Belarus: an unwanted friend of ‘Great China’?

On 6-8 April, Chinese defence minister Wei Fenghe will visit Belarus. Wei’s combined visit to Russia and Belarus, his first foreign trip since taking up the post, demonstrates recognition that Minsk gives the highest priority to its partnership with Beijing.

The Belarusian authorities have chosen orientation towards Beijing as a fundamental dogma in foreign policy. Belarus pursues this policy despite contradictory effects of the alliance with China. The Belarusian government hopes that it will get a better place in the sun in a future world shaped by China. For the time being it tries to reap some smaller benefits from Beijing to restructure its industry, find new loans and rearm.

Minsk expects a brighter future

The current Belarusian government wants China to reshape the world. It supports Beijing in that regard. Addressing a Belt and Road Initiative forum in Beijing in May last year, the Belarusian president urged the participants of this new Chinese integration initiative for Eurasia to “change the model of interaction between states.” Belarus’s presidential administration announced that the Chinese initiative “forms international relations of a new kind.”

While at the forum Alexander Lukashenka spoke of “reshaping the world’s economic map,” in a subsequent meeting with Chinese leader he assured Xi Jinping that Belarus was willing to help China “defend peace throughout the world” too.

Image: Kazinform

Other Belarusian officials sound a similar note. For instance, at a December meeting of the Chinese-dominated Shanghai Cooperation Organisation, Belarus’s prime minister Andrei Kabyakou insisted that the member states of the organisation should create additional factors for world security and stability.

To underline his belief in China’s ascendancy, Lukashenka even made his youngest son, Mikalai, learn Chinese. A video with Mikalai congratulating the Chinese on New Year in Mandarin appeared on YouTube on 18 February.

Does Beijing notice?

How much do these pro-Chinese moves by Minsk impress Beijing? On the one hand, top-level Chinese officials regularly visit Belarus. Last year, six Chinese ministerial-level officials, as well as state and party administrators of three Chinese provinces, visited Belarus. Minsk negotiated with such major Chinese companies as Sinomach, China UnionPay and others.

Belt and Road Initiative’s official routes and involved nations (in orange). Belarus marked grey. Map: DW.

On the other hand, even Belarus’s status in China’s global plans, such as the Belt and Road Initiative (BRI), remains unclear. Numerous Chinese and international publications do not include Belarus in the initiative.

The Belarusian president, responding to this problem, announced that the Great Stone Belarus-Chinese industrial park will be an instrument by which Minsk should participate in the BRI. For about three years now, the two countries have been constructing the industrial park which will provide the most favourable conditions for Chinese firms. 

Belarusian officials emphasise that the park’s construction progresses more rapidly than scheduled, but by the end of December occupancy comprised only some two dozens firms. Moreover, top officials in Minsk, again and again, ask their Chinese partners to bring new technologies to the park voicing the reasonable concerns of Belarusian government which Lukashenka succinctly put thus: “We do not want just storage there.”

The hopeless trade situation

To make things worse, since the mid-2000s Minsk suffers from a huge and increasing trade deficit with China. It dramatically grew again in 2017 (see Table 1).

Even the planned indicators of export growth for China for 2017-2020, adopted by the government last year, demonstrate Minsk’s lack of hope that it can significantly reduce the deficit anytime soon. After keeping silent for years, Belarusian officials started raising that issue with every visiting Chinese counterpart from 2016 onwards.

Beijing responded in several ways. First, it offered Minsk assistance, for instance in the form of unspecified “technical economic aid” to build housing for socially vulnerable groups. It shared defence technologies and sent armoured vehicles as a gift to Belarusian military, with the last instalment arriving in January.

Secondly, it opened its markets for Belarusian food exports: in 2016 – for dairy, in 2017for meat. The absolute figures of such export last year – about $10m – fail to impress if compared to Belarusian food exports to its main market in Russia which made up $2.1bn. The government, however, celebrated this achievement as a promising start.

On 28 December, the head of Vitsebsk province Mikalay Sharstnyou in a commentary for Belarus Segodnya, a media outlet of the presidential administration, said that the Chinese market should relieve the national agriculture and food industry which regularly faces closure of Russian markets. He added that in 2018 some dairy factories in Vitsebsk province would be adapted to meet Chinese standards.

Chinese industrialisation

PM Kabyakou visiting BELGEE. Image:

Meanwhile, Minsk wishes to reshape national industry with Beijing’s help and pulls out all the stops to that end. On 18 March,, an internet media outlet, revealed that Belarusian deputy minister of industry, Hienadz’ Svidzerski, has been appointed to run the joint Belarus-Chinese car manufacturing factory BELGEE. Apparently, he had not resigned from his office at the ministry, and so the appointment represented an extraordinary gesture of support for the project. The factory started operation last November and will produce 60,000 cars annually.

Observers see several positive results of Belarus-Chinese industrial cooperation. Last December, the Chinese САМСЕ corporation completed a cellulose factory in Svietlahorsk. By January, another major Chinese company Zoomlion launched serial production of construction and special vehicles in Mahilyou. At the same time, this company organises the manufacture of tower cranes at the bankrupted Strommashyna factory nearby. Another Belarusian firm, Amkador, received a Chinese loan of $192m to construct its new factory.

On 20 February, Belarusian state media reported a programme aimed at the industrialisation of Belarusian regions. The programme intends to set up more than a hundred enterprises throughout the country by 2025. The Belarusian ministry for industry hopes that China will become a major source of support for the programme.

Beginning of the construction of an engines producing factory, a Belarus-Chinese joint venture. Image: MAZ.

Belarusian media usually fail to discuss the contradictions inherent in Chinese involvement. For instance, they wrote about Minsk Motor Works (MAZ) constructing an engines plant together with the major Chinese Weichai corporation. They ignored the fact that it creates competition for MAZ which has produced engines in Belarus for many decades. Likewise, no discussions followed when last November the Chinese Midea corporation announced its plans to launch production of home appliances, which will compete with the Belarusian firm Atlant.

Only recently has some criticism appeared. In January, Narodnaya Gazeta and Respublika, government-affiliated dailies, published articles criticising the BELGEE automobile production project and the Chinese Zongshen corporation’s plans to acquire Homselmash, the Belarusian machinery manufacturer.

Belarusian officials maintain a sycophantic line in dealing with China, with Lukashenka setting the example by praising “Great China.” Yet Minsk has started demonstrating more pragmaticism regarding its Chinese partners. Belarus now asks for and gets some rewards for its Sinophile policies and the losses it suffers because of them. The projects with Chinese involvement are not considered immune to criticism anymore. That detail makes future Belarusian cooperation with China less idealised, and instead more responsible and efficient.

Not all roads lead to Moscow: Belarusian arms industries between Russia and China

The governmentaffiliated Belarusian daily Zvyazda recently announced that 30 percent of military equipment types presented at the 3 July military parade in Minsk had been produced or modernised domestically. Meanwhile, Belarus exported $1bn worth of arms last year.

These achievements, impressive given that Belarus has only been an independent state for three decades, are the result of some uneasy partnerships. Belarusian defence firms interact closely with the Russian arms industry. For example, on 3 August, the media reported that a Belarusian aircraft repair plant had overhauled fighter jets for Indonesia – the order was secured via Russia. Earlier, the media also reported a similar deal with Angola.

Nevertheless, years of experience show that Russia’s support for Minsk in the defence industry is surprisingly limited and comes at a hefty price. Minsk has thus been prompted to look for alternatives by cooperating with China.

How a Belarusian company secured lucrative deals

On 3 August, the Indonesian media reported the arrival of two refurbished Su-27SK aircraft from ‘Russia.’ However, it was the Belarusian 558th Aircraft Repair Plant (ARP), located in the city of Baranavichy in Belarus, which had really overhauled them. The same firm in Baranavichy is now overhauling two Indonesian Su30MK aircraft, the orders for which it also received from Russia.

On 21 July, the Moscow-based daily Kommersant reported a similar sale of Russian arms to a third country involving Belarus. Reportedly, Moscow negotiated the sale of six second-hand Su-30K fighter jets with Angola; for years the weapons had remained in storage in Baranavichy. In 2013, Moscow had closed another deal with the African country on 12 such jets, also stored in Baranavichy.

These jets are set to be overhauled and modernised at the 558th ARP. Belarus’s role in the deal with Angola goes further than repairs: Kommersant reports that a source in the Russian aviation industry had earlier reported that ‘Russian and Belarusian specialists are looking for customers to sell the six Su-30 fighter jets stored in Belarus’; this was also confirmed for Kommersant by the director of the 558th ARP.

The 558th Aircraft Repair Plant in Baranavichy. Image:

A closer look, however, reveals that Russia’s role in procuring deals for Baranavichy may not be so benevolent: in exchange, Moscow may expect to wrest control over this key Belarusian company. As early as 2014, the United Aircraft Corporation, a company owned mostly by the Russian government, signalled its interest in acquiring a share in the 558th ARP and integrating it into its business. In addition to new prospects for development, the Belarusian plant was promised orders for repairing Russian Yak130 training jets and overhauling fighter jets for Indonesia. Thus, it is possible that the Indonesia-Baranavichy deal is an advance payment for the shares.

Moscow has many reasons to covet the Baranavichy air repair plant. The 558th ARP, alongside the company Aerosistema, is the leading Belarusian producer of electronic warfare systems. Both companies sell their products successfully. For example, the 558th ARP has installed its electronic warfare systems on numerous Kazakhstani Su-27 heavy fighter jets and Su-25 close air support aircraft, which the plant started modernising in the late 2000s. Reuben Johnson of the magazine IHS Jane’s Defence Weekly commented that the Belarusian electronic warfare systems displayed at the MILEX 2017 exhibition in Minsk ‘indicate that Russia’s dominance in this sector is declining.’

For this reason, it is in Minsk’s bests interests not to lose valuable assets by cooperating too closely with Moscow. Belarus has experience keeping Russia at arm’s length: it has so far rebuffed the Kremlin’s efforts to take over another Belarusian defence company, MZKT, which produces special vehicles for strategic missile forces.

The Kremlin realises Minsk’s emerging alternatives

Minsk thus cannot put too much trust in Moscow in the defence industry. It understands the risks of losing key national industrial assets, and also remembers failed joint projects. On 20 May, chairman of the Belarusian State military industrial committee Siarhei Hurulyou conceded that a Belarusian-Russian project to design a short-range surface-to-air missile (SAM) system had stalled. ‘As it was [solely] on paper, alas, so it has remained on paper,’ said Hurulyou. It is worth remembering that in 2015, Belarusian Deputy Defence Minister Ihar Latsyankou maintained that this joint project was already underway.

MILEX-2017, defence equipment exhibition in Minsk. Image:

It is thus unsurprising that Belarus has chosen to develop a medium-range SAM system without Russian involvement. According to Belarusian officials, the design of the new system is ready: only the missile is lacking. The mock-up of the new system will be ready by the end of 2017.

Most likely, China has been helping Belarus with the missile for that SAM system, just as it helped Belarus design rockets and probably even missiles in recent years. Minsk even reportedly concluded  an agreement with Beijing in the early 2010s on the development of a SAM system of unspecified type.

Russia must thus keep in mind that if it fails to offer Minsk appropriate terms, Beijing can deliver. This gives context to the decision of the Belarusian National Academy of Sciences and the Russian state corporation Roskosmos to sign on 30 June a memorandum on joint design and launch of a satellite for remote sensing of Earth. That naturally involves sensitive technologies of military importance.

Perhaps the Kremlin has learned a lesson from history. In December 2012, Belarus and Russia signed an agreement on cooperation in research and peaceful use of outer space. Once again, however, effusive declarations masked the sad reality of Russia’s reluctance to strengthen its only European ally. The first Belarusian telecommunications satellite was launched not from Russia but from China in January 2016.

Chinese solutions

The Belarusian leadership is eager to demonstrate its collaboration with China in arms manufacture. In a meeting on 1 August with Xiao Yaqing, head of the State-Owned Assets Supervision and Administration Commission under China’s State Council, Belarusian president Lukashenka praised BelarusianChinese cooperation, stating: ‘You had vowed to support our defence capabilities and the security of our state – you did it.’ Lukashenka went on to invite Chinese defence firms to the BelarusChinese industrial park Great Stone.

Belarusian president Lukashenka visiting a national defence firm. Image:

In May, the Belarusian government decided to use $192m worth of Chinese loans to finance a project for production of a new product which would both compete with the Russian tractor plant in Saint Petersburg and have military applications. However, the Belarusian government is downplaying these aspects.

Before May, Minsk had not even revealed that Amkodor, a major private Belarusian firm, was going further than designing tractors to compete with the Belarusian tractor firm MTZ: the company was producing a whole new vehicle. At the Belagro Exhibition in June, Amkodor presented the Amkodor5300, which has movable front and rear frame parts and is more powerful than MTZ types. These features make this kind of vehicles essential both for servicing military airfields and providing platforms to transport heavy artillery and missile systems.

The Belarusian defence industry has found itself a unique niche by balancing traditional Russian domination with China. This looks like a smart move. Russia’s reaction would have been much stronger if Belarus were working with the West. What’s more, in Minsk’s view, China possesses enough technology and money to be a good alternative to Russia in the defence sphere. More importantly, as a result of such deals, Belarus will continue to consolidate its statehood.

Can new companies replace state giants in Belarus?

Deputy Prime Minister Uladzimir Syamashka recently announced that full-cycle car production is to start in Belarus this month; this will be a first for the country. So far, only Chinese-designed cars have been assembled in Belarus.

Meanwhile, the holding Amkodor presented its first tractor at the Belagro exhibition on 6-10 June in Minsk. This means that the Belarusian government has made another concession to the privately-owned holding, allowing it to challenge the national industrial giant MTZ, which has manufactured tractors for many decades.

As most major Belarusian machine-building firms such as MAZ and MTZ struggle with problems, the government supports them to avoid social disturbances. Nevertheless, it also supports new projects, which create competition for existing enterprises and thus tacitly change the political economy of the state.

Chinese cars for Belarusian public servants

Once, there was a private-sector initiative to launch joint car production with the American company Ford and the Iranian company Iran Khodro. Both projects were terminated after assembling only several hundred cars. Thus, the forthcoming launch of a full-cycle car production factory makes the joint Belarusian-Chinese project a remarkable achievement.

Assembly production of Chinese-designed Geely cars began in Belarus in 2013. The new factory, near the city of Barysau, is set to reach a production level amounting to 60,000 cars a year by the end of 2017.

From the outset, the government has emphasised that 90 per cent of these cars would be exported. Some exports to Russia and Kazakhstan have succeeded, albeit perhaps with Beijing's assistance.

However, Minsk has also taken measures to ensure sales within the country. In April 2016, president Lukashenka announced that 'There will be no imported cars for civil servants, except for the prime minister, vice premiers, and top-ranking officials,' and stipulated that only Geely cars manufactured in Belarus be used for state needs. Moreover, as noted, the new law regulating taxi firms looks as if it compels taxi drivers to buy Geelys.

Shakutin rising

Another new project in the machine-building sector involves launching the production of a tractor by the holding Amkodor; this will compete with models offered by MTZ, a state-owned firm. The government has not only allowed Alyaksandr Shakutin, a co-owner of Amkodor, to challenge MTZ, it even intends to use Chinese loans to fund the project, including construction of a new plant.

At first glance, this seems logical. Belarusian authorities consistently support the rising business empire of Shakutin. For example, on 24 May, Industry Minister Vital Vouk remarked on Shakutin's holdings Amkodor and Saleo's intention to invest $2.1bn in further expansion in 2016—2030.

Both holdings have enjoyed success. Saleo was established by Shakutin and his partners in 2014 as a firm producing hydraulics for mobile machinery which had earlier been imported. By now, as Vouk emphasises, 30-60 per cent of necessary hydraulics are manufactured in Belarus.

A patriotic business?

Shakutin emphasises that his business is all about manufacturing and insists on his patriotism.

The Belarusian web-portal, however, has pointed out that a very large share of his firms' sales involve Belarusian state purchases. He has also acquired several formerly state-owned enterprises without competition and for little money. Likewise, Shakutin used to employ a number of formerly high-level Belarusian state officials, such as Lukashenka's former economy assistant Siarhei Tkachou, BRSM (a pro-government youth union) leader Alyaksandr Nakhaenka, MAZ director Mikalai Kasten', transportation minister Ivan Shcherba, and others. This obviously strengthens his ties to the government, points out.

Shakutin responds to these comments by emphasising his efforts to export, underlining that the factories he bought were destitute and he salvaged them. He also claims that he employed former officials because of their superb managerial qualities.

Nevertheless, Shakutin's ties to the government are obvious. For many years, he worked in the upper chamber of the Belarusian parliament and held a key role in the organisation of the pro-goverment Belaya Rus' movement. There has even been talk of EU sanctions, as he is 'Lukashenka's oligarch.' However, this is an unfair characterisation, as Shakutin is merely a tool for the Belarusian leadership.

MTZ vs. Amkodor

The government's decision to allow Shakutin to launch a project which could have an adverse impact on a Belarusian state-run company must be understood in context. A number of older, state-owned companies are seriously struggling. While three years ago MAZ was producing 24,000 trucks a year, this year the enterprise expects to manufacture less than 11,000.

The government plans to provide financial support for the branch. On 24 May, Deputy Prime Minister Syamashka announced that the government was to invest $500m in MAZ, and $645m in Homselmash, an agricultural equipment manufacturer. For 2016-2030, MTZ needs $1.1bn of investments and has almost no funds of its own.

It will take Minsk a significant amount of money to develop the plant, but the struggle may succeed. The case of BelAZ has served as an example for the Belarusian government: it invested $800m into the firm, which manufactures huge trucks. As a result, BelAZ developed new models and succeeded in increasing its share on the global market, which is now estimated at almost 30 per cent.

Between Russia and China

Where exactly Minsk will find the money to invest in its machine building industry remains unclear. Government officials refer, inter alia, to Chinese loans; recent contacts with Beijing also support this hypothesis. Less clear is how Minsk will involve Russia in developing Belarusian industry: will it strive to limit cooperation or will it be willing to give the Russians anything if they can save companies from bankruptcy?

Most probably, the government policy on Russian involvement will remain ad hoc and pragmatic. On 24 May, Deputy Prime Minister Syamashka revealed that during the recent Belarus-Russian negotiations on oil and gas, the two governments agreed to prepare proposals on three industrial integration projects – these concern the petrochemical and machine building enterprise.

In 2011—2014, Belarus and Russia had already agreed on five industrial integration projects involving the Belarusian firms MAZ, Intehral, MZKT, Pelenh and Hrodna Azot. In recent years, however, Minsk and Moscow have kept silent on these projects.

Minsk will certainly use cooperation with Russia to develop its machine building sector, but the Belarusian government is considering all its options. Thus, the authorities are promoting new privately-owned production projects. In the future, these could replace giants like MTZ. In addition, Minsk hopes to use China as a source of loan-funding and technology.

In general, the development and state support of major Belarusian businesses such as Shakutin's holdings resemble the famous post-WWII South Korean business conglomerates called chaebols, the most famous of which are Samsung and Daewoo. These helped the government adapt and develop the national economy in exchange for state support.