The Chinese story with Uljanik is not unrealistic, American pressure is certain
Author: Branimir Vidmarović
3rd May 2019
On April 25, the CSIC (China Shipbuilding Industry Corporation) website reported on the meeting of Croatian Ambassador Dario Mihelin with CSIC Director Hu Zhongming. The article was about the Belt and Road, "Croatian Shipbuilding Experience", and mutual benefit co-operation, but neither Uljanik nor the investment company's interest were mentioned. In China, silence is often a sign of caution.

Domestic opinions on visits, signed memorandum and perspectives of bilateral co-operation are controversial, from strong exhortation to criticism and deep skepticism. In order to avoid both sides of the critical spectrum and to understand more objectively the possibilities of Chinese cooperation with Croatia, we need to start by clarifying "investments" in the context of Chinese economic activity in Europe.

First, Foreign Direct Investment (FDI). China primarily buys and invests in successful European companies in the most developed countries of Europe. According to FT data, from 2000 to 2016, 23.6% of all Chinese investments (mostly takeovers or purchases of shares) were made in the UK, 18.5% in Germany, 12.7% in Italy and 11, 3% in France. Within 16 plus 1, 95% of all investments were, according to ECFR (2016), Hungary, Poland, Romania, Czech Republic, Bulgaria and Slovakia. In our neighborhood, for example, Serbia and Slovenia stand out. Given the domestic situation and the offer, it is difficult to seriously count on significant acquisitions of Croatian (state) companies, unless the Party introduces a special category of charitable investments. However, the private interest of larger, medium and small companies in the tourism and health tourism sector (eg Kumrovec, Krapinske toplice) or IT is not excluded. For example, China's Zhejiang Jinke bought a billion dollar bucks for the Slovenian mobile video producer Outfit7.

Second, "greenfield" investments. China is poorly practicing this type of direct foreign investment in Europe. Greenfield makes a tiny 3-5% of total direct foreign investment across the EU. On the one hand, this is a political problem because the EU is seeking China's reciprocity in market openness; on the other is economically due to unfavorable labor costs. One of the solutions is to start production at the periphery. In Serbia, Linglong started the construction of a tire factory in Zrenjanin, and the Mei Ta and Minth companies of the automotive parts factory in Barič and Loznica. It is unlikely to be expected that the Chinese production greenfields will spring up in Croatia.

On our occasions for such undertakings, apart from economic market calculations, labor costs, cost-effectiveness and so on, there must also be consolidation of central and local authorities and (preferably) a better history of cooperation with China. But greenfield projects in the field of renewable energy are appealing to China and Croatia has very good conditions for this type of investment. The Norinco company bought the majority stake in Energija Projekt d.d. and should start building a windmill near Senj. In this segment, cooperation can be good.

Third, infrastructure projects. They are the foundation of the Pojas and Way Initiative. As a rule, they are funded by Chinese banks' loans and partly from domestic funds, and may, subject to contract terms, be handed over to China in a concession. The Peljesac Bridge has opened a new model of European-European cooperation with European funding, which is a good modus because it frees Brussels from the fear of the famous debt queues and financial non-transparency.

Fourth, there are real estate and tourism. We do not have to offer China property because we do not have the position, the content or the significance of the leading European and world cities. But this is why tourism cooperation is growing. In 2018, 216 thousand Chinese people visited Croatia. For comparison, in 2014 there were only 61,000. The growth area has to be established if a direct airline is established and domestic tourism is adapted to Chinese demands and habits. I primarily think of card payments and other non-cash forms of payment, the Chinese language in hotels, catering facilities and public space, etc. The interest of private Chinese business owners was also highlighted during a recent visit by Li Keqiang to Croatia.

When we consider the motives of China to build the Rijeka-Zagreb railway, we often look at the problem only from the political or economic angle. We believe that China is guided solely by neo-colonial, expansive motives. Or we think it is highly capitalist-oriented, and that gross economic feasibility dictates everything else. In fact, it is a mix of everything: economics, politics, long-term strategic calculus, security, internal struggle of the elite, debt settlement, domestic market development and social stability. The ratio of these components and the decision-making process is always hidden, so we instinctively try to simplify and lean into some of our understandable (logical) explanations.

What we know is that there are at least three key factors behind Chinese infrastructure projects: a) Preservation of employment - Chinese companies import their workers who make about 70-80, sometimes more than the total workforce on a foreign project; b) domestic production and production surpluses - China exports most of its materials and constructions. Too large the production of steel and iron, which is still tormenting the Chinese-and thus the global market. Infrastructure Projects The Bays and Times are one of the ways to exploit these surpluses and c) the internationalization of the Chinese Renminbi or Yuan. In 2016, RMB joined the IMF basket with a special drawing rights. Beijing promotes trade in its currency.

Russia, Angola and Saudi Arabia show cautious interest in selling oil to yuana. The Chinese and Turkish National Bank have already experienced the experience of the lira-RMB swap in the bilateral investment agreement. Last year, China and Pakistan signed an agreement on the use of the yuan in bilateral trade. According to SWIFT data, the Chinese yuan currently makes a miserable 1.61% of international payments and the Chinese government is seriously wishing to expand the domestic currency application through the Pajas and Way. Therefore, the lowway has a chance, despite the seemingly critical economic importance. That's why we can think of other projects-stadiums, roads, bridges, and the like.

Now, let's go back to Uljanik. Regardless of the financial position of the company, China has experience with the company's buying in huge debts. The Chinese company, Zijin Mining, bought a copper producer RTB Bor in Serbia for over one billion dollars in debt. The media reported that Zijin repayed $ 200 million in just one day, and today's debt - some of them - are fully paid. About 5000 jobs have been saved. However, China has decided to invest in the wider sector and has also bought Železara Smederevo, one of the leading export companies in Serbia.

In other words, a positive scenario for Uljanik is hypothetically possible, regardless of its bad state. Naturally, we must be aware that Uljanik de-facto has no more market and no customers for its products. What is the benefit of Uljanik in today's form and condition? Even though it was the project Pojas i Put, Uljanik would have had the weakest links in the series without any radical moves and huge additional investments. If decided, China will definitely set its own terms. We can not know exactly which, but they may be looking for financial concessions, tax exemptions. Insist that Uljanik be delivered in bundled with something else, at the best possible price, even below the market. Or you may insist that downloading Uljanik is a guarantee of some other business or acquisition. However, Uljanik would have been restructured, turned into something completely different, or attached to a part of a larger enterprise.

But if that is achieved, Croatia will be under the umbrella or the crash of criticism of the United States because the government of China tries to merge CSIC with CSSC, and the latter besides civilian shipbuilding deals and defensive and possessing shipyards where destroyers and fighter aircraft are being built. And if even the Chinese do not find the grain of interest in Uljanik, then it's hard for anyone to want this shipyard.

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