Moldova considers Chinese investments, wary of Montenegro route | Business | Economic and financial news from a German point of view | DW


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The Moldovan Embassy in Beijing recently presented 20 projects in the post-Soviet republic for potential Chinese investment. Worth a total of $ 1 billion (880 million euros), Moldovan Ambassador to Beijing Dumitru Braghis told Chinese authorities that the key sectors to be seized are medicine, pharmaceuticals, IT, transport, viticulture and agriculture.

Braghis was enthusiastic that his country was a place with a favorable tax system and free economic zones, industrial zones and computer parks. Observers suggest that it is the relative scarcity of a viable regulatory regime and widespread corruption that are more attractive to Chinese companies and authorities wishing to locate near EU markets and diversify away from it. dependence on Africa for raw materials and cheap labor.

President Maia Sandu – a former Harvard-trained World Bank economist – defeated Russian-backed outgoing president Igor Dodon in an election last November for closer ties with the EU. But an ongoing energy conflict with Moscow and the EU’s failure to tie the conditions for political reforms to promises of Moldovan investment funding have pushed the new government to Beijing. China has largely focused on the trade aspects of cooperation.

“Chinese investments represent a macroeconomic opportunity for Moldova, because Beijing is succeeding where the EU and Russia have failed due to geopolitical confrontation,” Michael Lambert, researcher at the Sorbonne in Paris, told DW.

“The presence of Beijing is well accepted both by Russia, because China is a key partner of the Kremlin, and by the EU, because the Brussels policy has yielded little or no results in Moldova over the past decade. So the EU can argue that part of this economic improvement is linked to its European Neighborhood Policy, ”Lambert said.

Beijing and private investors are interested in agricultural resources as China has a demand for products such as wine and meat. “He is also interested in developing competitive businesses such as cognac, grains, tomatoes, honey and textiles, to name a few,” Lambert added.

China Energy would like to sign a cooperation agreement with the Moldovan Ministry of Economy and Infrastructure. For its part, China Sinopharm International Corporation has also expressed its interest in cooperating with a Moldovan company to implement a radiotherapy and chemotherapy development project. Other companies interested in investment opportunities in Moldova are Great Wall Motors, China Overseas Economic Cooperation Corporation, Huawei and the China-Europe Association for Technical and Economic Cooperation, Braghis said.

“In addition, Moldova has an interesting and competitive tax system, similar to that of Georgia and Ukraine, which attracts Chinese companies looking for an economic outpost at the gates of the EU,” said Lambert explained.

Neocolonial?

With wages rising in China, the relocation of Chinese companies to Moldova is an asset, analysts say, as Beijing wants to avoid locating all of its businesses in cheaper countries in Africa and diversify and secure its supply chain.

“China has no military intentions vis-à-vis Moldova and, from a political point of view, it remains focused on Central Asia. and wine which are in great demand in China, ”said Lambert.

But it could also mean that Moldova supplies China with raw materials and low-level processing, while China exports industrial equipment and consumer goods there. Critics say that not only does the production of these goods create few jobs or add little value, but these products are vulnerable to fluctuations in world prices, competition and protectionist policies.

Moldova started negotiations on a Free Trade Agreement (FTA) with Beijing in 2017. In 2015, SOE China Shipping Container Lines launched container transport services in the port of Giurgiulesti. The investment enabled Chisinau to export products abroad, vital as its economy suffered from the Russian embargo on wine imports from Moldova.

Under the previous government led by Pavel Filip, in March 2019, Moldovan authorities and two Chinese companies, China Hyway Group and China Railway Group Limited, were in talks to build 300 kilometers (186 miles) of highway at a cost of 400 million. of dollars. But that remains without result.

Moldova has a landlocked population of around 2.9 million

The dreaded debt trap

But some believe that inviting Chinese investment could leave the former Soviet republic in debt, as the money for the projects would be funded by Chinese bank loans.

The example of Montenegro cannot be ignored. The country says it needs help from the EU to repay a billion dollar Chinese loan for a road project.

EU spokeswoman Ana Pisonero told RFE / RL that Brussels was concerned about “the socio-economic and financial effects that some Chinese investments may have,” as well as the risks of economic imbalances and “dependency. debt”.

China holds around a quarter of Montenegro’s total debt, which reached 103% of GDP in 2020.

Lambert minimizes these alarms. “Moldova’s debt is shrinking with the growing Chinese footprint, as Chinese companies provide more revenue than they absorb,” he said.

In fact, one of the advantages of China’s weak presence in the country is that it is not heavily indebted to Beijing. China had only invested $ 4 million at the end of 2018, far lower than those reported by other post-Soviet states, such as Kyrgyzstan and Tajikistan, which had attracted $ 1.4 billion and $ 1.8 billion respectively. Chinese FDI at the end of 2018.

Moldova mainly depends on Western funding, which has been cheaper and easier to obtain. He received aid of 100 million euros to help deal with the pandemic.

Neither Moscow nor Brussels

“To date, Moldova does not seem able to put pressure on the EU or Russia. However, in the long run, the issue of an exclusive partnership with China rather than with the EU and the Russian-led Eurasian Economic Union could arise, as a partnership with Beijing would be more beneficial than the EU, to which Moldova will never be able to join, and a possible agreement with Moscow, which would not improve Moldova’s economic situation, ”Lambert explained.

Moldova is heavily dependent on Russian gas imports, which Moscow has used as leverage in its relations with Chisinau.

Gazprom said that if unpaid gas bills are not paid and a new contract is not signed by December 1, 2021, the Russian gas giant will shut down gas supply to Moldova.

Since September, Gazprom has reduced its exports to Moldova, with experts estimating that there has been a 35% drop in supply. Gazprom is also demanding repayment of $ 700 million in suspected debt. Gazprom itself is a 50% shareholder in Moldovagaz, Moldova’s gas monopoly.

Moldova was receiving a € 60 million grant from the EU to help it cope with its energy crisis, Sandu said on October 27. But it’s not at all clear whether that will be enough to stop the country from moving further into Beijing’s warm embrace.

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