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The EU on granting China market economy status: a compromise or a dodge?

Author(s): Jakub Jakóbowski,Marcin Kaczmarski / Language(s): English

China joined the World Trade Organisation (WTO) in 2001 as an economy which was undergoing transformation and did not yet have market economy status (MES). This enabled other WTO members, including the European Union, to be more flexible in imposing anti-dumping tariffs on Chinese exporters. China’s accession protocol provides for the elimination of one of the anti-dumping procedures after 15 years, i.e. in December 2016. The upcoming changes have fuelled a dispute in Europe regarding the interpretation of the conditions of China’s accession to the WTO and the future of trade relations between the EU and China.

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Green economy or coal ‘counter-revolution’? Challenges to China’s economic reform process

Author(s): Jakub Jakóbowski / Language(s): English

The so-called ‘energy revolution’ has been one of the priority reforms in the agenda of President Xi Jinping. It is one part of the deep restructuring of the Chinese economy, and represents a move away from the investment-based model. The slowdown of economic growth and the rising importance of the problem of environmental pollution have led to a redefinition of the role of coal in Chinese economic policy. The share of coal in energy consumption is expected to decrease gradually, and coal-fired power plants are expected to lose importance and give ground to renewable and nuclear energy. This trend is expected to be boosted by the restructuring and reduction of heavy industry which the government intends to carry out. The situation of the Chinese coal sector will also change as a result of the ongoing price reform, which aims to reduce the level of energy intensity and increase the efficiency of the sector’s operations by introducing deregulation in the field of electricity distribution and transmission.

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Business under supervision – pathologies serving the system of power in Russia

Author(s): Maria Domańska,Piotr Żochowski / Language(s): English

The relations between Russia’s authorities and business circles are subordinated not so much to rational economic calculations as to the interests of political elites. The key interest in this case is maintaining the current model of government. The formal and informal supervision of business by law enforcement agencies is an important element of Russia’s economic reality. Despite the rhetoric of high-ranking officials, intended to suggest that the state is taking care of businesspeople’s interests, it is evident that there is no will to devise a systemic solution to the most urgent problems, including the state institutions’ disrespect for the rights of ownership.

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Combating corruption in Ukraine – awaiting the results

Author(s): Piotr Żochowski,Marta Jaroszewicz / Language(s): English

Systemic corruption has been the dominant problem of an independent Ukraine for more than two decades. The takeover of the state by a political-business group led by Viktor Yanukovych had been one of the principal causes for large-scale street protests during the Revolution of Dignity. Following the 2014 power shift, slogans calling for combating corruption and cleaning up the elites have featured among the most important priorities announced by President Petro Poroshenko and two consecutive prime ministers – Arseniy Yatsenyuk and Volodymyr Groysman. Moreover, the fight against corruption remains the West’s main condition to support Ukraine.

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Great expectations: LNG on the European gas market

Author(s): Agata Loskot-Strachota / Language(s): English

The first shipment from the Sabine Pass terminal on 24 February 2016 marked the beginning of US liquefied natural gas (LNG) exports. Two large Australian terminals also commenced operation in the first quarter of this year. LNG is becoming increasingly available on the global markets. By 2020 the new export infrastructure, located above all in Australia and the United States, is expected to boost the global potential of LNG exports by 40%. The presence of new players and the increased volumes of gas available on the market will most likely lead to an evolution of the rules of LNG trade: contracts will become more flexible, and price formulas will be changed.

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The consequences of the Western financial sanctions on the Russian economy

Author(s): Maria Domańska,Szymon Kardaś / Language(s): English

Although they are not the deciding factor, the Western financial sanctions are nevertheless an important factor affecting the deteriorating economic situation in Russia. They have significantly undermined the opportunities which Russian companies have to attract foreign capital, thus contributing to the deterioration of their financial condition (which is particularly prominent in the case of energy firms subject to sanctions). Therefore, Russian businesses need more support from the state. However, this support is becoming more difficult due to the dramatic fall in oil prices – revenues from oil exports are the main source of budget revenue.

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How to get out of the crisis without reforms? The Belarusian authorities confront growing economic problems

Author(s): Kamil Kłysiński / Language(s): English

2015 saw a drop in Belarus’s GDP for the first time in almost 20 years, which is primarily the result of a significant reduction in levels of production and export. As a consequence, there was also a serious depletion of the country’s foreign exchange reserves, as well as a progressive weakening of the Belarusian rouble. The macroeconomic figures from January and February 2016 show that these trends are not only continuing, but they are also becoming even more severe, which confirms that Belarus now finds itself in a prolonged economic crisis. On one hand, the reason for this state of affairs is the protracted economic recession in Russia, which is Belarus’s main economic partner, together with the drastic global decline in prices for fuel, which is a key Belarusian export. On the other hand, meanwhile, an equally important reason for the current crisis is the failure of the Belarusian economic model. President Aleksandr Lukashenko, out of fear that his authoritarian system of government will be dismantled and that public discontent will rise, has categorically rejected the proposals for even partial reforms put forward by some of his entourage, who are aware of the need for the immediate transformation of the country’s anachronistic and very costly economic model, based as it still is on quasi-Soviet management policies.

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The Eurasian Economic Union: a time of crisis

Author(s): Jan Strzelecki / Language(s): English

The Eurasian Economic Union (EaEU), a project forced through by Russia which links it to Kazakhstan, Belarus, Armenia and Kyrgyzstan, is currently struggling with serious problems. The economic crisis in Russia – mainly caused by the fall in the price of oil on world markets and exacerbated by sanctions imposed by Western countries in connection with the Ukraine conflict – is affecting these uncompetitive post-Soviet economies which are dependent on Russia. This has resulted in increased economic and political tension among the members of the EaEU. From Russia’s point of view, however, the EaEU project remains useful, because it is not economic integration that is Moscow’s priority. The Union remains its most important instrument for implementing the Kremlin’s geo-political objectives, in particular maintaining its sphere of influence and preventing post-Soviet countries from integrating with the West, as well as restricting their rapprochement with China. Moscow is pushing for the EaEU to include new countries, strengthening its tools for political dominance within the Union, and promoting its project on the international stage. However, the future of this project will depend on both the continued determination of the Kremlin, and whether the other countries can change the rules for integration by taking advantage of the current crisis.

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China’s foreign direct investments within the ‘16+1’ cooperation formula: strategy, institutions, results

Author(s): Jakub Jakóbowski / Language(s): English

The ‘16+1’ formula of cooperation between the countries of Central and Eastern Europe (CEE) and China was launched in 2012. One of its priorities involved increasing the inflow of China’s foreign direct investments (FDI) to the region. China has been interested in carrying out investments which are likely to help Chinese companies gain competitive advantage in areas such as advanced technologies, recognizable brands and distribution channels. The following sectors were identified as areas of priority importance in CEE: construction and modernisation of transport infrastructure, including motorways; development of the network of railways, airports and sea ports; energy, in particular renewable sources of energy and nuclear energy; companies trading in commodities; the food production sector. China’s strategy mainly involves purchasing existing companies, preceded by cherry picking the most favourable candidates for investment, rather than making large greenfield investments.

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A partial success of trade cooperation within the ‘16+1’ formula: the case of food exports to China

Author(s): Jakub Jakóbowski / Language(s): English

When in 2012 China approached the countries of Central and Eastern Europe (CEE) with a proposal of cooperation in the ‘16+1’ formula, it declared it was willing to meet the needs of CEE countries. Beijing had been aware of the political importance of the problem of trade deficit (which has been ongoing for years) and launched cooperation with the governments of 16 CEE countries to boost imports from these states. The years 2011–2014 brought an improvement in the balance of trade between China and: Hungary, Latvia, the Czech Republic, Romania, Bulgaria and Croatia. The remaining ten CEE countries recorded an increase in their trade deficits. Changes in CEE countries’ balance of trade with China resulted only slightly from political actions. Instead, they were due to the macroeconomic situation and to a deterioration of the debt crisis in the EU which, for example, caused a decline in the import of Chinese goods in some of these countries. Multilateral trade cooperation was successfully developed in the entire region only in the agricultural and food production sector – the area of greatest interest to China. The pace of bilateral cooperation with specific countries varied, with the fastest being Poland, Latvia, Romania, Hungary and Bulgaria. Actions by governments of CEE countries resulted in Chinese market opening up to hundreds of local companies which, in turn, translated into an increase in the volume of foodstuffs sold by ‘the 16’ to China from US$ 137 million in 2011 to US$ 400 million in 2014. The success achieved in the agricultural and food production sector has demonstrated the effectiveness of trade cooperation in the ‘16+1’ formula. It is, however, insufficient to generate a significant improvement of the trade balance. At present, the sector’s share in the total volume of goods sold to China by CEE states is a mere 3.7%, and any reduction of the trade deficit would require long-term and more comprehensive solutions still to be implemented by the governments of individual CEE states.

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Reform #1. Why Ukraine has to reform its gas sector

Author(s): Wojciech Konończuk / Language(s): English

In April 2015, the Ukrainian parliament passed a long-awaited law on the gas sector which paves the way for the extremely difficult process of reforming and de-monopolising the Ukrainian gas sector. The law will come into force on 1 October 2015 and involves the break-up of the state-owned company Naftogaz, the current monopolist, and the gradual creation of a competitive gas market in line with the so-called Third Energy Package. At the same time, a threefold increase in the price of gas paid by individual customers and the public sector was introduced. The price had been subsidised for years and no previous government had ever decided to raise it.The comprehensive reform of the gas sector is one of the most important and most difficult reforms Ukraine has to implement. Its success will be of fundamental importance for the Ukrainian state due to its impact on several major areas of the state’s functioning. Without the marketisation of gas prices and an improvement in Naftogaz’s financial standing (in 2014, the company’s deficit accounted for 7% of Ukraine’s GDP), it will be impossible to reform Ukraine’s public finances to end the long-lasting economic crisis. Without an improvement in Ukraine’s energy efficiency, which currently is one of the world’s lowest, it will be impossible to reduce the country’s dependence on the import of gas. Successful implementation of the reform will also be important in the context of the future of Ukrainian-Russian relations. The question of gas supplies has been one of the major aspects of this relationship since 1991. Another extremely important consequence of the reform will be to eliminate the main source of income from corruption in Ukraine., which has benefited the ruling elite since the 1990s. Corruption seems to be the reason behind the reluctance of all previous governments in Kyiv to reform the gas sector.

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Ukraine on the financial front – the problem of Ukraine’s foreign public debt

Author(s): Rafał Sadowski / Language(s): English

One of the key challenges that Ukraine is facing is the scale of its foreign debt (both public and private). As of 1st April it stood at US$ 126 billion, which is 109.8% of the country’s GDP. Approximately 45% of these financial obligations are short-term, meaning that they must be paid off within a year. Although the value of the debt has fallen by nearly US$ 10 billion since the end of 2014 (due to the private sector paying a part of the liabilities), the debt to GDP ratio has increased due to the recession and the depreciation of the hryvnia. The value of Ukraine’s foreign public debt is also on the rise (including state guarantees); since the beginning of 2015 it has risen from US$ 37.6 billion to US$ 43.6 billion. Ukraine does not currently have the resources to pay off its debt. In this situation a debt restructuring is necessary and this is one of the top priorities for the Ukrainian government as well as for the International Monetary Fund (IMF) and its assistance programme. Without this it will be much more difficult for Ukraine to overcome the economic crisis.

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A captured state? Moldova’s uncertain prospects for modernisation

Author(s): Kamil Całus / Language(s): English

There have been several significant changes on Moldova’s domestic political scene in the wake of the November 2014 parliamentary elections there. Negotiations lasted nearly two months and resulted in the formation of a minority coalition composed of two groupings: the Liberal-Democratic Party (PLDM) and the Democratic Party (PDM). New coalition received unofficial support from the Communist Party (PCRM), which had previously been considered an opposition party. Contrary to their initial announcements, PDLM and PDM did not admit the Liberal Party led by Mihai Ghimpu to power. Moreover, they blocked the nomination for prime minister of the incumbent, Iurie Leancă. Leancă has been perceived by many as an honest politician and a guarantor of reforms. This situation resulted in the political model present in Moldova since 2009 being preserved. In this model the state’s institutions are subordinated to two main oligarch politicians: Vlad Filat (the leader of PLDM) and Vlad Plahotniuc (a billionaire who de facto controls PDM).

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Abkhazia’s ‘creeping’ incorporation. The end of the experiment of a separatist democracy

Author(s): Wojciech Górecki / Language(s): English

On 5 March 2015 a Russian-Abkhazian treaty on alliance and strategic partnership came into effect; it had been signed on 24 November 2014. In fact, the treaty provides a “roadmap” for the incorporation of Abkhazia into the Russian area of defence and economic and social affairs: as soon as the transition periods defined in the treaty expire, Russian standards and legal regulations will be rolled out in these areas. Despite maintaining the formal status of the Abkhazian government institutions and attributes of statehood (which, however, is a fact of minor importance, as Abkhazia is not internationally recognised as a state), the treaty’s entry into force will de facto bring the current model of functioning of this para-state to an end.

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The New Silk Road: a versatile instrument in China’s policy

Author(s): Marcin Kaczmarski / Language(s): English

The Chinese leader Xi Jinping presented the concept of the New Silk Road – a collection of land and maritime routes –in autumn 2013. Initially, it envisaged the creation of a network of infrastructural connections, mainly transport corridors, between China and its most important economic partner—Europe. The concept grew in importance throughout 2014 to become the key instrument of China’s foreign policy, especially in the areas of public diplomacy and soft power. Towards the end of 2014, the Chinese government announced it would establish a Silk Road Fund worth US$40 billion.The New Silk Road idea is a flexible formula used by China in its dialogue with many other countries. Its inclusive nature helps contribute to diluting the negative impression caused by China’s rapid economic expansion and assertiveness in foreign policy, especially with regard to its neighbours. The process of implementing the New Silk Road concept will allow China to expand its influence within its neighbourhood: in Central and South-Eastern Asia. The New Silk Road will be an alternative point of reference to the US dominance and Russian integration projects in these regions. The concept will legitimise and facilitate the growth of China’s influence in the transit countries on the route to Western Europe, i.e. in the Middle East (Arab countries, Israel and Turkey, the Horn of Africa and Central Europe (the Balkans and the Visegrad Group countries). This concept is also essential for China’s domestic policy. It has become one of Xi Jinping’s main political projects. It will boost the development of China’s central and western provinces. The fact that the concept is open and not fully defined means that it will be a success regardless of the extent to which it will be implemented in practice. Its flexible nature allows China to continue investments already initiated bilaterally and to present them as components of the New Silk Road concept.

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The Eurasian Economic Union – more political, less economic

Author(s): Aleksandra Jarosiewicz,Ewa Fischer / Language(s): English

The Eurasian Economic Union is undoubtedly the most comprehensive form of economic integration of the post-Soviet countries since the break-up of the Soviet Union. However, the way in which the integration process has been unfolding, as well as Russia's aggressive policy over the last year, are indications that the EEU has become primarily a political project, and the importance of its economic aspects has eroded. This has triggered a change in the way Kazakhstan and Belarus treat the EEU. Initially, the two countries viewed integration as an opportunity for the development of genuine economic co-operation. However, Russia's annexation of Crimea and the conflict in Ukraine have revealed the real significance of the EEU project – as a tool to reinforce Russian influence in the post-Soviet area and isolate the post-Soviet countries from the West and China.

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Russian sanctions against Moldova. Minor effects, major potential

Author(s): Kamil Całus / Language(s): English

Russia has been Moldova’s main trade partner and Russian capital has accounted for a large part of its foreign investments, dominating in the energy and the banking sectors. Moreover, Russia has been a key job market for Moldovan expatriate workers. In the economic sphere, this is making Moldova unilaterally dependent on Russia. Moscow has been attempting to exploit this situation to put pressure on the authorities in Chișinău for quite some time.In recent months Russia has increasingly used instruments for exerting economic pressure on Moldova, as a means of responding to the current authorities’ pro-Western policy. A key element of this policy was Moldova’s signing on 27 June 2014 of the Association Agreement with the EU (which came into force on 1 September 2014). Over the last year, Russia has implemented a number of import restrictions on Moldovan goods. The aim of the Russian actions is to fuel social disappointment, and ultimately – to prevent the pro-European coalition currently in power from winning the parliamentary elections scheduled for 30 November 2014. Another aim might be to convince the Moldovan authorities to suspend the implementation of the Association Agreement – a plan openly put forward by Vladimir Putin during the CIS summit in Minsk on 10 October 2014.

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Russia in Serbia – soft power and hard interests

Author(s): Marta Szpala / Language(s): English

Russian President Vladimir Putin’s visit to Serbia on 16 October has demonstrated Moscow’s willingness to secure its interests in the Balkans and use Belgrade in its confrontation with the West. It seems, however, that Russia does not have much to offer to Serbia’s authorities, which are reluctant to make more concessions towards Russia. However, Moscow has already gained a strong position in Serbia, which is due to the country’s dependence on Russian natural resources and, in particular, strong support for Russian policy on the part of Serbian elites and society. The traditional pro-Russian attitudes have been strengthened as a result of a series of Russia-inspired, wide-ranging soft power initiatives which have proved so successful that a large part of society has begun to believe that Russia’s interests are consistent with Serbia’s.

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Azerbaijan – a growing problem for the West

Author(s): Aleksandra Jarosiewicz / Language(s): English

Azerbaijan’s cooperation with the West, launched two decades ago, has helped it become a relatively strong and ambitious actor on the international stage. It has become a key country in the region from the Western (USA and the EU) and Turkish points of view, as well as an important partner in the energy sector. The strategic EU concept of the Southern Gas Corridor, also supported by the United States, is among the initiatives based on cooperation with Azerbaijan.Surprisingly, however, Azerbaijan’s increased ambition and importance have caused its policy to diverge ever farther from the expectations and plans formulated by the West. The changes in the balance of power in the South Caucasus, occurring in the context of the conflict in Ukraine, have forced Azerbaijan to revise its assessment of its position in the region. The main impetus for Azerbaijan’s actions is fear of Russia, as well as the weakness of the West which has become particularly apparent in the recent stages of the Ukrainian crisis.

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The transformation of agriculture in Ukraine: From collective farms to agroholdings

Author(s): Arkadiusz Sarna / Language(s): English

In recent years, Ukraine’s agriculture has been consistently improving and has been the only part of the country’s economy to buck the recession. According to preliminary estimates, in 2013 agricultural production increased by 13.7% - in contrast to a 4.7% decline in the industrial sector. According to official statistics, Ukraine’s industrial production was up 40% in the final months of 2013 when compared to the same period of 2012. This translated into an unexpected gain in fourth-quarter GDP growth (+3.7%) and prevented an annual drop in GDP. Crop production, and particularly the production of grain, hit a record high: in 2013, Ukraine produced 63 million tonnes of grain, outperforming its best ever harvest of 2011 (56.7 million tonnes). The value of Ukraine’s agricultural and food exports increased from US$4.3 billion in 2005 to US$17.9 billion in 2012, and currently accounts for a quarter of Ukraine’s total exports. Economic forecasts suggest that in the current marketing year (July 2013 - June 2014) Ukraine will sell more than 30 million tonnes of grain to foreign markets, making it the world's second biggest grain exporter, after the United States.

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