The Chinese good intention

Even built on the 65-year historical dialogue tradition between Romania and China, the bilateral trade exchanges and investment intentions of Chinese investors resulting in concrete projects in Romania are still moving in slow motion. The reasons are various, from the unstable predictability and multiple changes of Romanian fiscal and law setting, the multitude of guarantees asked by the Chinese partners, to the lack of a proper bu

2015-10-18 23:34:03 - From the Print Edition

2 Photos

If other countries in Europe spotted the opportunity of large exports of China in Europe and moved towards this objective, Romania is trying to keep the pace, but the concrete projects developed locally are few, sporadic, or the agreements which are signed see multiple amendments and renewals and therefore, portend a tardy start.

A diplomatic standpoint

At the end of September, on the occasion of celebrating the National Day of the People′s Republic of China in Romania, H.E. Xu Feihong, Ambassador of PRC in Bucharest underlined the progress of bilateral exchanges and diplomatic relationship between the two countries; "For more than half a century, regardless of changes in the international and the domestic situation of two states, friendship and cooperation have always been the basis of relations between China and Romania. Just five days after the establishment of the People`s Republic of China, China and Romania established diplomatic relations. At mid-century, Romania exported to China locomotives, cars and assembly lines, providing a strong support in the industrialization in the first phase of the New China. Today, China brings again to Romania, gradually, equipment, technology and capital, adding new vitality to the development of Romanian economy."
"Currently, relations between China and Romania have entered a crucial period of development. Positive progress was registered both in cooperation in energy projects and in bilateral trade and other projects. The ′Belt and Road` initiative proposed by China and the cooperation mechanism between China and Central and Eastern European countries will link China and Romania even closer, as they will have a common destiny. We want to seize this moment to boost cooperation with the Romanian side in all areas so it would deliver results, bringing therefore more benefits to both peoples," added Feihong.

Doing the math in business

In terms of doing business, Romania must bring to the table several improvements so that progress finds its practical and real success in attracting foreign investors, including Chinese companies. According to Gabriel Ghelmegeanu, president of the Romania-China Chamber of Commerce (CCIRC), in order to establish a medium and long term strategy for investments, the companies need to see coherent governmental affairs, which can provide a predictability of law and fiscal environment. "The fiscal system has to be perceived at general and local level. Now, the local fiscal law is in the hands of local authorities and the yearly changes cannot provide for a coherency at this level," Ghelmegeanu told The Diplomat – Bucharest in an interview at the end of September.
However, certain measures look good - the VAT, the special construction tax applied only for agriculture - while other measures have been squeezed into the new Fiscal Code, such as the tax for residential spaces transformed into commercial spaces, the social security contribution (CAS) for all unemployed persons and for all revenues sources. "I don't know if the proper measures will be obliterated by the not-so-opportune measures taken. We shall see this when they are put into practice," said the CCIR president. In his opinion, the main fault of their nomination within the Fiscal Code is related to the tight purpose of the tax collection objective, in the context of large state companies registering losses and debts, in a frenzy of forced bankruptcies.
Aside from the large companies with investments in food production and operation exports activities, the smaller companies are being led by an incorrect law and fiscal system. If a coherent measure system was put into place, it would have to comprise: the development of a railway and highway transport infrastructure to link the main routes in Romania to Western Europe, continuing with Ukraine and Republic of Moldova; the development of an agriculture system, especially irrigation infrastructure and the processing of as much raw products as possible on the local market instead of exporting them - in fewer words, the development of local food industry, according to the CCIRC president. In this context, the effects will mirror the tourism development, coherently structured by specialists in this field, instead of focusing on speculative interests and political reasons.
"The dialogue targeting all these subjects exists, but it has proved to be insufficient," said Ghelmegeanu. The causes reside in two aspects: the private stakeholders who are not particularly the most representative for the business environment. "They do not collaborate at all in order to present pertinent proposals. They offer proposals according to their specific interests and as a result, they are contested by their field fellows. The other downsize is represented by the authorities that choose to convey promises that are not backed up by real possibilities and opportunities. A possible conclusion to balance the equation of the two parties would be for the private sector to really coordinate at the proposal level, following a real dialogue between the associations, Chambers of Commerce and Governmental authorities, instead of organizing meeting without a concrete result and implementation structure," the CCIRC president stated.
Even if previous years brought more frenzied Chinese investment intentions to Romania, the concrete results portrayed in real money are pretty modest. Following data published at the end of July this year, 11,731 Chinese companies were registered in Romania, accounting for only 5.8 per cent within the foreign direct investments (FDI) amount. In this context, China occupies 18th place in the foreign investors ranking in Romania. In terms of figures, 1,018 million lei representing Chinese investment value account for 0.69 per cent of total FDI in Romania. In Euro currency, around 279 million represent 0.72 per cent within the total FDI in Romania.

The concrete projects

In terms of investments, according to CCIRC data, there are companies operating large activities in strategic economy fields, such as Smithfield Romania which contracted a loan of 60 million USD to be used in the development of farms and the increase of meat processing activities. Smithfield is the only company in Romania which exports pork meat to China. Also, the Pirelli group, or the financial institution of Hong Kong – the owner of Ceramica Iasi plant develop significant investments locally. In the energy field, the progress is slowly developing, with initial agreements being cancelled or renewed. For instance, the investments at Mintia have been cancelled, as well as the investments at Halanga. In March 2014, China Power Energy Co Ltd company was expected to agree on building a new thermoelectric power station on the industrial platform of Romag-Termo at Halanga (south-western Romania), with work to start during 2014. In March 2014, a Chinese delegation was in Drobeta-Turnu Severin, western Romania, where they met the managers of the Public Corporation for Nuclear Activity (RAAN), within which the project will develop, and they established the location of the future investment. "The Romanian side suggested several variants of association for building the 290 MW energy group. The Chinese investors are to opt for one of them and prepare the financing sources," a Governmental source told at that time. In this context, the mentioned source also added that the representatives of the company China Power Energy Co Ltd said they were willing to also modernize the infrastructure of the lignite mine in the Husnicioara coalfield, which will supply coal for the functioning of the future thermoelectric power station.
At Rovinari I, the memorandum signed in 2009 was renewed in 2012 and again in 2015, for a new amount of 850 million Euro for 600 MW. Currently, the project is in standby, as the Chinese party asks for guarantees for the invested money, the CCIR president adds. Regarding Cernavoda, since 2013 China General Nuclear Power Corporation is the only investor interested in reactors 3 and 4. The memorandum signed in 2013 will be sent for approval on October 22 within the general shareholder meeting of Nuclearelectrica. "We move as slowly as a snail, but the good thing is that we see at least some progress, otherwise, the reactors risk to become museum artefacts, because, in the absence of the Chinese investors, there is no other chance remaining," said Gabriel Ghelmegeanu.

The European performance

In comparison, Poland plans to become the railway transportation gate for Chinese exports to Europe and they move towards this objective. According to CCIRC data, The Polish state and the Zhengzhou International Hub Chinese company will increase the loading, packaging and depositing capacity for the logistics centre at Malaszewicze, located at the boarder of Poland and Byelorussia. Following this project, the transportation time between China and Germany will cut down from 35-40 days by sea to 11-14 days on the railway. Poland is also the only country of Eastern Europe to affiliate to The Asian Infrastructure Investment Bank (AIIB) – the Chinese correspondent for the World Bank and International Monetary Fund.
Also, the sovereign fund of China - China Investment Corp – acquired properties in France and Belgium, worth 1.3 billion USD in investment, and plans to acquire new properties with 1.4 billion USD – commercial centres, malls, retail parks and other commercial properties. "In conclusion, a comparison between Romania and other European countries is pointless in terms of investment amounts with concrete results," Gabriel Ghelmegeanu told The Diplomat – Bucharest.
On the other hand, in February this year, the China-CEE Investment cooperation Fund, whose majority shareholder is Eximbank China, considered Romania an investment opportunity market in various sectors and discusses its involvement in the field of telecommunication and energy, which may materialize by the end of the year. "In the period which has passed since the opening of the fund we saw a number of projects of which some will materialize at the end of the year in the sector of energy and telecommunications," said Octavian Vidu investment manager for Romania within CEE Equity Partners, the investment consultant of the fund. China-CEE Investment Cooperation is a private equity fund registered in Luxembourg, which has 500 million USD for investments in Central and Eastern Europe. China-Central and Eastern Europe Investment Cooperation Fund intends to contribute to the economic growth of the 16 countries from Central and Eastern Europe. The fund has been active with three investments in Poland and one in Hungary. "We think that Romania lacks capital, as business cannot be built on credit alone", said Vidu. "The value of capital we want to invest is between 20 and 70 million Euro and we expect to have a leveraged buyout type structure, with a credit contribution from commercial banks which should help our capital grow," said the investment manager.

Building image and potential

Following the Romanian Government's objective of attracting and consolidating Chinese capital on the Romanian market, Bucharest hosted a substantial event in mid September meant to improve the image of and the investment potential in Romania. The Department for Foreign Investment, under the authority of the Prime Minister, has organized, in partnership with the Government of the Ningbo Municipality and with the support of the People's Republic of China's Embassy in Bucharest, the China (Ningbo) – Romania Investment Forum, an event dedicated to promoting Romania's competitive advantages before investors and authorities from Ningbo, China. Ningbo is one of the oldest cities in China and has a long-established international port and trading post background. But with the Hangzhou Bridge, the longest trans-oceanic link in the world, Ningbo is now directly connected to Shanghai and already a commercial power. The forum is part of a series of "Ningbo Week" events – EuropaNingbo cooperation week initiated by Ningbo Municipal authorities, which involves bilateral cooperation actions between Europe – Ningbo at the regional level, focusing on Romania, Poland and Bulgaria. The event was attended by representatives of the Chinese business environment but also by high officials from Ningbo Municipality, such as Wang Jianjou, Deputy Mayor of the Government of the Ningbo Municipality, and Chen Xiuzhong, General Director of Ningbo Municipality's Commission for Commerce, and by His Excellency Xu Feihong, the People Republic of China's Ambassador to Romania.
At the forum, two documents were signed, setting the basis of a long-term collaboration between the two parties. The first document is an agreement between the Department of Foreign Investment and Public-Private Partnership and Trade Commission of Ningbo city, and the second document is a letter of intent for an investment, signed between Chinese company Ningbo HuaXiang Electronic and HIB-ROLEM TRIM, German-Romanian company active in automotive parts domain. For Romania, one of the main goals of the forum consists of improving ties between businessmen from Ningbo and Romanian companies, in order for them to develop medium and long-term partnerships.
Within the event, Maricel Popa, Secretary of State within the Economy Ministry, outlined that "the reinvigoration of the former Silk Road is a project of interest for the EU and for the member states of the Black Sea Economic Cooperation Organization. The presence of the Ningbo municipal delegation in Bucharest proves the seriousness with which China treats cooperation with the countries of Central and Eastern Europe in general and with Romania in particular. I am convinced that opportunities for investments and cooperation between the Romanian and Chinese partners can be identified within this forum," Popa stated. He also added that the Economy Ministry is actively promoting Romanian-Chinese collaboration projects in the industrial parks domain and Romania has already signed a memorandum of understanding with the Chinese counterpart ministry on drafting a feasibility study for a mixed technology park.