Cooperation with China enables Belarus to realistically assess its potential export opportunities on the Chinese market?
Over the years, trade and economic cooperation between Belarus and China has taken a clear path, with certain products sold to the Chinese market, despite stiff competition:
• potash fertilisers;
• caprolactam, polyamides, and synthetic fibers (such as are made by Belneftekhim Concern); and
• mining machinery, tractors, combine harvesters and integrated circuits.
Such sales have accounted for 80-95 percent of Belarusian exports in these niches, with potash fertilisers forming the major share. Products from other Belarusian industries and individual large enterprises are not competitive on the Chinese market, either in price (taking into consideration high prime and transport costs), or quality and after-sales services. Almost no light industry, construction or pharmaceutical goods are exported to China from Belarus.
China continues to improve the technical and qualitative characteristics of its products across many industries, focusing on innovation, to displace rivals — including Belarus. BelAZ is a case in point: five years ago, it held a comfortable position on the Chinese market but has now lost its competitive edge, selling no trucks to China since 2014. MTZ is also experiencing problems in China.
What’s in demand in China?
In China, everything enjoys demand, as it’s a huge market. However, not all products are bought, since competition is high across many commodity items, among domestic goods and imports. As many as a thousand manufacturers may all be making the same product.
There are real prospects on the Chinese market for Belarusian agricultural and food products: beef, poultry, pork, milk (especially infant food) flax, starch, confectionery, and alcoholic and soft drinks.
Much depends on market conditions, including the right point of entry and consolidation in the market.
MTZ JSC, BelAZ JSC and Gomselmash JSC must be careful not to lag behind technologically. New assembly plants are planned for the Chinese provinces, as are alliances with strategic Chinese world-class partners, to encourage joint development and production, creating a united or coordinated distribution network in third countries. Work has begun in this direction and certain progress has been made. Major Belarusian enterprises are negotiating with some Chinese ‘heavyweights’ — such as Sinomach, Sangjiang and Zoomlion corporations.
Belarusian petrochemical products also have good prospects, but Belneftekhim Concern needs to focus on offering products with greater depth of processing and with greater added value. There is potential for the export of services, such as education and tourism. Chinese students can receive high-quality and relatively cheap higher education in Belarus, while also learning Russian. Following the removal of visa restrictions for tourists, and the opening of direct flights, the abolition of visas with the SAR and Hong Kong should enhance export of tourist services.
Is high competition on the Chinese market a serious problem for those wishing to supply certain goods to China?
Competition in China is probably the highest in the world. Almost every major multinational corporation is present, as are many strong local players. At the same time, China is a huge market, its territory being about 46 times greater than Belarus and its population being equal to that of the Americas, Western Europe, Australia and New Zealand combined. Therefore, there is ample chance of finding a niche. The Eastern regions are the most popular for foreign companies, while imported products are known less in the centre and, especially, in the west of China. Imports have penetrated the larger cities. I’d say that it’s easier to enter the markets of cities which the Chinese consider only medium in size: with a population of only around one to two million. In this connection, partners should be sought in the districts.
Do Belarusian exporters have some advantage over those from other countries, taking into consideration the very close cooperation of our two states? Or are price and quality far more vital?
As you know, Belarus is not the only country with which China has a ‘very close’ relationship. China is a big country, and is now responsible not only for national but for global challenges: the Hangzhou G20 Summit is the best example. Belarus occupies a special place in China’s diplomacy, but it is not the only one. This is the first aspect.
The second refers to the scale of our bilateral trade. In 2015, Belarusian sales to China amounted to a hundredth of a percent of China’s total imports. Accordingly, it’s difficult to rely exclusively on political advantage. China is a WTO member and boasts deep economic ties with other countries.
The third aspect is most important. China operates a market economy where market forces rule. Success relies primarily on quality and price, attractive consumer properties, design, after-sales service and other maelies primarily on quality and price, attractive consumer properties, design, after-sales service and other market rket characteristics.
The President of Belarus, Alexander Lukashenko, has set the task of achieving a leap in cooperation between Belarus and China, as mentioned while appointing you as new Belarusian ambassador to China. How do you intend to carry out this task?
An ambassador is the representative of the head of state, so must carry out the tasks set. Speaking of a breakthrough in our bilateral relations, I’d like to highlight three areas.
Firstly, political cooperation is needed. Here, our relations have been developing quite rapidly and deeply. Over the past 25 years of diplomatic relations with China, Belarus has achieved a level of trust that can take a country several centuries. It’s important to maintain this level of trust: our unconditional relationship. We must ensure it continues to develop, regardless of world events and external factors.
Secondly, our economic and trade cooperation is vital. In addition to traditional exports, such as potash fertilisers, petrochemical products, and agricultural and other equipment, we need access to the Chinese market for other Belarusian goods boasting competitive advantage: beef, poultry and pork. To promote exports to China, a local partner is needed, so we must create intelligent alliances with Chinese world-class partners, developing new niches for Belarusian goods.
Investment cooperation is the third aspect. In this field, transition from credit financing projects to mutual direct investment is essential. I’m pinning hopes on the Chinese-Belarusian Great Stone Industrial Park, which is attracting serious residents, becoming a real ‘pearl’ of the Economic Belt Silk Road (as Chinese President Xi Jinping has said). It’s important to combine bilateral economic mechanisms. A mutual investment synergy might emerge if Chinese enterprises decide to invest in Belarusian companies, to access third markets.
The President has demanded that Belarus embrace new opportunities to develop cooperation. The embassy plays a significant role in this respect. What help can it render those wishing to enter the Chinese market long term?
It’s important for the embassy to ensure that bilateral relations develop steadily, evolving on an upward trajectory, without extremes or ‘fads’. Our embassy must aim to be counter-cyclical. If an opportunity emerges in a certain direction of bilateral co-operation and parties fail to notice, missing out as a result, the embassy can step in to direct, encourage and support. Conversely, when expectations become unrealistic, we can warn in advance, to help avoid disappointment on either side.
For those who really want to enter the Chinese market, working for a long time, the embassy’s assistance isn’t usually required. Serious companies with strong marketing services, using the services of international legal and financial firms, don’t need us in the same way. The embassy supports them at a political level, viewing them as flagships of bilateral relations. In practice, the embassy is, unfortunately, sometimes addressed by companies failing to independently resolve issues with commercial partners. In this case, our embassy is forced to perform an uncharacteristic role, of a state institution interfering in private business relations.
Which tools are needed to make a breakthrough in bilateral relations?
Firstly, interregional cooperation is required. As regards the trade and economic sphere, it seems advisable to use the potential of regional ties. At the moment, each Belarusian region (and the city of Minsk) has established partnerships or twinning relationships with several provinces and cities of China.
Many Chinese companies from the provinces are beginning a path of joining foreign economic activity, actively seeking foreign partners. These are not small businesses. A Chinese province can be comparable to a European country on an economic scale, while a provincial-level company could have a turnover of several billion US Dollars.
Secondly, traditional export tools are needed. I’d advise our exporters to follow media reports, asking the Belarusian Chamber of Commerce and Industry and its regional offices for information on forthcoming roundtable discussions and business seminars. Chinese guests from the regions participate with a view to finding partners.
I believe that there are great chances for establishing business relationships in such cases. Of course, we mustn’t forget about exhibitions, especially those which are specialised, where we can demonstrate our goods, looking closer at rivals and finding partners. Our embassy is always ready to offer suggestions on which shows to attend, while providing other assistance. Establishing a Belarusian trade house for consulting, legal and other support is a great help to Belarusian exporters in China.
Thirdly, mutual investment co-operation is important. It’s necessary to apply traditional and new tools, creating not simply new joint ventures with equity capital, but encouraging investment, with venture capital, using the Hong Kong Stock Exchange. It’s important to understand that credit investments often need to be repaid, so it’s important to shift to direct investment.
How do you see the interaction of our two countries within the Silk Road Economic Belt?
The Republic of Belarus was among the first countries to voice its support of the Chinese initiative to jointly construct the Silk Road Economic Belt (SREB). This was guided by several factors. The high level of Belarusian-Chinese relations between our countries, which is of comprehensive and strategic character, in addition to our geographical location, and other competitive advantages, help objectively promote bilateral cooperation in implemen-ting the SREB project.
I believe that development (in cooperation with our Chinese partners) of our transport and logistics sphere should be a priority. It contributes to the transit character of our state. With the participation of China Merchants Group, a ‘dry port’ and a complex logistics centre are being established at the Chinese-Belarusian Great Stone Industrial Park. Construction of a number of similar facilities, in Brest, Mogilev and Vitebsk Regions, is being carried out by companies from the Chinese provinces of Heilongjiang, Shandong, Guizhou, Qinghai, Hubei, Jiangsu and Henan.
Another important aspect of participation in the EBSR is the modernisation of transport infrastructure (rail and road) and the expansion of Belarus’ participation in air transportation between China and Europe.
Another promising area of co-operation is modernisation and development of information and communication infrastructure, for integration into the EBSR concept.
Do you know what expectations Chinese investors have regarding the Chinese-Belarusian Industrial Park? Is it a significant project for China?
Both Chinese and international investors are showing great interest in this project. The first residents include Huawei, ZTE, and Zoomlion. Meanwhile, it’s important to understand some features of the Park.
Firstly, despite the attention of our two heads of state and strong political support, it’s still a commercial project. When deciding on projects, investors act pragmatically, looking at business opportunities with a mind to profit. This is at the heart of the Park’s long-term operation.
Secondly, this is an industrial park focused on the development of modern manufacturing and high technologies, providing them with preferences. Chinese investors are already building a major regional centre at the Park, which will provide residents with logistics services and serve the flow of goods from Central Asia to Europe and back along the future Silk Road.
The Park will become not simply logistical but truly industrial and high-tech. Taking into account the latest agreements, a centre of commercial scientific developments is planned for the Park.
Thirdly, this is an international industrial park, without restriction on investors from other countries; inte-rest is being shown by well-known European companies. We should call it the Great Stone Industrial Park, without any ‘Belarusian-Chinese’ phrasing, although it is being established by Chinese and Belarusian companies.
Earlier, you said that Belarusian companies need to more actively cooperate with Chinese partners, incorporating such plans into their production chains. Can you tell us more?
Since last year, China has begun a new economic policy of structural reform of proposals. This envisages the establishment of major cross-border Chinese corporations with a wide network of production chains. Chinese companies are combined, amalgamated and buy foreign partners. For example, in 2016, China Merchants Group merged with Sinotrans & CSC (total assets of $157bln). Meanwhile, rivals in the cement sphere united: China National Building Materials Group Corporation and Sinoma (total assets of $88bln). Also, Chinese Midea acquired the German manufacturer of robots, Kuka. Overall, in the first half of 2016, Chinese companies invested $102.7bln into 5,465 companies, across 156 countries: up 62 percent on the same period of last year.
As these figures indicate, China is ready and looking for investment partners. We have the chance to integrate into Chinese cross-border chains and add our costs into final products. In our region, this can be done by Belarusian enterprises and/or European or Russian. Investment transactions will take place in any case (with or without us), while Chinese companies will become partners or competitors. The question is, if we fail to join production chains today, would we face too much of a challenge against competition in the region tomorrow.
What should our priorities be, in your view, taking into account regional strategic cooperation between China and Belarus? Is more dynamic action required? What is needed to ensure obvious initiative from both sides?
In recent years, collaboration between the provinces of China and the regions of Belarus has intensified and the same could be said of ‘city-city’ level. An increasing number of Chinese business delegations from the regions visit Minsk and our regional centres, while delegations from Belarusian regions travel to China. A great number of agreements are being signed, in addition to memoranda and other bilateral documents. In this respect, it’s important not to lose quality in the pursuit of quantity.
Friendly and twin city relationships are impressive but they need an extra edge in realising joint investment projects and specific co-operation points. It’s preferable, I believe, to begin with concrete action: ‘first word and deed, then feasting and friendship’.
The most important element in regional cooperation is, in my view, the sequence of fulfilling obligations. If parties agree and keep their word, then success may come to any business.