Chinese capital could compete with Russian capital

Current bilateral economic cooperation between Belarus and China is developing rapidly. Chinese economic expansion in Belarus could conflict with Russian economic interests in Belarus. However, China cannot replace Russia, which will remain Belarus’ main economic and trade and investment partner in the medium and long-term.

Currently Belarus is implementing Chinese investment projects within contracts and loan agreements worth approximately USD 6 billion. The total amount of credit lines opened by the Chinese Exim Bank and China Development Bank to finance investment projects in Belarus is USD 16 billion. Therefore there are Chinese loans worth USD 10 billion waiting to finance new investment projects. Currently there are over 100 joint projects under consideration at various stages.

During the official visit to China on July 15-19 by the delegation of the Government and the National Bank of Belarus headed by Deputy Prime Minister Anatoly Tozik, the parties discussed the setting of a Belarusian-Chinese investment fund and financing the construction of the infrastructure in the Belarusian-Chinese industrial park. The Belarusian delegation met with the leadership of the Ministry of Commerce, the People’s Bank of China Eximbank, the State Development Bank, as well as with heads of a number of Chinese corporations, which implement major investment projects in Belarus.

In turn, the National Bank of Belarus and the People’s Bank of China discussed the possibility to increase the share of payments in Chinese Yuan in mutual trade and Chinese investment (as part of a swap agreement between the national banks concluded in 2009).

China’s Development Bank allocates a USD 296.348 million and Yuan 328.575 million loan for Belarus within an investment project regarding technical re-equipment of a Dobrush Paper Mill branch Belarusian Wallpaper. The total amount of the loan is USD 347.9 million. The loan repayment is due between January 1^st, 2016 and December 31^st, 2025.

It should be noted that as a rule China allocates ‘related’ loans for Belarus, which are linked to the supply of Chinese goods in the country. Therefore, the growth in external debt to China is complemented by the increase in imports of Chinese products and growing negative trade balance between Belarus and China (see Table 2).

Table 2

Foreign trade dynamics between Belarus and China in 2005-2012.

Source: The National Statistics Committee of Belarus, own calculations.

For example, in 2011 the imports of Chinese goods in Belarus increased compared to 2005 by more than 7.7 times to a record high USD 2.194 billion. Negative foreign trade balance between Belarus and China in 2011 broke the record: – USD 1.557 billion against + USD 146.9 million in 2005.

According to the National Statistics Committee, the export of Belarusian goods to China in January-May 2012 increased compared with the same period in 2011 by 10.7% to USD 217 million (its share in overall Belarusian exports of goods was 1%). Goods imports from China, by contrast, dropped by 5.5% to USD 747.9 million (share in total Belarusian imports was 3.8%). The negative foreign trade balance during January – May 2012 was minus USD 530.9 million.

Overall, the Chinese share in the Belarusian foreign trade in January-May 2012 was 2.4%. The major Belarusian trade partners during that period were as follows: Russia – 46.9%, the Netherlands – 12.3%, Ukraine – 7.1%, Latvia – 5.4%, Germany – 4.1% Poland – 2.2%, Italy and Lithuania – 1.7% Brazil – 1.1%, Kazakhstan – 1%, Estonia and Venezuela – to 0.8%, United Kingdom – 0.7%.

Belarus’ major exports to China in January-May 2012 were potash fertilizers, heterocyclic compounds containing nitrogen atoms, polyamides, and trucks. There were no deliveries of potash fertilizers to China in Q1 2012. However, in April they resumed and made USD 99.163 million. The average price of exported potash fertilizers to China in April-May 2012 was USD 700.3 per ton.

At the same time, the list of Chinese goods shipped to Belarus is more diverse. During that period China exported: communications equipment and parts thereof; computers for automated data processing, parts and accessories for automobiles and tractors, shoes and shoe parts, electric railway locomotives, plates, sheets and strip, aluminum, parts receiving and transmitting equipment; heterocyclic compounds containing nitrogen atoms, antibiotics, insecticides, herbicides, equipment for processing rubber and plastics.

Nevertheless, direct Chinese investment inflow is low in Belarus. Our assessment is that Chinese leadership will continue providing related loans in order to maintain inflow of Chinese exports to Belarus. Moreover, loans to Belarus in terms of interest rates are more profitable in comparison with investments in foreign debt securities, where return rates equal LIBOR rate (approximately 1-2%).