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THE PANGOAL REPORT
Apr 17, 2019
China-Belarus Cooperation Under “Belt and Road Initiative”
China-Belarus Cooperation Under “Belt and Road Initiative”

Weihong Xu, Academic Committee Member

of the Pangoal Institution

As the programmatic strategy of China’s economic reopening, “Belt and Road Initiative" has gained more and more recognition from abroad. Belarus, as it sits at the core of the New Silk Road Economy Zone, is also coming to the stage. Belarus has a good geographic location and advantageous natural conditions, but the difficulty of seeking Western assistance in developing its real economy has been constantly rising after Brexit, isolationist Trump, and the rising of anti-globalism in Europe. Consequently, Belarus has been responding positively to China’s BRI. Especially in the cooperation of production capacity, Belarus industries are sincerely looking at China, as China is the only great economy that transcends from planned economy to market economy.


1. Belarus at Europe’s crossroad

Belarus is located inland in Eastern Europe and gained independence from former Soviet Union in 1991. Different from the Russian nomadic people that we are more familiar with, Belarus people are traditionally engaged in agriculture and generally well educated. Humid climate brings good development in agriculture and fine, exquisite dining culture, which explains why in Commonwealth of Independent States, “made in Belarus” means good quality. Moreover, Belarus is a vital connection between Moscow and western Europe. Long prosperous international trade has not only brought wealth and civilization, but also endowed Belarus with a diverse, inclusive, and noble temperament.



Figure 1 Belarus’s geographic location

As the saying goes, fortune and misfortune comes in twins. Belarus important geographic location not only brought calm material life, but also made Belarus an important battlefield for every European hegemonic war from Napoleon to Hitler; its capital Minsk was basically demolished in the Second World War and since the Cold War has been greatly affected by the power struggle in Europe.


Elite society in Belarus understand that the original planned economy, although inefficient, could provide comfortable life for people, but the rising aspiration for information globalization and Industrial 4.0 among young generations has demanded the country to develop in a very critical situation under the surveillance of western powers. Any slight mistakes could lead to political turmoil as already happened in Yugoslavia, Georgia, and Ukraine. In economics,  presidents of Russia, Belarus, and Kazakhstan signed Eurasian Economic Union Treaty on May 29, 2014 at Kazakhstan’s capital Astana and declared that the EEU will formally initiate on January 1, 2015. According to the Treaty, three countries would achieve free flow of products, services, capital, and labor before 2025. The final objective is a Economic Alliance  like that of Europe and a market with 170 million people. The Treaty involves energy, transportation, industry, agriculture, tariff, trade, tax, government purchase and many other fields. It also lists free trade goods but excluding sensitive goods like tobacco and alcohol. The Treaty enhances collective market among Russia, Belarus, and Kazakhstan. However in the neighboring Lithuania, although the country underwent economic market reform after western powers, people did not receive real benefits; In Russia as well, where the Shock Therapy has increased social gaps and economic inequality.


Belarus has a good industrial foundation, especially in machinery manufacture, metallurgical processing industry, machine tool, and electric and laser technology. Its agriculture and animal husbandry is also relatively developed. Potato yield, beet yield, and flax yield has topped in the CIS. But because the planned economy still occupies a large potation of its economy, Belarus suffers from insufficiency in economic operations. The GDP acceleration shows that Belarus suffered greatly from the economic crisis in 2008. Its GDP acceleration dropped and reached negative increase in 2015, year-on-year acceleration rate dropped to -3.89%. Belarus economic continues to shrink in 2016, but the speed was relatively contained. Real GDP year on year rate was -2.6%.



Figure 2 Belarus GDP Acceleration

According to Moody’s, one of the three largest rating agencies in the world, Belarus has showed signs of stabilization after years of economic decline. Moody’s covered Belarus in August 2007 and continued to rate down Belarus’s level of sovereign debt, and only published a stable prospect after June 2016. Although the rate still shows “Caa1” which means great risk, many macroeconomic parameters show that Belarus’s economic condition is stabilizing.

发布日期

评级

展望

2017年2月15日

Caa1

稳定

2016年6月17日

Caa1

稳定

2015年4月17日

Caa1

负面

2013年6月14日

B3

负面

2011年11月4日

B3

负面

2011年7月21日

B3

负面

2011年3月29日

B2

负面

2007年8月22日

B1

稳定

Figure 1 Moody’s Sovereign Debt Rate — First “stabilized” In Ten Years

For years Belarus adopted expansionist currency policy and finance policy to stimulate economy. The great economic deficit created by this policy was sustained by foreign debt and international assistance. Therefore once the invest input in these international accounts drops, Belarus’ economy will paralyze. Moreover, Belarus’s economy is highly dependent on trade with Russia. Russia’s economy decline in 2014 directly impacted on Belarus. Possibility of suspension of international finance is rising after the risks of treaty breach increases, which creates greater crisis.


Four reasons attribute to improvement of Belarus’s economy since 2016. First, as Russia’s economy began to improve, Belarus’s export returns to normal. Current account deficit in GDP dropped from 6.9% in 2014 to 3.8% in 2015, and 3.2% in 2016. Second, loans from Russian and Chinese banks allowed investment net input to rise again and provided capital for Belarus’s economic system, which relies on foreign capital.  Third, Reform in exchange rate system helped Belarus to better manage foreign capital reserve, which gradually stabilized. Fourth, economic reform in abolishing planned economy and direct control of price has effectively eased inflationary pressures.


Furthermore, predictions from World Bank and IMF on Belarus’s GDP acceleration for future years show an increasing trend, which supports the judgement that Belarus is stabilizing its economy.



世界银行:GDP年增长率
(基于2010年美元不变市场价格,%)

IMF:GDP年增长率
(不变价,%)

2015

-3.89

2016

-2.6

2017F

-0.5

0.37

2018F

1.3

0.85

2019F

1.4

1.04

2020F


1.11

Figure 2 International Agencies’ Prediction on Belarus’s GDP Acceleration

In regards to inflation, Belarus maintained a high level of inflation because currency increases very fast. Recently it shows a reverse-V trend. After the financial crisis, economy continued to decline and currency supply continued to rise, which significantly increased inflation. The year-on-year CPI in 2011 and 2012 all exceeded 50%. High inflation rates caused significant devaluation of Belarus Rupees. Starting from 2012, Currency increase dropped fast, economy acceleration dropped, and so as demand. These factors led to a decrease in inflation. Year-on-year CPI in 2016 dropped to 11.8%, the lowest in six years.



Figure 3 Belarus Inflation Rate and Currency Acceleration


Figure 4 USD to BYR (increase means devaluation to USD )

2. China-Belarus cooperation under“Belt and Road Initiative”

Since 1949, China’s economic and diplomatic development with Europe and the world can be divided into four stages: Initial stage, comprehensive cooperation with USSR to build a new China ; Cold War stage, working with third world” (developing contries in Asia,Africa and Latin America) for diplomatic breakthrough; The beginning of reform and opening up, blend in global industry chain to vitalize economy; 21st century, global new order and connectivity under BRI. Therefore, Belarus in this new area needs China’s help to transform its domestic economy, and China needs Belarus’ help in constructing a global “Peace and Development” vision. There is a solid foundation and great prospect for cooperation!


China-Belarus mutually beneficial cooperation is an important point for cooperation among countries along the routes. It has commonality and difference. Commonality is the aforementioned reform and advance that could improve market connectivity, technology complementary share, and industrial production capacity. China’s accumulation of wealth, fast change in population structure, urbanization, and economic structure demanded bigger international stage and radiation radius for the reopening strategy. China’s large reserve needs to export, and because of one child policy, China would face less engineer recruit in the coming ten years. Belarus has a lot of high level technicians, rural population craves for international stage, and cost performance of new labor is relatively the best in Europe.


On the other hand, the differences in China-Belarus cooperation deserves more attention. One the one hand, Belarus is different from Southeast Asia, Middle East, or Central Asia Five Countries. Although it has no oil-gas reserve, because of good agriculture and international aid, The planned economic system coexists with the social security system for the ordinary people who have adequate food and clothing, The endogenous demand of reform coexists with the people's hesitation. On the other hand, Belarus is located in the hub of Europe. EEU expanded room for development, although people’s salary level is not high, the degree of social openness and the quality of internationalization of thinking are high. Long term exposure to or confrontation with  western modernized world has made the elite society nostalgic for the political disturbance in Cold War era — In Minsk Suburb WWII Memorial Museum, Soviet emblem still exists. In front of the office of its prime minister, the statue of Lenin still stands. These are the unique historical heritage of CIS countries.


No matter from the diffent history evolution of China/Belarus opening, or from the unique perspective of China-Belarus cooperation, for China and Belarus to achieve higher level of connectivity under BRI is a great challenge for new generation diplomats and business leaders in China. Since BRI is proposed, China has made great achievements in infrastructure, but countries along “Belt and Road” expect more production capacity cooperation and finance cooperation, which are just at their beginning.


The Golden Belt near Minsk Airport—The Construction of China-Belarus Industrial Park has entered its 8th year since president Xi declared its opening. But the real company settlement in the zone just started one or two years ago. It may because that the construction idea of the zone is not professional enough, but more reflect the innovative challenge faced by politicians and business people from both sides in terms of production capacity cooperation. The 9.5 million domestic demand in Belarus could not attract Chinese national capital, which is used to operate on large scale. And China’s domestic companies’ worry about Belarus’s fixed planned economy and its efficiency also created challenge for the zone to grow.



If we expand the focus point from Minsk, state governments in Belarus are also realizing the possibility of production capacity cooperation with China. In field research in many other states in Belarus, lack of financial service has become the main problem to attracting China’s investment for many state level governments. Like China’s county economy, China-Belarus production capacity cooperation lacks no funding but capital. It lacks international diversity and direct finance services that combine stock and debt. Moreover, Belarus has established friendly city relationship with many Chinese provinces and cities like in Heilongjiang, but visiting groups to Belarus are more tourist-like. Only a little companies really invest and locate in Belarus, which also brings problem to local government reception works.


China-Belarus Cooperation under “Belt and Road Initiative” needs confidence, patience and persistence


The greatness of BRI lies in people to people bond. The reason why China's reform and opening up has made great achievements is the pragmatic and tenacious national quality of China. However, due to the habitual thinking when China had to hide its capacities and bide its time, the strategy of Chinese enterprises "bring in , go out" always deliberately suppresses national pride, in order to introduce foreign capital and technology smoothly. With the growth of China’s national strength, both from the perspective of people’s wealth accumulation and high-end equipment manufacturing technology, China’s comparative advantage to the countries alongside BRI is completely different from before. The long held sense of national pride has made Chinese entrepreneurs, especially the younger post 80's post 90's, more sensitive to "international respect" . Sometimes they even despise  about the relatively backward infrastructure, market thinking and level of consumption, which is evidently unacceptable to Belarus which has aristocratic feelings.


The confidence of a nation and  a  person should not be based solely on the accumulation of material wealth, nor on the conquest of force, but on the genuine respect of others and friends. The is also the profound meaning of President Xi’s words “culture confidence”(column 4). What’s more, for politicians and business people, it is unprecedented that Chinese enterprises use the advantage of fund and technology to go out and advance China’s production capacity cooperation with foreign countries. And there is still a lot to learn. It is necessary to avoid the inertial way of thinking ---“Stand in China, see the world”. We need to strive to “Stand in the world, see China” and look at BRI from the position of  the countries along the routes. To be honest, if specific projects of cooperation between China and Belarus in production capacity is immature, the vast majority of China's business expedition may not necessarily pursue the successful landing of projects. Preliminary research and incidental tourism are understandable. However, we should try our best to ask questions and listen attentively to local information in Belarus. We should not actively publicize the experience and achievements of China's reform and opening up.


Second, China-Belarus production capacity cooperation requires us to be patient. In the early stage of investigation, listening to each other modestly is the basis for the cooperation between China and Belarus. Because of the inherent planned economic system of Belarus, Chinese enterprises began to introduce Belarus products through international trade at the beginning. As there is no legal environment for joint-stock system, the further production capacity cooperation can only be achieved through negotiations with Belarus governments at all levels and through newly building, transforming and upgrading according to specific projects. So the negotiation process must have ups and downs.


This requires Chinese entrepreneurs to do enough cross-cultural preparation to make full use of the local commercial characteristics of Belarus and the inherent characteristics of government guidance in planned economic system and seek for win-win through extensive production capacity cooperation. This is not strange to those Chinese entrepreneurs who experienced planned economy. Moreover, production capacity cooperation under “Belt and Road Initiative” should let central enterprises go ahead of the rest, which is a historical mission of reopening with Chinese characteristics. In particular, we should encourage non construction type central industrial enterprises such as Aviation Industry Corporation of China to enter Belarus and set up factories, emphasize patience to project profitability. And avoid doing things in a big way. We should neither do those projects without economic benefits and win-win results nor those with major political or geopolitical risks. Globalization in the new century need the idea of “Belt and Road Initiative” and satisfy the demands of the younger generation in Belarus. There is time for cooperation between China and Belarus. Production capacity cooperation must respect the laws of the market and not do it deliberately.


Third, China-Belarus production capacity cooperation needs wisdom and persistence. As has mentioned before, the consumer market in Belarus is limited and the potential of asset appreciation such as real assets is restricted by slow population growth. Its true value lies in its advantageous geographic location which radiates to two big markets: Russia and Central and Eastern Europe. Chinese companies entering Belarus should largely rely on surveys of demand in Russia and Central and Eastern Europe, remain open and inclusive to businesses and technologies of Western Europe and even Britain and the US, make full use of  Belarus's relative “high-quality, low-cost” human resources and Belarusians “good faith and good face” aristocratic temperament and build overall framework of new Silk Road Economic Belt with innovation and intelligence. Take China-Belarus industrial park for example, the goal enterprises of attracting investments should not be limited to Chinese and Belarus Enterprises. We should also turn our attention to Germany, France, Austria and other countries, so as to form a scale effect as soon as possible.


The wisdom of China-Belarus production capacity cooperation should be demonstrated in finance sector too. Private enterprises which respond actively to “Belt and Road Initiative” are more or less facing the funding gap. Although the state-owned enterprises are affordable, they lack equity investment which can share long term risks, and the potential of modern financial instruments is enormous. During the two sessions held in 2017, the internationalization of the RMB and reducing the comprehensive financing cost of corporate through the multi-level capital markets, are the most popular topics. Considering how to draw lessons from “China-Russia” and “China–Kazakhstan” capital connectivity practices and make use of Chinese A-share market’s enthusiastic response to BRI, so as to effectively transport capital for China-Belarus production capacity cooperation, it obviously doesn’t work to rely on commercial banks represented by BC, ABC, ICBC and CCB and policy-based financial institutions such as CDB. On the contrary, the operator of China-Belarus industrial park --- China Merchants Bureau's financial sector, has basically realized mixed operation. AVIC Securities, with military and central enterprises background and professional experience of cross-border optimization of resource allocation, has financing channels and cost advantages. These are the most anticipated financial innovation institutions.


Finally, As Belarus was repeatedly ravaged and plundered by European hegemonism and ideological totalitarianism, local intellectuals habitually suppress their will of national self-reliance, and their literary creation and painting art all reflect some kind of gloomy atmosphere. China is determined to lead globalization of the new century and benefit the people's livelihood through BRI. The three-dimensional cooperation with Belarus must be persistent. We must have courage to face the setbacks and challenges brought about by the system and cultural difference,s and the shortcomings of our own international experience. As long as we hold high the banner of “Peace and Development”, the countries alongside BRI, including Belarus, will join us and create a better future for all mankind.

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