*3.3.5 Issue of 'dim sum bonds' in Hong Kong*

From 2006 to 2015, the Hong Kong financial market was more attractive to issuers than the mainland, but with the growth in the number of issues of 'panda bonds', the rates in the two markets began to equalize. In 2015, the SSA Korea Development Bank (with a rating similar to the sovereign) issued three-year 'dim sum bonds' worth 1.38bn Yuan, at 4.2%, while SSA Export Development Canada issued 0.8bn Yuan at 3.53% per annum. The long-term trend of the Chinese Yuan shifting from revaluation to devaluation in 2016 increased the attractiveness of 'panda bonds' in comparison with 'dim sum bonds'. As a result, in 2016, the average rate for 'panda bonds' was 4.3%, and for 'dim sum bonds' it was 4.75% [16].

To enhance the attractiveness of its market, the Hong Kong authorities provide subsidies for the debut issue of 'dim sum bonds'.

Actually, the transition from tied to unrelated loans changes the lender's priorities from microeconomic to macroeconomic risk. To assess Belarusian macro-risks, a Chinese lender uses both the ratings of its own foreign institution in Belarus, and the sovereign credit ratings of international agencies. Interestingly, over the course of time, Belarusian macro-risks have not changed significantly. Back in 2011, according to Chinese embassies, a list of investment risks in Belarus was compiled; it is still relevant today. Among them are regulatory risks - the lack of a clear and real plan for economic development, and the presence of many pilot projects; economic (energy dependence on Russia); political (state interference in economic activities which leads to corruption and increased investment costs); and legal (the law enforcement system is complex and subject to frequent changes) [17].

What has changed in Belarusian macro-risk? What has stimulated the transition of Belarusians and Chinese to unrelated loans? Was it the improvement of the sovereign credit rating in October 2019 from B- (Stable) to B (Stable), the stabilization of the exchange rate, or the reduction of inflation to a single-digit parameter? All these are indicators that bring Belarus' macroeconomic environment closer to the global norm, rather than giving it a competitive advantage. Synchronization of the macroeconomic risks of Belarus and Russia in the context of a common environment of international sanctions, political discussion of integration, and the common correlation of commodity and currency markets, could be one of the most accurate explanations. As a result, for example, international investors began viewing Belarusian Eurobonds as Russian with an additional risk (plus 200–300 basis points). Chinese lenders also look at the possibility of providing unrelated loans to Belarus in the same way: through the prism of Russia and its risks, of which they have better knowledge.

#### **3.4 Transition from credit cooperation to direct investment liaisons**

In September 2016, Belarus' President Aleksandr Lukashenko paid a state visit to China to propose that Chinese Chairman Xi Jinping switch to bilateral cooperation from credit to direct investments. Three years later, the number of new tied credit agreements guaranteed by the government had virtually come to naught, while the volume of Chinese direct investments in Belarus increased. While talking to Aleksandr Lukashenko during a bilateral meeting in Beijing, in April 2019, Xi Jinping noted that China was supporting the transition to investment cooperation. Following the results of 2019, it's possible to conclude that the transition from credit to direct investments cooperation between Belarus and China was realized: the share of Chinese direct investments (against the total volume) to Belarus reached 83% in 2019. In 2018, this figure was 55% and in 2017, it stood at 41%. The remaining share accounted for credit instruments.

While credit and investment cooperation was being established, credit relations were in focus. Accordingly, projects with Chinese direct investments in Belarus were rare: i.e. the Midea-Horizon joint venture producing household appliances, the Volat-Sanjiang joint venture with the Minsk Wheel Truck Plant (MZKT), the Beijing hotel complex and the Lebyazhy residential complex. From 2007 to 2009, Belarus received \$2.6 m of direct investments from China. In 2010, the figure rose to \$28.3 m and, in 2011, it reached \$44.3 m. From 2012 to 2013, \$78 m were registered annually. Apart from reinvesting the existing investors' profits, new projects were registered: i.e. the BelGee Automobile Plant was established jointly by BelAZ and Geely.

#### *Belarus-China: Avoiding the "Debt Trap" DOI: http://dx.doi.org/10.5772/intechopen.96858*

Chinese direct investments were headed to Belarus, in the initial period of their accumulation, for two reasons. The first was a political factor which envisaged the construction of facilities within the framework of implementing agreements reached at top level meetings. The second reason was the Chinese companies' combined implementation of projects involving tied loans and direct investments. For example, CAMCE, which acted as the general contractor for the Svetlogorsk Pulp and Board Mill project, financed by loans from Eximbank of China and ICBC, was also a direct investor in the joint venture of the 'Great Stone' industrial park development. In turn, CUEC oversaw the electrification of the railway and supply of electric locomotives at the expense of loans from Eximbank of China, and then established a company to service its products in Belarus. Similarly, BelGee and the joint venture for the 'Great Stone' industrial park development, at the initial stage of their direct investment, attracted loans from China under the guarantee of the Government of Belarus.

In the new era, the 'Great Stone' industrial park has become the key 'magnet' for attracting Chinese direct investments to Belarus. A joint company was set up to develop the Industrial Park, and, on the launch of the infrastructure, the first residents and direct investors came from China. As a result, in 2014, FDI from China to the Republic of Belarus amounted to \$164.5 m; in 2015, \$77.7 m was registered. From 2016 to 2018, the Industrial Park's territory continued to be worked on, and a greater number of Chinese residents were registered. A shift in the annual flow of Chinese direct investments to an historic maximum of \$190 m was seen in 2018. Regarding the net figures, those investments increased almost 3-fold to \$112 m. In 2019, Chinese direct investment fell slightly to \$141 m, including \$107 m on the net basis, due to the completion of some major projects by Chinese investors, in the Industrial Park and beyond, i.e. Belkali-Migao.

As a result, from 2016 to 2019, Belarus received a total of \$545 m, or more than half (53%) of all Chinese direct investments which came to the country during the period of their accumulation, from 2007 to 2019. China ranked 6th among other countries in terms of FDI to Belarus and was 3rd in net FDI (behind neighboring Russia and offshoring Cyprus).

To the naked eye, the significance and growth of FDI from China in Belarus against other countries seems small. Chinese direct investments in Belarus accounted for only 2.23% of total FDI in 2018 (1.07% in 2015). In addition, in 2017, China directed \$0.11bn of direct investments in Belarus, against \$6.4bn to the US, \$2.7bn to Germany, and \$2bn to the UK. Looking at the relationship of Chinese direct investments to the recipient country's GDP (assuming that FDI mainly depends on the sales market), a different picture is seen. From 2013 to 2015, Chinese direct investments to GDP in Belarus, the United States, Germany, the United Kingdom, and the world as a whole, were at a comparable level: 0.05– 0.07%. From 2016 to 2017, this indicator for all the countries under consideration and the world as a whole, increased to 0.09–0.1%. In 2018, Belarus experienced a significant shift, when the indicator of FDI from China to Belarus' GDP exceeded 0.2%. The relationship of Chinese direct investments to Belarus' GDP can be traced to the period from 2007 to 2015, with a correlation coefficient of 0.82. When adding another period, from 2016 to 2018, this relationship actually disappears, with a coefficient of 0.38, due to the shift in recent years of Chinese direct investments towards the 'Great Stone' industrial park. For example, even in 2017, the share of Chinese direct investments to the Park, against all those received from China, was 23%; in 2018, it reached 42% and, in 2019, 57%. In 2019, five of the ten largest direct Chinese investors in Belarus were residents of the 'Great Stone' industrial park.

The role of the 'Great Stone' industrial park in the transition from bilateral credit cooperation to direct investment cooperation is constantly enhancing and changing and deserves separate analyses.
