Potatoes and fortune cookies

International relations in Belarus are a difficult area to write about, but an easy subject to study for one and the same reason. The scope of these relations is rather limited: a few sparks of Belarusian dialogue with the European Union, contrasted by long periods of frozen relations; then stable dependency on Russia within the framework of a rich and pretentious patron and his relationship with a smart vassal; and sporadic contact with other countries. That is all there is. But this quiet domain has been shaken up by the sudden entry of a new player: China.

The state media is doing its best to brand this cooperation as natural and long-awaited. Society is puzzled, as there had been no indications of this impulsive, new friendship even a year ago; and nothing united these two countries in the past.
President Alyaksandr Lukashenka proudly explained to his people that this abrupt twist of Belarus’s foreign policy is his own auspicious initiative.

The glorious Belarusian-Chinese partnership

In order to illustrate the peculiarities of this complicated process, let’s look for a metaphor in the food preferences of these two nations. Belarusians are said to be the world’s leading consumers of potatoes. A potato is unsophisticated and obvious; it flies straight and hits hard. It doesn’t require special treatment, it just wants to grow. The politics of the Belarusian regime is similar. It doesn’t require complicated codes. It just wants to remain in power for as long as possible. Just as a potato needs sun and rain, Lukashenka needs credits and investments, preferably fast, easy and on an unconditional basis. In the best case scenario, there is no need to yield returns or make repayments.

A Chinese fortune cookie is a different story. It incorporates imagination, long-term thinking and specific ingredients. A fortune cookie is never what it looks like. It hides secrets carefully; to figure it out you need to be fully engaged. And once you have cracked it, there is no hiding from the fortune inside. You won’t confuse a Chinese fortune cookie with a product from Vietnam, Korea or Japan. It is distinct and remains true to its homeland, just like the Chinese officials when doing business in Belarus or elsewhere in the world.

The combination of these two approaches yields some interesting results. A joint Chinese-Belarusian venture called Midea-Horyzont was created in 2007 and produced its first microwaves in 2009. They were primarily sold in the post-Soviet countries under the brand names Midea, Horyzont, “and some other brands”, as the Horyzont website states. Just one year after the start of production, the enterprise became the first company to receive a certificate from the Customs Union, which allowed them to be directly distributed throughout Russia and Kazakhstan.

Interestingly, three months before, the Chinese Midea Group acquired a controlling stake in the Midea-Horyzont Company. Horyzont Deputy Director General Sergei
Gunko succinctly explained that the decision was taken “to interest the Chinese holding company in further developing its business in Belarus”. In other words, after all the lobbying on the Belarusian side was complete, and the Chinese goods could be sold under the mysterious “other brands” without being subject to burdensome Customs Union taxes, the Chinese holding company took control over the enterprise for its own benefit.

Another exciting joint project is the reconstruction of a paper factory in Dobrush, a city in the north-east of Belarus, 25 kilometres from the Russian border. On 1 October 2012 Lukashenka signed a decree, stipulating a modernization plan. The construction of a new factory is to be completed by 2015 with the main contractor being Xuan Yuan Industrial Development. The reconstruction will cost some 500 million dollars, which is to come from the Chinese Bank for the Development of China.

The Belarusian media have loudly praised the upcoming project as a long awaited and well deserved investment. But the truth is, this transaction is no investment, but credit, and judging from the international experience, this credit will not arrive in hard cash, but in Chinese machinery of moderate quality, to be operated by a Chinese contractor. The Chinese Bank for the Development of China knows how to do its job well. Meanwhile, the Belarusian president, desperate for money, agrees to unfavourable terms for credit, which is to be invested in a production site that is ecologically dangerous to say the least.

But the most prominent and by far the most thrilling idea is the Belarusian-Chinese Industrial Park. This free economic zone is to occupy an area of some 80 square kilometres. The industrial part is to be situated more or less right next to the airport, just 30 kilometres from Minsk. The economic exemptions for the future residents of the park are unprecedented. The main production areas of the park are electronics, chemistry, biotechnology, machinery construction and new materials. Ten square kilometres of the future park is currently occupied by villages, children’s resorts and an ecological reserve called Valmianski. Construction is set to begin in early 2013.

Friendly shoulder

“Listen, the Chinese have money to burn! There are plenty of projects they can invest it into to make profit for their economy. But I want them to come to us! Today they are an empire; tomorrow they’ll be a global leader. What’s so bad about relying on the shoulder of a friendly China?” replies Lukashenka to questions regarding the rationale for the choice of his new best friends.

These questions are infrequent and humble. They mainly come from the residents of those unlucky villages, situated on the territory of the future industrial park. After the initial plan for the park was leaked to the public, there were even some public protests – people gathered for meetings, signed petitions and demanded the local administration conduct a referendum. On 5 June 2012, before the administration had time to react, the president signed decree number 253, “On the Chinese-Belarusian Industrial Park”, significantly easing the task of the administration. The matter of the possible referendum, they said, is of national importance, so it is the national administration who should decide. But the president has already signed the relevant decree, and nobody questions presidential decrees in Belarus.

The decree itself is something like a piece of art. It stipulates truly beautiful benefits and romantic concessions: ten years free from income, property and land taxes, 50 years of income tax for employees reduced from 12 to nine per cent and tax exemption on imported equipment, as well as on products to be used for construction within the park. The Ministry of Economy rejoices that such idyllic conditions will attract some five billion dollars in investments over the next ten years.

How exactly will the wonder park in the problematic republic attract that much money is only known to Anatol Tozik, the deputy prime minister. With great excitement, which is hardly based on altruistic grounds, Tozik lobbies for the industrial park in the media and the government. His recent meeting with the China CAMC Engineering Company and its parent company China National Machinery Industry Corporation (SINOMACH) was presented to the citizens of Belarus as the final step in solving all the administrative questions of the project. Additionally, the two sides covered questions of finance (apparently as good as solved) of the park and other prospective future projects.

The Chinese version of the meetings was quite different. The last time Tozik and Belarus were actually mentioned on the websites of the two companies was a year ago, in November 2011, in connection with Tozik’s visit to China. The matters that the Chinese partners found interesting enough to mention in the press release, however, concern the spectacular impression SINOMACH made on the Belarusian delegation and the conditions for transferring Belarusian state assets to Chinese investors. The English language media mainly refer to Belarus in connection with Tozik’s public claims concerning the great Chinese economy and future prospects of mutual cooperation between the two countries.

There are more discrepancies to follow. The cooperation agreement with the
Chinese partners has already been signed, stipulating the obligations of both sides, but there is no general plan of the project attached to the document. Combined with the fact that 60 per cent of shares of the company to manage the park belong to China CAMC Engineering Company, this agreement is in fact a carte blanche for the Chinese partner to do whatever it pleases on the territory of the park. But the government claims that there is nothing to worry about. The highest governing body of the structure is an intergovernmental coordination council, in which the Belarusian side has “a blocking vote”, although the details on the role and principles of this mysterious “blocking” vote are not provided.

The choice of site, right next to the airport, is justified by its convenience for international investors and the availability of a qualified workforce from Minsk. However, the airport area is considered to be a zone of “higher risk”. Thus, the comfort of the international investors and qualified specialists will be disturbed quite significantly if there are any accidents in the chemical factories to be constructed in the park.

In the case of such accidents, the ecological problems will not only concern the residents of the park, but all those living in its vicinity. Unfortunately, the protests of the residents of these villages have died down, as often happens in Belarus. Yauhen Puhach, a journalist from the largest local town of Smaliavichy, explains this decrease in people’s activity by the fact that the park is ten kilometres away. And those who live in the area itself are apparently satisfied by the promise contained in the presidential decree not to relocate the people who live there. It is easy for the president to provide such guarantees; but once the park is constructed, there will be no need to move anyone. People, tired of their loud, noisy and polluted neighbour, will move away of their own free volition.

High hopes

The most ridiculous part of the project concerns its financial perspectives. Just guess how much capital the Belarusian government plans to attract in the form of investments by the time the park is constructed? Unbelievably enough, this modest country, which has difficulties in attracting any foreign investment whatsoever, hopes the industrial park will bring 30 billion dollars into the country!

Those who wonder why Belarus needs this park are offered a short answer. “The first reason is investment, the second reason is new jobs,” states the Ministry of the Economy. Who the first investor will be remains unknown. The state media mentions ten large international companies, but omit details as to exactly which and where they come from. So we can assume that these companies don’t exist. The promise of new jobs is also questionable since, as international experience shows, Chinese businessmen prefer to hire Chinese workers.

All in all, the Belarusian-Chinese Industrial Park is all about few benefits, plenty of risks and many blank spaces. It is hard to believe that the Belarusian state, which only cares for quick money, will really engage in this venture. It is one thing to let the Chinese partners take control over a part of a factory, or agree to unfavourable credit in the situation when it is the only credit Belarus can get; but allowing a foreign company to construct whatever it wishes 30 kilometres from Minsk, despite popular protests and ecological concerns, with little chance of making money is simply unjustifiable. But why make a fuss? Why spend the energy and resources on a project, which is doomed to close down?

The reasons for this sudden friendship with China lie elsewhere. Apparently, the Belarusian state hopes that Chinese companies, once established on Belarusian territory, will look like a threat to the Russians. There are indeed two areas where that could happen – the privatisation of Belarusian state enterprises and with regard to the regulations of the Customs Union.

Regarding Belarusian state-owned enterprises, China is particularly interested in Belaruskali, one of the world’s leading producers of potash fertilizers. China is one of the main consumers of these fertilizers and they naturally wish to control the supply. Along with China, India and Russia are also competing for influence. Once there are more Chinese companies in Belarus, China could potentially be more inclined to offer a higher bid.

Another conflicting area will be the foreign companies registered in the free economic area of the Belarusian-Chinese Industrial park. According to agreements signed by Belarus, Russia and Kazakhstan, foreign companies are to leave free economic areas by the year 2017. Lukashenka has promised the Chinese partners that the tax benefits will be available to them within the industrial park until 2062. A way for the Belarusian authorities to have its cake and eat it too is to register the Chinese companies as Belarusian and sell their goods, the production of which is basically exempt from taxes, all over the Customs Union. In other words, glue a sticker “Made in Belarus” on Chinese products and happily sell them to the Russians.

Russia is bound to object at some point. And this is when the trading genius of
Lukashenka will glow with all its power. The Russians will be told that since they are Belarus’s greatest allies, Belarus would be happy to please them. But obviously,
Belarus has agreements with the Chinese that it needs to keep. However, if Russia were to give Lukashenka some money for the 2015 presidential campaign, he could theoretically come up with something. If the amount of money offered by Russia, keen on the Customs Union idea, is satisfactory, an ecological committee might emerge, which would block the construction of the industrial park. And the Belarusians would then be told that the Chinese tried to trick our naive citizens, but that the wise president was able to stop them.

Hence, this industrial park is yet another ghost project, invented for one purpose only: to negotiate a better position with Russia. And although this particular idea is much too unfavourable for Belarus economically and far too dangerous ecologically, it is also extremely annoying that the Belarusian state would rather engage in some fantastic industrial park instead of concentrating on real foreign development investments and modernising the Belarusian economy.