Dozens of Chinese and Belarusian manufacturers filled a brand new exhibition centre located at the heart of the Great Stone Industrial Park in July 2019 to attend the first Belt and Road Forum for Regional Co-operation and Development. After listening to authorities from both countries outlining the opportunities for co-operation between the two countries, they signed dozens of agreements to fill up the numerous industrial plots that cover a total area of 91.5 square kilometres around the exhibition centre.

First envisioned back in 2010, Great Stone Industrial Park, located 25 kilometres outside capital city Minsk, is shaping up as a key European link in China’s Belt and Road Initiative (BRI). Set up under a special economic zone (SEZ) regime, Belarus's industrial parks offer Chinese companies viable business environments to find partners and set up operations locally.

A few dozen companies are already active at Great Stone Industrial Park, featuring, among others, global Chinese names such as telecommunications companies Huawei and ZTE, holding company China Merchants and diesel producer Weichai, which has teamed up with one of the most well-known Belarusian brands, heavy-duty vehicle manufacturer MAZ, to produce diesel engines and gearboxes inside the Great Stone Industrial Park.

Phase one

“Great Stone Industrial Park is an ambitious project,” says Kirill Koroteev, first deputy general director at the park, as he looks out from his office to a hotel and other new buildings in the immediate foreground.

“We’re in phase one at the moment, but when the whole park is completed in the 2060s, according to the masterplan, the territory of the park [will cover] 112.4 square kilometres. Since we started the project in 2012, we’ve been positioning ourselves as the city of the future. In addition to the traditional business and industrial areas, residential and recreational areas are in the pipeline. In fact, the first residents will be moving into apartments in phase one later in 2019.”

Mr Koroteev explains that Great Stone’s model is different from the traditional free economic zones in Belarus. “We’ve used a public-private partnership model, and our shareholders are major Chinese partners and one German partner, reflecting our position on the Belt and Road linking China with Germany,” he says. 

“We’ve spent a lot of money on infrastructure already – the roads, water, sewerage and electricity are all here – so it’s easy for investors to come in and connect. Development of the park [has driven] the development of Minsk airport, including upgrading the runway so it is capable of handling bigger aircraft, which in turn is cutting the time it takes to fly from Minsk to China.

“We now have 56 companies resident in the park and their investment totals $1.1bn,” adds Mr Koroteev. “Our focus is on export-oriented companies that are attracted to us because of our location at the junction of the EU and the Eurasian Economic Union [EAEU]. Goods made in the industrial park can be freely imported into any of the EAEU countries – a market of 183 million customers – without any customs duties, customs borders and other barriers. Additionally, a visa-free regime is applied to park visitors.

“We have a one-stop shop to help with the process of setting up a business here, covering everything from company registration, permits and maintenance agreements to lease or purchase agreements and other administrative services. Additionally, any legal entity can be created within one day.”

Mr Koroteev says companies can buy or lease any plot connected to the necessary infrastructure as well as standard manufacturing plant, buildings and offices. “We find that companies from the west tend to prefer to purchase the plot but those from the east tend to prefer to lease,” he says.

Links in the BRI chain

Such projects have sprung up across BRI corridors in the past few years, widening its scope and eventually enabling more Chinese FDI into the host countries, as opposed to an initial phase characterised by much-needed, but often debt-loaded, infrastructure developments that have raised concerns over financial sustainability. “These industrial zones are an extension of more typical BRI infrastructure projects,” says Richard Bolwijn, head of investment research at Unctad.

“First, Chinese companies come in and develop the infrastructure of the industrial zones. Once the industrial park is ready [and the SEZ regime and incentives are in place], host countries hope to gain access to Chinese manufacturers and thus get hooked to global value chains. These zones have a lower debt burden than more traditional infrastructure projects and put the host countries in a position to attract more equity investment.”

According to figures from China’s Ministry of Commerce republished by the World Bank in a recent report on the economics of the BRI, Chinese companies had developed some 75 industrial parks under an SEZ regime in 24 BRI countries as of October 2017, about four years after Chinese president Xi Jinping first referenced his vision of a new Silk Road in a speech in Kazakhstan.

“Many countries are looking at these SEZs as the next stage of the BRI,” says Henry Tillman, founder and CEO of China Investment Research, a firm that tracks Chinese outbound investment. “There were only 13 of these projects in 2015. Now there are dozens, and some of them are enormous.”

Mixed results

Chinese-sponsored SEZs in BRI corridors often bring with them great ambitions in terms of industrial development and Chinese direct investment, giving authorities in host countries political capital to spend to sell these projects to their citizens. However, evidence regarding their performance is rare and mostly anecdotal (as is often the case with SEZs in general).

According to the World Bank, there are some are good performers, which include Long Jiang Industrial Park (in Vietnam), Sino-Thai Rayong Industrial Park (Thailand), Karawang Industrial New City (Indonesia), China–Egypt TEDA Suez Economic and Trade Co-operation Zone (Egypt), and the Central European Trade and Logistics Co-operation Zone (Hungary).

“A common factor [of success] is the sound infrastructure and strong connectivity in the zones and surrounding areas. Other key factors include a stable and conducive macro environment, proper planning and industrial positioning based on local comparative advantages, the availability of skills, and a market-based sustainable business model,” says the World Bank report. 

On the other hand, “lagging zones face challenges regarding poor infrastructure or connectivity, risky macro-economic and business environments, a lack of commitment and support from the host governments, a shortage of skills, difficulty in raising capital, and lack of operational experience and a sustainable business model”, the report adds. These are all factors that one way or another have hampered the development of other SEZs such as the China-Lao Mohan-Boten Economic Co-operation Zone, or the Sino-Kazakhstan Khorgos International Border Co-operation Centre.

Great Stone Industrial Park is only now taking its first steps towards the 130,000-people smart city and industrial cluster that policymakers are envisioning it will become. The total number of resident companies climbed to 56 in July, and its brand new exhibition centre, alongside an equally new business centre occupied by China Merchants just across the road, are a testament to the park's rapid progress.

So far, companies have invested some $60m in Great Stone, according to figures reported by Chinese state news agency Xinhua, and there is still a lot of room for new investment. Back in 2013, the Chinese embassy in Belarus estimated that total Chinese FDI into the park would be between $2bn and $5bn in a best-case scenario – in addition to the $2bn needed to bring the park infrastructure to full capacity. 

The politics of FDI

While Great Stone's progress may appear to be a little slower than some had envisaged, the political element behind it should guarantee its long-term success. “The Great Stone Industrial Park possesses symbolic value as a project supported by the Chinese president, and it is unlikely that Beijing would ever let Great Stone flounder,” Jacob Mardell, a researcher at Berlin-based think tank Mercator Institute for China Studies, wrote in April. “The park has been slow to prove itself, but Great Stone’s journey has just begun and it has a powerful guarantor on the road ahead.”

However, the nature of investment from China is being viewed differently by some. “We think it’s time to evolve our co-operation,” Belarus finance minister Maksim Yermolovich told fDi Magazine in January.

“In the previous stage we had a co-operation where China was acting as a creditor of the country, providing credit lines to our companies and the budget to finance special projects through the Export-Import Bank of China and China Development Bank. Now we want to change the scheme of such investments, which should now come in the form of FDI. The main idea is that Chinese investors will be bearing some of the risks of these investments. This is a significant change in paradigm.”

The aims of China and host countries appear to be aligned, particularly when it comes to the success of industrial parks scattered along BRI corridors. But for a real shift from debt to FDI, BRI industrial parks must also be fertile grounds for Chinese companies to develop successful business operations. Political support may mitigate the risks, but long-term success will eventually hinge on the parks’ ability to compete within the global market.