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The Warsaw Voice » Business » February 23, 2012
Business & Economy
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Poland Courts Chinese Business
February 23, 2012   
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Polish President Bronisław Komorowski’s December visit to China has opened new prospects for Polish-Chinese economic cooperation.

China, which recently became the second largest economy in the world, is seen today as a highly desirable business partner. Companies from around the world are seeking to enter the Chinese market, and the governments of many countries, turning a blind eye to the “imperfections” of the Chinese political system, are trying to encourage the Chinese to invest in their economies. The Polish authorities have also been declaring for years that they are interested in developing cooperation with China, but Polish-Chinese economic relations leave much to be desired. The pattern of trade has gradually changed in China’s favor over the years, reducing Poland to the role of a provider of raw materials and positioning China as a country exporting value-added products. As a result, Poland is struggling with a huge deficit in trade with China; in 2010 the deficit amounted to $14.8 billion.

The difficulties encountered by Polish companies in exporting goods to China are illustrated by a comparison of the number of exporters from Poland to China to the number of importers of goods from China to Poland: around 1,500 companies versus almost 19,000 firms. However, there is no denying that China has a much wider—and above all, cheaper—range of goods when it comes to exports.

Chinese investment in Poland is not very impressive for the time being. Chinese companies carry out their investment projects in Poland chiefly by setting up subsidiaries in this country or by entering into joint-venture deals with Polish firms. It is estimated that Chinese companies have invested no more than $250 million or so in Poland so far. However, there are many indications that in the near future Chinese businesses operating on the Polish market will cease to be associated with the retail sector only.

Global players
In recent years, Chinese firms have started to turn into global players, which is reflected in their growing eagerness to make large-scale investments outside China. The main direction for the expansion of Chinese firms is Asia, but Europe—especially European Union countries—ranks just behind. Poland, which stands out in terms of economic performance, is increasingly expected to attract more Chinese investment. There is every indication that Chinese investment in Poland will grow rapidly in the coming years as this country becomes increasingly attractive to investors. International institutions agree that, thanks to its strong economic performance, Poland is already one of the most attractive investment destinations in the world.

An 11-point document on strategic partnership with China signed by President Komorowski during his December visit to Beijing could prove to be a milestone in the development of Polish-Chinese business ties. With this document signed, Poland became the seventh European Union country to have relations with the Middle Kingdom at this level. President Komorowski expressed his satisfaction with the elevation of Polish-Chinese relations to the level of strategic partnership. He said the existence of “vibrant economic cooperation and potential opportunities for the future is demonstrated by a number of agreements and letters of intent” signed by Poland and China during investment and business meetings held in Shanghai and Beijing earlier.

Among the agreements signed at the Polish-Chinese Business Forum in December was a several-billion-dollar deal clinched by Polish company KGHM for the supply of copper to China Minmetals. KGHM will sell the Chinese its main product, copper cathode, delivering 100,000 metric tons per year. This will mean $700 million in annual revenue for the Polish company. Another document signed at the meeting was a memorandum on the sale of the civilian part of Poland’s Huta Stalowa Wola factory to China’s Guangxi LiuGong Machinery, one of the 500 largest industrial enterprises in China with an annual output of 60,000 machines.

Banks moving in
During the visit, the partners also discussed the purchase of Polish government bonds by the Chinese government, and plans by two Chinese banks, ICBC and the Bank of China, to open branches in Poland. The two banks have already applied to Poland’s Financial Supervision Commission concerning this matter. Both already have branches in Europe. The Bank of China is the fourth largest bank in the Middle Kingdom. The Industrial and Commercial Bank of China (ICBC), on the other hand, is the largest bank in the world in terms of assets. ICBC has assets of over $2 trillion. This is roughly 10 times more than the combined assets of all banks in Poland. It is unclear for the time being what kind of services the two banks will offer on the Polish market. ICBC has declared an intention to focus on supporting Chinese companies active in Poland as well as Polish entrepreneurs interested in launching operations in the Middle Kingdom.

Polish jewelry maker Kruk is among companies that are expected to benefit from the impending revival of Polish-Chinese cooperation. Kruk plans to open a chain of stores in the Middle Kingdom to take advantage of the popularity of amber in the Chinese jewelry industry. The company plans to conquer the Chinese market with its own elegant products. Kruk inked a deal on the matter with a Chinese partner from the jewelry making industry at the December forum.

Polish Treasury Ministry officials, in turn, invited the Chinese to join in the privatization of LOT Polish Airlines. For now LOT has signed a letter of intent with Air China on direct flights on the Warsaw-Beijing route. In the near future, such connections will also be launched with other Chinese cities, including Shanghai. Warsaw’s ambition is to become the main air hub in Eastern Europe for flights to and from China. Resuming direct flights to Beijing is key to bilateral business ties. In 2011, a total of 40,000 people flew from China to Poland, and twice as many from Poland to the Middle Kingdom.

The growing interest in Polish-Chinese cooperation is exemplified by a recent agreement signed between the Pomeranian Special Economic Zone (PSSE) in northern Poland and the city of Zhuhai in Guangdong province, on the development of cooperation between the ports of Pomerania and the Chinese port of Gaolan. “We will provide logistic support and consultancy, including training, for Polish and Chinese exporters. The Zhuhai city authorities, on the other hand, have declared an intention to expand the port and build a logistic center,” said PSSE CEO Teresa Kamińska. “We also promised to launch a logistics center in Pomerania,” she added.

The Chinese are keen to attract Polish investors from sectors such as food processing, biotechnology and health, and they are also interested in exchanging technology. Through logistics centers, they will be looking at opportunities to enter the market with their investment projects.

Recently the Polish media reported a plan by a consortium of Chinese companies to invest zl.15 billion in the construction of coal-fired units in Polish power plants. Chinese companies have business proposals not only for Polish power plants; they are also ready to invest about zl.20 billion in infrastructure. All this means that Poland’s relations with China need to be intensified, experts say. To this end, the Polish Information and Foreign Investment Agency (PAIiIZ) has set up a special Center for Polish-Chinese Cooperation; the center will operate in both countries.
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