A jump of the Asian “tiger” to Eastern Europe

By Česlovas Iškauskas

For China is not enough to conquer all of the Far East and Asia’s neighbors. According to the Russian journal Vlast, China seeks to consolidate its influence in the countries which are considered by Moscow as the zones of its influence: Ukraine and Belarus. Beijing started investing to the economies of the above post-soviet countries.

Several weeks ago Wu Bangguo, chairman of the Standing Committee of the National People’s Congress of China, visited Minsk. This visit was especially useful for the Lukashenka’s regime which is currently facing major economic problems. China will give Belarus a preferential US 1 billion loan and a grant of USD 11 million. After the visit Lukashenka said that “Beijing offered Minsk its friendly shoulder of support”, since “preferential Chinese loans and direct investment will help to modernize Belorussian economy and implement modern technologies and innovations”.

The received funds will be used to finance joint Chinese and Belorussian projects: construction of hydropower plant in Vitebsk, a plant in Gomel region, modernization of the paper mill in Dobrush, the launch of the communication satellite and a joint industrial cluster. During the visit the Chinese parliamentary leader and Prime Minister of Belarus Mikhail Miasnikovich signed the agreement on further attracting Chinese investments in 2011-2013, thus, creating a legal framework for privatization of Belorussian assets. China will be on priority list in acquiring 30-40 percent of Belorussian oil industry shares.

Moscow’s response toward the above contracts was quite sensitive. Russia has been expressing its intentions to take part in the privatization of Belorussian companies several times, as well as regarding the loan granting to Minsk. Unfortunately, the tension between the two states in 2009-2010 resulted in milk, gas and oil conflicts, and nobody knows what battles are ahead by the end of this year.

In Minsk Wu Bangguo said that economic problems of Belarus were subject to the external factors, i.e. the global economic downturn and economic sanctions of the United States and the West.  Besides, the Chinese Parliamentary leader expressed his gratitude to Belarus for its support on the issues of Taiwan and Tibet.

This is the second major credit to Belarus during the second half of the year. Earlier Eurasian Economic Union (EurAsEU) has allocated USD 3 billion loan, whereas negotiations concerning the support of IMF got stuck. The Chinese interest rate on a loan is lower than that of the EurAsEU Anti-Crisis Foundation (4,1 percent) and doesn’t reach 3 percent.

To obtain a loan from the International Monetary Fund, Minsk shifted to free-float national currency trade from mid-September. Under the above conditions, the  Belorussian ruble fell to 8600 to the dollar in a new exchange-based trade, and to 12100 against the euro. According to experts, by doing this, international organizations force Belarus to devalue the ruble to make it able to attract more funds from the West.

Ukraine is another target of China. Hu Jintao, President of China and leader of the Communist Party paid a visit to Kiev in July, 2011. During the meeting with Ukrainian President Yanukovich, they signed the strategic partnership declaration and agreed on the injection of USD 2 billion to Ukraine’s economy (by the end of 2012 the sum of loans will increase up to USD 10 billion). The investment will be directed toward the construction of the high-speed railway line from Kiev to Boryspol air port, the construction of energy and other industrial enterprises. China is also interested in the Ukrainian military-industrial complex.

According to journal Vlast, Kiev tries to enhance the military potential of China. Supported by Ukraine, China constructs its first aircraft-carrier which is being remade from the soviet aircraft-carrier Variag (in August it went on its first sea trial). For the construction of missile-cruisers China has also ordered other Ukrainian technologies.

China’s investment to Ukraine increases and Beijing has no problems in supporting Kiev. In July 2009 the Chinese delegation submitted to the then Prime Minister Yulia Tymoshenko the invoice of Yuan 25 million non-repayable aid (about USD 3 million). This aid was not impressive but a constant flirt between Kiev and Beijing irritated Moscow.

Why China’s interest in former soviet republics increases? The United States limits the export of state-of-the-art Chinese technologies to Western countries, thus Beijing is in active search for new markets and spheres for investment. Due to the economic downturn the demand for the Chinese goods in America and Europe has decreased, although cheap „Made in China“ goods are still conquering the world. By suggesting its investments Beijing makes a new maneuver – integration into the Western wing of CIS, and markets in Ukraine and Belarus offer quite many opportunities. Probably it is not much to do with Eastern European countries (including Lithuania), but more with the EU and Russia which is encircled by the Chinese.