Weekly Briefing, Vol. 56. No. 2 (PL) November 2022
Polish – Chinese economic relations
Summary
China is the second exporter of goods to the Polish market after Germany. In 2021 Poland and China recorded record trade turnover. This includes both exports and imports. China Customs reported that the value of trade between Poland and China amounted to more than $42 billion in 2021.This is an increase of as much as 35.7 percent relative to 2020. [i] There is no indication that this trend of trade growth, despite geopolitical tensions, is about to stop. However, Polish-Chinese trade is very asymmetrical. Last year, Poland recorded a record trade deficit with China. Polish authorities and entrepreneurs draw attention to the need to increase China’s openness to Polish goods, especially from the agro-food sector. The China International Import Expo (CIIE is an ideal place to present Polish export offer.
Introduction
Poland and China trade turnover are growing (at the same time imports and export of goods from China). Exports from Poland to China amounted to 2021. 5.5 billion dollars, up 28.3 percent compared to 2020. At the same time, imports from China to Poland reached 36.6 billion dollars. This is an even greater increase of almost 37 percent. This was not hindered by the SARS-Cov-2 epidemic, although it disrupted the supply cycle. In 2021, more than 30 Polish companies, mainly in the food, cosmetics and technology sectors, participated in the China International Import Expo. Six Polish companies from the modern technology industry participated in December Hi-Tech Fair in Shenzhen. Some of them already have their distributors and partners on the Chinese market [ii] According to the Polish Investment and Trade Agency (PAIH), Poland took a part in CIIE online this year, creating a virtual national pavilion and presenting the strengths of Polish business and individual sectors of the national economy.
Growing, but asymmetrical trade cooperation
Polish-Chinese economic relations are multidimensional in nature and, due to China’s growing role in the global economy, are also subject to dynamic changes. In addition to trade relations and investment exchange, Poland and China are also developing contacts in a number of other fields, including finance, new technologies, maritime economy, climate policy or environmental protection. In recent years (especially before the pandemic), with Poland’s increasing share of cargo and passenger flows between China and Europe, cooperation in the field of transport and logistics has been gaining importance, but has been hampered by the outbreak of war in Ukraine.
China is now Poland’s largest trading partner in Asia, while Poland is China’s largest trading partner in the Central and Eastern European region. Although China is the second largest source of Polish imports (after Germany), it ranks far behind among export markets for Polish goods, which translates into a high trade deficit. Thus, the exchange is record asymmetrical. This is not gratifying, because this disparity is growing year by year. The challenge for both governments and entrepreneurs from both countries is to change this situation. The latest data from Poland’s Central Statistical Office show that the export-import relationship between Poland and China from January to November 2021 was as high as 1 to 14.[iii]
In the commodity structure of Polish exports to China, the most important position is occupied by copper and copper products (it is about 20 percent of Polish exports) [iv]. Other goods exported by Poland include machinery and mechanical equipment and their parts, as well as furniture. As for the commodity structure of Chinese imports to Poland, half of the goods imported from China to Poland belong to the group of highly processed goods (including cell phones, computers, video game consoles), an important position is also occupied by clothing and textiles, as well as toys, games and sporting goods [v] Polish companies import raw materials, components and sub-assemblies from China, which are used to produce final products, which then go to European markets, especially Germany.
As for the Polish food industry, a significant increase in exports to China is recorded by the Polish dairy industry, which last year, after 8 years, won the opening of China for dairy products for feed purposes, in which Polish companies are very strong. Sales of Polish cosmetics in China are also on the rise. [vi]
Growing Chinese investments in Poland
According to the National Bank of Poland, in 2020 the value of Chinese foreign direct investment in Poland amounted to $15.6 million, while the balance of Chinese direct investment liabilities in Poland amounted to $286.3 million at the end of 2020. Many Chinese investments in Poland are made by Chinese entities registered outside China, which are not included in official statistics as investments from China. Estimates by the Economic Department of the Polish Embassy in Beijing put the possible value of total Chinese investments and assets in Poland at the end of 2020 at about $2.2 billion. [vii] Available data shows that Poland is one of the leading EU countries in terms of Chinese investment. According to the Polish Economic Institute (PIE), the total value of Chinese investment projects in Poland in 2020 can be estimated at around 1 billion dollars. Being the EU’s third most popular destination (after Germany and France) for Chinese investments provides adequate space for intensified dialogue between governments and the business sector on further Chinese investments, especially in renewable energy. [viii]
Chinese companies are present and active in Poland and do not face any direct or legal restrictions on their activities and bidding for investments (controversy only surrounds possible restrictions on companies supplying equipment for 5G technology). Many of China’s investments especially in the rail, road and energy areas are being made by Chinese companies. In August 2019, the Chinese company Stecol won a tender for the construction of a section of the Lodz bypass (S14) worth more than 150 million euros. In June 2020, on the other hand, a Polish-Chinese consortium won a tender for the construction of the Rail Baltica Czyżew-Białystok section worth more than 830 million euros. In December 2020, it was announced that Stecol, with a bid of more than 110 million euros, had been selected to build the Minsk Mazowiecki- Siedlce section of the A2 highway. The examples cited prove that Chinese companies are becoming increasingly effective in competing for infrastructure tenders in Poland. [ix] As far as the presence of Chinese companies in Poland is concerned, great opportunities are opening up for the white goods market in Poland, which is the European leader in its production [x] and e-commerce market, because Poland is largest market in CEE region.
The port of Gdansk is connected with the largest Chinese ports by regular container links. Since 2013, rail freight connections between Poland and China have also been developing dynamically. The connection from Lodz to Chengdu, was the second of its kind linking China with Europe, and the first to have a regular service. Until the outbreak of the pandemic, about 90% of containers entering the EU by rail passed through Małaszewicze, located on the Polish-Belarusian border, [xi] whose border crossing the Polish authorities plan to expand. Until the outbreak of the pandemic, national carriers from both countries maintained air links between Warsaw and Beijing. It is important for relations between the two sides to restore this connection.
Polish companies interested in the Chinese market
The Polish Investment and Trade Agency (PAIH), dealing with, among others, supporting Polish entrepreneurs on foreign markets (also supporting Polish companies in participating in the China International Import Expo) indicates the growing interest of Polish entrepreneurs in expanding into the Chinese market. It is mainly manifested by companies from the food, cosmetics and FMCG industries, but it also includes the construction, medical, biotechnology and automotive parts manufacturers. [xii] – Polish companies are planning expansion into the Chinese market, although this planning is at different stages. Some of them perceive China as a promising market, but still distant. However, more and more companies are already planning this expansion in detail, preparing for it in advance. – says the agency Newseria Biznes Barbara Bujny, regional manager of the Export Center at the Polish Investment and Trade Agency (PAIH), responsible for the Chinese market.
– In China, foreign products are associated with better quality, they are curious about them and eager to try them. Especially when it comes to food, because the high quality of Polish products is slowly reaching the public awareness. Last year, China was the third market for Polish dairy products. Their sales grew very dynamically even before the pandemic, and Polish milk is already recognizable on the local market – she emphasizes.
Despite the promising prospects, there are still relatively few Polish enterprises operating there. The analysis of the Polish think tank – the Jagiellonian Club (“Economic expansion to China? Review of barriers for Polish business”) shows that the reason is both the reluctance of Polish enterprises to take risks and incur relatively high costs related to exports to East Asia, as well as the procedures and formal and informal barriers that the Chinese authorities put up for the export of foreign products. China, however, is still perceived by Polish entrepreneurs as a very promising market, but a distant, difficult one, with many years of return and still quite unknown. The Middle Kingdom is seen in Poland as a country of rapid growth and gaining increasing influence in the world, especially in the technological area [xiii].
Concern about business prospects in China among Polish entrepreneurs is also caused by China’s “zero-covid” policy, which increases economic restrictions and business uncertainty. Also of concern is the economic slowdown and the risk of “China’s isolation.” [xiv] The Polish copper export giant KGHM, which has traded extensively with the Middle Kingdom for many years, counts among its biggest threats: geopolitical tensions, the maintenance of a zero-tolerance policy for Covid and consequent further economic slowdown, and China’s further isolation and focus on so-called “internal circulation”.[xv]
Conclusions
Polish imports to China are gradually growing. However, Chinese exports to Poland are growing much faster, causing a record trade deficit in Poland’s relations with China. Polish-Chinese economic relations have good prospects, given the developing political relations and the good state of the two countries’ economies. However, in order to level out the trade balance, it is necessary to take coordinated actions, both Polish and Chinese, to increase the presence of Polish goods on the Chinese market and Chinese investments in Poland. It is also important to develop cooperation between Polish and Chinese business, which leads to getting to know the other party and mutual expectations. The presence of Polish business at China International Import Expo 2022 is an important element of these activities. The fair is an important place for dialogue, exchange of experience and promotion of Polish companies in China.
[i] The economic portal Bankier.pl https://www.bankier.pl/wiadomosc/Handel-Polska-Chiny-Nowe-dane-8264701.html
[ii] Economic portal BiznesNewseria.pl https://biznes.newseria.pl/news/polskie-firmy-planuja,p986517971
[iii] The Daily Rzeczpospolita https://firma.rp.pl/chiny/art19330951-rekordowe-obroty-w-handlu-polski-z-chinami-eksport-deficyt-handlowy-Polska-Chiny
[iv] The Financial portal Obserwator Finansowy https://www.obserwatorfinansowy.pl/bez-kategorii/rotator/polski-eksport-do-chin-nie-w-pelni-wykorzystany-potencjal/
[v] The Ministry of Foreign Affairs of Republic of Poland https://www.gov.pl/web/chiny/wsp-ekonomiczna
[vi] The Financial portal Obserwator Finansowy https://www.obserwatorfinansowy.pl/bez-kategorii/rotator/polski-eksport-do-chin-nie-w-pelni-wykorzystany-potencjal/
[vii] The Ministry of Foreign Affairs of Republic of Poland https://www.gov.pl/web/chiny/wsp-ekonomiczna
[viii] The Warsaw Institute https://warsawinstitute.org/pl/ryzyka-korzysci-z-chinskich-inwestycji-energetycznych-w-polsce/
[ix] The Warsaw Institute https://warsawinstitute.org/pl/stosunki-polska-chiny-w-2021-roku-stan-perspektywy/
[x] The Daily Rzeczpospolita https://www.rp.pl/handel/art36463831-chinczycy-inwestuja-w-polski-sektor-agd-gra-o-setki-milionow
[xi] The Ministry of Foreign Affairs of Republic of Poland https://www.gov.pl/web/chiny/wsp-ekonomiczna
[xii] The Economic portal BiznesNewseria.pl https://biznes.newseria.pl/news/polskie-firmy-planuja,p986517971
[xiii] The Financial portal Obserwator Finansowy https://www.obserwatorfinansowy.pl/bez-kategorii/rotator/polski-eksport-do-chin-nie-w-pelni-wykorzystany-potencjal/
[xiv] The Daily Rzeczpospolita https://www.rp.pl/biznes/art37161941-polskie-spolki-napotykaja-w-chinach-wiele-barier-jak-sobie-radza?fbclid=IwAR3r2RTzxHHVztl9DvkYOQapjA4JXqxLEgLjGFRbtBwEVPk9snuABmk5HFQ
[xv] The Daily Rzeczpospolita https://www.rp.pl/biznes/art37161941-polskie-spolki-napotykaja-w-chinach-wiele-barier-jak-sobie-radza?fbclid=IwAR3r2RTzxHHVztl9DvkYOQapjA4JXqxLEgLjGFRbtBwEVPk9snuABmk5HFQ