UPDATE 1-China boosts CIS role with $1 bln Belarus deal

Tue Jun 14, 2011 7:46am EDT

Related Topics

* Chinese banks to finance cellulose plant project

* Belarus wants to repay loan by exporting produce to China

* Beijing boosting presence in ex-Soviet commodities sector

* Minsk is seeking IMF bailout loan

(Writes through context, background)

By Andrei Makhovsky

MINSK, June 14 (Reuters) - China boosted its presence in the ex-Soviet bloc's commodities sector on Tuesday by lending over $1 billion to Belarus just a day after signing two large deals in Kazakhstan, another former Soviet republic.

A bulk of funds provided to Belarus will be used to build a cellulose plant which may then export its produce to China, the Belarussian government said, while Monday's Kazakh deals included a loan to a major copper producer.

The two large investments in countries flanking Russia to the east and the west marked the beginning of Chinese President Hu Jintao's tour across the region during which he is visiting Kazakhstan, Russia and Ukraine.

And for Belarus, whose government is struggling to keep a currency crisis in check, deals with China provide not only much-needed investment, but also an important counterbalance to Moscow's growing influence.

CELLULOSE PLANT

Chinese banks will lend Belarus over $1 billion to finance industrial and infrastructure projects, the Belarussian government said on Tuesday.

The deal is likely to be linked to supplies of Chinese goods and services and thus contribute very little towards Belarus's efforts to plug its large current account deficit.

But the investments could help the Minsk government prop up economic activity at a time when it is cutting spending and tightening monetary policy.

China's Eximbank and the Industrial and Commercial Bank of China will provide $654 million towards a $700 million cellulose plant construction project as well as $340 million for a road improvement project, Deputy Prime Minister Anatoly Tozik said.

The banks will also finance a smaller railroad electrification project, he said.

The plant, due to be built in two years, will have the capacity to produce 400,000 tonnes per year of bleached cellulose, used in paper and cardboard production. Belarus consumes just 200,000 tonnes a year.

"We are discussing the possibility of repaying the loan by supplying extra cellulose to China," Tozik said.

Urbanisation and the rise of China's middle class is fuelling demand for tissue and toilet paper and driving global growth in the sector. [ID:nL3E7DB18K]

KAZAKH COPPER

Resource-hungry China has already been competing with Russia on Moscow's ex-Soviet home turf for almost a decade but has so far focused on Central Asia, where Beijing has invested heavily in oil, gas and metals sectors.

This week, Beijing signed a currency swap deal worth $1 billion with its Central Asian neighbour Kazakhstan and agreed a $1.5 billion loan to Kazakh copper miner Kazakhmys (KAZ.L) [ID:nLDE75C1BU].

The deals were signed during Hu's visit to Kazakhstan, part of a tour that will also take him to Russia and Ukraine, though not to Belarus.

For Minsk, the Chinese money could provide a much-needed replacement for government loans that have been fuelling economic growth so far.

Belarus devalued its rouble BYR= by 36 percent last month after losing a quarter of its foreign currency reserves this year due to excessive pre-election public spending in 2010 by the government of President Alexander Lukashenko.

It has since pledged to halve its budget deficit and sell off state assets in order to secure a $3 billion loan programme from a Russian-led regional bailout fund. Minsk is also seeking an IMF loan of up to $8 billion. (Reporting by Andrei Makhovsky; Writing by Olzhas Auyezov; Editing by Ron Askew)

FILED UNDER: