The Curious Timing of the Chinese Loan to Belarus

On the 16^th of December, The Belarusian Finance Ministry and the executive of Shanghai branch of the China Development Bank signed an agreement that granted Belarus a loan of 3.5 billion RMB (approx. 500 million USD). According to Belarusian Telegraph Agency, it is not tied with any specific project and can be spent on any aim, including repayment of previous debts, keeping up Belarus foreign exchange reserves, and boost Sino-Belarusian trade. The loan was given to Belarus a few days before it restarted talks with Russia on greater economic integration after a failed round of negotiations on the 6^th of December. Eventually, talks ended with no agreement, which led to a stoppage of oil supplies from Russia to Belarus. Minsk and Moscow finally came to an arrangement on limited quantities of oil, which are sufficient to ensure “non-stop operation of the country’s refineries in January 2020”. However, Alexander Lukashenko is still under pressure to agree on Russian demands. The timing of the Chinese loan may lead to speculation regarding Chinese intentions.

According to extreme political realism, some may argue that China wants to strengthen Minsk’s negotiating position. The greater unity between Belarus and Russia will enforce the latter, which is not in Chinese interest. This event might eventually lead to a critical worsening of relations between Beijing and Moscow, even to the point of dissolution of their cordial partnership. The reality, however, is probably more prosaic.

Reality Check

It is not the first loan from China to Belarus. Between 2000 and 2014, Minsk received more than 7,6 billion USD of Chinese financial support in the form of aid and loans. It means that the latest credit is nothing special. Moreover, Memorandum of Understanding on it was signed many months ago. In June 2019, Finance Minister Maksim Yermalovich said that Belarus would receive 3,5 billion RMB from China Development Bank before the end of the year. It means that prolonged negotiations on terms of the loan were behind such a peculiar timing.

From the Chinese perspective, Belarus is a third-rate partner. The country lies in Central and Eastern Europe (CEE), a region where Chinese influence is still limited, despite growing commitment since 2011. The post-soviet state is not a member of any Chinese regional forum, like the “17+1” or the Shanghai Cooperation Organisation. It is not a tremendous trading partner. In 2017 Belarus bought from China merchandise worth almost 2.7 billion USD and sold goods worth about 360 million USD, which is a relatively small amount. Belarus does not have substantial natural resources. It cannot meaningfully assist China in the global arena.

The biggest Belarussian trump-card in its relations with China seems to be its location, right on the most convenient Sino-European trade route, which is a part of the Belt and Road Initiative (BRI). However, it is only one of the six official land-based economic corridors of the BRI. Moreover, for trade with Europe, the maritime route is much more critical. Even if most of the commerce eventually will be transported on railways, the Belarussian transit role depends on Russian goodwill. All of that does not give Minsk priority on the list of Chinese partners.

The China–Belarus Great Stone Industrial Park symbolise relations between Minsk and Beijing. It was officially opened in 2012 and designed as a kind of special economic zone with multiple tax breaks. The project aims to kick-start high quality and high tech manufacturing in Belarus, which could be exported to the European Union and the post-Soviet states. The project has the blessing of both Belarusian and Chinese governments. Therefore there were high expectations for huge investments from Chinese companies. The China Exim Bank and the China Development Bank provided 3 billion USD in loans to develop the park. However, out of 60 investors in the area, only 33 are from China, while 12 are Belarusian and the rest are companies from various other countries. According to Kirill Koroteyev, First Deputy Director General of Industrial Park Development Company, by the end of 2020, the economic zone will have at least 80 investors with a total of 1.5 billion USD in investments. It means that most of those assets are relatively small-sized, far from initial expectations.

Geopolitical Triangle

Russia, contrary to Belarus, is a key partner for China. It is the only global power and UN Security Council member, that sympathies with Beijing in its conflict with Washington. Close relations of both countries ensure a stable border, which allows the transfer of military funds to develop assets in more prominent places (like the South China Sea). Bilateral trade in 2017 exceeded 84 billion USD, and it was almost perfectly balanced. Russia supplies the Chinese economy with multiple resources (for instance, fuel and wood), but it is also a huge export market for Chinese merchandise. Russia is a member of the BRICS group and Shanghai Cooperation Organisation. Finally, it is crucial in the BRI. Without Moscow approval, two economic corridors (New Eurasian Land Bridge and China-Mongolia-Russia Corridor) out of six cannot be successful. The same situations apply to Polar Silk Road (a part of Maritime Silk Road), which is mostly identical to Northeast Passage.

It is hard to imagine that the 500 million USD loan will, in any way, dramatically change the dynamic of the Sino-Russian-Belarusian triangle. Russia is too important for China to let the relations sour because of it. From the Moscow perspective – it also does not seems to be a significant issue. In the past, China has done much more to diminish Russian economic influence in the post-soviet states, including the breaking of monopoly on gas transit from Central Asia. As long as Beijing will not push for more considerable political and military influence in Belarus and other “near border,” the Sino-Russian relations should remain stable.

In the end, what are Chinese intentions? There are multiple biases regarding the analysis of Chinese policy-making which often cloud judgment. One of them tells us that Beijing is carefully planning its every step, and every action is a part of a bigger, long-time strategy. In this case, the situation may be as opposite as it could get. The loan seems to be a temporary measure, which gives Belarus a little time to get the economy back on track. It also provides a little leverage in negotiations with Russia. However, it will not be crucial to the final agreement on economic integration. China can benefit in three ways from granting the loan. Firstly, it can stabilise the market where some of its companies have already invested. Secondly, China Development Bank will receive interest, which is always welcome by bank executives. Thirdly, China will continue to build its reputation of a country which does not leave friends in financial needs (like Zimbabwe and Cuba). After all, in the relations between Beijing and Minsk, there is more rhetoric about great friendship and a bright future than “hard” outcomes of cooperation.