• Jo Harper

Poland is the first European country to issue sovereign bonds in China

21.09.2016
Poland has become the first European country to issue government bonds on the Chinese market, with the finance ministry issuing three-year bonds worth CNY3bn (about EUR400m) denominated in the Chinese currency.

(Michael Coghlan, CC BY-SA)


„After securing the necessary permission from Chinese regulators, we became the first European country to issue Polish bonds on the Chinese market,” a Polish Finance Ministry statement said. „Emitting bonds on the Chinese market was aimed above all at diversifying our investor base and acquiring financing to cover this year’s loans,” the Finance Ministry added.

The move is seen to open the door to new sources of financing as Poland plans to run record annual deficits starting in 2017, driven mainly by the Law and Justice (PiS) government’s spending plans. Deputy Economy Minister Radoslaw Domagalski told Reuters that Poland is ready to accept large-scale Chinese investment in infrastructure, energy and other sectors.

Central and Eastern Europe has seen a rise in investment from China, as the world’s second-largest economy wants to boost ties, and Warsaw – after Belgrade – is seen as a target for Chinese firms moving into the continent. In 2015 China’s sixth largest private company CEFC bought a stake in Czech airline firm Travel Service, operator of low-cost carrier Smartwings and the second-largest shareholder in Czech Airlines.

Meeting the spending gap

The Polish government said it would raise spending in 2017 to just under an EU-wide limit of 3.0 per cent of GDP. It also cut growth forecasts for central Europe’s largest economy.

The ministry pegged the 2017 deficit at 2.9 per cent of GDP, or PLN59.3bn (EUR137bn). The figure totals around PLN5bn more in deficit spending over 2016, Poland’s Puls Biznesu financial daily reported.

The ministry also reduced its growth estimate for 2017 from 3.9 per cent to 3.6 per cent, with average annual inflation set to hit 1.3 per cent. It also revised its growth forecast for 2016 to 3.4 per cent, down from 3.6 per cent.

The IMF said in July it expected spending to increase „the budget deficit to 2.8 per cent of GDP in 2016 and to over 3 per cent of GDP in 2017,” compared to 2.6 per cent in 2015, before a planned return to fiscal consolidation from 2018. It also said growth would accelerate to 3.7 per cent in 2017 from an estimated 3.5 per cent this year, thanks to „strong private consumption supported by the new child benefit scheme, before moderating over the medium term.”

Chinese interested in LOT?

Meanwhile, Poland is reportedly in talks with investors from China over selling a stake in the state airline LOT. LOT has for years struggled to compete against low-cost competitors like Ryanair and bigger rivals. The state-owned airline was saved from bankruptcy in 2012 thanks to public aid of more than PLN500m (EUR116,4m).

„The previous government has already granted public support for LOT, we cannot grant another and we are looking for an investor,” Deputy Prime Minister Mateusz Morawiecki said in early August. „According to EU law a carrier from outside the EU cannot take over more than 49 per cent of a carrier from the EU, hence we are in talks with potential investors, among others, from China,” he added.

Other deals

In August OSell, a company based in Chongqing and Hong Kong, opened what it said was Europe’s largest cross-border e-commerce park: a 4,300 square meter permanent exhibition hall in Warsaw.

The aim is to make it more convenient for Polish buyers to access the Chinese market and stimulate demand for its manufactured goods. Liu Wenting, the chief executive of OSell, told China Economic Net that there were a number of “pain spots” that Polish buyers of all sizes had to endure if they wanted to do business with Chinese partners.

In another indicator of the Chinese approach, Hong Kong based environmental services provider, China Everbright International Limited in early September completed the acquisition of Polish waste and recycling firm, Novago. The acquisition was worth approximately EUR123m, including an equity purchase price of EUR118m and EUR5m for the land bank. The purchase is also the first Sino-Polish cooperation project China Everbright Group has committed to implementing since President Xi Jinping’s visit to Poland in June 2016.

Trade on the rise

China has a 10-to-1 trade imbalance with Poland, having overtaken Russia as the number two exporter in 2014, and Poland is the largest recipient of Chinese investment in CEE.

Over the past 12 years, the volume of trade between China and Poland has grown sixfold, to a little over USD17bn. Alongside the strengthening of their economic relationship, the two have formed a political bond that is unusual in eastern Europe, a development that became apparent last year when President Xi Jinping called off at Warsaw on his trip to Serbia, which is China’s closest partner in Europe.


Tags


Related articles