BEIJING: China and Russia agreed to launch a $2 billion investment fund to develop agricultural projects in the two countries and set up a free-trade zone between their key farming belts, the state-backed Russian Direct Investment Fund said Friday.
The move broadens China’s search for a diverse global breadbasket to supply its sharply rising demand for food. It marks a sharper pivot toward Russia and accelerates a drive that has seen the Asian giant spend billions of dollars to acquire food-producing companies abroad as well as cultivate farming producers like Argentina and Ukraine.
The fund will seek the participation of “leading international investors, ” and is also backed by the Russia-China Investment Fund, an arm of sovereign-wealth fund China Investment Corp., and the government of China’s northeastern Heilongjiang province, the statement said. Chinese officials didn’t immediately respond to calls for comment.
Launched as part of an official visit to Moscow by Chinese President Xi Jinping, the fund would increase cooperation in agriculture, including farming, land management, customs procedures, food logistics and sales, it said.
“Russia and China’s investment in agriculture will enable the development of large areas of uncropped arable land on the borders between our countries,” said Kirill Dmitriev, the Russian Direct Investment Fund’s chief executive. Mr. Dmitriev is also the co-chief executive of the Russia-China Investment Fund.
Russia and China will also consider creating an experimental agricultural free-trade zone between Heilongjiang and Russia’s farm-belt Amur region. The zone would use the direct exchange rate between the ruble and the Chinese yuan, it said.
The new fund comes as the U.S. has increasingly run into problems enlarging its agricultural presence in China. Five years ago, the U.S. supplied 97% of China’s corn. Beijing has gradually whittled that share to about 90% amid sharp spats over the genetically modified content of U.S. corn shipments. Chinese officials say the trend of smaller U.S. corn imports isn’t directly aimed at reducing the U.S.’s role.
The balance in the agriculture trade with Russia so far is tilted toward China, which imports far more farm products from than it exports to its giant neighbor.
In the first quarter this year, Russia supplied 12,525 metric tons of corn and about 153,000 tons of soybeans to China, according to Chinese customs data. These represent about 1% of China’s total imports for these two commodities. Russia also exports canola, canola oil, soyoil and a small amount of rice to China.
China exported virtually no agricultural products to Russia in the period, except for 100 tons of rice, customs data showed.
China already has a stake in Russian agriculture. Its largest grain trading company, state-owned Cofco Corp., spent $1.5 billion to acquire a 51% stake in Noble Group Ltd.’s agriculture unit last year. Noble Agri Ltd. owns wheat, corn and barley operations in Russia.
Another major overseas acquisition last year, Cofco’s $1.2 billion purchase of Dutch grain trader Nidera NV, gave the Chinese control of Nidera’s Moscow-based operations in the distribution of some grains and oilseeds in Russia.
The agreement announced Friday follows massive bilateral deals last year sealing the countries’ cooperation in the energy sector, including a $400 billion deal for Russia to supply its neighbor with natural gas.
CIC agreed in 2011 to invest $1 billion in the Russia-China fund alongside the Kremlin-backed Russian Direct Investment Fund.
