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. Last Updated: 07/27/2016

Promise of Far East 'Frisco' Flickers

VLADIVOSTOK, Far East -- Rising above the old Soviet brick and concrete buildings of this hilly city in the Far East is single modern steel structure, Russia's answer to San Francisco.

South Korea's Hyundai Corp. expects to have the $100 million business center ready less than two years`after breaking ground, a startling achievement in Vladivostok, which has waited in vain for a foreign investment boom.

"Even though we are losing money at this stage, now is the time to cooperate. This is the bottom, and we have only the chance to go up," said Dae Shik Kim, the general director of Hyundai in this port city.

Dented second-hand Japanese cars greatly outnumber Russian makes in the Primorsky Krai region, indicative of a growing consumer market among its 2 million people. Coca-Cola will open a bottling plant outside Vladivostok next year.

Local shipping firms have potential, analysts say, and Primorsk Shipping Co. says it may soon sell a 30 percent stake to an undisclosed investor.

But Russia's main eastern port, with a rail link to the west and proximity to Asian nations hungry for natural resources, so far has failed to become Russia's hoped-for Pacific Rim dynamo.

Vladivostok voted about two-to-one for President Boris Yeltsin in the July presidential election in hopes he would finish the reforms he began.

But a recent energy crisis that left half the region without electricity for more than 20 hours a day left some wondering whether things would ever change.

"The last five years have been slow," Kim said. "Because of the business environment and business infrastructure in the Far East, especially Vladivostok, change is quite a bit slower than expected."

Hyundai Engineering and Construction Co. Ltd. faced delays in its building project, including disagreements or misunderstandings on tax breaks, but has doggedly managed to keep on schedule.

For now, though, the Korean business center and the Coca-Cola plant are the only major developments on Vladivostok's horizon.

A major Russian-American joint-venture supermarket, Giant Foods, has been put on hold waiting for new funds, said the U.S. Agency for International Development, which is partially funding the project.

USAID, citing budget cuts, will close its own business center this year.

Governor Yevgeny Nazdratenko, whose populist rhetoric makes him hugely popular in this isolated peninsula squeezed between the Sea of Japan and China, blames Moscow for the region's woes.

"Primorsky Krai has much more potential than Moscow," he said. "Moscow produces practically nothing."

He is sharply critical of Moscow-controlled tariffs on electricity and transport, along with various federally mandated taxes.

Some local businessmen suggest the fault is not all Moscow's.

"The local authorities control a road tax and a militia support tax, both based on your turnover, not on your profits," said one Westerner, who did not wish to be identified. "The roads and infrastructure are horrible. There are no incentives for foreign investment."