hanoi as a lucrative partner > PAGE 6

Prodigy heads to HK

Viola maestro Yuri Bashmet to entertain locals

> PAGE 16

Putin’s Putin’s war on war on corruptioncorruptionNew laws force officials to New laws force officials to declare income and holdings declare income and holdings

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SPECIAL SUPPLEMENTS AND SECTIONS ABOUT RUSSIA ARE ALSO PUBLISHED BY RUSSIA BEYOND THE HEADLINES, A DIVISION OF ROSSIYSKAYA GAZETA (RUSSIA), IN: THE WASHINGTON POST AND THE NEW YORK TIMES (UNITED STATES), THE DAILY TELEGRAPH (UNITED KINGDOM), LE FIGARO (FRANCE), SÜDDEUTSCHE ZEITUNG (GERMANY), EL PAÍS (SPAIN), LA REPUBBLICA (ITALY), LE SOIR (BELGIUM), DUMA (BULGARIA), GEOPOLITICA (SERBIA), EUROPEAN VOICE (EU), LA NATION (ARGENTINA), FOLHA DO SAO PAOLO (BRAZIL), EL OBSERVADOR (URUGUAY).

“DMITRY SAUTIN - THE KING OF DIVING”

“HOW IS IT - RIDING A BICYCLE IN MOSCOW?”

“RUSSIAN OFFICIALS AGAINST HACKERS”

“RUSSIA, INDIA FORGE AHEAD WITH FIFTH-GENERATION FIGHTER”

tsrus.cn

In Huanqiu Shibao (China) In Mainichi Shimbun (Japan) In JoongAng Ilbo (South Korea)In The Economic Times (India)

roshianow.jp russiafocus.co.krindrus.in

RUSSIA BEYOND THE HEADLINES’ SUPPLEMENTS AND SECTIONS IN ASIA: GET THE BEST STORIES FROM RUSSIA EACH MONTH IN YOUR FAVOURITE NEWSPAPER

PICTURE OF THE MONTH FINANCE TOURIST SPENDING

Clients of international investment funds operating in Russia have with-drawn almost HK$3.1 billion, raising the outflow this year to HK$9.3 billion.

The fact that outflows have also been

heavy in other BRICS markets has been cold comfort as investors focus on other emerging markets such as Mexico, In-donesia and Turkey.

And the next few months are not promising for Russian funds. Outflows intensified in April after a weak March.

Investors have not withdrawn money at such a rate since September 2011, say analysts at Uralsib.

The flight has been fuelled by unfa-vourable forecasts for oil and other com-modities, areas in which Russia is a major player. Another concern has been problematic corporate governance.

Moscow’s MICEX index has dropped 6 per cent since the start of the year and is down more than 10 per cent from its peak.

Tribute to the ‘Iron Lady’Investors flee funds 4.85TRILLION HK$

Members of the Democratic Party of Russia pay tribute to the late Marga-ret Thatcher near the British consulate in St Petersburg.

China is set to become the largest importer of Russian crude oil.

China’s tourists were the big spenders last year, splurging HK$792 billion, according to the UN World Tourism Organisation. Rus-sian travellers were the fifth-big-gest spenders after placing third in 2010 and 2011. Germany was sec-ond in 2012 with HK$649 billion, the United States was third after spending HK$648 billion abroad, and Britain fourth with HK$405 billion. Others in the top 15 were France, Canada, Japan, Australia, Italy, Singapore, Brazil, Belgium, Hong Kong and the Netherlands.Tough times for funds in Russia.

It’s energy synergyR

ussia’s flagship oil company Rosneft will triple supplies to China to 1 million barrels a day, as part of a new deal that will make China the

country’s largest oil customer. Russia has, in turn, awarded China

National Petroleum Corp shares in eight upstream projects in Russia’s Arctic re-gion.

The announcement marks a strate-gic shift, as President Vladimir Putin di-versifies exports eastwards and away from the traditional European markets while providing resources to China, the biggest energy consumer in the world.

China has also agreed to underwrite a partnership between Rosneft and Brit-ain’s BP by lending Rosneft up to HK$232 billion, to be repaid in oil. State-owned Rosneft needs the funds to finance a HK$426 billion buyout of private Rus-sian investors from the British-Russian joint oil venture, TNK-BP.

That deal made Rosneft the world’s largest publicly traded oil company with almost 5 per cent of global crude out-put and handed BP a minority interest.

Agreements were also announced in banking, energy and even rabbit hus-bandry. Kingsmill Bond, Citi’s chief strat-egist in Moscow, describes the Russian-Chinese relationship as “the best synergy on the planet” – Russia has raw materials and energy, while China’s has

ROUND-UP

DEAL OF THE MONTH

a market and money. Putin echoes this view after meeting President Xi Jinping: “Both countries want to encourage re-ciprocal investment,” he says. “We agreed to make more active use of the possibil-ities the Russian-Chinese Investment Fund offers and to pay particular atten-tion to infrastructure and production projects in the Russian far east.”

Progress was also made on a stalled gas deal. Russia agreed to supply China from its east Siberian fields, rather than those in the west, while China agreed to pay for 30 years of gas in advance.

Gazprom is confident a price agree-ment will be reached by summer.

“I think that in June the price will be determined, and by the end of the year all the contracts will be signed,” says Gazprom chairman Viktor Zubkov.

INVESTMENT

Shuvalov seeks greater co-operation

Russia’s First Deputy Prime Minister Igor Shuvalov has attempted to dispel “the myth about Chinese investors being wary about the Russian economy”.

Speaking in Beijing on April 15, he tried to attract Chinese investment, say-ing “hundreds, perhaps even thousands of Russian entrepreneurs want to es-tablish investment co-operation with Chinese partners”.

The Russian delegation, led by Shu-valov, included government represent-atives and business executives.

Russian-Chinese trade topped HK$700 billion last year and is growing at a much faster rate than China’s trade with the United States or the European Union. But investment is lagging.

China accounts for less than 2 per cent of foreign direct investment in Rus-sia, which rose by a record 117.8 per cent last year, according to the Russian embassy in Beijing.

Businesses often complain about ill-defined investment rules in Russia, say-ing Russian companies do not seem eager to attract investment, preferring to work with loans.

Shuvalov stressed Russia’s willingness for greater co-operation.

“We would like to leverage China’s financial resources to build modern new plants, transport infrastructure and ag-ricultural facilities in Russia,” he said, adding that China’s market also needs to open up.

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GRAFT

War on corruptionCountry’s leadership goes after crooked officials, writes Olga Senina

3PROPERTIES

OWNED BY PUTIN

AND MEDVEDEV

1 In 2012, Vladimir Pu-tin earned HK$1.4 mi-llion, while his wife

did not register any inco-me. In 2010, Putin earned HK$1.24 million. Dmitry Medvedev, who was pre-sident that year, earned HK$1.24 million.

2 Putin owns a flat measuring 77 square metres,

and a 1,500-square-metre plot of land. His posses-sions also include an off-road vehicle and two clas-sic Volga cars built in the mid-20th century.

3 Medvedev’s per-sonal fleet con-sists of two So-

viet-era vintage cars, a GAZ-20 Pobeda and a Vol-ga. The Medvedevs have a 30-square-metre flat, and hold a 4,700-square-me-tre plot of land.

There is little point in debating whether or not the 300 state officials who lost their jobs represent a high enough percentage ... Corruption is a very dangerous phenomenon, but the government should not become obsessed ...ALEKSEY CHESNAKOV

Russian legislators holding their money in foreign bank accounts may be forced out of the State Duma, as the Kremlin and President

Vladimir Putin have declared war on corruption.

Russian state officials were first made to declare their incomes in 2008.

In 2011, the requirement was extend-ed to cover the administration of the Central Bank and the Pension Fund, along with managers of state-owned corporations and companies.

From this year, all public servants will have to declare their family in-comes and major expenses for the pre-vious year, proving that their lifestyles match their official earnings.

In early April, Putin approved the format of a special declaration to be submitted by state officials who have purchased a vehicle, a plot of land, property or securities worth more than their combined family income for the previous three years.

Most Russian ministerial and depart-mental officers, and the country’s lead-ership, have already submitted their 2012 tax declarations.

Prime Minister Dmitry Medvedev drew HK$1.42 million last year, accord-ing to his tax return. This is slightly more than Putin’s earnings of HK$1.4 million.

The president and prime minister declared fairly small property holdings. Putin owns a flat measuring 77 square metres and a 1,500-square-metre plot of land.

His possessions include a Russian-made Lada Niva off-road vehicle and two classic Volga cars built in the then-Soviet Union in the mid-20th century.

Medvedev’s personal fleet consists of two Soviet-era vintage cars, a GAZ-20 Pobeda and a GAZ-21 Volga.

His spouse, Svetlana Medvedeva, owns a Volkswagen Golf.

The Medvedevs have a flat measur-ing 370 square metres and hold a 4,700-square-metre land plot on a 49-year lease.

The declared property and earnings of the two leaders appear modest com-pared to some of their subordinates.

Presidential aide Yuri Trutnev, for-merly minister of natural resources, made more than HK$51.66 million last year. This was the highest sum earned by a member of the presidential ad-ministration.

The greatest income in the Russian government was drawn by First Dep-uty Prime Minister Igor Shuvalov, who brought home HK$55.43 million.

Some members of the Federation Council, the upper chamber of the Rus-sian parliament, posted much higher earnings.

The wealthiest senators were Dmit-ry Ananyev (HK$171.6 million), Viktor Puchugov (HK$128.4 million) and Valery Ponomarev (HK$111.8 million).

However, the highest-earning Rus-

sian public servant proved to be State Duma MP Grigory Anikeyev with HK$272.26 million.

Nikolay Kovalev, head of the State Duma commission for control over leg-islators’ incomes, says some have vol-untarily surrendered information about their 2012 spending.

In a further step in the anti-corrup-tion drive, a bill submitted to the State Duma imposes a ban on Russian poli-ticians keeping their money in foreign banks or owning securities.

Property owned outside Russia may be exempt from this ban, but only if the owner submits a detailed report prov-ing that the purchase was legitimate.

The bill is still under consideration by parliament. However, the govern-ment has hinted that public servants would be expected to transfer any for-eign deposits to accounts in Russian banks by July 1.

What’s more, Vladimir Pligin, head of the State Duma Constitutional Leg-islation Committee, has said that the parliament planned to introduce a re-quirement ahead of the 2016 parliamen-tary elections for State Duma candidates to prove that they hold neither foreign bank accounts nor assets abroad.

The measures are already achieving results. The anti-corruption campaign has forced some MPs and senators to quit the parliament early amid allega-tions that they hold undeclared foreign property or are involved in business ac-tivities incompatible with their politi-cal status.

Some 322 state officials have lost their posts over irregularities revealed in their tax returns for last year.

Aleksey Chesnakov, director of the Russian think tank Centre for Current Politics, warns that the success of the war on corruption should not be meas-ured on the number of sacked public servants alone.

“There is little point in debating whether or not the 300 state officials who lost their jobs represent a high enough percentage,” he says.

“Corruption is certainly a very dan-gerous phenomenon, but the govern-ment should not become obsessed with fighting it to the extent of making this its sole goal.”

The key mid-term result of the cur-rent anti-corruption drive, Chesnakov believes, is that the country’s leadership has made it clear there will be no let-up in tracking down corrupt officials.

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Fewer Russians visited China last year as groups are forced into official tours with ‘simplistic’ itineraries.

TOURISM

Lack of knowledge and high airfares hamper the drive to convince Russians to visit China, writes Olga Gorshkova

Uphill struggle continues

The China Tourism Year opened in Russia, even though the number of visitors to the mainland has dropped.

President Vladimir Putin said during the opening ceremony that

the 2012 Russia Tourism Year in China resulted in a 50 per cent increase in the number of Chinese tourists to Russia, but he did not mention that the number of Russians visiting China dropped 12 per cent from 2011.

China is not a popular holiday des-tination for Russians because they don’t know much about the country and they feel airfares are expensive. It is up to Russian tour operators to try and bring China closer to their clients.

To do so, they need to learn more about the opportunities available in China.

“China as a holiday destination is being promoted only by those tour op-erators interested in selling their own tours, but they too are starting to run out of patience and [advertising] funds. The latter being a scarce resource in the tourism business,” says Natalya Khapacheva, the Russian representa-tive of Ananda Travel.

Mikhail Vislin, executive director at the Russian company Mir Bez Granits (World Without Borders), which assists Russian and Chinese tour operators with promotions, says market forces on their own are unable to educate the public about travel opportunities in China. This kind of promotion requires dedicated support at the government level, “includ-ing in China”.

Sometimes, information about tour-ism to China simply does not reach its intended audience.

“Getting such information across re-quires advertising, which in turn requires investment,” says Vladimir Simonyants, deputy general director of tour operator Rus-Tour.

The Chinese are taking steps to over-come these difficulties. At a presentation by Henan province in Moscow, deputy governor Zhang Guangzhi offered to cover the costs of advertising and pro-motion of Henan tourism opportunities.

“This is the second such proposal,” Si-monyants says.

The first came from another munici-pality near Shanghai.

Asked if his company would avail it-self of the offer, Simonyants says he “will keep it in mind”.

Few of the Russian tour operators of-fering tours to China employ reservation managers or middle-level management with a passable knowledge of Chinese.

This does not stop them selling tours to China, especially beach holidays on Hainan Island, but it limits the variety

of products available on the Russian mar-ket. Insufficient knowledge of China, its language, culture, economy and geog-raphy, prevents Russian tour operators from expanding beyond tried-and-test-ed options.

The China departments at many Rus-sian tour operators are unaware of major tourist destinations, such as the city of Chongqing and the provinces of Sichuan and Yunnan, or Changsha where Mao Zedong began his political career.

Instead, Russian companies offer tours to Beijing and Shanghai, shopping tours to Guangzhou and a grand tour of China with stops at Xian, Luoyang and the Shao-lin Monastery.

These destinations have been gradu-ally losing popularity.

“The market is saturated with simplis-tic tours,” Simonyants says.

Groups cannot go wherever they choose in China. Purchasing an official tour is mandatory.

Tourism industry faces challengesGrowing travel ties with Russia are generating plenty of opportunities and a few challenges, says the Hong Kong Tourism Board (HKTB).

Topping the list of challenges is Russia’s slowing GDP growth, which affects travel sentiment.

At the same time, the growth of air capacity in Moscow, the major outbound source market in Russia, has stagnated. This makes it diffi-cult to raise the number of arrivals. Another challenge is keen competi-tion from neighbouring destinations such as South Korea or Thailand.

But these challenges cannot hide myriad opportunities, including the growing potential of the Siberian and far east regions. More direct flights to cities other than Moscow, such as Vladivostok, Khabarovsk, Novosibirsk, provide excellent op-portunities to develop new markets.

Since September last year, Macau has offered visa-free travel to Rus-sians, providing a new opportunity for travel. To attract Russians visi-tors, the HKTB raised its promotion-al budget to focus on the summer and winter seasons, the main travel periods in Russia. Russian visitors had the highest per capita expendi-ture at HK$11,304 last year.

China is not a popular destination for Russians because they don’t know much about the country

Tourism is much more complicated than many other industries. People can-not be made to go somewhere, especial-ly a place they know little about.

Russian tourism specialists say meas-ures such as reciprocal tourism years help set the right tone, but note that many years will pass before the travelling pub-lic feels it is benefiting.

Khapacheva says the Russian-Chinese tourism years have helped to bring the two countries’ tourism industries closer.

“[Tour operators] talk to and visit one another more often, discussing a broad-er range of issues,” she explains.

“So far, the greatest achievement of the tourism years has been the increase in communication within the profession-al community.”

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Bloc sees Vietnam’s potential Customs Union Trade Minister Andrei Slepnev tells Gleb Fedorov about the group’s role, and its talks with Hanoi

ASIA

Vietnam is one of those countries where co-operation survived after the break-up of the Soviet Union

The Customs Union of Belarus, Kazakhstan and Russia began talks with Vietnam on a free trade agreement at the end of March. Trade Minister Andrei

Slepnev outlines the union’s strategy in Asia.

What is the Customs Union? Is it an at-tempt to revive the Soviet Union?

We are not creating a new single state. The Customs Union comprises three states that have economic ties. Every-thing to do with politics, defence and security is being dealt with under other formats: the Collective Security Trea-ty Organisation, the Commonwealth of Independent States, and others. We deal with purely economic integration.

The aim of the Customs Union is the free movement of goods between its members. How will it develop further?

A single market for goods will be fol-lowed by a single market for services. Our immediate goal is to set up the Eurasian Economic Union by January 1, 2015. It will cover more economic areas than the Customs Union.

Is this Eurasian Economic Union an equivalent of the European Union?

Not quite, but it is closer to the EU than to the former Soviet Union. The range of issues that the Eurasian Union will deal with initially will be considerably narrower. For example, the EU pursues a single foreign policy. The Eurasian Union is unlikely to do that, and will largely focus on the economy.

What are the results of initial talks on a free trade zone with Vietnam?

The first round was a success. We ex-changed opinions on what the agree-

ment would be like, and one can con-clude that our views on key issues coincide. That’s as far as the scope is concerned. The agreement will be com-prehensive, in other words, it will cover not only goods, but also services, in-vestment and labour. This is very im-portant. We want to develop an ar-rangement that will be no less thought-through than with the other partners. We should follow the trend and provide our companies with the best possible options for co-operation.

What projects in Vietnam interest the Customs Union?

We plan to increase trade from the cur-rent HK$27.1 billion to HK$54.2 bil-lion by 2015, and to HK$93 billion by 2020. These are quite ambitious plans, but we consider them realistic. Our commission is working in parallel with the Customs Union member states’ bi-

lateral co-operation with Vietnam, de-voted to priority projects, of which Be-larus and Kazakhstan have quite a few. Just as Russia does in the electricity and power generation sectors, as well as in the joint production of machin-ery and agricultural products.

Can Vietnam join the Customs Union?

No. We aim to create a comprehen-sive, advanced, modern free-trade zone. The option of Vietnam joining the Customs Union has never been on the agenda.

Who was behind the initiative to start the dialogue?

The initiative came from Vietnam, which had more than once expressed interest. The initiative was greeted by the leaders of our three countries. We have strong historical links. We have an impressive range of projects of joint interest. Vietnam is one of those coun-tries with which co-operation survived the difficult period that followed the break-up of the Soviet Union.

Why does Vietnam need a free trade deal with the Customs Union?

Vietnam is interested in a large distri-bution market for its agricultural, in-dustrial and consumer goods. Signif-icantly, it is a fast-growing country, so it is important [to consider] what it will be like in 10 years. Our goal is to use free trade to take part in and ride the growth of the Asian region, since that region has been operating under free trade [conditions] for a long time. The fact that we do not have such a regime considerably undermines the competitive ability of our products in Asian markets.

Who will be the Customs Union’s next free trade partner in Asia?

We have many requests for talks on free trade zones - more than 30. How-ever, until a decision has been made to start the talks, I am unable to com-ment.

The Customs Union of Belarus, Kazakhstan and Russia hope to ride the economic growth of Asia with a free trade agreement with Vietnam.

7.2TRILLION HK$ was the volume of foreign trade of the Customs Union with outside countries last year.

4.6TRILLION HK$ was the amount of exports, while im-ports were around HK$2.6 trillion.

170 MILLIONpeople live in the three Customs Union countries - Belarus, Russia and Kazakhstan. The overall area is around 20 million square kilometres which makes it the biggest union on earth.

CUSTOMS UNION IN FIGURES

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CALENDAR FIND MORE IN THE GLOBAL CALENDAR

at www.rbth.asia

YURI BASHMET CONCERT IN HONG KONGMAY 22HONG KONG ACADEMY OF PERFORMING ARTS En+ Group is bringing Yuri Bash-met, one of the world’s greatest viola players, to Hong Kong for a one-off performance. The concert, “Uniquely Russian”, is part of the 60th Anniversary Tour to celebrate Bashmet’s great contribution to mu-sic and culture.

www.hkticketing.com

FIRST RUSSIAN FILM FESTIVAL IN HONG KONGJUNE 14-21 GRAND CINEMA AT ELEMENTS, HONG KONGThe first Russian Film Festival in Hong Kong is sponsored by Rusal and organised by Academia Ros-sica. It will showcase several mov-ies shot in Russia over the past two years. The festival will be hosted by The Grand Cinema at Elements mall.

www.academia-rossica.org

ASIA BUSINESS FORUMMAY 23MARIOTT HOTEL, MOSCOW, RUSSIAThe Asia Business Forum will bring together Asian business people, poli-cy makers and Russia’s business com-munity, as they search for opportuni-ties in the region. During this one-day event, participants can learn more about the economies of Hong Kong and Singapore, and get some practi-cal advice on how to do business in these vibrant and growing economies.

www.asiabusinessforum.ru

HONG KONG BOOK FAIRJUNE 14-21 HONG KONG CONVENTION AND EXHIBITION CENTRE RBTH is proud to represent Russia at the Hong Kong Book Fair, thanks to the assistance of the Russian Consu-late in Hong Kong. This year, RBTH will try to present Russian literature to Hong Kong audiences and make sure that Russian voices are heard at the fair among those from other countries.

www.rbth.asia

Struggling to succeed

Russia’s car market is the second largest in Europe, and can be tough to crack.

Chinese marques remain small-time players in giant neighbour, despite rising sales, writes Viktor Kuzmin

INDUSTRY

Chinese carmakers have a rel-atively small share of one of the largest markets in the world, but they are catching up fast. Russia is the second

largest car market in Europe, behind Germany.

A total of 2.935 million new passen-ger cars and light commercial vehicles were sold last year, up 11 per cent from 2011, says Jorg Schreiber, chairman of the AEB Automobile Manufacturers Committee. The Russian market’s pre-vious peak was in 2008 with sales of 2.918 million.

Chinese car manufacturers remain a long way off market leader AvtoVAZ, which sold 538,000 new vehicles last year, but they enjoyed the highest rate of growth last year.

Chery Automotive’s sales soared 161 per cent, year-on-year. Geely’s sales grew 190 per cent and those of Great Wall climbed 112 per cent.

Predictions that Chinese cars would squeeze other carmakers out of the market, failed to come true, despite the Russians having a fondness for budg-et vehicles.

Even Lifan Group, which led the Chi-nese advance last year, sold just 20,500 new cars, 25th in the overall rankings. Chery and Geely, which also made it to the Top 30, sold 36,600 new vehi-cles between them.

FAW, China’s oldest carmaker, is ex-panding.

The company introduced the V2 su-permini and the V5 sedan in Moscow, and it plans to launch four new mod-els: the V5, Oley and Besturn B70 se-dans, and the S80 SUV.

FAW plans to eventually offer its whole product range in Russia, and has plans for 50 new dealerships.

FAW’s official Russian distributor Queengroup says it hopes to sell at least 10,000 vehicles this year.

There is no reason to think it will be easy for FAW to break into the Russian market.

Car sales grew at 10 per cent per year during the past two years, but several government-funded programmes to promote sales have expired and inter-est on loans have risen.

The Russian market may actually stagnate this year.

“Chinese manufacturers will not see

the same level of sales growth as last year,” says Azat Timerkhanov, an ana-lyst at Autostat. Although the Russian car market grew 3 per cent in January and February, Chinese car sales have been growing faster. Great Wall, ranked 24th in terms of sales after the first two months of the year, saw total sales grow 63 per cent. Chery sank to 26th place with 37 per cent growth and Geely was 28th with 46 per cent growth.

Lifan ranked 29th but its sales dropped 14 per cent. FAW sold 275 new cars to Russia in January and Febru-ary – slightly more than Cadillac but fewer than Vortex.

Timerkhanov doubts FAW’s pros-pects: “Its models cannot yet compete on a par in the budget segment be-cause of Russians’ persisting suspicions about the Chinese automotive indus-try.”

Chinese cars are still inferior in qual-ity to European, Japanese, Korean and United States products, but their strong selling point is a much lower price tag.

Several international car giants are launching new budget models in Rus-sia this year. Nissan has developed a Russian version of its classic Almera family car. Chevrolet is bringing its Co-balt. Skoda is offering the Rapid, which is popular in China and Russia. These models are more expensive than Chi-nese cars with a starting price of HK$108,000, HK$12,200 more than the FAW V5.

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Atom bombs to Apple stores

HK$10.07 BILLIONin revenue has been earned by resi-dents of Russia’s technoparks since their inception in 2006.

88 technoparks in 36 Russian regions focus on innovation in fields ranging from software to chemicals.

17 Special Economic Zones; six of which focus on industry, five on technology, four on tourism, and two on ports.

HK$27.9BILLION in foreign direct investment has been raised by Special Economic Zones since their inception in 2006.

IN NUMBERS

SOURCE: MINISTRY OF IT AND COMMUNICATIONS

American says Nizhny Novgorod is ideal for hi-tech industry, writes Artem Zagorodnov

Kendrick White has spent the past 20 years helping finance hi-tech start-ups in Russia’s far-flung regions.

Not that long ago, it would have been unimaginable for White to be where he is. Nizhny Novgorod, Rus-sia’s fifth-largest city, 400km east of Mos-cow, was strictly off-limits to foreigners during the cold war.

It was one of the former Soviet Un-ion’s centres of secret scientific study, a virtual prison for famous Soviet sci-entists, such as Andrei Sakharov, the Nobel Prize-winning father of the Rus-sian thermo-nuclear bomb.

Where Sakharov once toiled to build Russia into a nuclear powerhouse, White, a Florida native, is planting seeds he hopes will one day grow into Russian versions of Apple, Google or Facebook.

At the same time, Moscow officials aim to transform lands once known as the gulag archipelago into a network of Russian Silicon Valleys. The plan in-volves coaxing investors with an array of incentives, from tax breaks to cheap office space.

White is CEO of Marchmont Capital Partners, which he set up in Florida eight years ago after stints at the European Bank for Reconstruction and Develop-ment, PwC, and as a privatisation ad-viser in Nizhny Novgorod. He moved to Russia in the early 1990s, sensing op-portunity after the collapse of the Iron Curtain. He has spent 20 years promot-ing entrepreneurship, horizontal inte-gration and start-up financing for hi-tech businesses in Russia’s regions.

“As an entrepreneur, I’ve been inter-ested in science and technology com-mercialisation my entire life,” White says. “Mathematics, which is the basic lan-guage of science, is in Russians’ genetic code – this is the logical place for me to be.”

Following the second world war, the then-Soviet government provided gen-erous funding for national security-re-lated research and closed cities, such as Los Alamos in the US, flourished across the country. But while the US had a matching wave of entrepreneurs ready to fund start-ups and commer-cialise state-funded research over the past two decades, Russia faltered.

After the cold war, many closed cit-ies opened up and funding was slashed, but nobody filled the gap between sci-ence and the free market.

In the past five years, however, spe-cial economic zones (SEZs), tech-noparks and business incubators have sprung up, aiming to benefit from Rus-sia’s vast scientific potential.

“There are currently about 90 tech-noparks and special economic zones offering various tax breaks and cheap office space,” White says. “Probably, about half of them are ineffective, be-cause federal and local officials some-times approach the initial development as huge real estate projects without es-tablishing the critical relationships be-tween scientists, entrepreneurs, inves-tors and venture funds.”

The sprawling IDEA technopark in Kazan, 800km east of Moscow on the River Volga, was set up on the grounds of an abandoned defence plant in 2004. By providing two key services to local start-ups – cheap rent and sound busi-ness advice – the technopark graduat-ed enough firms within three years to become self-sustaining.

By 2007, its companies were paying enough taxes to the local authorities to repay the start-up capital.

“For the past several years, we’ve been independent of the regional budget, and this is important,” says Sergei Yushko, IDEA’s CEO. “Our experience proves technoparks are a viable model for eco-nomic development in Russia.”

Most companies at IDEA provide en-gineering services, software or web de-sign. One such company, Smarthead, has scored top-notch clients as diverse as Honda and L’Oreal.

After three years, IDEA graduates can leave the technopark, usually securing bank loans to acquire office space, or move into its business park, where rent is no longer subsidised.

There, neighbours include the local research and development branches of international behemoths, such as GE and Siemens. “The foreign companies come first and foremost for the quali-fied personnel,” Yushko says. “I’m a be-liever in the unpopular notion that we don’t need factories in Russia ... Pro-duction will eventually be moved to

where you have cheap labour, like China. Our advantage is people and their ideas.”

White believes government’s invest-ment of billions of dollars in SEZs and technoparks is paying off. “They’re start-ing to get to the root of the issue – how to get the flow of new companies into them and successfully commercialise science.”

This will be an exciting phase over the next five years, because officials in Moscow at Skolkovo, the Russian Ven-ture Company and similar organisations now understand this.

“Games and programming outsourc-ing have been the first signs of Russia’s emerging hi-tech sector because you don’t need a lot of resources to make them, but I’m a lot more excited about projects in microelectronics, medical sciences, nanotechnology, chemistry, space and quantum mechanics that will gain global recognition in the coming years,” White adds.

“If you go into any Apple store in the United States, you’ll discover that a sur-prisingly large number of their top 100 products come from Russia,” says Pekka Viljakainen, an adviser to the Skolkovo Foundation. “But most of them have offices in California and hide their Rus-sian origins.

“Our EBRD Central Russia Venture Fund invested in the [St Petersburg-based] Speech Technology Center, which is developing top-notch voice-recognition software, and Morion, which has produced quartz oscillators for projects as diverse as GPS and Na-sa’s Mars Odyssey mission.

“We successfully exited these hi-tech projects, setting into motion a new gen-eration of success stories. This will only grow as a new generation of globally known brands emerges from this coun-try.” White singles out Kuzbass Tech-nopark, in Siberia’s Kemerovo, for de-veloping coal-based sorbents to absorb oil spills, and the pharmaceutical clus-ter in Obninsk (“home of the peaceful atom”), where cutting-edge medical so-lutions are created.

In the US, the Baye-Dole Act of 1980 played the “critical role of transferring patent rights from the government to universities and small businesses”, White says.

“A Russian e q u i v a l e n t i s

under revision in the country’s parlia-

ment. This will be critical to support Russian innovators.

“What Russia’s leaders are beginning to realise is that it all has to be part of a comprehensive ecosystem. In addition to building up the technoparks’ infra-structure, you need to link them with scientists in nearby universities and pro-vide management training programmes there. “You need a proof-of-concept centre, like the von Liebig Center at the University of San Diego, to test the com-mercial viability of scientific concepts. Then you need an accelerator pro-gramme that can contribute real money to developing a prototype, on the prem-ises of a technopark, and paying law-yers to do patent protection.

“Soviet tradition has most Russian scientists and entrepreneurs looking to Moscow for money, while what needs to happen is local horizontal integra-tion between all concerned. This is what we’re doing at the Lobachevsky Uni-versity in Nizhny Novgorod, and it’s what I see happening across the country.”

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RUSSIA AND GREATER CHINATuesday, April 30, 2013

Investors can bank on top professionals at technology hubsArtem Zagorodnov

The Russian government has invested billions into setting up innovation hubs across the country. Sergei Yushko, CEO of IDEA, one of the country’s leading technoparks, explains how to profit from this investment.

What do technoparks offer interna-tional investors?

To maintain their leading positions in hi-tech solutions and manufacturing, companies such as Siemens and Hon-eywell have to simultaneously conduct and implement the latest research and development across a wide spectrum of scientific fields. Doing this in-house is expensive and inefficient. They out-source, and this is where technoparks play a critical role.

Russia’s rich scientific history makes it an attractive destination for those companies to network with specialists in everything from liquid dynamics to chemical compounds. The critical links between universities and global busi-ness leaders are technoparks, such as

Sergei Yushko is CEO of the IDEA technopark in Kazan. The value of IDEA’s stock has increased 16-fold since it was set up in 2004, as it has attracted investment from the likes of GE and Siemens.

cessionary leasing conditions for small companies, what the world’s best com-panies are really looking for is talent. Technoparks attract the best graduates from local universities and offer them an easy place to open a firm and find contracts from big industry.

Can you give an example of a major corporation you work with?

Siemens produces metres for Russia’s largest corporation, Gazprom, which produces more hydrocarbons than all of Saudi Arabia in terms of their total energy equivalent.

But how do you apply their products and solutions to Russia’s atmospheric conditions, its freezing temperatures? How do you certify the metres to meet all the local legal rules and standards?

This is where IDEA’s small business-es perform a critical function for Sie-mens’ operations in Russia.

Which technoparks are the most at-tractive to investors?

Investors should look at technoparks currently meeting European BIC (Busi-ness Innovation Centre) standards, like

IDEA in Kazan and the Krasnoyarsk business incubator in Siberia. Skolkovo is also in the process of implementa-tion. The profitability of the technopark and a small-to-non-existent state own-ership are also good signs of its vitality.

What role can a foreign investor play at a successful technopark?

Since setting up IDEA, the value of our closed joint-stock company – it is not publicly traded on a stock exchange – has increased by a factor of 16. Some of our residents have grown even fast-er than that. We have been looking for an outside investor for a possible buy-out. In our case, this niche has been filled by Rosnano, the joint stock nano-technology company, but we are still eager to meet with foreign entrepre-neurs. Our company’s profitability also means we have the funds to co-invest.

How can one invest in a technopark?

The management teams of IDEA and other leading technoparks are eager to hear from investors who are interested in tapping Russia’s vast scientific talent pool.

IDEA, that provide a convenient plat-form for interaction between big cor-porations and small business. While nearly all technoparks provide some kind of subsidised utilities and con-

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RUSSIA AND GREATER CHINA

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RUSSIA AND GREATER CHINATuesday, April 30, 2013

Expropriating deposits is a dangerous moveSergei Karaganov

Alexei Kudrin

Let me say right now that I have no secret infor-mation as to what prompted the ultimatum from the European Union demanding Cyprus introduce taxes on bank deposits – or, to put it more simply, to expropriate part of these deposits to recover European loans – in order to rescue that country’s banking system. Banking and tourism underpin the Cyprus economy.

However, I have a hypothesis that differs from most other explanations offered.

First, let us look at what the Russian and for-eign press have been saying. They argue that the tax is targeted at Russian offshore and dirty money. Perhaps it is, but only to a small extent. I think most of that money has been removed. What is worse is that the savings that have been frozen will shrink and may disappear altogether. But the holders of these accounts are not only Russians; there are many Britons and other Eu-ropeans, including Germans and Israelis.

Other experts, Russian leaders included, say the bailout of Cyprus’ banks by partially expro-priating deposits is absurd, unjust, unprofes-sional and dangerous. Russia’s top financial ex-pert, Alexei Kudrin, claims the EU and euro-zone regulators are mainly to blame for the crisis in Cyprus because they were reluctant

Victim of Greek tragedy

OPINION

In 1998, prime minister Sergei Kirienko’s Russian government advised that the pref-erential tax regime with Cyprus should be terminated. The suggestion shocked the Cypriot leadership, as the island stood to

lose half its business.At the time, the Cypriot president got a pri-

vate meeting with president Boris Yeltsin and convinced him not to cancel the privileges. As compensation, Cyprus agreed to buy and host an S-300 system, which had been paid for but not delivered because of opposition from Tur-key. In those days, Cyprus viewed Russia as a geopolitical ally. Even now, Cyprus provides services and maximum support to Russian businesses, but the country cannot shy away from the fact that it joined the European Union in 2004 and the euro zone in 2008. Cyprus is no longer in control of its destiny.

Over the past couple of months, German Chancellor Angela Merkel has spoken a lot about the country’s “dysfunctional” financial model. That has greatly undermined the credi-bility of the Cypriot financial system. The cen-tral indicator in all this is the ratio of banking sector assets to GDP, which in Cyprus is 7:1. For comparison, in Luxembourg banking assets ex-ceed GDP by a factor of 20, in Britain 5:1, while in Germany the figure is at the European aver-age of around 3:1.

Furthermore, the “dysfunctional” Cypriot model came about because local banks were forced to write off Greek debt. It is possible that Cypriot banks were not very fussy when it came to buying Greek bonds, but all EU policy was aimed at saving Greece. Investors were con-vinced the euro zone would not let Greece or any other member fail.

And therein lies one of the major contradic-

Demands for a ‘tax on deposits’ were indeed absurd and unprofessional if their goal was to rescue Cyprus’s banking system and economy

tions revealed by the current crisis: for political reasons, investors overvalued eurobonds in the zone’s periphery. Cyprus essentially became a victim of the spillover from the crisis in Greece. Now the situation in Europe is very fragile. Cy-prus can infect other countries. And not only because money will flee the island. The threat of a tax on deposits has spooked investors in troubled states and the outflow of deposits from the entire European periphery could accelerate.

Of course, the sought-after sum equivalent to HK$172 billion could be stumped up by the EU itself, but it is instructive to note two circum-stances. First, Cyprus must demonstrate that it

can save its own skin, which is perfectly logical because otherwise no country would bother to reorganise its financial system. The second cir-cumstance is far less obvious: it is a politically motivated unwillingness to help the “Russians”, whose funds in Cyprus, according to the “euro-crats”, are of “dubious origin.”

It is clear that European governments are finding it increasingly difficult to convince vot-ers of the need to support the peripheral coun-tries. And Cyprus is a convenient test case for them to demonstrate a tougher attitude.

What the upshot will be for Cyprus itself, no one seems to know. The details surrounding the

bankruptcy of Laiki Bank and the rescue of Bank of Cyprus are still uncertain. What is clear is that even these measures will not raise all the funds needed or eliminate all risks. After Mer-kel’s pronouncement, the island’s status as a fi-nancial centre is dead in the water.

It remains to be seen how financial flows will be affected, but living standards and employ-ment will both fall.

Inadequate support on the part of the EU and the European Central Bank may even cause Cy-prus to exit the euro zone. In such a case, the conversion of bank assets and payment of sala-ries in the local currency would undermine the financial sector and reduce standards of living even more than if the euro were preserved. The main danger is that the risk looming over all the peripheral European countries will increase.

I believe that the European Union bears re-sponsibility for ensuring the crisis does not spill over. Therefore, it must take all measures to res-cue Cyprus. If not, overcoming the consequenc-es of the contagion will be far more costly.

Alexei Kudrin is chairman of the Committee of Civil Initiatives and an ex-finance minister.

or unable to solve the island’s debt problem.I would go along with some of these claims,

but I do question assertions about the non-pro-fessionalism of the euro-group experts. The euro group is the managing committee of the euro zone, where Germany calls the shots.

ably and will be impossible to restore easily. The euro group financiers ought to have known this, so they destroyed the system de-liberately, realising that it would tarnish the reputation of the entire EU banking system and that the price would be the massive trans-fer of money to other – primarily Asian – banks.

It is absurd to risk the stability and reputa-tion of the whole European financial system, risk losing the trust of tens of billions that would flee, ruin the economy of the European Union and the euro zone just to spite several thousand Russians and Britons, and Russian companies with state connections.

So, let me repeat, the whole affair is not about Russia.

If my guess is right, and what we are seeing is a deliberate trashing of the bankrupt Cyprus banking system – or the economy as a whole – then what is the motive behind this?

I would hazard a guess that this has been done to set an example that is relatively pain-less for the whole of Europe, but catastrophic for Cypriots, of what is in store for the southern European countries if they renounce austerity measures and de facto external financial man-agement.

Cyprus is an island of just 800,000 people. It is not Greece, which, if it went bankrupt, would

threaten political stability in the Balkans. It re-sembles Italy or Spain even less. And because Cypriots most probably will not accept the ulti-matum and de facto external management, which does not bode well for them either, then it may be that the road was being paved to throw the country out of the euro zone.

The aim of the collapse of Cyprus may be to push some countries out of the euro zone.

In putting forward this hypothesis, it is not my intention to accuse Germany and its allies of callous imperialism. It may be the beginning of a real struggle to preserve Europe. And Eu-rope does need saving. If I were in Germany’s place, that is how I would act.

Now a word about our policy. There is no need to feel insulted. If Russia and other Euro-pean countries had been consulted, there would have been no surprises or hopes to keep the crisis under control.

Should we bail out Cyprus or its banks? By hindering the Germans, we will lose much and gain nothing. Unilateral lending or buying out banks’ assets would be nothing but a senseless waste of money. It would be of no avail to the Cypriots either.

Demands for a “tax on deposits” were indeed absurd and unprofessional if their goal was to rescue Cyprus’ banks and economy. When the Cyprus parliament agreed to introduce these measures – basically political suicide – the banking system was doomed. The reason was the ultimatum.

Banks operate on trust. Cypriots have agreed to a confiscation tax, which means trust in the Cyprus banking system has been lost irretriev-

Sergei Karaganov is honorary chairman of the Presidium of the Council on Foreign and De-fence Policy.

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RUSSIA AND GREATER CHINATuesday, April 30, 2013

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No war and no peace

Is it purely brinkmanship, or is North Korea mad enough to start a war it cannot possibly win? The international media says that the Korean peninsula is on the brink of war – a war that could erupt at any mo-

ment. Similar reports have surfaced in the past and,

fortunately for the region, war has not come to pass – and probably won’t.

It is a fact of geopolitical life in the Korean peninsula that neither side wants a war, but not because the South or North are blessed with a remarkable aversion to violence or bloodshed – rather, it’s because of strategic considerations shared by Pyongyang and Seoul.

Since it is the North that makes far more noise, it makes sense to consider Pyongyang first.

There is one very important reason why war is not in Pyongyang’s interest: it cannot win. Its military is equipped with outdated Soviet-era weapons that would fare better in a military history museum.

Its army might be vast, but it is essentially a crowd of poorly trained, undernourished con-scripts. Such an army, as the last decade has shown, is no match for South Korean or US forces.

Even nuclear weapons would not give North Korea much of an advantage, as it does not have a reliable delivery system.

Though it could launch such weapons via unconventional methods such as hiding a nu-clear device in a ship or small submarine, the North’s half-dozen nuclear devices probably would not have a decisive impact in the event of war.

If anything, using such devices would likely make adversaries all the more determined to

If Boris Yeltsin defined an era, the late Russian ol-igarch Boris Berezovsky gave it a face.

Berezovsky, who was found dead on March 23 at his home in Ascot, Berkshire in Britain, was a shrewd self-promoter who did as much in Russia during the Yeltsin era as many others who are far less known to the general public.

Admittedly a smart and well-educated pro-fessional, he fell victim to his own ambitions.

Berezovsky, who died at the age of 67, was es-timated to be worth US$3 billion, according to Forbes. He thought his power had no limits.

As luck would have it, in the 1990s he rose from the ranks of small entrepreneurs, estab-lished contacts among the powerful and gained access to Yeltsin’s private office, and started po-

hunt down the North Korean leadership. In other words, war would be suicide for the North Korean leadership, which understands this point perfectly well. No doubt there are some regimes that are willing to sacrifice all for some lofty religious goal, but North Korea is not one of them.

South Korea, despite its considerable and steadily growing military superiority, also has good reason to not start a war.

Even though the South would be all but cer-tain to win, victory would come at a very high price.

The major problem is geography, specifically the location of Seoul, the nation’s capital and largest urban centre. Seoul is located close to the border.

That means some 25 million people – almost half of South Korea’s population – live within shooting range of North Korea’s artillery. Most of this artillery is positioned just north of the city’s northernmost suburbs.

In the event of a war, Seoul would be subject-ed to brutal shelling.

To complicate things further, the advance of South Korean forces into North Korean territory would not be easy.

North Korea is mountainous, and the North’s military has spent decades transform-ing the country into what it loves to describe as an “impenetrable fortress”.

This fortress is not actually impenetrable, but occupying it would prove difficult and costly.

Lastly, a victory would mean that South Korea would have to deal with the enormous task of rebuilding North Korea – a duty most South Koreans have no enthusiasm for.

So, in the event of war, South Korea would find itself facing a pyrrhic victory. Economic de-velopment in the country would be pushed back a few decades, and it could take more than a generation to recover.

There is, therefore, little reason to worry about war on the Korean peninsula. Even if ex-cessive sabre-rattling leads to some unfortunate incidents – a remote but real possibility – both governments will try to limit the damage quick-ly, because neither side is willing to commit political and economic suicide.

No one wants to lose a war or be put on trial for alleged and real human-rights abuses, and a victory with heavy costs is not an attractive proposition either.

OPINION

Andrei Lankov

Berezovsky was a victim of his own ambitionsEvgeny Gontmakher sitioning himself as a semi-grey cardinal, some-

one who could informally decide the fate of the country’s leaders and of the entire nation with-out drawing attention to himself.

An overblown ego was his biggest flaw.We have inherited the political legacy of the

second half of the 1990s. While politics in Rus-sia have changed, the fundamental principles have remained unchanged. Just take a look around.

Look, for instance, at the economy. It is full of shady deals between private companies involv-ing public property with little state oversight.

Berezovsky’s contribution was particularly important to the establishment of informal power institutions and we are all still suffering from this.

He did a lot to prevent public politics from emerging in our country.

Manipulation, scheming and sophisticated combinations are all parts of these informal in-stitutions.

All crucial policy decisions in the second half of the 1990s were made behind closed doors. The role of public institutions, such as the State Duma, and civil society was sharply reduced. And the trend that started back then continues to this day, with President Vladimir Putin build-ing upon it creatively.

Berezovsky’s other legacy – and he admitted as much – was the distortion of the role of the media in society. He was among the first to turn the media into a tool for political struggle and propaganda.

Here, his ambition may have let him down once again.

The litigation he hoped to win, but ultimately lost, could well have broken his spirit.

He was certainly depressed during the months before his death.

Could a new Berezovsky emerge nowadays? Such a figure would be impossible today, be-cause in the decade since he emigrated, politics in our country has taken on a more established shape.

People who position themselves as semi-grey cardinals cannot enter the public stage under Putin. You may remember, Berezovsky tried to publicly impose his point of view on Putin, and paid the price.

If sooner or later Russia’s political system be-comes civilised, people like Berezovsky won’t survive.

Evgeny Gontmakher was head of the Social De-velopment Department of the Russian govern-ment from 1997–2003.

Andrei Lankov is a Russian scholar of Asia and Korea, and who has lectured at South Korea’s Kookmin University since 2004.

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RUSSIA AND GREATER CHINATuesday, April 30, 2013

In previous centuries, Nizhny Novgorod was an important economic, transport and cul-tural centre of Russia, locat-ed at the strategic confluence of the rivers Oka and Volga. Much of the city’s centre was

Perm Gallery and the “Perm-36” Mu-seum of the History of Political Repres-sion. There are also different types of theatre in Perm. The famous theatre figure and entrepreneur Sergei Diaghi-lev spent his childhood and adolescence in Perm.

Perm is located on the Riv-er Kama – the fifth largest river in Europe after the Volga, the Danube, the Ural and the Dnieper. There are many places to go in the city, including the Art-

During the Soviet era, Yekaterinburg (then Sverdlovsk) was a centre of industry. Today, it is best known as the place where the last czar, Nicholas II, and his family met their end at the hands of the Bolsheviks. Yeka-terinburg feels like a mixture of Russia’s two biggest cities. It has the hustle and bustle of Moscow, combined with the pre-revolutionary architecture, water and green spaces of St Petersburg.

Irkutsk is one of the great travel hubs on the trans-Siberian route,

and the point from which it is pos-sible to explore the great Lake Bai-kal, which is listed as a Unesco World Heritage Site and was also voted as one of Russia’s Seven Wonders. It’s not difficult to see why. Buses or min-ivans to Olkhon Island on the west-ern shore of Lake Baikal depart from the main railway station in Irkutsk. The houses on the island are wooden and battered and it is clear that tour-ism is the main source of income in this city.

Residents of European Russia consider Vladi-vostok the end of the country, but its natives see the city as the beginning – af-ter all, the sun rises in the east. When construction began on the Trans-Siberian Railway, the foun-dation was laid here. There are countless opportunities to see varied landscapes and with great views from every rooftop, but the most popular place to see the city is the viewing platform on Orlinaya Hill.

built in Russian revival and Stalin-ist architectural styles. The Nizh-ny Novgorod Kremlin is the heart of the ancient town and occupies a relatively small area on a hill. Eleven of its original 13 towers survive today.

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Making Making tracks across tracks across vast territoryvast territory

The Trans-Siberian Railway has become one of the main tourist routes in the country, writes Dmitry Sevastianov

The Trans-Siberian Railway is list-ed in the Guinness World Re-cords in three categories: its total length, number of stations, and the time it took to build it. At

the beginning of the 20th century, the railway line provided a reliable transport service to link the European and Asian parts of Russia. There are now plans to continue developing this route as an in-ternational transport corridor between Europe and Asia-Pacific.

Nowadays, the Trans-Siberian car-ries up to 100 million tonnes of freight and several million passengers annu-ally. The best time of the year for trav-elling on the railway is from May to Sep-tember.

The railway was built in several stag-es and in six sections.

The first stage – the Ussuriysk Rail-way (from Vladivostok to Khabarovsk) – is 769km long and was built and put into operation six years after the first stone was laid in Vladivostok in 1891. The West Siberian Railway, the second stage, is 1,417km long (from Chelyabinsk to the River Ob) and was built in a re-cord time of four years.

The third section, from the River Ob to Irkutsk, is 1,830km long and is the Mid-Siberian Railway. It was built in six years – from 1893 to 1899. Building it was significantly more difficult from an engineering point of view, as the flat land gave way to mountainous territo-

ry. This is where the builders had their first encounter with a natural phenom-enon of which little had previously been known: permafrost.

Construction of the 260km-long Cir-cum-Baikal Railway was postponed be-cause of a number of technical difficul-ties.

In 1900, a train ferry service began operating on a 73km route across Lake Baikal: the icebreakers Baikal and An-gara, which had been brought from Brit-ain, carried trains across the river for five years. In the winter of 1903-04, 45km of rail track were laid straight on the ice. Horses hauled wagons and steam lo-comotives across.

The inefficiency of this method of crossing the lake was keenly felt during the Russo-Japanese war, and in 1902

construction of the Circum-Baikal Rail-way began. The lake shore between the Port Baikal and Kultuk stations was a rocky ridge (81km long) rising 400 me-tres above the lake.

Fourteen kilometres of retaining walls were built along the route, along with 445 steel bridges, six stone viaducts, 47 rockfall protection galleries and 39 tun-nels totalling 7.3km in length.

There was nothing in the world to match this section in terms of its cost, scale and the difficulty of its construc-tion. Nevertheless, it was built in just two years and brought into operation a year ahead of schedule.

In May 1908, the final decision was made to build the last stage of the Trans-Siberian – the Amur Railway.

This was where improved track with gravel ballast was first built, and where the first tunnel on permafrost ground in the world was constructed, with an insulating layer between the rock and the lining of the tunnel.

Construction of the entire Trans-Si-berian Railway across Russia was offi-cially completed in 1916, during the first world war, when the 2,178km-long Amur Railway was brought into operation.

The railway did not just link Siberia and the far east with the rest of Russia, it created a string of new towns and set-tlements in the most remote parts of the country.

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A fi ve-star hotel on wheelsThe most comfortable way to trav-el the Trans-Siberian Railway is to take the tourist train, “Zolotoy Orel” (Golden Eagle). The train of-fers a premium service with deli-cious meals and various excursions. This “five-star hotel on wheels” trav-els from Moscow to Vladivostok four times a year. Each tour takes two weeks. The next departure of the “Zolotoy Orel” is on May 5.

Before reaching Vladivostok, the train stops in Kazan, Yekaterinburg, Novosibirsk, Irkutsk, Lake Baikal, Ul-an-Ude, Ulan Bator and Khabarovsk. The price per person ranges from HK$333,250 to HK$489,960, depend-ing on the service class. For budget travellers there is an alternative – to travel the same route on the “Rossi-ya”, which leaves daily from Yaro-slavsky railway station in Moscow. The trip costs HK$4,650 per person. An airline ticket for the Hong Kong-Mos-cow route or Hong Kong-Vladivostok route costs at least HK$7,750.

City steeped in historyWilliam Brumfield

The year of Vladimir’s founding is be-lieved to be 1108, when Grand Prince Vladimir Monomakh of Kiev established a fortress and consolidated his hold over the nearby Suzdal.

Although some now contest the year, the city was growing by the 1160s, when Prince Andrei Bogolyubsky made Vladimir the centre of his vast domains in northeastern Russia.

The town’s political and economic power was reflected in imposing church-es of “white stone” (a type of limestone). The earliest is the Cathedral of the Dor-mition of the Virgin, one of Russia’s

greatest architectural monuments. The Dormition Cathedral (1158-60) was the first major church Bogolyubsky com-missioned in Vladimir. It is in the town citadel, or kremlin, and conformed to a design typical of such structures in Kiev and Novgorod in the same period.

Vladimir’s success story was cut short in December, 1238, when the Mongols laid siege to the city. Later, as the Mus-covite state expanded, Vladimir reced-ed to secondary status. But the greatest of its ancient monuments survived and were complemented by additional churches. Historic Vladimir also has large areas dating from the 19th cen-tury. With Russia’s economic expansion in the late 19th and early 20th centu-

ries, Vladimir gained many new build-ings. Some of the most interesting ex-amples are in the floridly decorated “Russian revival” style, such as the for-mer City Duma (council) building and the Local History Museum. New church-es also arose, including the Catholic Church of the Rosary, built in 1892 near the Golden Gate. This brick Gothic Re-vival structure is one of Vladimir’s many houses of worship now restored to ac-tive use.

Like most Russian cities, Vladimir changed during the 20th century. None-theless, its enduring cultural legacy – and its architecture – are a treasure whose meaning and artistic importance transcend national boundaries.

How to get there from MoscowVladimir is one of the stops on the Trans-Siberian Rail-way, about 200km from the Russian capital. There are three ways to get there. A train links it to Moscow Kur-sky railway station. A coach goes from Moscow Central bus station. One can also rent a car, but there are few road signs in English.

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RUSSIA AND GREATER CHINATuesday, April 30, 2013

Mastering the art of modern communicationDmitry Romendik

Chechen leader Ramzan Kadyrov runs a blog on Instagram that his press ser-vice claims is the most quoted among politicians of this rank.

When Kadyrov established the new Ministry for Co-operation with Civil So-ciety in Chechnya he made Arbi Tamaev, his Instagram follower, its head.

Aleksei Goreslavsky, president of Agency One, a leading communications agency, believes Kadyrov’s Instagram project is one of the most successful in-itiatives of its kind.

“Kadyrov has achieved a unique mix of reliability and interactivity. [You may comment but you may not start discus-sions],” Goreslavsky says. “Giving your active follower a government position

is an example of modern populism, an attempt to have fresh staff and make a high quality, popular show out of it.”

Up until 2008, only a handful of Rus-sian politicians had blogs or instant mes-saging accounts.

Former president Dmitry Medvedev revolutionised the blogosphere. The pinnacle of his campaign was his visit to Twitter headquarters in San Fran-cisco in 2010, where he opened his ac-count and sent a message: “Hello eve-ryone. I am now on Twitter and this is my first message.”

Blogs and participation in social net-works have since become fashionable among Russian politicians, most of whom have both official and personal blogs and messaging accounts. The lat-ter have often caused scandals.

In October 2010, the former gover-

nor of Tver Region, Dmitry Zelenin, al-legedly discovered a grub in his salad bowl at a reception in the Kremlin and posted a picture on Twitter. Moments later, that very grub started its own blog and accurately predicted Zelenin’s res-ignation.

Are politicians running a high risk when they communicate directly with citizens on social networks? Ivan Zas-ursky, editor-in-chief of the Private Cor-respondent online newspaper, believes that, if you keep a blog, you inevitably put yourself in jeopardy.

“Everyone makes mistakes but the question is how well people detect the anger and stupidity of the author, how they interpret their viewpoint,” Zasur-sky says. “If you are not driven by neg-ative emotions, if you don’t lie, you won’t make a truly big mistake.”Ramzan Kadyrov (left) is possibly Instagram’s most quoted politician.

The famed Kremlin Regiment is only open to squeaky clean recruits. Unit’s duties include providing security for leaders and foreign diplomats.

Kremlin’s best of the bestElite regiment is much harder to join than the country’s special forces, writes Yuri Gavrilov

SECURITY

One of Russia’s best-known special military units is harder to join than the spe-cial forces, and is open only to squeaky clean recruits.

Hundreds of visitors every day see the Kremlin Regiment on duty at the Eternal Flame and the Tomb of the Un-known Soldier. The regiment also pro-tects government officials and provides the guard of honour for meetings with foreign delegations.

The Kremlin Regiment is part of the Federal Protective Service. The require-ments are extremely tough, even for entry level privates. It’s actually much easier to get into the army’s special forc-es unit than into the “special forces” of the Kremlin. For example, there are no recruits from single-parent or disadvan-taged families. Selection takes months.

Successful new recruits are an-nounced in April and October.

This year, 185 men from the Volga region, the Urals and western Siberia

are due to join the Kremlin Regiment. Geography is not the main selection cri-teria, but recruits from Moscow are rare because service so close to home may negatively affect performance.

Other grounds for disqualification are criminal charges or problems with the police. Any investigations into or reg-istration in a mental institution or drug rehabilitation centre before entering the army are instant grounds for disquali-fication.

When regiment officers examine the personal details of a conscript, they pay close attention to relatives who live abroad or who may have criminal con-victions. Even if there is nothing they can do about it, the specifics of the Pres-idential Regiment require such atten-tion to detail.

There are special requirements regard-ing the health and appearance of the elite soldier. The unit’s website states that ap-plicants must measure from 1.75 metres to 1.9 metres, with a visual acuity of no more than 0.7 dioptres in both eyes and normal colour-sensitivity. The soldier’s body mass index is equally important; meaning that if he measures 1.8 metres, he must weigh no more than 70kg. Krem-lin hopefuls must also take a hearing test.

If you can make out a whisper from six metres away then you are fit for ser-vice in the Presidential Regiment. If you miss any words, you’ll find yourself in a different unit. There is no place in the Kremlin’s line for those who enjoy al-cohol or have tattoos.

There are also stories suggesting the regiment only takes men with a Slavic appearance, but they seem to be un-true. However, the soldier’s physical features are taken into account but, on the whole, appearance is not a high pri-ority.

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SOCIETY

Cultural capitalRace is on to maximise the appeal of attractions, writes Liliya Glazko

Public parks equipped with Wi-fi, new cycling festivals, and fresh cultural trends are the key features of the Moscow government’s plan to enrich the city’s lifestyle.

The Moscow city government’s culture department head, Ser-gey Kapkov, gave an open lec-ture on the changes in the modern metropolis. Here are

his comments.

Moscow versus St Petersburg

St Petersburg has invented the myth that it is the cradle of Russian culture and is still living that myth. There, the state plays an even greater role in cul-ture than in Moscow. St Petersburg has the Hermitage, the Russian Museum, and its own, rather conservative, pub-lic. Moscow is all about money and ca-reers. Moscow has a huge number of private arts and culture organisations that can bring the most unusual exhi-bitions and shows.

Revising Soviet cultural legacy

Moscow is built in such a way that, since the time of [Nikita] Khrushchev and [Leonid] Brezhnev, residential suburbs have been intended only for sleeping. People work at factories and in the eve-nings come to the city centre to relax.

In Soviet times, the whole system was carefully thought through, down to the last detail.

Plays used to start at 8pm, but then the time was brought an hour earlier, so that Muscovites could get home to catch the Vremya current affairs pro-gramme on TV. The Soviet Culture Min-istry used to be an ideological body that had clearly defined procedures for eve-rything. Now it is necessary to develop something new, but nobody has been able to come up with what it should be.

Summer in Gorky Park

Summer in Gorky Park will be fun. Hav-ing said that, we shall try to cut some of the activities in Gorky Park because we don’t want it to turn into a branch of the Vasilyevsky Spusk Square, out-side the Kremlin, which houses vari-ous large-scale events visited by mul-titudes of people. We would like Gorky Park to be an atmospheric place where one can walk, talk, roller-skate, lie on the grass and relax. And yet there will be many events too, from concerts to festivals and Paratroopers’ Day cele-brations.

Moscow festivals

We have had some good experiences, for example, the one-day Night at the Museum project, which last year attract-ed 900,000 people. These were mostly young people, aged from 18 and 28. The festival did not consist of anything spe-cial other than museums staying open until the last visitor had left. According to the polls, people went there to spend time with other people, to meet people “like them”. Many made new friends while queuing for the tickets. In Europe, a Night at the Museum is held twice a year. Our aim is to think of something new. For example, this year we have held a Night at the Theatre.

Cycling in the city

This year the Moscow city government is financing three cycling festivals: a tweed [theme], a night [event], and the one that is traditionally held in Gorky Park. So far in Moscow, bicycles have not become a means of transport and remain just a leisure activity. One cannot take a bike on the underground, but this year we have agreed with the public transport on the Garden Ring [the underground circle line] that they will now have special spaces for bicy-cles.

2018 World Cup

The Luzhniki Stadium will be revamped and the Spartak Stadium will also be used for World Cup events. Will we outdo the Europeans? I think in terms of the money spent, we will. The capac-ity of the stadiums will meet [the world soccer’s governing body] Fifa’s and [the European soccer’s governing body] Ue-fa’s requirements: 80,000 seats at the stadium for the opening ceremony and more than 50,000 seats at the rest of the grounds. Over a few years, Moscow has rebuilt its public parks.

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CITY

HK to welcome prodigyOutstanding violist Yuri Bashmet to expand his own limits and delight locals, writes Olga Kozlova

Classical music aficionados in Hong Kong should rejoice at the news of the “Uniquely Russian” concert by ac-claimed violist Yuri Bashmet

and Moscow soloists at the Academy of Performing Arts’ Jockey Club Amphi-theatre, on May 22.

Famous for his pioneering solo con-certs, Russian prodigy Bashmet has ex-plored the instrument in all possible genres and revolutionised attitudes to-wards the viola by reinventing it as a leading instrument rather than one that is secondary to the violin.

Bashmet has inspired many promi-nent composers, never failing to exceed expectations.

Bashmet was the first Sochi 2014 Win-ter Olympic ambassador. He gave a con-cert for construction workers at the un-finished stadium wearing a red helmet.

His impressive career in classical music started with a rock band and he is still known for going in search of al-ternative inspiration.

“Sometimes, I play with rock groups and jazz bands to try something new and exciting to expand my own limits, but I have to say that I belong to classi-cal music, no matter what,” he says.

Bashmet enjoys visiting Asia and says he finds Hong Kong audiences to be attentive and interested in Russian music, and new styles and genres.

He has many friends in the region. Tan Dun, an honoured Chinese com-poser and author of the scores for Crouching Tiger, Hidden Dragon and Hero, wrote a piece for viola and a string orchestra for Bashmet’s 60th birthday.

He supports the fusion of classical and contemporary music, adding that musicians such as Vanessa Mae have worked to bring Bach, Vivaldi and other classical composers to mass au-diences.

Bashmet has been giving master classes for local students at the Acad-emy of Performing Arts, an activity he finds enjoyable, noting that the viola is growing in popularity. However there are still few concerts and performanc-es for this understated instrument.

Bashmet doesn’t differentiate between classical and pop music and is willing to do whatever it takes to lure audienc-es to his concerts and introduce the beau-ty and sophistication of works of art.

“As long as the music is performed to perfection, it does not matter which genre it belongs to,” he says. “It is very important to keep what I call a ‘feeling of concert’ to do your best.”

The upcoming concert in Wan Chai is part of the 60th Anniversary Tour cel-ebrating Bashmet’s talent - and his birth-day – he turned 60 on January 24.

“We will be performing a programme consisting of classical music hits: Tchai-kovsky, Paganini and Grieg to name a few.” The Moscow soloists played Grieg’s suite during their first concert 20 years ago, since then it has become a signa-ture piece.

“We hope that Hong Kong audience will enjoy our performance as much as we do,” he says.Yuri Bashmet will perform at the Academy of Performing Arts on May 22.

Alexander Zakharov’s works mostly focus on what children love.

Artists need support Online cuisine for all tastes

Brian YeungMark Zavadsky

Art enthusiasts in Hong Kong are de-manding more opportunities to meet world-class artists. The Russian Master of Miniature, painter Alexander Zakharov recently provided one.

Visiting Hong Kong for the first time since his exhibition in 1994, Zakharov met local audiences, hosted by AP Con-temporary Gallery. Zakharov’s new ex-hibition included large mixed media pieces and miniature paintings. His works often focus on what children love and accept.

Russian food, with its imperial legacy and diversity of cuisines, is often enig-matic. Even those who have tried borsch, herring, sweets or porridge usu-ally cannot name more than five typi-cal dishes, or tell the difference between Ukrainian and Georgian culinary crea-tions. Similarly, few know about every-day products, such as smetana (sour cream), kefir, chocolate butter and curd with raisins, that have a special place in the heart of every Russian.

Living abroad brings its challenges, among which is missing particular prod-

His collectors include Nicolas Cage, Whoopi Goldberg and other celebrities. He sold his first piece to the president of a Swedish bank in Moscow in the early 1980s. He vividly remembers that the money he got was equivalent to what his father earned in a year.

Zakharov believes few artists have the means to follow in his footsteps, these days, and called for locals to enjoy more support.

“Artists who benefit from the govern-ment are happy to dedicate themselves to making the local art communities better,” he says. “Hong Kong can learn more from Berlin on this front.”

ucts and comfort food that contains a sacred bond with the homeland. It is difficult to underestimate the impor-tance of home-cooked food for Russians who have never completely converted to eating out and prefer to gather in-doors for family dinners.

The situation is even more frustrat-ing in Hong Kong, where so many for-eign foods can be bought easily.

This was why Elena Smith launched Khutorok, an online store that provides fresh products, such as meat and dairy, to Hong Kong residents.

The soft opening was in January, and the store quickly became popular with the city’s gourmands.

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