Beyond Rhetoric: Putin Faces Stark Declines in Global Investment from Non-Western Nations

Despite the rhetoric from Russian elites about opposing Western dominance, recent developments reveal a less favorable situation for the Kremlin in its efforts to persuade neutral countries about the robustness of its economy.

Firstly, the St. Petersburg International Economic Forum (SPIEF) saw a notable lack of prominent attendees, with several top Russian business figures opting not to participate. Once a gathering point for high-level foreign leaders and heads of significant international organizations like the IMF, this year’s forum primarily featured abstract dialogues on a multipolar world, with only Indonesian President Joko Widodo in attendance.

Secondly, recent data from the UN Conference on Trade and Development (UNCTAD) indicated that the Russian economy garnered only $3.35 billion in foreign direct investment (FDI) in 2024, reflecting a staggering 91% decline from the pre-war level of 2021 and marking the lowest point since 2001. Concurrently, the stock of FDI in Russia plummeted by 57% from 2022 to 2024, totaling $216 billion.

The statistics suggest that there has been no surge in investment from the Global South following the withdrawal of Western companies from Russia. For instance, a report from the Bank of Finland Institute for Emerging Economies found that Russia’s share of China’s total outward FDI decreased from around 1% between 2015 and 2020 to just 0.3% from 2021 to 2023. With China’s total FDI stock overseas valued at approximately $2.96 trillion in 2023, Russia’s share amounted to about $8.9 billion. Similarly, India’s FDI presence in Russia is modest, estimated at $16 billion by the end of 2023.

These figures starkly contrast with the scale of Western investments in Russia prior to the conflict. In 2021, the EU held €255 billion in FDI stock in the country, while U.S. investment estimates varied from $12.3 billion to $39.1 billion, depending on the methodology.

The unfolding situation has been mirrored in the media as Moscow struggles to find buyers for assets abandoned by Western firms and to attract Chinese investment in new projects, particularly in the automotive industry.

There are three main factors explaining the hesitance of non-Western countries, especially China, to invest in Russia.

The first and most apparent factor is the ongoing war in Ukraine. Unlike trade, where immediate profits for both sides are prioritized, investment requires assurance regarding future stability. «The war and the subsequent sanctions pose significant barriers to FDI entering Russia, as does the Kremlin’s reaction, which includes wide-ranging nationalization and asset seizures,» explained Maximilian Hess, founder of Enmetena Advisory and a fellow at the Foreign Policy Research Institute.

Hess noted that while China might consider investing in distressed Russian assets—companies or capital devalued due to the war—these investments are unlikely to encompass large projects. “Beijing values its relationship with Moscow but approaches it from a perspective of extracting maximum benefit while mitigating risks, which has delayed the Power of Siberia 2 project for over three years,” Hess stated.

While President Vladimir Putin anticipated that the Power of Siberia 2 gas pipeline to China would compensate for Russia’s lost European market share following the Ukraine invasion, the project has faced ongoing delays and uncertainty.

The second factor, which supports the first, is the considerable difficulties posed by Russia’s financial and payment systems. Sanctions have cut Russia off from the global financial network, mandating greater reliance on trade in local currencies with other nations and necessitating intermediaries for transactions and capital movement. For instance, the ruble’s share of Russia’s export payments increased from 14.3% in 2021 to 41.3% in 2024, while for imports it rose from 28.1% to 43.2%.

Conversely, globally, dollars and euros still dominate, accounting for 72% of international payments according to recent SWIFT data. This situation complicates financial transactions to and from Russia, making capital movements increasingly expensive.

While China and India may harbor some hesitations regarding the West, particularly in light of Donald Trump’s protectionist policies, they remain unwilling to forfeit the advantages offered by the global financial system or risk their own economic wellbeing for Russia’s stance against the West.

The third factor involves regulatory challenges. Before the conflict, Russia could obtain loans in Western euros and dollars, which are stable and convertible currencies. However, as of 2022, 64% of Russia’s foreign debt was in these currencies. Now, due to sanctions, options for borrowing in foreign currencies are limited, while Chinese regulations hinder the Russian government from issuing bonds in yuan.

The tightly controlled Chinese market means that the government prefers not to engage with companies facing Western sanctions. In 2024, Russian Deputy Finance Minister Ivan Chebeskov indicated that talks with Beijing regarding yuan-denominated bonds had stalled due to regulatory disagreements. While Russia could pursue Panda bonds, sold in the domestic Chinese market and requiring permits for fund transfers abroad, Moscow prefers to utilize its own framework for yuan-denominated bonds, as Chebeskov noted.

There have been no further developments on this matter. Additionally, while Western private investors often lean towards high-risk, high-reward opportunities, Chinese investors tend to be more risk-averse and face numerous bureaucratic hurdles. Significant foreign investments or purchases of foreign debt necessitate approval from various Chinese governmental entities, complicating the already challenging process. Moreover, domestic markets in Asia are saturated with lucrative opportunities, reducing the urgency to invest in Russia.

For instance, the Chinese government’s crackdown on risky financial dealings was a key factor in the collapse of a significant 2017 deal where China’s CEFC Energy aimed to acquire a 14.16% stake in Russian oil giant Rosneft, which ultimately fell through due to CEFC’s financial struggles and bribery allegations against its chairman, Ye Jianming.