Point of view: Belarus has little to offer to China in terms of economy

China was reluctant to engage Belarus economically because of the country's Soviet-style management culture and lack of a market economy, writes Vadzim Smok.

On 10-12 May, Chinese president Xi Jinping capped off his Eurasia trip with a visit to Minsk. As during his prior stops in Kazakhstan and Russia, the Chinese leader was sizing up the opportunities, as well as the risks, of deepening ties with countries in the Eurasian Economic Union.

Over the past two decades, Belarus has achieved a high level of confidence in its political relations with China, mainly through international support for China's policies. Squeezed between the EU and Russia, Belarus has sought to strengthen ties with a third power to gain greater independence in its foreign relations. However, economically speaking, Belarus has little to offer to China other than potash fertilizers.

A "historic" visit to Belarus

When Xi's presidential plane landed in Minsk, the Belarusian media was quick to call the visit “historic,” marking a new epoch in Belarus-China relations. No high-level Chinese leader has visited Belarus since 2001. Needless to say, President Lukashenka personally greeted and saw off President Xi at the airport.

The countries signed a number of agreements, which include Chinese investment in Belarusian railroads, industrial enterprises, and Big Stone, a Belarusian-Chinese industrial park. The Chinese leader also suggested that Belarus participates in China’s New Silk Road, an ambitious project to upgrade the transport and communications infrastructure connecting China to Europe.

Among the usual diplomatic niceties about friendship and cooperation, Xi commended the important role Lukashenka has played in working toward peace in Ukraine, “which was highly praised by the international community."

Of course, Xi was not in Minsk simply to compliment to Lukashenka.

Aliaksandr Filipau, a former Asia analyst at the Presidential Analytical Centre in Minsk, told Belarus Digest that Xi Jinping had a few hidden items on his agenda.

First and foremost, he was examining how trade integration was proceeding under the Eurasian Economic Union between Kazakhstan, Russia, and Belarus, and whether China stands to gain or lose from it.

Xi also wanted to assess whether the economic downturn in Belarus might harm the projects that China has financed through export credits. Not least, Xi was eager to secure long-term contracts at cheap prices for Belarusian potash fertilizer, a critical input for China's large farm sector. China is the world's top consumer of agrochemicals and potash fertilizer. China is even exploring the possibility of acquiring Belaruskalij, Belarus's potash extraction and export giant.

From Minsk's perspective, Xi’s visit afforded a unique opportunity to show that Belarus can successfully pursue a "multi-vector" foreign policy, and that it has the stature to host world leaders. In particular, Lukashenka seeks to demonstrate to Belarus's neighbouring powers, Russia and the EU, that his country can increase its room for diplomatic manoeuvre. All the while, the government prevented the Belarusian media from publishing any critical analysis of China's commercial contracts and interests in Belarus.

High politics and poor business

Despite a long history of mutual visits, it was only after 2006 that China became a foreign policy priority for Belarus. At the time, Russia announced its plans to significantly raise the price of oil and gas exports to Belarus. China was fast becoming a global superpower and an alternative partner to the West, making it the most suitable candidate to balance Russia's influence.

To draw the Asian power’s attention, Belarus actively supported the One China policy, as well as other Chinese policies, in the international arena. China returned the favour by condemning interference in Belarus’ internal affairs, in the face of Western critics of Lukashenka’s undemocratic politics.

Another goal of cooperating with China, to receive ample investments and cheap loans, proved far more difficult to achieve. Adhering to a pragmatic foreign policy, China felt it was enough to offer political support to Belarus. Chinese diplomats apparently told their western colleagues in the mid-2000s that they were reluctant to engage Belarus economically because of the country's Soviet-style management culture and lack of a market economy. To this day, Chinese FDI in Belarus remain very low, a sober reflection of China's lukewarm attitude.

Belarusian media like to report huge figures for Chinese loans, and often misconstrue them as "investments." The reports never mention that most of these deals originate with the Export-Import Bank of China, which offers export financing for Chinese goods and services. Under the terms of such loans, the general share of Chinese equipment, works and services is to be no less than 50% of the value of project financing. Such projects may modernize Belarusian industry, but they raise many questions in terms of economic expediency.

For a long time, Belarusian official propaganda has exaggerated Belarus’ importance for China, referring to Belarusian-Chinese relations as a "strategic partnership," the highest level of relations in the hierarchy of Chinese foreign policy. However, the Chinese themselves agreed to this formula only in 2013. According to a 2007 cable leaked out of the US Embassy in Minsk, Chinese Deputy Ambassador Jiang Xiao Yang described Belarus-China relations as having “more hype than substance."

The false image of cooperation largely targets a domestic audience, as well as constituting a veiled threat to Russia that Belarus is capable of establishing alternative alliances.

Does Belarus have anything to offer China?

The problem for Belarus in its relationship with China is that it cannot offer any significant projects for investment. Lukashenka has promoted his country as a gateway to both the Eurasian Economic Union and the EU, but this rhetoric lacks practical meaning. China established strategic partnerships with the EU and Russia long before Belarus and has external trade turnover of around $500 billion with EU and $90 billion with Russia, but only $4 billion with Belarus.

But Chinese companies remain reluctant to invest in Belarus because of its poor business environment and Soviet-style management culture, and the actual level of Chinese FDI in Belarus remains extremely low.

Although the Belarusian media has reported billions of dollars worth of contracts, the reports fail to mention that China only offers loans and investments that are tied to procurement of goods and services from China.

According to Filipau, Belarus currently has nothing to offer China but potash. Conversely, the New Silk Road, which Xi has offered Belarus to join, hardly concerns Belarus at all. It primarily targets the development of China's western regions, and its economic feasibility remains in doubt.

The Big Stone Industrial Park, the largest and most promising joint initiative, risks faltering due to red tape and poor management. Technologically, Belarus lags decades behind China. There may be room to cooperate on military technology, but both countries receive much of this technology from Russia already.

Belarus needs China's help across the board - diplomacy, capital, and technology. China is beginning to oblige, but will move forward with caution. In the meantime, a niche area for bilateral cooperation is in information technologies that facilitate government control. As its recent actions show, Minsk is prone to control and censor the Internet. More likely than not, China, a fellow authoritarian regime, will be happy to share its ample experiences in digital repression.

Originally published at BelarusDigest