UNIDO, United Nations Industrial Development Organization

On the Shoulders of Giants: China’s Interest in Belarus

Cement continues to be poured in Great Stone, the name given to the China-Belarus Industrial Park being built just outside of Minsk. The thirty-billion-dollar investment project plans to provide an industrial space for 120,000 jobs in pharmaceuticals, mechanical engineering, and electronics, among other fields. A small set of Chinese state-owned and private companies have already committed to setting up shop in the special economic zone, seeking lucrative tax breaks. Since before he took office, Chinese President Xi Jinping has worked to strengthen his relationship with Belarusian President Alexander Lukashenko, particularly as Beijing yearns to expand its economic influence into Europe through Great Stone and other joint ventures with Minsk.

On the surface, China doesn’t appear to gain very much from trading with Belarus. The latter could benefit from Chinese goods, which include relatively high-tech cars and computers, but China could find flax and fertilizers – Belarus’s main exports – closer to home. Delving deeper, however, Beijing’s reach into Belarus has economic implications for the great geopolitical game China’s playing across Eurasia.

Belarus is the one of the latest frontiers in China’s foreign financial strategy: the Silk Road Economic Belt Xi Jinping envisions across the continents. China wants to sell its vast variety of goods in as many markets as it can. By negotiating trade and investment deals with governments abroad, China can scale-up the number and wealth of interested consumers, while cutting the tariffs its businesses must pay to reach them. Catching onto Beijing’s interests, Great Stone’s administrators have framed the project as a gateway that provides ‘commercial services to merchandise flows from Asia to Europe and backwards.’ By building infrastructure and business relationships, they hope to support China’s market expansion in Europe and attract its companies. China’s already massive trade statements with Russia and the EU, however, dwarf those made with Belarus, meaning this gateway may be unnecessary.

UNIDO, United Nations Industrial Development Organization
Image courtesy of UNIDO, United Nations Industrial Development Organization, © some rights reserved, 2014.

While it’s unclear just how important a role Belarus itself plays in amplifying China’s financial power in Europe, it has apparent implications for Asia. Similar to Kazakhstan, Belarus is a member of the Moscow-led Eurasian Economic Union (EEU). China and Russia have been courting Central Asia since the USSR split up in 1991. Through business competition, the two global powers drive down the costs of investment bids. Lower costs imply that money holders, like companies and cities, have more money to spend on improving their welfare elsewhere. In this way, Belarus is being courted more like a Central Asian state than a European one. More investment options mean Belarus may rely less on Russia, and that Russia nets fewer gains from foreign direct investment in Belarus, undermining the integrating principles the EEU promotes. By enabling Lukashenko to turn away from Moscow and towards Beijing, Belarus shifts its dependency to the latter, meaning Xi Jinping wields greater command of Belarusian policy.

Finally, this relationship isn’t purely financial: there are diplomatic and cultural dimensions at work. China can leverage its increasing political influence and financial bargaining to direct Belarus to vote similarly in future UN resolutions. Belarus has already courted Chinese trade by recognising the country’s control of Taiwan and endorsing its human rights record in Tibet. The communist parties of the two countries have met several times; Xi Jinping can further justify China’s government by shaping others in its image. Similar regimes have similar political interests, and by positioning itself as the leader of its brand of governance, the Chinese Communist Party can press a more compelling political agenda abroad. Within Minsk, state-funded Confucius institutes and museum exhibitions of Chinese minorities enable China to shape its image in the minds of Belarusian youth, creating a supportive environment for the future.

While Belarus stands as the facilitator of these ambitions, China’s actions are transforming the country. High trade deficits have kept Belarus from pulling itself out of the slump caused by the Great Recession, which has lowered demand for goods and raised the cost of dependence on Russian oil shipments. High inflation and low currency confidence make it difficult for the state-controlled economy to keep pace with the other states of Eastern Europe, whose freer markets mirror their more advanced technological capacities. By attracting ambitious international business and highly educated workers with preferential tax rates, Great Stone offers to modernise Belarus’s exports, which are mainly in the manufacturing and agricultural sectors. China’s foreign direct investments provide Belarus the funds it desperately needs and can’t find elsewhere.

Lukashenko’s command of his country’s Soviet-style economic system has kept Belarus out of the EU and NATO. He’s shunned by the Western media as ‘Europe’s last dictator,’ and his reluctance to privatise industry has distanced Belarus from Western investors.xi Faced with sanctions, Lukashenko has relied on warm relations with the Kremlin since he rose to power in 1994. To that end, he’s championed a pro-Russian platform rooted in Soviet nostalgia and kept his country’s economy deeply integrated with its dominant neighbour’s. Over the past decade, however, Lukashenko has charted an independent course to consolidate his control of his country’s trade. The state-run Russian media slammed Lukashenko during his re-election campaign in 2010, and Vladimir Putin’s intervention in Ukraine continues to be denounced by Minsk, which sits even closer to Moscow.

Against the backdrop of Belarus’s freezing relations with Russia, and Russia’s heating activity in central Asia, Lukashenko’s intensifying partnership with Xi Jinping signifies higher stakes for all involved. Putin can hardly reconcile with Lukashenko. China’s distance and financial interests make it a far safer partner for a country seeking escape from dominant sphere of influence. The United States and the EU, the leaders of the post-World War liberal economic system, stand to gain from incorporating another country into their fold through democratisation and market privatisation, but the Kremlin met similar efforts in Ukraine with division and disarray. Rather, they should provide Belarus yet another outlet to pull itself out of recession without becoming too dependent on any one donor. Lukashenko attempted to work with the IMF to alleviate his country’s financial trouble. It’s taken six years to meet the IMF’s liberal market stipulations, but Lukashenko’s following through with the requirements indicates a willingness to work with the West.

Xi Jinping appears to have seized Belarus’s jeopardised position to realise his ambitions abroad. His lack of competition bolsters his negotiating power. Since 2010, China’s doubled its trade portfolio and provided over ten billion dollars of foreign aid to Belarus, dramatically more than to any other country in Europe. Its banks have loaned Belarus the money to overhaul its transportation system by electrifying its rail lines and renovating its highways. China’s infrastructure firms have committed to assist in the building of a diverse array of factories across the country. Great Stone is merely the flagship of the fleet.

Xi Jinping’s already considering another industrial park, but this one’s in Morocco. China’s presence in Belarus will continue to escalate, but Beijing’s greater interests are far greater than Minsk. For Belarus however, China’s footprint has a heavy local impact. Great Stone’s construction faces further obstacles, and Belarus will have to resolve them, even if Chinese investments don’t pull Belarus out of its slump. Belarusian citizens have raised objections against the park, fearing forced evictions, environmental degradation, and overbearing influxes of Chinese workers. But despite similar public and monetary concerns, Chinese companies have continued construction throughout the past decade. Great Stone’s developers have described it as a ‘modern city focusing on the high-technology competitive enterprises of tomorrow,’ but this optimism may be misplaced.

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