CHINA RISING: Belarus seeks its place orbiting China

CHINA RISING: Belarus seeks its place orbiting China
The ambitious $5bn Great Stone industrial park, located near Minsk, has only 13 registered residents, mainly from China.
By Sergei Kuznetsov in Minsk July 10, 2017

"There is probably no country in Europe closer to China than Belarus," Belarusian President Alexander Lukashenko claimed in May. "Belarus and China have created strong, solid, and reliable interstate ties, a relationship of trustworthy all-round strategic partnership and mutually beneficial cooperation."

Despite this lofty rhetoric, the flagship Belarusian-Chinese economic project is yet to prove its relevance among investors. The ambitious $5bn industrial park named Great Stone, located near Minsk, has only 13 registered residents, mainly from China.

Up to $290mn has been channelled into the development of the park's starting zone since its inception in 2012, when Lukashenko officially established the project by a special decree. The majority of the funding was secured by the industrial park’s management company mainly as loans provided by Chinese state-controlled banks, and provided by CMG. According to initial estimates, the entire first stage of the Great Stone requires $500mn-$600mn.

Anxious to avert a flop after the project’s prominent billing, the Belarusian authorities are now trying to improve its preferential regimes in order to make Great Stone a more attractive proposition.

In May, Lukashenko signed a special decree, according to which the park's residents will be exempted from income tax for 10 years from the date they start to make a profit, not from the date of registration, as it was before. Residents will also be exempt from paying property tax and land tax for 50 years instead of 10 years.

The authorities also enacted the so-called 'Grandfather Clause' – a regulation that allows residents to continue their operations in the park under current rules, even if changes are made in the future.

The first stage of the park covers over 850 hectares. This space will be used, according to the marketing material, for “industrial, logistic and public facility purposes”. A 350-hectare strip bordering on Minsk’s international airport has been allocated as the starting zone for high-priority construction.

At the moment, Great Stone has completed the construction of roads and engineering networks within the boundaries of seven park streets of the starting zone, with a total length of 13km. "In terms of production capacity, it corresponds to the engineering systems of a city with a population of 50,000 residents," according to information provided by the park's administration to bne IntelliNews.

The territory of the China-Belarus industrial park is located 25km away from Minsk, near the M1 international highway that connects Russia, Belarus, Poland and Germany.

According to numerous statements by the Belarusian and Chinese leaderships, the project is intended to become a vital hub on the One Belt, One Road, the new name for the New Silk Road concept announced by Chinese President Xi Jinping, which should link China, Central Asia and Europe, with an emphasis on economic ties.

China Merchants Group (CMG), a leading Chinese state-owned conglomerate based in Hong Kong, is one of the largest investors in Great Stone. They are constructing a logistics sub-park near Minsk.

The logistics sub-park project is divided into three phases, and the first stage of construction (around 100,000 square metres of real estate) is due to be completed this year. This includes an exhibition centre, a business centre with a hotel, three logistics warehouses, a container platform, an energy centre and related infrastructure. CMG's initial investment in the project is estimated at $20mn, the park's administration says.

Some 68% of the park's management company is controlled by Chinese corporations:  CMG, China CAMC Engineering, Sinomach and Harbin Investment Group. According to Belarusian officials, as well as good political relations between the leadership of the two states, Chinese control over the park allows the project to secure Chinese credit resources on favourable terms.

Despite Minsk's plans for the China-driven park, investment activities of Chinese companies in Belarus remain limited. According to official data, China accounted for only around 3% of the total volume of FDI over the past few years. China's net FDI in the country stood at just $36mn last year following $36.7mn in 2015 (this comprised investments in local subsidiaries of Chinese firms, according to the national statistics agency Belstat).

Currently, Belarus-China cooperation is mainly limited to project finance, when Chinese state credit resources are channelled to major state infrastructure and industrial projects in Belarus.

In 2015, China Development Bank opened a $3bn subsidised credit line to Belarus (with annual rate of 2%) and a $4bn credit line on commercial basis. Five years before, the same bank opened a $8.3bn credit line to Belarusian state-controlled companies. In 2009, Belarus secured a $5.7bn credit line with Export-Import Bank of China.

This is part of a series looking at the implications of China's growing interest in Central and Eastern Europe and Eurasia.