Sino-Belarusian cooperation is not up to expectations of Belarusian authorities
Official Minsk has inflated expectations from economic and investment cooperation with China, which base on similarity of political views and concessions on foreign policy issues. So far, the Belarusian authorities have not managed to step up political and economic relations with China. The implementation of large-scale projects with direct investments from China is unlikely to meet Belarus’ expectations in the coming years either.
The Belarusian authorities have repeatedly stated that cooperation with China was a priority for Belarus’ foreign policy and emphasised the ‘strategic nature’ of Sino-Belarusian relations. So far, however, political and economic contacts between Minsk and Beijing are not reaching the level of cooperation between China and other countries in the region.
Currently, Belarus is implementing about 20 joint Sino-Belarusian projects worth circa USD 5.5 billion and hosts more than 40 offices and subsidiaries of Chinese corporations. In recent years, Chinese have invested in modernisation of cement plants, electrical and pulp industries, and road construction in Belarus. In order to implement these initiatives, the Chinese government has opened a credit line for Belarus totalling USD 16 billion.
President Lukashenko underscored the importance of economic cooperation with China – mainly as a priority export market for Belarusian goods, “This is a country, which is looking for partners today, which has the sea of money. If we become, as we are now, their partners and develop cooperation in all areas, we could get loans and orders. Orders is the main thing for us”.
The Belarusian government is keen to implement trade and logistics projects within the Chinese ‘Silk Road’ construction project. Official Minsk also wants Beijing to use Belarus as a platform to promote Chinese products on western European markets. However, China is unlikely to take Minsk’s initiatives seriously, other eastern European countries, such as Poland, have offered much more favourable conditions for Chinese goods’ access on the European market. In addition, Belarus has claimed a strong interest to be included in Sino-Russian industrial cooperation projects.
However, the Belarusian leadership’s hopes to develop economic cooperation with China have not yet materialised. Chinese share in Belarus’ total trade turnover is small - 4% in 2014 and 4.2% in 2013 with a significant misbalance in favour of China. Unlike indirect investments, direct Chinese investments in the Belarusian economy are low. In September 2014, the Belarusian Finance Ministry signed an agreement with the Chinese Development Bank to open two long-term credit lines worth up to USD 1 billion.
The most successful large joint Sino-Belarusian project was Geely cars production. The Belarusian government has projected to produce 120,000 cars a year between 2012 and 2020. During the project’s first stage, between 2012 and 2015 Belarus has increased cars production from 10,000 to 60,000 cars a year. However, due to the collapse of the Russian automobile market, Geely’s prospects have dimmed.
The Belarusian government hopes to fill the gap in direct investment from China by creating the “Big Rock” Sino-Belarusian industrial park. However, this large-scale project is still in the initial implementation stage. For example, in October last year, the Chinese government confirmed its intention to provide Belarus with an intergovernmental grant aid worth 150 million yuan within the framework of the industrial park electrification project and other projects of technical and economic assistance. The park’s construction began in June 2014, however, Chinese business is in no hurry to enhance its presence in Belarus and only declares its intention to implement investment projects. In addition, Chinese officials underscored the importance of making the industrial park project attractive to investors from the ‘third countries’.
The Belarusian authorities should not expect a major breakthrough in the Sino-Belarusian relations after the Chinese President’s visit. Beijing is likely to adhere to current level of political and economic relations with Minsk.
The rapid increase in wages has led to a decline in the ratio between labour productivity and real wages to one. Previously, the rule was that enterprises, in which the state owned more than 50% of shares in the founding capital, were not allowed increasing salaries if this ratio was equal to or less than one. The authorities are unlikely to be able to meet the wage growth requirement without long-term consequences for the economy. Hence, the government is likely to contain wage growth for the sake of economic growth.
According to Belstat, In January – August 2017, GDP growth was 1.6%. The economic revival has led to an increase in wages. In August, the average monthly wage was BYN 844.4 or USD 435, i.e. grew by 6.6% since early 2017, adjusted for inflation. This has reduced the ratio between labour productivity and real wages from 1.03 in January 2017 to 1 in the first seven months of 2017. This parameter should not be less than 1, otherwise, the economy starts accumulating imbalances.
The need for faster growth in labour productivity over wage growth was stated in Decree No 744 of July 31st, 2014. The decree enabled wages growth at state organizations and organizations with more than 50% of state-owned shares only if the ratio between growth in labour productivity and wages was higher than 1. Taking into account the state's share in the economy, this rule has had impact on most of the country's key enterprises. In 2013 -2014 wages grew rapidly, which resulted in devaluation in 2014-2015.
Faster wage growth as compared with growth in labour productivity carries a number of risks. Enterprises increase cost of wages, which subsequently leads to a decrease in the competitiveness of products on the domestic and foreign markets. In construction, wholesale, retail trade, and some other industries the growth rate of prime cost in 2017 outpaces the dynamics of revenue growth. This is likely to lead to a decrease in profits and a decrease in investments for further development. Amid wage growth, the population is likely to increase import consumption and reduce currency sales, which would reduce the National Bank's ability to repay foreign and domestic liabilities.
The Belarusian government is facing a dilemma – either to comply with the president’s requirement of a BYN 1000 monthly wage, which could lead to new economic imbalances and could further affect the national currency value, or to suspend the wage growth in order to retain the achieved economic results. That said, the first option bears a greater number of negative consequences for the nomenclature.
Overall, the rapid growth in wages no longer corresponds the pace of economic development. The government is likely to retain the economic growth and retrain further growth in wages. Staff reshuffles are unlikely to follow the failure to meet the wage growth requirement.