Poland on the New Silk Road
October 6, 2016 | HSBCEstimated reading time: 2 minutes
London, Frankfurt, Paris, Zurich and Luxembourg compete to be recognised as Europe’s leading financial hub. Warsaw is not usually mentioned in the same breath – but Poland recently stole a march on the rest of Europe when it issued a RMB3 billion, three-year onshore bond denominated in the Chinese currency, the renminbi (RMB).
The only governments to have issued an onshore RMB bond before (otherwise known as a panda bond) are those of South Korea and the Canadian province of British Columbia. As well as helping the Polish government diversify its funding sources, the issuance underlines the growing importance of the RMB as a global investment currency.
The outside observer might be surprised to see an Eastern European nation pioneering the international use of China’s currency. Poland and China are more than 5,000 miles apart. Poland’s population is about 38 million; China’s is more than a billion. But this is only the latest in a series of long-term steps to strengthen the trade and investment relationship between the two countries, backed by strong political support from both sides.
Chinese President Xi Jinping made a state visit to Poland in June, during which he highlighted his plans for closer partnership between the two countries in areas ranging from finance to education. In other areas, such as transport, cooperation is well underway. A couple of years ago, the idea of a direct train connection between China and Poland seemed far-fetched: today trains linking Chengdu and Łódź run on a regular basis, carrying goods between the capital of Sichuan province and Poland’s third-largest city.
While the European Union (EU) remains by far the most important market for Polish exports, exports to China have grown over recent years, with Chinese businesses and consumers buying Polish food and agriculture products, transport equipment and machinery. Poland’s appetite for Chinese goods had also grown. Chinese goods now make up more than 10 per cent of Poland’s imports.
But this burgeoning trade relationship also fits into a bigger picture. China has a long-term strategic plan to make better connections to countries across Asia, the Middle East, Europe and Africa, including by building new roads, railways and ports. Improving infrastructure along these so-called ‘Belt and Road’ routes could boost the flow of trade, capital and goods.
Poland sits on one of the overland ‘Belt and Road’ routes from China to Europe through central Asia. It has strong ties to other countries in Central and Eastern Europe as well as neighbouring Germany, Europe’s largest economy.
In short, Poland can be the gateway for China to connect with the EU market of 500 million consumers – and is well-positioned to take its relationship with the world’s largest trading nation to a new level. Poland has shown its commitment to the ‘Belt and Road’ initiative by becoming a founding member of the Asian Infrastructure Investment Bank, set up to provide capital for new infrastructure projects.
There is every reason to think that links between Poland and China are set to grow as cooperation flourishes between China and Europe more broadly. Poland’s panda bond was a first for Europe: it may not be the last.
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