Belarus launches new Geely plant and plans for electric cars

On 17 November, Belarusian President Alexander Lukashenka participated in the opening of the new BelGee automotive plant, which will produce Chinese Geely cars. The venture is the largest passenger car enterprise in Belarusian history. Lukashenka also announced a draft decree to create incentives for Belarusians to buy domestically manufactured cars. In August, local developers presented the first Belarusian electric car. Lukashenka personally advocates the development of domestic electric car manufacturing. Although the market for electric vehicles is still young, it is growing highly competitive—even within the borders of the Eurasian Economic Union, of which Belarus is a member. As the Russian government is gearing up to take unprecedented measures to support its own electric car industry, Belarusian developers will have to make serious, well-thought out efforts to become competitive.

Belarus starts to produce Chinese cars

On 17 November, during his visit to the new automobile plant BelGee, Presdient Lukashenka announced that the government is drafting a decree to encourage Belarusians to buy Geely cars built in Belarus. The Belarusian-Chinese BelGee plant, which produces passenger cars under the Chinese Geely brand, was established in 2011. Lukashenka says the state aims for as many Belarusians as possible to buy domestically produced cars. This is going to be the largest passenger auto project with foreign backing in Belarus’s history.
It should be noted, however, that previous projects have not fared well. For instance, over a five year period, the Iranian company Samand produced about a thousand cars which were mainly sold to state organisations. Ford, which manufactured cars in Belarus in the ’90s, did the same amount of sales in a year. The authorities closed both operations, because the enterprises did not meet sales expectations. For 2018 and 2019, the government expects production and sales to reach 25,000 and 35,000 cars respectively. “But we have [still] another goal—to produce more. We will double capacity. We will sell 60,000 cars and then set a goal of 120,000,” the Belarusian president said.

Александр Лукашенко

President Alexander Lukashenka launches the Geely plant on 17 November. Photo: Belta

To be profitable, the plant has to sell at least 35,000 cars a year. However, the Belarusian market cannot absorb even a small fraction of this volume. According to data from the Association of Belarusian Car Owners, over the past 7 years purchases of new cars peaked in 2014. That year, Belarusians purchased around 50,000 vehicles, of which 20,000 were bought in Russia, where prices were attractive at the time. These figures suggest the absolute maximum domestic dealers can expect to sell is around 30,000 new cars. Moreover, the locally assembled Geely will have to compete with other more reputable, global brands. This seems an almost impossible task for the enterprise, as Geely remains outside even the top 25 most popular car models in Belarus, according to 2016 purchasing statistics published by TUT.BY, an online news portal. BelGee strategists say they are aware of the situation. They claim that 90 per cent of new Geely cars will be exported to Russia. But there, they will face virtually the same problem.

Will Russians accept the Belarusian Geely?

Chinese automaker Geely plans to make annual global sales of 2 million cars by 2020. It expects to sell 170,000 cars abroad—80,000 of this number in Russia. However, so far Geely sales remain unimpressive. Worryingly, over first 9 months of 2017, Geely’s most negative sales trend expressed itself on the Russian market. Purchases dropped by 55.4 per cent (1,693 Geelys out of a total 1.13 million sales for the total Russian market) compared to the same period in 2016.
Sergey Udalov, the Deputy Head for Autostat, a consultancy, was quoted by Reuters saying the Belarusian plant will not be able to sell 30,000 cars per year. “I think it is possible to increase sales to 10,000, but I do not think they will be able to sell more,” said Udalov.
In fact, it is Russia that supplies Belarus with cars. Russia manufactures a dozen of global brands, including BMW, Kia, Cadillac, Chevrolet, Renault, Volkswagen, Ford, and Hyundai. For example, 90 per cent of cars sold in Belarus are assembled in Russia. How Belarus will compete with these Russian produced, global brands within Eurasian Economic Union markets remains unclear. Indeed, since the 90s, Belarus has failed to establish a single successful foreign car manufacturing venture. Moreover, a strategy to sell cars to Russia is of questionable value in the context of Belarus’s 30-30-30 goal. This goal intends to even-out Belarus’s export volumes between the EU, Russia and Asia in equal shares, and thereby free it form excessive dependence upon the Russian market. If 90 per cent of cars are intended for the Russian market, it appears the 30-30-30 target does not apply to Geely cars.

Is electrification the answer?

Another issue for Belarusian Geely advocates is the global transition towards electric cars. In the coming decade, electric cars may reach prices comparable to their gasoline-powered counterparts and sales are projected conquer a larger share of the global market. For short-term, the production of petrol-engined Geelys can be justified by huge oil reserves and the absence of legislative incentives to sell electric vehicles in both Russia and Belarus. At first glance, Belarus appears to be taking an approach that risks lagging behind global trends in the very near future. But in fact, the Belarusian government is already trying to anticipate the shift to electric vehicles.
In August 2017, President Lukashenka personally tested and praised the latest Tesla electric car model from the US. The president urged Belarusian developers to use Tesla as an example. That same month, the National Academy of Sciences unveiled the first Belarusian electric car. The prototype is based on the Geely SC7 series, which is assembled in Belarus. Deputy Prime Minister Uladzimir Siamaška noted that with the commissioning of the Belarusian nuclear power plant, Belarus will need to increase its consumption of electric energy. According to Siamaška, in the next three to four years, Belarus will mass produce electric cars.
However, if Belarusians want to develop their own electric car, they must hurry. In October 2017, the Russian government sent a letter to all key ministries and state institutions calling for unprecedented measures to stimulate demand for electric-powered transport. The letter spoke of subsidy programs, preferential car loans and auto leasing for electric vehicles. Owners of shopping and entertainment centres will be awarded tax incentives for installing electric recharge stations. In particular, support will be provided to manufacturers of electric vehicles—both domestic and foreign enterprises—who localise assembly in Russia. The letter also suggests the government will set minimum purchasing quotas for electric vehicles for various state institutions. Given that many Russian auto producers have already begun work on electric cars, Belarusians will need to invent something truly extraordinary to be competitive.




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 Tut.by 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 Tut.by, 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, Tut.by 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.




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 Filipau

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".




Losses from Sanctions War, Liability for Extremism, Geely Cars – State Press Digest

The Belarusian authorities are trying to debunk Russian accusations that it is making increasingly nationalist policies. The authorities are tightening legislation on extremism by introducing criminal liability for extremism and fighting in foreign conflicts.

The president has ordered all officials to drive only Belarusian-Chinese Geely cars. The state newspaper blames business associations for weak legitimacy and a lack of support within business circles. All of this and more in this edition of State Press Digest.

Foreign policy

Belarus has lost $1bn as a result of Russia's sanctions war with the West. Zviazda newspaper published the words of Belarusian foreign minister Uladzimir Makiej, who spoke in Moscow at a press conference dedicated to Belarus-Russia relations. According to the minister, Belarus-Russia relations are seeing a growing number of myths and distorted interpretations.

Some groups have accused Belarus of increasingly nationalistic and anti-Russian behaviour, but this sounds like “blasphemy in relation to our shared history and the Belarusian people, because we have always seen Russia as our closest friend.” Makiej also attempted to debunk the view that Belarus benefited from the Russia-West food embargo. He said that Belarus actually lost around $1bn from these sanctions.

Security

The authorities are introducing criminal liability for extremism and participation in foreign conflicts. Belarus Segodnia reports that parliament has approved amendments to the criminal code which introduce criminal liability for extremism and participation in armed conflicts abroad. Counter-extremist legislation in Belarus has become outdated and the Criminal Code does not currently provide liability for extremism, KGB head Valier Vakuĺčyk said at the parliamentary session. Interestingly, the law will also consider production, storage and sale of Molotov cocktails as extremist activity.

The newspaper opines that Belarusian nationals fighting abroad not only damage the image of the country, but can cause its involvement in the conflict.

Besides, professionally trained fighters sooner or later return home and can use their skills in the interests of certain groups and organisations. Currently the Criminal Code provides liability only for mercenaries – individuals who fight solely for financial reasons. Now the amendments make it possible to try persons who fight for ideas, not just money.

Belarus will seek responses to growing NATO presence near its border. Narodnaja Hazieta interviewed expert Aliaksandr Špakoŭski on Belarus-NATO relations. Military industry groups, primarily from the US, are artificially creating the idea of an aggressive Russia in the information space, which threatens the security of NATO members. In this way the US is forcing NATO allies to increase defence spending while being the leader of arms manufacturing and export.

Since Belarus has a military alliance with Russia, it will be engaged in this confrontation and seek responses to the strengthening of NATO capacities near the Belarusian border. There is no direct risk of a conflict as neither Russia nor the West want a war, but the growth in the mood of conflict on both sides also poses a threat to Belarus' security. Therefore the country should remain alert and have an effective, mobile army.

Economy

Belarusian officials are obliged to drive only Belarusian-Chinese Geely cars. Vitebskie Vesti highlights President Alexander Lukashenka's visit to the Minsk Automobile Plant (MAZ) – the Belarusian machine building giant. He noted that the plant will receive loans from the government only if it demonstrates the ability to sell products to concrete markets.

“I can not once again invest hundreds of millions dollars in products that you will dump in warehouses …MAZ, BelAZ and Motovelo are the face of our country, and we have no right to ruin these enterprises. MAZ will live forever, during my rule and after it”, Lukashenka stated.

The Belarusian leader also ordered all officials, from district heads to ministers, to use only the Geely cars produced at the Belarus-Chinese joint plant BelGee. “Except for the prime minister, his deputies and some high officials no one should use foreign cars during their work”, Lukashenka said.

The first private hydroelectric power station in Belarus will be built in Hrodna region. Hrodzienskaja Prauda writes about the first private hydroelectric power station in Belarus, that will appear in Slonim district of Hrodna region on the Issa river. The projects is worth $450,000 and the investor plans to build the station by 2017.

It will produce 240 kilowatt-hour of energy annually. The company will sell the energy to the country's general electrical network according to a quota defined by the Ministry of Energy. Currently Hrodna region has the largest hydroelectric power station in Belarus with a capacity of 17 megawatts.

Society

Belarusian business associations have weak legitimacy. Respublika newspaper claims that business associations in Belarus have failed to become mass organisations and unite less than 10 per cent of Belarusian businessmen. Besides, leaders of business associations, instead of promoting business interests of the whole sector, seek connections in the government or lobby their commercial interests.

The newspaper gives the example of an association of entrepreneurs called Perspektyva and its head Anatoĺ Šumčanka, who became one of the leaders of recent protests of small business owners.

The newspaper was unable to identify how many members there are in Perspektyva, and noted that the petitions of the organisation usually gather only a few hundred signatures. It concluded that Perspektyva lacks the support of business and therefore cannot represent it in negotiations with the authorities or formulate policy proposals.

In 2015 the birth rate in Belarus grew as a result of demographic security policies. Reproductive health services in Belarus reached the level of France, Finland and Luxembourg, said deputy prime-minister Natallia Kačanava in an interview with Belarus Segodnia. Belarus is in the top 50 countries in terms of the quality of pregnancy and birth care and is in 26th position for maternity comfort.

Moreover, Belarus occupies 4th place for low infant and maternal death rate. The number of families with many children is also growing and has now reached 80,000. At the same time, Belarus has 21,000 orphans, 80 per cent of whom have living parents who have been deprived of parental rights.

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.




Myths of Chinese Engagement in Belarus: No Money Between Friends?

Last Thursday, Chinese workers in the Homel Province of Belarus broke out in a protest over wage arrears. The labour conflict went public and was yet another sign of growing Chinese activity in Belarus. The protest, unusual for Belarus, left an impression locally with one thousand Chinese working to construct a board factory in a Belarusian town with a population of only 20,000 people.

The official version likewise seems to reflect increasing Chinese involvement in Belarus. Symbolically, at the latest military parade held in Belarus, officials drove around limousines gifted to Minsk by the Chinese government.

Belarusian officials and the state media have been talking about a pending influx of Chinese money for years, yet so far Chinese projects in Belarus have failed to leave much of an impression. While the Belarusian leadership considers its relations with China a strategic move, Beijing has little objective interest in Minsk.

Minsk: Waiting for Godot?

Squeezed between Russia and the West, the current Belarusian leadership as far back as the mid-1990s decided to develop a third strategic direction for its foreign policy – improved relations with Communist China. While Minsk has generally tried to develop relations with what at times seems like every potential partner in the developing world, it has done so mainly in an opportunistic manner.

Minsk has tried to lure in Chinese investment for strategic reasons

Not so with Beijing. In the political arena, Alyaksandr Lukashenka's government has dropped contact with Taiwan and even issued regular statements denoting its political support for China. The Belarusian head of state has never hidden his belief in a future where China would become even more powerful and change the balance of power in the world. He looks onto a future where not Russia but China becomes a safeguard against Western pressure.

Economically, Minsk has tried to lure in Chinese investment for strategic reasons. Thus, Minsk has allegedly fought to convince China to participate in the privatisation of Belaruskali, the national potash company. Belarus has also pursued military industrial cooperation with China, even reportedly signing agreements that would see them co-design missile systems. The first results of this deal – the multiple rocket launcher Palanez system – was already put on display in Minsk this May.

Microwaves and Chassis for Chinese Missiles

China's presence in the Belarusian economy is visible but remains rather limited. The major projects include manufacturing home appliances such as microwaves at “Midea-Haryzont”, a project which opened its doors in 2008 and a much much publicised project in the automotive industry. In 2011, the Belarusian Ministry of Industry signed a contract with Chinese company Zhejiang Geely Holding Group to produce Geely cars just outside of Minsk, with the Belarusian side holding a controlling share in the BelGee joint venture.

Cooperation in the military industrial domain has shown somewhat contradictory results. In 1997, the Minsk Tractor Factory (MZKT) and Hubei Sanjiang Space Wanshan Special Vehicle Co. established a joint venture in China to manufacture heavy-duty trucks and chassis. Sometime in the late 2000s this enterprise was apparently shut down. The reasons for its closure are not clear according to military analyst Alyaksandr Alesin who was referring to unspecified sources that stated that the Chinese were attempting to copy the Belarusian-produced parts, make them on their own, and finally get rid of the Belarusians altogether.

In 2009, the same partners established a joint venture in Belarus with a more limited profile: manufacturing hydromechanical transmissions for trucks and tractors. Its official initial capital was $22.2m with each partner controlling equal shares.

The Belarus-Chinese Industrial Park

Arguably, the most strategically important company among all Chinese firms in Belarus is the Huawei Technology company. It founded a subsidiary enterprise in Belarus back in 2007 and has since conquered 50% of the Belarusian telecommunication market with annual receipts exceeding $100m. That Huawei enjoys good standing in Belarus can easily be determined by just taking a look at its deputy general director Kiryl Rudy, who in 2013 became Lukashenka's advisor on economic issues.

the park so far failed to bring really innovative production lines to Belarus

Likely in an attempt to give new impetus to bilateral relations, Belarusian officials launched their next project, one with serious ambitions. In 2010, the Belarusian Ministry of Economy and the Chinese Engineering Corporation CAMC agreed to create a Chinese-Belarusian Industrial Park in Belarus. One of the initiators of the project, Kiryl Rudy, declared in 2014 that, “the Park should function like an incubator to help create and grow new industries in the country, which will quickly develop and gradually replace old branches”.

Though the park has attracted some promising residents (like the Chinese telecommunications giant ZTE) Minsk still faces the arduous task of establishing it properly. As such, the government has adopted a catch-all strategy and, recently invited several Pakistani garment and textile firms to the Park. While the clothing and textile industry can hardly qualify in Belarus as “new industries", this approach suggests that the park so far failed to bring really innovative production lines to Belarus.

Direct Investment from China: Less Than 1% of the Total

The rest of the “Chinese” projects are much smaller. Among them – the reconstruction of a provincial textile factory, the construction of a residential area in a suburb of Minsk, or the construction of Hotel Beijing, which was completed in 2014.

Siarhei Sidorski openly criticised the quality of Chinese equipment being bought on Chinese loans

Belarusian officials rarely criticise the meagre results of the country's cooperation with China. However, last year then Prime Minister Mikhail Myasnikovich, speaking to the China Daily, emphasised that despite many rounds of talks on strategic partnership, little has thus far materialised. He noted that out of $50bn of foreign direct investments which Belarus had attracted so far, only $195m came from China.

For the sake of comparison, over 2005-2010 Chinese direct investment in Hungary (comparable to Belarus in the size of its population) attracted $466m. On the other hand, Myasnikovich's predecessor as Prime Minister, Siarhei Sidorski openly criticised the quality of Chinese equipment being bought on Chinese loans.

Tactically, Minsk can benefit from its partnership with Beijing, as for example in the case of MZKT which resisted a Russian takeover by using its cooperation with China as leverage. Still, strategically, ts orientation towards China so far displayed limited results.

Demonstrative political support for Beijing cannot be a substitute for a state policy that creates the necessary conditions for modernising the economy. It requires modern infrastructure, efficient state institutions and a strong legal framework.




Belarusian-Chinese Relations: From Great Promise to Failure

In the near future Minsk and Beijing plan to sign the main contract for the China-Belarus Industrial Park. Once a project that used to hold great promise, now appears to be a failure.

Lately, Belarusian-Chinese relations have gone through a number of stumbling blocks, including the delay of the industrial park near Minsk and a manufacturing plant in the Homel region. And Chinese Geely cars have yet to become a popular commodity in Belarus.

The lack of expertise and knowledge about China is the primary reason why Belarus cannot benefit from its relationship with the economic giant. Propaganda, as a surrogate to any fact-driven discussion, has brought Belarus more harm than good. The authorities continue to restrict access to information from independent journalists and experts.

If the authorities fail to develop their own strategy for their ties with China and adapt joint projects to the real needs of the Belarusian economy, the crisis in its relations with Beijing will only deepen.​

Plants, Potash and Geely​

On 3 April, Belarusian deputy Prime Minister Anatol Tozik agreed with Lee Kheysin, Vice President of the Chinese corporation CAMCE, to sign the primary contract for the Sino-Belarusian industrial park in the near future. The Park will occupy about nine thousand hectares of the Smaliavichy region (Minsk district) and host high-tech and export-oriented companies. In February, Alexander Lukashenka described the pace of construction as "a disgrace to the government", so Belarusian officials are trying to speed it up. Tozik promises to start construction on the first buildings in May or June this year.  

The park remains important for the Belarusian economy, but it is unlikely to become a breakthrough project. The park will host only large-scale producers and will lack research laboratories for new companies, one of the most crucial elements that the economy needs. The authorities set the minimal amount of investment at $5m. China wants Belarus to finance 40% of this overall contribution on its own, but Minsk has no money to do so.

Previously many rumours circled around the park, particularly its enormity. State media reported about $30bn in investment, while the independent press got caught up in writing about the arrival of 600,000 Chinese construction workers. Today’s the rumours that are circulating mostly describe the failure of the project. Yury Ziser, the owner of popular web portaltut.by, writes that Russia and the EU could resist any expansion of Belarusian-Chinese products to their markets.

The Industrial Park is not the only evidence that Belarusian-Chinese relations were mired in a state of crisis. China buys potash fertilisers from Uralkali, the main competitor of Belaruskali, and remains reluctant to invest even in small projects in Belarus.

In 2013 the Belarusian Geely automobile plant sold fewer than 2,000 cars, far fewer than was anticipated. Generally, the public authorities, such as the police, were the primary owners of these new cars. Other cars were delivered to Kazakhstan. When refering to the situation with Kazakhstan, Geely employs the vague terminology that the cars were "supplied", not "sold."

A joint plant building porject, which costs about $800m, remains behind schedule. Earlier this year, Prime Minister Miasnikovich hinted to Chinese partners that if construction was not completed on time, the Belarusian party would have a problem with its loan repayments.

Even the Belarusian state media began to write about the two countries' ties with extraordinary caution. On 4 March, the Belarusian Telegraph Agency reported that "Huawei does not preclude a new project in Minsk." While Lukashenka`s regime claims that both parties are successfully working together in accordance with the prescribed program of the development of the Comprehensive Strategic Partnership Between Belarus and China for 2014-2018, few have seen this road map. The Belarusian Foreign Ministry has denied the author of this article access to the document. 

What Went Wrong

The Belarusian authorities are facing the consequences of their own miscalculations. China never planned to invest in Belarus, a country with a small market and an expensive labour force. China wants to make a profit and remains reluctant to serve as a counterbalance to Russia or the EU. Orban`s Hungary, which also had some high expectations for cooperating with China, made no ​​significant progress in this regard. China prefers to cooperate with less conflicted countries like Poland than with scandal-prone Hungary.  

It seems that the Belarusian authorities have become victims of their own propaganda. The state media has long exaggerated the financial benefits of Belarusian-Chinese ties. Belarusian state media is beginning to describe relations of a strategic nature being back in 2005, but in reality the parties signed the Joint Declaration on the Establishment of Relations and Comprehensive Strategic Partnership only in 2013. 

The government remained reluctant to support any analytical and academic discussions on ways to improve cooperation with the economic powerhouse. China, an authoritarian country like Belarus, relies on analytical centres. Thus, the Belarusian authorities lack the necessary information and expertise to make competent policies in this arena.

Without access to the documents it remains quite difficult to say whether Belarus has its own strategy for dealing with China. However, the results of cooperation in the form of a $2.5bn negative balance and the absence of investment rather indicate that Minsk has no idea what to do with China. 

Will the Authorities Improve Cooperation?

Despite all the problems in their relations, Belarus receives certain benefits from China. The Chinese help Belarusians in the energy sector, China remains an important partner for Belarus' military industry, Chinese loans help Belarus keep its economy afloat. Only Beijing proposed Belarus cheap lines of credit that have amounted to $16 bn. However, this dependence on China limits Belarus` ability to demand more from Beijing officials.  

Deputy Prime Minister Tozik and Lukashenka`s advisor Rudy, have worked in China and know it better than anyone else, but are both in limbo. On the one hand, when Tozik was an ambassador to China, he regularly praised China. On the other hand, he remains responsible for Minsk`s policy towards the Middle Kingdom. In this situation he should sober his colleagues up and have them recognise that the Belarusian-Chinese venture has been unsuccessful.

The Belarusian authorities should adapt an industrial park to the needs of Belarusian business, promote discussions about China at think tanks and universities, and its cooperation strategy should emerge sooner, rather than later. These small steps can help Belarus achieve a balance in its relations with China more positive.