China gallops to rescue of Belarus with billions and “magic wand” for Lukashenko

By bne IntelliNews May 12, 2015

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China will extend $3.5bn in credit and investments to banks and companies in Belarus, officials in the former Soviet republic said on May 11 after presidents Xi Jinping and Alexander Lukashenko met in Minsk to discuss the creation of a modern version of the ancient Silk Road trade route. 

“Belarus and China signed memorandums and agreements on credit and investment cooperation worth a total of $3.5 billion,” BelTA news agency quoted Belarusian Prime Minister Andrei Kobyakov. The total volume of loans from China now stands at $7bn, with $3bn available on preferential terms, he added.

Despite earlier reports that funds were pledged  “in time” to cover $4bn in foreign debt due this year, the Finance Ministry made it clear that the credits are extended over a period of 10-15 years. Therefore they cannot be regarded as a “bailout” for the country’s troubled state finances in 2015.

The meetings still marked an upturn in Belarus’ fortunes, however, starting with the announcement of $1bn in credits for the state-controlled Belarus Development Bank and Belarusbank. Much of this will be used to finance joint infrastructure projects, and support small and medium-sized businesses.

Elated by the Chinese financial muscle appearing behind the republic’s economy, Lukashenko underscored his country’s readiness to serve as “a kind of platform” as China builds its trade relations with the EU. “We will do the utmost for you to be able to advance your interests in Europe in the best way possible,” he told Xi, who was on a five-day tour through Kazakhstan, Russia and Belarus focused largely on expanding China's trade links through Eurasia.

“We agreed to strengthen comprehensive practical cooperation in the joint development of the Silk Road Economic Belt,” Xi said, referring to plans to connect China by a multi-faceted transport corridor to Western Europe via Central Asia and the Middle East. 

The anticipated endpoint will be the Dutch port of Rotterdam, before the route doubles back to Venice in Italy to link up with a parallel “Maritime Silk Road”. This sea freight route is planned to run from southern China through Southeast Asia and via India to Kenya, before turning north into the Red Sea and the Mediterranean and finally connecting with the land route in Venice.

“Magic wand” for Lukashenko 

“China has opened up a window of opportunity for Belarus,” political analyst Yaroslav Romanchuk told the Associated Press. “Lukashenko has been given a magic wand. Belarus will be able to capitalise through its status as a transit country and will strive to become a hub for the transfer of Chinese goods to Europe.”

The countries also agreed to boost modernisation in construction and infrastructure projects in Belarus, as well as and set up modern manufacturing facilities with the participation of big Chinese companies. 

Among the deals, the sides signed a memorandum on the supply of 4mn tonnes of potash to China over five years, worth around $1.3bn, the Belarussian Potash Company said in a statement, although the exact price was still under discussion. Belarus came to a surprise agreement with China in March over prices for the crop nutrient in 2015, significantly undercutting rivals in Russia and the US.

Underpinning the long-term cooperation plans with China, the National Bank of Belarus (NBU) also announced a three-year currency swap agreement that will add CNY7bn (around $1.1bn) into the regulator’s reserves and help cover the $4bn foreign debt repayments due in 2015.

Belarusbank, which landed $300mn from the China Development Bank (CDB), said in a statement: “The credit line will be used for financing joint Belarus-China investment projects implemented in Belarus in different sectors of economy such as transport, power engineering, industry, development of small and medium-sized businesses, and others regardless of their scale and form of ownership.”

Belarus has been actively courting China in recent months for support for its struggling economy, which has been hard hit by neighbouring Russia’s economic slump due to low oil prices and Western sanctions over Ukraine. 

With total trade of $3.1bn in 2014, China is Belarus' third-largest commercial partner after Russia and Ukraine. It is currently funding 23 major projects in the republic, according to Bloomberg.

Lukashenko said Xi's visit had cemented bilateral cooperation in many areas beyond the economic plans for increasing East-West trade. “We agreed that we will actively support each other on issues such as national interests, national security and sovereignty,” he told a news conference. 

The deeper cooperation in trade, technology, transport and tourism was capped with a friendship treaty, “that confirms our current high level of all-round strategic partnership”, he added.

Xi in turn said the “expected results of the visit have been fully achieved”. He also praised Belarus for its role in brokering the February ceasefire in Ukraine, where government forces have fought a year-long conflict with pro-Russian separatists in which more than 6,000 people have died. “You have actively mediated in resolving the crisis,” said Xi, on the first visit to Minsk by a Chinese head of state in 14 years. He was due to leave Belarus on May 12 after visiting the Great Stone hi-tech industrial park outside Minsk, another joint project launched earlier by the countries.

On May 9, the Chinese leader attended the 70th WWII Victory Day celebrations in Moscow where a raft of deals was also signed with Russia in energy, transport and other fields. He also met with the Kazakh leadership in Astana to discuss joint projects, including road and rail routes to Europe.


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