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Opinion: The question of what role China can play in Belarusian development remains open

18.08.2016  |  Economy   |  Aliaksandr Filipau, BelarusDigest ,  
Opinion: The question of what role China can play in Belarusian development remains open

On 20 June Lukashenka met with vice-chair and president of the Chinese CITIC Group Corporation Wang Jiong; it seems especially important in light of Lukashenka’s planned visit to China in September.

The intentions of Belarusian authorities seem clear. The country needs foreign investments and / or loans, as long-lasting negotiations with the IMF continue to be relatively fruitless, while support from Russia is clearly declining.

But can China become a potential source of foreign currency for Belarus? There is no doubt that investments and loan issues are to be on the top of Lukashenka’s agenda in Beijing.

A good partner?

The state-owned company CITIC Construction Ltd. is one of the 100 largest construction companies in the world. In Belarus the company has handled the modernization of three cement plants and a linen factory in Orsha. It continues work on the Geely car plant and has started construction of a hotel complex in Minsk’s Viasnianka district.

Ihar Kayuda, director of innovations and investment projects at the holding company “Amkodor”, announced further plans for cooperation. He mentioned the construction of a loader and tractor plant in Kalodzishchy near Minsk, construction of a tractor plant in Navapolatsk, and a milk producing holding company in the Mahilieu region.

Lukashenka pointed to CITIC’s distinguished role in implementing construction projects in Belarus. However, analysis of the actual projects reveals that this cooperation has its dark side.

Failed modernization of the cement industry

Since 2008, CITIC Construction Ltd. has participated in the modernization of three Belarusian cement plants in Krychau, Kastsiukovichy, and Krasnaselsky. Unfortunately, once modernization was completed, all three plants nevertheless remained among the most loss making enterprises in Belarus.

It is certainly easy to fully place the blame on Belarusian authorities for failing to predict low demand for cement in recent years. However, unsatisfactory work by the Chinese contractor also played its part.

Belarusian experts, and even some officials - such as Mikhail Miasnikovich - complained of low quality equipment, delayed shipment and unreasonably high construction costs. Officials claim the total amount spent on the project amounted to $1.2bn.

In other words, although Chinese tied loans became the main source of financing for the modernization, CITIC was nevertheless selling goods and services of dubious quality for high prices. Moreover, Belarus will have to cover all these expenditures as debt payment. Some suspect this is a deliberate strategy of CITIC and other state-owned Chinese companies in Belarus.

Other dubious projects

In spring 2014 the company announced its plans to invest in the construction of a soda ash production plant. However, CITIC proposed to invest only 15% of all necessary allocations. Other expenditures would come from Chinese tied loans. In spite of the signed Loan Agreement, these plans have not progressed.

Moreover, within the frames of the One Belt, One Road initiative, the company has begun construction of an auto assembly line for the Chinese automaker Geely, as well as the redevelopment of a linen manufacturing plant.

The problems with the modernization process of the linen (flax) industry in Belarus resemble that of the cement plant modernization. China allocated $51,835 m. of tied loans for modernization of the linen factory in Orsha. However, textile production and import, as well as economic viability, remain extremely low.

The Geely project has already become cause for much discussion in Belarus and Russia. It stipulates building an automobile production line with an annual output of 60,000 passenger cars. Signed in March 2015, the total contract value of this project amounts to $300m, and the contract period encompasses 21 months. This money is provided by Geely, not from the Chinese tied loans.

One may call this an example of full-pledged foreign investments. However, the principal questions remain unsolved. Experts believe that Russia is to be the project's main target market, while Belarus would serve as a transit country (only formally as a country of origin) rather than a country of production. Russian authorities publicly suspect that Belarus plans to organise de facto re-export of Chinese made cars to the Eurasian Economic Union.

During his visit to Minsk, Mr. Wang took part in the initiation ceremony for the construction of the hotel complex in Minsk's Viasnianka district. The declared financial resources for implementing this project amounted to $120m. However, because of the permanent crisis in the touristic and hotel industry in Belarus, one can hardly expect this hotel to turn a profit.

Declarations and memorandums instead of real contracts

In the context of poorly implemented, economically unfavourable projects, some of which exist only on paper, the three initiatives mentioned by Ihar Kayuda appear to be no more than fantasies.

Given that as of 2015 the export of Belarusian tractors and loaders has halved since 2011, one can hardly expect a serious investor to build two new plants in a struggling industry. It seems more likely that these plants are to be built for the sake of tied loans and that their fate would be similar to that of the cement plants.

Cooperation in the sphere of food industry seems more mutually beneficial, since China has announced its plans to increase food import from Belarus. Moreover, Belarusian food products seem to be competitive on the Chinese market. However, more details ared needed before judgements can be made.

The reasons for such bold statements lie in changes in China’s policy towards loan allocation for Belarus. While the country still has access to the remaining $7bn of a $15 n. credit line opened in the end of 2009, the Chinese government has toughened its crediting policy. Loans are becoming less accessible and focus on transportation and logistics programmes within the framework of the One Belt, One Road initiative.

In this context, the Belarusian government, which desperately needs money in light of the severe economic crisis, seems to be making any possible proposals to receive further allocations within the opened credit line. The feasibility of such proposals seems to be a matter of secondary importance.

Consuming money with no public profit?

No doubt, Aliaksandr Lukashenka considers his visit to Beijing to be urgently important given the economic situation in Belarus. The years 2015-2016 have witnessed a comparatively high number of meetings between Lukashenka and Xi Jinping. However, the question of what role China can play in Belarusian development remains open.

It would come as no surprise if Belarusian authorities understood all the risks of such dubious deals with China, both in the dumping of potash fertilisers and allocations of tied loans for economically ineffective projects. It seems that given the deepening economic crisis, they simple do not have other choices.

Originally published at BelarusDigest

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