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China Building Beachhead in Europe With $5 Billion Belarus City

May 26, 2013

China Building Beachhead in Europe With $5 Billion Belarus City

A municipal worker washes the Victory monument in central Minsk. Photographer: Viktor Drachev/AFP/Getty Images

China is building an entire city in the forests near the Belarusian capital Minsk to create a manufacturing springboard between the European Union and Russia.

Belarusian President Aleksandr Lukashenko allotted an area 40 percent larger than Manhattan around Minsk’s international airport for the $5 billion development, which will include enough housing to accommodate 155,000 people, according to Chinese and Belarusian officials.

Lukashenko, who’s led his former Soviet state of 9.5 million for two decades, is turning to China to help revive a $60 billion economy that’s needed $6.5 billion of bailouts from the International Monetary Fund and Russia since 2009. The hub will put Chinese exporters within 170 miles of EU members Poland and Lithuania and give them tax-free entry into Russia and Kazakhstan, which share a customs union. It will also let them draw from a workforce that’s 99.6 percent literate and makes $560 a month on average, half the Polish wage.

“This is a unique project,” Gong Jianwei, China’s ambassador to Belarus, said on state television May 17, after the project won regulatory approval. “Nobody will be able to build anything like this industrial park anywhere else in Europe anymore. The infrastructure is so powerful.”

The “modern city on the Eurasian continent,” as it’s called in marketing documents, will be built around the M1 highway that links Moscow and Berlin via Belarus and Poland. A speed-rail network will tie the airport to the center of the city, which will be powered by a $10 billion nuclear plant, Belarus’s first, which Russia agreed to finance and build by 2018. The first stage of the park is scheduled to be completed by 2020, with the second stage taking another 10 years.

Gay, Dictator

Lukashenko, 58, a former collective farmer, has sought to cultivate allies outside the former Soviet Union and reduce his reliance on Russia since the U.S. and EU intensified sanctions on him and other Belarus officials for jailing political opponents after the 2010 election that gave him a fourth term.

His isolation deepened after the deaths of two of his few supporters among world leaders, Libya’s Muammar Qaddafi in 2011 and in March Venezuela’s Hugo Chavez, for whom Belarus declared three days of national mourning. Last year, Germany’s openly gay foreign minister, Guido Westerwelle, called Belarus “the last dictatorship in Europe,” prompting Lukashenko to quip that he’d “rather be a dictator than gay.”

‘Highly Advantageous’

China, which signed a $3 billion currency swap deal with Belarus in 2009 to boost trade, agreed to finance the venture with low-interest loans as long as half the money is spent on Chinese materials, technology or labor, according to Kirill Koroteev, the former Economy Ministry official tapped by Lukashenko to manage the Belarus side of the project. Koroteev is deputy head of Industrial Park Development Co., which is 60 percent owned by a unit of China National Machinery Industry Corp. and 40 percent owned by Belarus’s government.

“The loan conditions are highly advantageous,” Koroteev said in an interview in his office in Minsk, leaning back from a desk cluttered with documents in Russian, English and Chinese. “It doesn’t make sense for us to even consider financing from other banks.”

Export-Import Bank of China and China Development Bank Corp. are among Chinese lenders that have already agreed to fund the project, Liu Xuesong, councilor at the Chinese Embassy in Minsk, said by e-mail. The press office at China Development Bank in Beijing didn’t respond to an e-mail request for comment and Liu Yang, a publicity officer at Export-Import Bank, didn’t answer calls to his office phone.

Tax Breaks

It’s not just Chinese companies that are eligible for the tax breaks at the future park. Any enterprise that pledges to invest at least $5 million and work in an “advanced sphere” such as biomedicine or electronics can receive the 10-year waiver on profit and property taxes, according to the project’s website. Taxes will be halved for companies in the second 10 years after their investment.

More than 10 companies have already shown interest, including drug makers Sinopharm Group (1099), based in Hong Kong, and Latvia’s Grindeks, Koroteev said. Sinopharm didn’t respond to e-mailed questions and Grindeks declined to comment immediately.

“We aim to turn this place into an international business springboard,” Koroteev said. “We don’t want to build a dead city.”

Chinese leaders have been seeking to establish a manufacturing base for their exporters within the EU for years. Talks with Bulgaria on establishing a park similar to the one Belarus has approved, though much smaller, started in 2010 only to stall after a change in leadership in both countries, Valery Andreev, who heads the company overseeing Bulgaria’s industrial zones, said by phone from Sofia.

‘China’s Bulwark’

“It would make sense for Chinese companies to build factories here, where the market is, but we are not in a position to wait for Chinese investors only,” Andreev said.

Then-Premier Wen Jiabao led a meeting with officials from several eastern and central European countries in Warsaw, Poland, last April during which he identified 12 steps they could take to improve relations with China -- one of which was to have China develop an economic zone in each of the countries, according to Andreev.

“Belarusian authorities want, a bit naively, to turn their country into China’s bulwark in Europe,” Alexei Pikulik, head of the Belarusian Institute for Strategic Studies, an independent research group based in Vilnius, Lithuania.

“This goal will be complicated while Belarus has strained relations with the West,” Pikulik said by phone from Minsk on May 23. “While Belarus borrows, China makes money.”

To contact the reporter on this story: Aliaksandr Kudrytski in Minsk, Belarus at akudrytski@bloomberg.net

To contact the editor responsible for this story: Hellmuth Tromm at htromm@bloomberg.net


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