Belarus seeks to swap Chinese credit for FDI

Belarus is looking to inaugurate a new phase of its co-operation with China, aiming to switch to pure Chinese FDI as opposed to the Beijing-sponsored credit lines introduced after Belarus joined China’s Belt and Road Initiative.

“We think it’s time to evolve our co-operation,” said finance minister Maksim Yermolovich. “In the previous stage we had a cooperation where China was acting as a creditor of the country, providing credit lines to our companies and the budget to finance special projects through the Export-Import Bank of China [China EximBank] and China Development Bank [CDB]. Now we want to change the scheme of such investments, which should now come in the form of FDI. The main idea is that Chinese investors will be bearing some of the risks of these investments. This is a significant change in paradigm.”

Belarus emerged as one of the first European countries to formally join the Belt and Road Initiative back in 2015. This started a new era of co-operation between the countries, with Chinese-sponsored investment flowing into Belarus.

A China-Belarus industrial park named Great Stone has risen in the once-dormant Smolevichsky district, 25km east of Minsk, to become the landmark of the new era of co-operation. The mega project, entailing the development of up to 80 sq km, is to be completed over 30 years, although some parts are already finished. The management expects the number of companies active there to rise to 70 by 2020, with total investment exceeding $2bn. 

Both China EximBank and the CDB financed the projects, with a $1.5bn credit line each, according to Reconnecting Asia, a website that tracks infrastructure projects in Asia. Overall, China EximBank extended 28 loans worth about $5bn to Belarus, according to the National Agency of Investment and Privatisation, while the CDB issue seven loans worth $3bn. 

Levels of Chinese FDI into Belarus are more modest, though growing, at $113.6m in 2017. The Belarus government seems now committed to changing this paradigm. “The goal is to reduce direct state public debt and guarantees of the central government and to extend our co-operation with China. We are not able to support these projects in the previous scheme of financing with sovereign borrowings and financing any more,” said Mr Yermolovich.

Belarus’s foreign debt amounted to $16.7bn as of March 2019, according to figures from the finance ministry. While not in itself an alarming level (about 33% of GDP, taking into account a fiscal surplus of 3.6% between January and September 2018), the country is strengthening its financial position across the board. Russia is expected to reduce energy subsidies to Minsk, thus resulting in a hit worth several billions of dollars per year for Belarus, according to International Monetary Fund estimates.

Additionally, the government position on Chinese investment fits a general trend across the Belt and Road initiative as a whole. Countries participating in the initiative are rethinking the nature of their co-operation with China and now leaning more towards welcoming Chinese FDI, rather than credit lines by Chinese state banks requiring sovereign guarantees to the recipient country. It could now be time for China’s private companies to venture in Belt and Road countries by themselves and move autonomously from Bejing’s generous – but seldom risk-free, at least for recipient countries – credit lines.