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Chinese President Xi Jinping, left, and his Kazakh counterpart, Nursultan Nazarbayev, at the Presidential Palace in Astana in June 2017   © Getty Images
International relations

Linking China to the EU's 'gateway' for exporters

Kazakhstan seeks to become part of China's supply chain, while Poland seeks infrastructure funding

NAUBET BISENOV, Nikkei Asian Review contributing writer and STEFANIE LINHARDT, Europe editor at The Banker | China

ALMATY, Kazakhstan/WARSAW -- Chinese President Xi Jinping chose the Kazakh capital of Astana to announce his grand plan for a "new Silk Road" in September 2013. But nearly five years later, the investment push -- now known as the Belt and Road Initiative -- has not resulted in much new business for the central Asian nation.

The Kazakh government says the two countries have drafted 51 projects worth a total of $27 billion in the energy, mining, infrastructure and other sectors to be carried out by Chinese investors in Kazakhstan between 2016 and 2022. Some of these projects call for companies to move from China to Kazakhstan, but few details have been released.

"The BRI's impact on the Kazakh economy is limited at the moment because there has not yet been significant investment in specific projects. It has only been intention in the form of memoranda signed," said Kassymkhan Kapparov, director of the Almaty-based Bureau for Economic Research. "The investment supposed to come from the newly established Asian Infrastructure Investment Bank has not materialized yet, and we don't see new production facilities appearing in Kazakhstan."

Ahead of a state visit to Kazakhstan last June, Xi boasted in an article that China's investment in the Kazakh economy had exceeded $42.8 billion. The strategy "has already transformed from initiative to action," he said.

But the figures he cited had been achieved thanks to railway and pipeline projects carried out by Kazakhstan before the announcement of the BRI. Some $10 billion of Chinese loans were granted in 2009 as part of an agreement with Kazakhstan that allowed Chinese state companies to hold a large stake in the Kashagan oil project. The funds financed a gas pipeline that was finished in 2015.

Chinese investors operating in the country complain that problems with bringing staff to Kazakhstan and other red tape are major obstacles to developing business. As a result, only a handful of projects have been implemented, despite tax breaks and other perks.

Kazakh officials hope the country will become part of China's global production chain, but so far there is no evidence this will happen, said Luca Anceschi, a lecturer in Central Asian studies at the University of Glasgow.

"The government, insisting with its rhetoric of presenting Kazakhstan as a bridge between East and West, has merely reduced Kazakh territory to a conduit for goods produced elsewhere and bound for other markets," Anceschi said.

Poland woos China

Many of those goods traveling East to West will be bound for the European Union, where Poland is seen by investors "as a gateway to the EU -- as a window for exporters," said Krzysztof Senger, executive vice president at the Polish Investment and Trade Agency. 

Poland might not be the first country that comes to mind in the context of the BRI. But not only is central and eastern Europe's largest economy a member of China's Asian Infrastructure Investment Bank, Poland also holds potential for infrastructure investments -- especially in the country's poorly connected east.

Poland's Strategy for Responsible Development highlights one area for potential Chinese investment. According to the plan, the country seeks to invest more than 1.5 trillion zloty ($442 billion) from public funds and about 600 billion zloty from private sources in infrastructure and industry projects by 2020s. Yet when the plan was first presented, nearly half of the investments were expected to come from EU funds.

These funds are expected to decrease with the new EU budget, leaving the door open for potential investment from China.  

"The EU single market comprises 500 million people, but at the same time, we can finance most [of our projects] on our own or through operational programs backed by EU funds," Senger said. "The Chinese model of investing in Africa and central Asia is not suited for central and eastern Europe, but we invite Chinese companies and investors to look at the different tenders" in Poland.

One of the SRD initiatives that could attract Chinese investors is a proposal to create a transportation hub combining several forms of transport such as air, rail and road. This hub is to be built around a new airport, which might be located in Stanislawow, 40km from Warsaw.  

The government further seeks to reconstruct several seaports in its quest to turn Poland into a key European logistics center. A second multibillion-dollar project, which the government will seek to finance, is the construction of the country's first nuclear power plant, according to Zielinski.

The CSIS Reconnecting Asia Project, which has compiled a list of key BRI project data across the globe, lists one Polish project as being part of China's initiative: Wroblew Wind Farm, which Luxembourg-registered private equity fund China-CEE Fund acquired in November 2014 and exited in January 2015.

China's three largest banks by Tier 1 capital -- Industrial and Commercial Bank of China, China Construction Bank and Bank of China -- have all opened offices in Warsaw to serve Chinese companies and Polish-Chinese trade. Poland is running a large trade deficit with China, which the government is hoping to reduce in the future.

"Chinese investors take their time and I appreciate that -- if you want to build a strong country you have to plan for generations," said Beata Daszynska-Muzyczka, president of the management board at Bank Gospodarstwa Krajowego, Poland's development bank. "I strongly believe that we have a number of areas for cooperation, but we may need some time to build our approach to working together."

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