Caught between Russia and China: Belarus Scrambles for Support

The 2022 Shanghai Cooperation Organisation (SCO) summit in Samarkand, Uzbekistan, was marked by several notable actions indicating further organizational expansion. Egypt and Qatar were granted a dialogue partner status in SCO, Iran has signed a memorandum on joining the SCO and most remarkably, the process for granting Belarus full membership in the SCO was announced.

Belarusian President Aleksandr Lukashenko claimed that this would be a factor in the process of strengthening regional security, intensive development of economic cooperation, and expansion of humanitarian ties. Earlier, during his meeting with Xi Jinping, Lukashenko reaffirmed his support of the “One China” policy, while Xi Jinping stated, that bilateral relations between China and Belarus have reached the point of an “all-weather and all-round strategic partnership and implement a historic upgrade of our cooperation to a new level.”

Belarus-China Relations

These statements demonstrate the shift in the geopolitical reorientation of Belarus from the Western sphere of influence to a non-democratic one. Such transition can provide several benefits: For example, the building of strategic partnership between Belarus and China allows Belarus to gain significant investments against the background of sanctions imposed by the European Union in response to its involvement in Russia’s military invasion of Ukraine. Furthermore, it will allow Lukashenko to preserve a domestic image of a strong and influential leader capable of building relations with powerful states, such as Russia and China.

Belarus has been utilizing China’s financial assistance tools, predominantly loans. In 2014, a Memorandum of Understanding between Belarus and China was signed, which defines basic principles of cooperation between financial institutions and governments in lending for joint Belarusian-Chinese projects located on the territory of Belarus. In the following years, several joint China-Belarusian projects in the energy, military, and financial spheres have been implemented.

For instance, the China Development Bank funded the construction of a hydroelectric power plant in Vitebsk, which was implemented by the Chinese energy company China National Electric Engineering Co. (CNEEC) and finished in 2017 at a total cost of about $190 million. Modern Belarusian military equipment was also developed with the assistance of Chinese military technologies. In 2015, Belarusian officials had meetings with the heads of China Great Wall Industry Corporation (CGWIC) and China Aerospace Long-March International Co. (ALIT). It is presumed that Belarus became the first foreign customer of the A200 missile system, which was used in the development of the Belarusian MRLS Polonez.

The biggest Chinese investment in Belarus so far is the Great Stone Industrial Park. Negotiations between China and Belarus started in 2010 and in 2012, the decree on the establishment of the park was signed by the Belarusian President. According to the agreement between Belarus and China, the Chinese side provides support and financial assistance necessary for attracting companies. In contrast, the Belarusian side provides investment benefits for companies and all the required infrastructure. Currently the park has approximately 60 residents, including such major Chinese companies as China National Machinery Industry Corporation (Sinomach) and ZTE.

These examples demonstrate significant investment of China’s funds into Belarusian energy, military and economy spheres by actively granting loans to various projects in Belarus. However, by accepting these loans, Belarus may become a victim of “debt-trap diplomacy”, a term used to describe China’s predatory lending practices and claimed to be a part of China’s geostrategic vision. In fact, some experts assume that China’s lending policy has contributed to the debt crisis in Sri Lanka. In the case of Belarus, such loans and modernization projects may lead to the technological dependence of Minsk on China. For example, the modernization of industry with Chinese equipment increases the risk of introducing Belarus-manufactured Chinese goods to the Russian and EU markets. In terms of price, these goods will become more expensive than those made directly in China due to higher expenses on manufacturing, which would include the cost of labor, depreciation deductions, environmental requirements, etc. As a result, the customer’s preference towards Belarusian products will decrease in favor of Chinese ones.

Belarus-Russia Relations

On the other hand, the establishment of close trade and economic relations between Belarus and China allows Belarus to decrease its economic dependence on Russia. Traditionally, the Russian Federation has not only been the leading trading partner of Belarus but also the main creditor. In recent years, Belarus has obtained constant financial and credit support from Russia. In March 2020, the total amount of loans provided to Belarus by Russia reached almost $8 billion against the $3.3 billion provided to Belarus by China over the same period. It is expected that from September 2021 till the end of 2022, the total amount of loans provided by Russia to Belarus will reach approximately $630-640 million.

Belarus also buys Russian gas at preferential prices and Russian oil with zero duties due to its participation in a Moscow-led customs union. Such subsidies significantly contribute to Russia’s financial support to Belarus. In recent years, however, this support declined due to reduced energy subsidies caused by changes in the taxation system in the Russian oil sector. As a result, as soon as export duties are reduced to zero, Belarus will be deprived of discounted Russian oil by 2024. This demonstrates a noticeable dependence of Belarus on Russian financial policy.

It can be assumed that the intensive participation of Russia in integration projects with Belarus and the continuous financial support of Belarus is more guided by political rather than economic motives. The provision of new subsidies without initiating structural reforms in Belarus, followed by transformations in social and political spheres, can lead to redistribution of financial assistance in favor of entrepreneurs and officials closely associated with Belarusian authorities—thus, impeding the improvement of the economic situation in Belarus and making Belarusian elites dependent on Russian subsidies. Therefore, it would be in Russia’s interest to negotiate debt restructuring with Belarus in order to keep it in Russia’s sphere of influence.

Maneuvering between China and Russia

The aforementioned policy of Russia towards Belarus is deemed to be favorable for China, who is interested in maintaining Russian support of China’s Belt and Road Initiative (BRI). This taking into account the potential sensitivity of Russia to the expansion of China’s influence in post-Soviet countries. Russia, in turn, expects that by subsidizing the Belarusian economy, it indirectly invests in the implementation of joint Sino-Belarusian infrastructure and logistics projects, thereby participating in and influencing the development of BRI.

Belarus can also benefit from establishing closer relations with China despite its controversial financial policy. Since the Russian invasion in Ukraine, Lukashenko has tried to solidify his presence in the international arena in order to reduce economic dependence on Russia. Such efforts include his announcement on further cooperation with EU member-states as well as promotion of Sino-Belarusian cooperation. This situation is also favorable for China, because previously Ukraine had been in China’s focus as a strategic corridor for connecting the BRI to Europe. The Russian invasion forced China to make adjustments to its foreign policy. Hence, Belarus has been seen by China as an alternative route to Europe. Lukashenko’s willingness to trade with the EU states has increased the chances of China using the BRI as a tool for entering European markets. At the same time, Belarus supports Russia, thus keeping its image as a stable and reliable Russian ally, whose policy is not oriented towards the West. Some experts explain such maneuvering as Lukashenko’s attempts to consolidate his power in a way that allows him to mitigate Russian influence on Belarus without triggering a backlash from the Kremlin.

However, several rounds of sanctions imposed by the EU on Belarus are taking its toll on the Belarusian economy and its ability to effectively trade with the EU. In July, Belarus broke the terms of its debt obligations to foreign investors and was declared in default. As a result, international trade with Belarus is deemed unfavorable by most countries. This turn of events can undermine China’s intentions towards Belarus. Xi Jinping was one of the first foreign leaders to congratulate Lukashenko on declaration of his victory in the 2020 Belarusian presidential election, signifying China’s preference for maintaining close partnership with Belarus. China considers Belarus as a strategic corridor for supplying goods to Europe by rail and as an economic partner for joint development of the BRI initiative.

With the continuous decline of the Belarusian economy, it can be assumed that China will be interested in protecting its investments in Belarus. The protection of these investments heavily depends on Russia’s ability to keep its influence on Belarus. The role of Belarus in the international arena as a hub between Asian and European markets under the BRI framework would be beneficial for both China and Russia. Belarus would likely carry on maneuvering between the two states to ensure continued financial support and investment flow despite risks caused by Russia’s current focus on the invasion of Ukraine and China’s controversial lending practices.