Is Belarus-China Cooperation a Pipe Dream?
On 20 June 2016 Belarusian president Aliaksandr Lukashenka held a meeting with vice-chairman and president of the Chinese CITIC Group Corporation Wang Jiong. The meeting seems particularly significant in light of Lukashenka’s planned visit to China in September 2016.
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.
Aliaksandr is Dean of the Faculty of Extended Education at the Belarusian State University of Culture and Arts, and expert of the NGO "The Liberal Club".
Ignore OSCE, Private Farming, Cooperation with Poland – State Press Digest
A Polish expert advises Belarus to ignore OSCE recommendations, as they are becoming increasingly irrelevant to the modern political context. Belarus's new military doctrine shifts its focus from external threats to preventing regime change due to provoked internal conflicts.
President Lukashenka suggests engaging private farmers to save unprofitable collective farms. UNDP and Coca-Cola help Belarus restore one of the largest bogs in Europe. Belarus and Poland agree to increase academic exchange. This and more in the new edition of the State Press Digest.
Belarus should ignore OSCE recommendations – Polish expert. Belarus Segodnia published a comment from Marcin Domagala, director of European Centre for Geopolitical Analysis in Warsaw, who critisized the OSCE recommendations for the upcoming parliamentary elections in Belarus. According to him, the OSCE’s main goal is promotion of the Western European political system. The popularity of this system peaked 20-30 years ago, but European societies are now facing transformations and are focusing on local traditions.
However, the OSCE continues to promote its values and ignores traditions of other countries. The expert sees intolerance of other political systems as a major problem in Europe. The new context requires new modes of cooperation, in which partners change independently rather than forcing each other to adopt certain models. Finally, Domagala advises Belarus to ignore OSCE recommendations.
The new military doctrine focuses on internal threats and defence sector. On 20 July Aliaksandr Lukashenka ratified a new Belarusian military doctrine, reports Soyuznoye Veche. Belarusian authorities claim that it is of a defensive nature as they do not consider any state an enemy. The new doctrine introduces a number of new terms including: military threat, local war, illegal armed group, defence sector of the economy, strategic deterrence and others.
While Belarus faces no direct military threat at the moment, the document does mention other types of threats, such as colour revolutions or international terrorism. The doctrine shifts its focus from external threats to internal ones, and emphasises the prevention of regime change due to provoked internal conflicts. It also highlights the role of the economy in the country's military capabilities as well as the need for a modern high-tech defence industry.
Lukashenka suggests relying on private farmers. Belarus Segodnia highlighted Lukashenka’a visit to the private farm ‘Cna Ecoproducts’. He praised farm owner Uladzimir Adamovič for turning two state farms with huge debt into successful companies. The Belarusian leader noted that state agricultural managers fail to make 25-30% of enterprises profitable, and private farmers can help save them.
“Without a good manager a company will never succeed. Give me a hundred such revolutionaries and we will build a new Belarus. There are good farmers in Belarus, and they should make use of the land”, Lukashenka said. From 1995 to 2015 the total area of privately farmed land increased three times to 187,000 hectares, with an average farm size of 75 hectares. However, private farmers produce only 1,5% of Belarus’ agricultural output, as the government invests heavily in collective state farms while private farmers receive little if any support.
Europe’s major bog restored in Belarus. Scientists from the Institute of Experimental Botany at the National Academy of Sciences have conducted a study and estimate that the economic potential of the Yelnya bog could be worth hundreds of millions of dollars. However, as Respublika writes, it first needs to restore the damaged hydrological balance. Yelnya is one of the largest bogs in Europe with a territory of 23 hectares.
The bog contains 450 million cubic metres of drinking water and plays a major role in the local environment. In the 1930s local farmers started to drain it for agricultural purposes, but the resulting dry peat became a constant source of fires. In 2002 more than half of the area of Yelnya burned. However, the situation began to improve after UNDP introduced a programme to restore the bog with support of the Coca-Cola foundation.
Students of professional technical schools lack practical skills. Belarus has inherited the Soviet system of professional technical schools, which aimed to provide professional training as an alternative to theoretical university training. However, Belarusian youth increasingly prefer university education, resulting in a lack of blue collar workers in the economy, writes Narodnaja Hazieta.
Yet the schools’ curriculum contains an excessive number of general subjects that take up too much of students’ time. Technologies change rapidly and schools lack the funds to replace and update equipment. Teachers also need constant re-training, as they have little contact with functioning industries.
Belarusian children swallow recently introduced coins. While banks, shops, and the general population were apparently prepared for the introduction of new money, parents seem to have had more problems. Since 1 July the coins, which appeared in Belarus for the first time since the dissolution of the USSR, became a threat to kids and a challenge for doctors. Around 30 children a day have been visiting hospitals to have coins extracted. Today’s parents grew up in a Belarus without coins and did not even think that they could pose such a threat.
Belarus signs a new agreement on academic exchange with Poland. It includes not only exchange but also internships for both students and teachers, informs Vecherniy Grodno. Belarusians and Poles will have the opportunity to study in Polish and Belarusian universities free of charge and will apply separately from the normal application pool.
A joint meeting of officials from both countries' education ministries will determine the number of students eligible each year. In addition, up to 20 students working on their BA or MA in Belarus will be able to continue their studies in Poland. 10-15 teachers a year will be offered a one month internship.
The agreement also stipulates that both parties will improve the content of school history textbooks. As Belarus and Poland have close historical ties, historians from both countries will jointly work on a correct interpretation of mutual history for textbooks.
The State Press Digest is based on review of state-controlled publications in Belarus. Freedom of the press in Belarus remains restricted and state media convey primarily the point of view of the Belarusian authorities. This review attempts to give the English-speaking audience a better understanding of how Belarusian state media shape public opinion in the country.