China Helps an Ailing Autocracy
On 8 November Minsk signed a deal with Dagong Credit Rating Co Ltd, China’s largest credit ratings agency, to assess its sovereign credit rating. State-owned Dagong may issue a more favorable rating than the US agency Standard & Poor’s, which downgraded Belarus from B to B- in late September.
The deal is part and parcel of Beijing’s bailout for Belarus – in September, China inked a deal to provide a $1 bn bailout loan by end of 2011, on more favorable terms than the Russia-led Eurasian Economic Community and the IMF. Beijing is willing to help a fellow autocracy off its knees, but the support comes with a price: stakes in Belarus’s strategic state-owned companies.
At face value, Beijing seems to be exploiting a downturn in the Belarusian economy. One could argue that China pursued similar acquisition strategies in Western Europe in the aftermath of the 2009 crisis, although China’s impact in Belarus is greater and the political implications are more significant. This version of events jives well with the view that Chinese investors are “neo-mercantilists”. But this picture is too facile.
Chinese investment comes in diverse clusters of coordinated projects. Belarus is no different. Large Chinese delegations that visited Minsk in March 2010 and September 2011 have initiated investment projects in up- and downstream industries, comprising several modes of entry. In the power sector alone, the value of investment projects carried out and planned amounts to $3 bn. Not all of that capital may be registered as FDI, since China often lends capital to Belarusian firms, who are then obliged to contract Chinese firms. Nonetheless, with Belarusian FDI averaging less than $2 bn per year, China’s investments would make a big impact even without equity investments.
China is set to make its biggest mark in power generation, and the main investments have gone into revamping four coal-fired thermal plants. Among the thermal plants is 5-Minsk, a key source of power for the nation’s capital – capacity will increase nearly fourfold to 610 MW. The air pollution this will cause for Minsk is considerable - CO2 emissions are set to quadruple. Equally controversial is China’s foray into nuclear power. It is entering a bidding process to build twenty 110-330 kWt substations to distribute electricity from the Belarusian Atomic Energy Station. The proposed site remains contested on environmental safety grounds. The Fukushima catastrophe and the ensuing nuclear debate in Western Europe this year have increased Western pressure to abandon the plan. This is why the implicit support from China is welcome news to Lukashenka.
However, China is also promoting clean energy in Belarus. According to an agreement signed last month, a new 40 MW hydropower plant is to be built at Vitsebsk by 2015. A further $500 m in investments could flow into a cascade of smaller hydro plants. On a smaller scale, China is breaking ground on wind power with a 1.5 MW farm in Grodno region. China today is the world’s top producer of wind turbines and has installed considerable capacity in its less populous western regions.
Beyond the power sector, a shining example of technology transfer is in telecoms. According to a bilateral agreement signed in September, China will help Belarus launch its first communications satellite within the next 30 months. Belarus will become the seventh country to carry out such a project with China.
Further downstream, China is engaging in several areas of manufacturing. On the one hand, China National Machinery Industry Corporation (Sinomach), China’s largest machinery producer, is keen on acquiring prized assets in the machinery industry, which form the core of Belarus’s export capacity. On the other hand, joint ventures are underway at chemical plants for sodium carbonate, nitrogen fertilizer, cellophane, and paper. China might be interested in using these industries as a platform for exports to Russia and the EU. In a sense, China is supporting dirty industry on Europe’s “periphery” – though it might help to bring in more modern, less polluting technologies.
The emergence of such diverse investment activities since 2009 underscores the coordinated nature of Chinese investment. Not surprisingly, there is talk of a new industrial park for Chinese companies. Beijing Fandian, a luxury hotel chain, has begun construction on a new branch in Minsk to be inaugurated in 2013, which will cater to Chinese businesspeople and officials. The hotel might play into Lukashenka’s explicit efforts to create a “Chinatown” in Minsk.
Indeed, some hope that Minsk may become a new center for the Overseas Chinese community. Chinabelarus.net, a Chinese-language site established in 2008, is already a popular networking tool for Overseas Chinese. The breadth and scope of Chinese engagement in Belarus could be impressive. But Beijing is likely to monitor each step of the way. The Chinese companies entering Belarus illustrate the importance of what is at stake. At least five of them have a market cap of over $500 m and are publicly listed (either directly or through their parent).
At a time when Belarus is mired in crisis, Beijing’s commitment to investing extensively with top companies is quite bold. As an emerging power, China now has sufficient capital, technology, and know-how to contribute, particularly in telecoms and clean energy. In the process, it can serve as an engine for employment, productivity gains, and technological progress, which in turn can stimulate economic growth. Large industrial projects could exert a centrifugal effect on corollary industries. In the short run, moreover, China’s vote of confidence could attract other investors to enter Belarus, allowing FDI inflows to shore up the country’s balance of payments.
But China is exporting some of its negative practices as well. It is supporting potentially hazardous projects in nuclear power, thermal power, and chemicals production. More importantly, while the West is intensifying its boycott of Minsk – most recently Deutsche Bank and BNP Paribas – Beijing is helping a fellow autocracy off its knees. As President Lukashenka so aptly put it: “We will always remember that our Chinese friends stretched out a helping hand to us in times of crisis.”
Iacob Koch-Weser, contributing writer
(This is the second article of a three-part series)