Author: Patrycja Pendrakowska is a founder of the Michael Boym Institute of Asian and Global Studies in Warsaw (instytutboyma.org) and PhD Candidate at the University of Warsaw. She graduated o.a. in Sinology, Financial Law and Philosophy at the University of Warsaw. Currently, she is an exchange PhD student at the Free University Berlin, focusing on Hegel’s reception in China.
Bank of China (BoC) has set for itself the goal of „actively serve the three critical battles”, as described by the „The Xi Jingping Thought on Socialism with Chinese Characteristics for a New Era”. What does that mean in practice?
For instance, does it mean the loans granting process performed by BoC has to comply with the guidelines derived from the above-mentioned political thinking?
Certainly, the activities of Bank of China on the Chinese soil are strongly connected with the political aims of the country. Chinese view on the Three Critical Battles was presented among others during the World Economic Forum. According to this principle China is determined to 1) prevent and resolve major risks 2) conduct targeted poverty reduction, and 3) control pollution.
China’s use of commercial and state banks to conduct political projects and realise political aims on the international scale is a hot topic. The character of their work and scope of interest is strictly dependent on the country, in which they are operating. Different approaches and aims are to be targeted in Zambia and Bahrain, and different in Luxemburg.
On the political level, Bank of China, as well as other Chinese banks and companies are present during international meetings and forums such as 17+1 (before 16+1) or BRI. BoC presents itself, as if it could offer a helping hand when a certain company or public institution wanted to invest in infrastructure according to BRI planning. However, in Poland we do not have real BRI investment.
* Which are the fields addressed by the BoC in Poland? Could you also provide examples of projects carried out with BoC funding? For instance, in 2015, Xia Bin, vice-president of BoC Ltd. In Poland, stressed out the bank’s interests with respect to Polish airline and chemical fertilizer companies.
I asked this question to one of the Polish employees of Bank of China and he shared with me an interview he gave to China International Radio, which unfortunately lacked detailed information. In the public sphere Bank of China is present, but it doesn’t share many insights into what are the most important aspects of their work here and how it’s connected to policy in China. It’s important to add, that Warsaw has just a branch of Bank of China and the real decision making center is placed in Luxembourg. According to unofficial information, when Bank of China opened it’s branch in Poland there were theories that a big capital from China will certainly influence Polish market. Actually, the opposite happened. The branch didn’t engage in big investment projects so far, it works rather as a credit giver or credit guarantee in minor or medium size project (in Poland). It works also in the field of real estate offering loans, or guarantees. It has both international, as well as Chinese clients, but it doesn’t play an big role on the Polish market.
During European Economic Congress I had a pleasure to moderate a panel, where director of the Polish branch of Bank of China Xia Bin. Generally, during such events rarely concrete answers and conclusions are given. All in all, 2-3 years ago there were rumors about Chinese financial institutions that would be willing to give loans for the Polish mega-project Central Communication Port, however we don’t know how far did these discussions go and what was their character. Now, partially probably due to the US pressure, Poland cuts itself from Chinese sources of financing regarding Central Communication Port.
* The Chongqing-Xinjiang-Europe railway is an important transport connection between China and Europe, which also crosses Poland. This project has been accompanied by the financial assistance provided by the BoC to various enterprises along its way. How would you assess this freight line was beneficial to Poland? In which ways? For instance, was Poland able to take advantage by increasing its exports to China?
I believe that such investments can be only assessed after many years of operating. We do not know the details of the way certain investments were financed, and if they are sustainable in the long term. In Poland a train connection between Chengdu and Łódź is quite famous, but it still didn’t reach its full capacity. In recent year Poland did increase its export to China, however the trade deficit still widened – so imports were raising higher than export. Overall, Poland would like to transform from the transit country to a target country for Chinese products, in order to get more benefits from services related to logistics.
Generally, the vast majority of products is still exported with maritime ports, as it’s is much cheaper. Still, we lack many data on the issue of Łódź-Chengdu connection. On one side one can hear rumors that the Chinese trains go back empty to China, or that the trains are full. But we do not get a precise answer on what is inside of the containers, and is it economically beneficial, because many companies tend to protect their commercial information. It’s the trade secret of their client’s – they say. There is also one more important issue: let’s not forget that for part of the companies the railway connections work only due to generous subsidies.
* In 2016, BoC and the Polish Ministry of Finance agreed on a panda bonds issuance worth of 455 million USD, within the next 3 years, for which BoC has also been the leading underwriter. Considering the relatively small amount and the short maturity of the issuance, it looks like Poland wasn’t necessarely in the pursuit of a reduction of its national debt, but rather, as put by representatives of BoC, was interested in a „push forward in China Poland bilateral cooperation in the fields of trade and financial”. Please provide a brief assessment on the above.
Generally, 2016 is regarded as the best year for Sino-Polish relations. This is partially due to the signing of strategic comprehensive partnership between Warsaw and Beijing, during Xi’s visit to CEE. Poland looked for a way to deepen cooperation with China. One could claim, that Warsaw was inspired by success of the Western European countries and the benefits they obtained from Chinese investments. Let’s not forget, that Poland generally is on the periphery of Chinese investments, and the Western European countries mostly benefited from Chinese capital, and vice versa. Polish Trade and Investment Agency at that time was also very eager to cooperate with China, MoU’s for high amounts of money were signed, but the effects and follow up was not very clear.
When it comes to panda bonds, it was a team work of Polish public institutions and Chinese banks. Not only Bank of China was engaged in the issue of panda bonds, but also other banks with Chinese origins, including Haitong Securities. The so called panda bonds were 3-year bonds issued in Chinese yuans, for the first time in Europe. Current Polish PM Mateusz Morawiecki, at that time was very proud, that we Poland was the first European country to issue the so called panda bonds. Moreover, there were rumors that Poland would repeat the issue in 2017, however to the very best of my knowledge it finally didn’t happen and the causes are not very clear for me. I would like to speculate too much, but it could have something in common in the slowly occurring political shift in Polish perspective on China.
* The overall picture of financial cooperation between Poland and China also includes, besides the branch of BoC, branches of other Chinese banks, such as Industrial and Commercial Bank of China (which in fact covered the entire Central and Eastern Europe for several years prior to the opening of branches in Vienna and Prague, hence acting as a de facto regional hub) and China Construction Bank. Poland is also present on the map of the Chinese private banks, given the Warsaw-based branch of Haitong Bank. How does Poland manage this consistent presence of Chinese capital, how do the Polish companies know which Chinese bank should address for developing a project or another? Does the Ministry of Finance provides some guidelines?
Basically, not many Polish companies are interested in Chinese banks, as there are other sources of capital. Moreover, their market share is much lower than that of the Polish or other international banks. There are also Japanese banks operating in Poland, i.e. Toyota bank, however they are also not very influential. We must remember that for the most of the Chinese banks present in Poland still Luxemburg is the main decisive body, which builds policy and gives strict recommendations.
Couple of years ago ICBC approached Bank Gospodarstwa Krajowego (public bank) in Poland and tried to build a fund together, but they didn’t succeed. I believe that somewhere in 2017 Americans started pushing Poland to reduce the cooperation with Chinese partners. These were the information I got from Poles engaged in projects in the field of academia, think tank or business.
* Considering the Polish extensive experience in working with Chinese banks, are there any learned lesson worth to be employed by the Romanian business environment?
Generally, I believe it is wise, to ask Chinese institutions concrete questions and push towards a more open way of acting with the local institutions. Bank of China is currently working under SinoCham, which is a Chamber of Commerce funded by China, and it is “Sino-Polish”, but in fact there is only one Polish employer and the whole board consists of Chinese CEO’s of Chinese companies operating in Poland. In this way Chinese are working with the Chinese companies building their knowledge and expertise far from the reach of Polish think tanks and institutions. But let’s not forget, they have every right to operate in this way on the Polish soil, as long as their adhere to our law.
Romanian business environment should push to build Romanian chambers of commerce dedicated to China, especially in Romania, were Romanians themselves play the most important role. Romanian business should be also encouraged to contact Romanian representatives when looking for a mediation in their own Romanian territory. Otherwise, Chinese institutions, companies and banks will fuel Chinese Chambers in Romania, rather than develop Romanian abilities and capabilities. Currently, one could even argue that the Chinese have the biggest share of knowledge about Chinese operations in Poland, not the Polish institutions.
What is the stance of the European Commission, if any, with respect to the financial cooperation with China? Bearing in mind that various commentators accuse China of deploying a “divide et impera” strategy, wouldn’t be beneficial to all the Member States of the EU to grow and embrace a common, mutually beneficial, approach? Should we start by drawing a pros&cons inventory?
I believe that we should embrace a common strategy in the EU towards China. This might be very difficult, especially when a next migration crisis can touch the fragility of EU integrity. In these difficult times, we should cooperate as much as possible to eliminate illiberal influences in the EU and build a common ground for the rule of law and sustainable future. I am not a fan of the ‘divide et impera’ idea, because I believe that China can make a very profitable use of all kinds of institutional deficits in different parts of the world. Especially, when it sees benefits for its own companies– just as it does in Africa or South America. I also don’t believe that it is a secret strategy, it is more about China’s willingness to expand its business opportunities and political influences through diagnosing weak spheres of political and economic systems.