Cash-flooded China to loan $1bln to cash-hungry Belarus

China to loan $1bln to Belarus
Belarus, which is going through a serious economic crisis, will receive a helping hand from China. The Asian powerhouse will loan $1 billion in exchange for preferences for Chinese companies in acquiring shares in Belarusian industrial facilities.

Chair of the Chinese Parliament Wu Bangguo, who is visiting Minsk, confirmed the deal on Monday after meeting President Aleksandr Lukashenko. The loan will be transferred in three tranches before the year’s end.

Together with a loan from the Eurasian Economic Community (the economic union of several former Soviet states) will allow Belarus to cover its current budget deficit, Belarusian authorities say.

The initial agreement on the loan was first reported in March 2010, but final terms were settled just recently. Minsk will borrow from the Chinese on favorable terms. The interest rate for the loan is estimated at 3 per cent. In return Chinese investors will receive preferences in buying stakes in Belarus’ oil chemistry assets, reports Rossiyskaya Gazeta. They may get 30 to 40 per cent of shares in several companies, as well as launch at least two new joint ventures, Belarusian Vice Prime Minister Anatly Tozik said.

China is a major investor in the Belarusian economy already. Several joint industrial projects have received some $15 billion from Chinese banks over the last two years alone. Commenting on Beijing’s readiness to give money to Minsk, Wu said the current problems in the country have been caused mostly by foreign factors, including Western sanctions and the consequences of the international financial crisis.

Belarus is suffering from budget deficit due to slumbering demand for its export goods and high welfare spending. The government had to take several painful measures to cope with the difficulties, including the resent liberalization of currency trading, which resulted in the devaluation of the national currency and the savings of its citizens.

China is the world’s biggest holder of currency reserves and is now looking for opportunities to put their money to work all over the globe, from supporting the Italian government to investing into oil extraction in Canada. Over the past two years it poured at least $110 billion into developing countries, more than the World Bank, the Financial Times reported. It wants to safeguard its stashes against a loss of value due to volatile currency markets and the unfolding debt crises in the US and Europe.

However, Beijing complains that some Western countries are using barriers against Chinese investments and failing to undertake reforms which would allow their limping economies to get back on track. China's Premier Wen Jiabao recently called on the West to “put its own house in order”.