Yakutia: enter China, Korea

After a well-deserved extended Spring Festival holiday, followed by a bout of the dreaded lurgy, I’m back to add a few snippets about non-Western investment in the Sakha Republic in far-eastern Russia, also known as Yakutia.

In an interview he gave last month to news portal yakutia.info, Aleksey Zagorenko Алексей Загоренко, head of Yakutia’s investment agency, addressed worries that Zhuoda 桌达 Group’s planned $500m investment to build and renovate homes and social infrastructure in the Republic’s capital might crush the local construction industry. Local home prices in Yakutsk are just as high as in Moscow, he retorts, and that can hardly be blamed on the trickier environment since other northern regions have more reasonable real estate prices. Zhuoda’s entry will likely harm some local actors, but the best will survive and as a result the market will be more “efficient”, and cheap. It’s a “change or die” question.

This echoes what we saw when I first wrote about Zhuoda’s Yakutsk project, where I quoted Aysen Nikolaev Айсен Николаев, the town’s mayor, who highlighted precisely such a desired effect on the local home prices: Zhuoda’s new homes might help certain local developers “sober up” and start selling a bit cheaper.

Chinese and other non-Western investment in Russia and specifically in regions like Yakutia is being increasedly sought for since the start of the Ukraine crisis, and Zhuoda is by no means the only big Chinese company with an interest in the area. I’ll hopefully find the time to refer to several others in future posts, but to stay within the topic of recent contacts with Sakha Republic authorities let’s mention state-owned conglomerate China Poly Group (保利集团), who met with Zagorenko in January to talk about potential investments in infrastructure.

Anyway it’s not just the Chinese who are increasingly attracted to the area. Contacts are also increasing with South Korean companies. Sakha Republic officials are scheduled to travel there in March, and further exchanges are planned during this year. Vladimir Vasilyev Владимир Васильев, the Republic’s minister responsible for foreign contacts, mentions Korean interest in biotechnology and health care.

According to Zagorenko, no less a company than Korean-Japanese conglomerate Lotte Group is considering taking part in local “medicine projects” and the construction of a hotel in Yakutia. I haven’t seen anything about this in Korean-language sources, but for one thing Lotte has been active in Russia for several years. They have built large malls in Moscow and are planning to acquire another one.

South Korea has produced some less-than-entirely-friendly statements towards Russia after the annexation of Crimea, and disagreements on political and military issues between the two countries do occasionally appear, but economic relations seem to have received a boost from Russia’s worsened relations with the West. Russian officials (specifically the Sakha Republic officials quoted above) talk of what I’d paraphrase as a need for non-Western industrial countries like China, Japan or Korea to fill the vacuum left by Western investors, given that foreign investment is absolutely necessary to develop Russia’s Far East.

A recent article by Hyun Seung-Soo 현승수 on Korean-Russian relations during the last year (“2014 한러 관계, 동북어 전력 환경 변화 속 지속 가능한 협력 모색”), in Russia-Eurasia Focus, published by Hankuk University’s Institute of Russian Studies, lists recent exchanges between the two countries, and points at Russia’s increased cooperation with North Korea as favouring the South’s “Eurasian Initiative” and creating business opportunities, especially trade in Russian natural resources through North Korea. Despite an increase in business exchanges, overall trade between Russia and the South remained stable during 2014, and Korean exports to Russia actually decreased.

My previous post on Yakutia has, to my great delight, attracted the attention of Mia Bennett’s Cryopolitics blog of which I’m a frequent reader.

[Updated on March 11 to add the link to Hyun Seung-Soo’s article.]

Chinese developer to build on permafrost in Yakutia

Hebei-based Zhuoda 桌达 Group will build homes and social infrastructure in Yakutsk, capital of the Sakha Republic aka Yakutia in the Russian Far East, with a planned investment above $500m over six years (凤凰, Дальневосточный капитал). The announcement comes after more than a year of contacts between the Chinese developer and company and government officials from Yakutia.

Yakutsk daily Ekho stolitsy exultantly asserts that “more than eight thousand residents of the capital will be able to have not just an improvement, but a cardinal change in their living conditions”. Yakutsk mayor Aysen Nikolaev Айсен Николаев adds that Zhuoda’s development will help certain local developers “sober up” and decelerate real estate price growth.

This will be the first time Zhuoda is building on permafrost, a challenge highlighted by pretty much all the Chinese and Russian sources linked to above. Yakutsk is a few hundred kilometres south of the Arctic circle, but it honorarily belongs inside, with January daily averages below -38°C. The most talked-about Zhuoda development abroad is in a milder climate: they were the first Chinese developer to enter Iskandar, a special economic zone being built in Johor state, Malaysia, facing Singapore and expected to be linked to it by rail at some point. Other developers followed Zhuoda into Iskandar and now some suspect they might already built a bit too much. (‘Iskandar’ makes you think of Alexander the Great and that’s sort of right: the area is named after a sultan of Johor of that name, which is a Persian-mediated form of Alexander.)