Silk Road to Romania

By bne IntelliNews November 3, 2006

Nicholas Watson in Prague -

From a standing start, Chinese money and goods have begun pouring into the Balkans, with Romania the top destination.

With so much Chinese money swashing around the globe, it's no surprise that an increasing amount of it is seeping into the dynamic economies of the Balkans.

Romania appears to be getting the lion's share of Chinese investment in the region, which is consistent with the findings of a recent United Nations Conference on Trade and Development (UNCTAD) report showing that in 2005 Romania drew 51.3%, or $12bn, of the total foreign direct investment (FDI) in the seven countries of Southeast Europe.

According to Romania's National Commerce Registry, as of January 2006 there were 8,184 registered companies containing capital from China, the fourth largest among all nations, and Chinese FDI in Romania has so far amounted to $207m in the years since the collapse of communism.

The more than 5,000 Chinese tourists and businessmen tromping through the arrival hall at Bucharest airport in the first half of this year, thanks to new flights operated by Air China and Hunan Airlines, would suggest FDI has continued to increase this year. And certainly there has been a corresponding increase in the number of meetings between Chinese and Romanian officials and the obligatory fawning words.

"In the year 2006 and, of course, in the years ahead, Romania's relations with China will be increasingly placed under the sign of our country's double status – that of European Union member as well as a traditional partner and old friend with the Chinese people," Viorel Isticioaia-Budura, Romania's ambassador to China, wrote in a special supplement of the daily Economistul, printed in both Romanian and Chinese.

The Chinese will hope these fine sentiments are translated into something more concrete when the Romanian government privatises Daewoo Automobile Romania in December. The Chinese carmaker Chery is one of a handful of firms intending to take part in this privatisation, made possible when the government sealed a buyout agreement worth about $60m with South Korean creditors in late August.

"Renault has recently announced that it would not participate in the bidding, leaving Ford, GM and Chery as the prime contenders," says Thomas Ryard, an analyst with the consultancy Global Insight. "The Romanian government is not looking to make a profit on the sale, but wants to cover the price it paid to buy back the plant."

The inevitable trade gap

According to Carmen Lipara, an analyst with the Bucharest brokerage IEBA Trust, "China is now the most important commercial partner of Romania from the Asia region."

Chinese exports to Romania reached $661m in August, bringing the total for the first eight months of this year to $4.0bn, up 349% on year. The vast majority of this was in textiles, though other notable categories included chemicals and plastics.

The reverse figures looks a little sadder, but fit into the general pattern of the world's trade with China. Chinese imports of Romanian goods amounted to just $20m in August, bringing the total for the first eight months of this year to $141m.

Nevertheless, officials and analysts believe this gap can be closed, especially with Romania's entry into the EU next year.

Romania Vice Premier Bogdan Pascu said following a meeting in October with a Chinese delegation headed by Deputy Minister of Commerce Liao Xiaoqi that Romania's accession to the EU would open up new opportunities for the development of bilateral cooperation, especially in fields such as IT, energy and infrastructure construction.

"After Romania will join the EU, the trade between the two countries will increase, especially as Romanian officials want to balance the imports with Romanian exports of medicines, nuclear equipment, mining equipment, equipment for defence industry," says IEBA's Lipara.

Romania is also hoping to act as a stepping-off point for Chinese investment into the rest of the Balkans. Already Bulgaria, which according to UNCTAD saw $2.2bn of FDI in 2005, is starting to see more Chinese interest. China's exports to Bulgaria reached $233m in August, bringing the total for the January-August period to $1.09bn, up 282% on year.

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