Around 200 people, mostly representing Russia's business elite and high-ranking officials, took part in the investment conference "Expansion of Capital. From National Economies to a Transnational Economy", organized by RBC.

Southeast Asia's largest business center witnessed a four-day discussion about the fate of economic liberties in Russia, ways of doubling GDP, and spending the Stabilization Fund. Additionally, participants could not refrain from making high-flown statements concerning the immediate future of Russia's most notorious company - YUKOS.

RBC's economic conferences are a real landmark for Russian businesses. Every year, members of Russia's business elite have the opportunity to pay working visits to global business centers. The trips' main purpose is to afford face-to-face communication with foreign investors, the opportunity to present individual projects, and to get acquainted with the peculiarities of the global business culture. In turn, foreign investors show a high level of interest in events of such scale, since they provide an opportunity for them to get information about Russia directly from fellow-businessmen, thus helping them to assess investment risks; to get an impression of the country's present-day business climate, and to get some tips about the very near future: even chief governmental executives - the determiners of national policy - take part in the conferences. This time, Andrey Illarionov, the Presidential Advisor; Ivan Materov, a Deputy Energy Minister; Tatyana Paramonova, the Senior Deputy Chairperson of the Central Bank, and Gennady Batanov, the Pension Fund Chairman, were part of the Russian delegation to Hong Kong for discussions about Eurasia's investment climate on the whole, and that of Russia in particular. Russian businesses were presented by prominent figures, such as David Yakobashvili, head of Wimm-Bill-Dann; Vladislav Vershinin, Aton Capital Vice President, and Viktor Gerashchenko, YUKOS Board Chairman.

Previous conferences had mainly dealt with the theory and practices of investing in Russia: this time Hong Kong witnessed Russian companies willing to enter the international market. "If earlier, we merely highlighted investments into Russia, now it's high time to handle Russian investments in foreign assets," RBC General Director Yury Rovensky stated. "The country's economy is on the rise. Not only is Russian business mastering the international management and informational transparency standards, it's getting more involved in global processes. Russia's direct investments in foreign assets are rapidly becoming one of the main trends of the economy."

1. How do we double GDP?

Almost every person taking to the floor deemed it their duty to speak about possible results of the country's economic growth. Doubling GDP was being discussed both at roundtables, and over a glass of cognac. Deputy Energy Minister Ivan Materov was bold enough to say that the task set by President Vladimir Putin was hard, yet possible to solve. "We are already facing high economic growth rates, the question is how long this can be sustained. We are capable of keeping GDP growth rates at 7-8 percent per year during a period of high prices for energy resources, but the economy's structure is growing differently," the Deputy Minister observed. However, he believes that we must figure out our position in the global division of labor, for the country's economy will still be a raw-material one. The Minister referred to an abortive attempt to set up seafood processing in the Far East as an example, where ten-year long efforts failed. Just as it has been before, seafoods are still being processed in Japan and Korea.

Alexander Shokhin even doubted that Russia could show stubborn economic growth, and, paradoxical as it may seem, pointed to the overly high oil prices. He believes that high prices could hamper industrial production. "It's extremely important to understand what a favorable macroeconomic situation is like," Shokhin noted. "Does it rescue us from the danger of stagnation, recession, or not? Perhaps, it will take us some time (a few months, half a year or a year) to realize that a favorable situation implies the oil price being at $60. Or it may well be, that even the price of $80 per barrel does not positively ensure high economic growth rates and, on the opposite, can entail a drop in production."

Opening a plenary session, Presidential Advisor Andrei Illarionov could not but adduce the economic growth rates of Hong Kong as an example to follow. The city is the world's undoubted leader as far as the economic growth rates are concerned. From 1950 to 2003 Hong Kong doubled its GDP every 11-12 years. Illarionov stated that Hong Kong's experience could be applied to Russia. Hong Kong's means are quite simple: extremely liberal customs and tax regimes; the government's predictable behavior with respect to investment issues; transparent monetary policy; scarce spending on social projects, and employment of cheap foreign manpower without any social protection or benefits.

Gennady Batanov, the Pension Fund Chairman, proposed to use the fund to spur economic growth. The volume of pension accruals is now growing at good pace: in 2002, some $1.3bn were transferred to the accounts of 42m Russians entitled to the accumulated part of pensions, and in 2003 that figure stood at more than $1.6bn. This year, the Pension Fund expects some $2.6bn, while by 2005 pension accruals are expected to have aggregated $3bn. This means that, should the growth rate of accrued pensions be maintained, by the end of the first pension reform decade the country will already have obtained a sum of $25 to 30bn, which could be appropriated, as Batanov put it, for the "implementation of major investment projects." However, he did not specify, what kind of projects, but cautioned foreign investors: "The coming 3 to 5 years are going to turn out decisive for foreign investors: either they venture entering the Russian market, or the Russian economy starts developing mainly at the expense of its own resources. On an occupied market it will be very difficult to find a niche."

2. Great is Russia - yet money will not work for it so far

All speakers shared the opinion that, at the time, Russia had a great deal of money. Yet, it was not clear where to invest it in. In his address to conference participants, Alexander Zhukov, a Deputy Prime Minister, observed that Russia found itself in an unusual and unique situation, for its foreign exchange reserves were growing, the Stabilization Fund had been established, and the Pension Fund was looking at where to invest money in. "We need to use these resources as soon as possible," Zhukov encouraged. "Money must work. Especially now that the global economy is instable. Thus, only the highly possible downward correction of the American currency is devaluating dozens of billions of dollars that are being kept without any use being made of them."

Alexander Shokhin seconded the Deputy Prime Minister by saying that, without doubt, the enterprise climate was rather favorable in Russia. "However, it is too early to feel on the safe side, since a favorable macroeconomic situation, strange as it might seem, is likely to stop economic reforms, by suggesting that everything is fine as it is," he stressed. "I mean some peculiar kind of the 'Dutch disease'," Shokhin elaborated. "In the hope that the situation will 'wipe out' everything, some decisions are made to reduce measures that have been designed to improve the investment climate to nothing."

The latest expert forecasts are alarming. As of 2004, Russia's economic growth rate is said to be going down from 7.3 percent (in 2003) to 6.9 percent in a report from the European Bank for Reconstruction and Development. Analysts believe that to maintain economic growth, it is necessary to show commitment to the reforms underway, the creation of market institutions and favorable conditions for economic activity.

And the latter has recently been causing trouble. Presidential Economic Policy Advisor Illarionov stated at the conference that "economic freedom is the main achievement for Russia in its striving for economic growth; however, presently, the country faces deterioration." He puts 2004's GDP growth rate at somewhat lower than a year before - at 6.5 to 6.8 percent. In his opinion, the situation can only be remedied by minimizing government spending, through demographic transparency policies, as well as by the absence of legal constraints on Russia's economic growth.

Viktor Gerashchenko pointed out that the YUKOS case was a regrettable confirmation of Illarionov's allegation that the country's economic freedom was shrinking. In his words, the consequences of the worsening business climate in Russia could be most lamentable for companies: YUKOS might file for bankruptcy at the extraordinary stockholder meeting scheduled for December 20.

3. Will money leave Russia via Hong Kong?

It is by no means accidental that Russian companies are increasingly seeking attractive investment projects abroad. As well as acquiring assets, they are hoping for stability and convenient infrastructure, as well as the economic liberties they miss so much in they own country. According to General Director of the Moscow International Business Association Alexander Borisov, the MIBAS possesses information about almost 300 projects by 111 Russian companies owing assets in 62 countries. "However, the actual figure is 3 or 4 times higher. Thanks to the positive economic situation over recent years and available financial resources, even second- or third-tier companies have actively joined in purchasing foreign assets abroad."

Hong Kong is among the most promising places for Russia's capital assets. This massive financial center sets an excellent example for other states to follow, with regard to the skilful creation of a favorable business atmosphere. Income tax and payroll tax rates (16 and 15 percent respectively) are low here; the British civil law system is still in effect, and courts are independent. And, most importantly, the Hong Kong exchange provides advantageous conditions for companies entering the market. That is extremely important for Russian businessmen these days, taking the high inflation rate and the strengthening of the ruble in Russia into account. And it is not by chance that Russian businesses has already started to consider Hong Kong: recently, road shows for the Bank of Moscow and Rosbank bonds have been held here. Such companies as Gazprom, NOMOS BANK, Aeroflot, and MDM Financial Group are already operating here. Experts estimate that the primary subscription to Gazprom's Eurobonds in September 2003, as well as subscription to similar notes issued by NOMOS BANK and MDM Financial Group, and bonds of the NIKoil company in 2004, resulted in the share of Asian investors totaling from eight percent to 40 percent.