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Trade

Can a China-Moldova free-trade deal give Beijing a foothold in eastern Europe?

World’s second-largest economy agrees to start negotiations with small, but perfectly positioned former Soviet state

PUBLISHED : Friday, 29 December, 2017, 9:03pm
UPDATED : Friday, 29 December, 2017, 10:25pm

China has agreed to begin talks on the establishment of a free-trade deal with the former Soviet state of Moldova, as the world’s most populous nation continues to seek to boost its influence in Russia’s backyard.

Officials from the two countries signed a memorandum of understanding in Beijing on Thursday, China’s commerce ministry said in a statement on its website.

The agreement to begin negotiations followed the completion in May of a six-month joint feasibility study, the statement said.

“The study showed that the establishment of an FTA would improve bilateral ties, develop trade and cooperation potential, and facilitate economic growth in both countries,” it said.

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Beijing already has 15 free-trade partners, including Hong Kong and Macau, and is in negotiations on 11 new or upgraded deals.

While a deal with Moldova would not be China’s first with a former Soviet nation – it signed one with Georgia earlier this year that is set to come into force next month – it would be its first in eastern Europe.

Moldova is a country of about 3.5 million people squeezed between Ukraine and Romania. Despite its diminutive size, its location makes it of strategic interest to both Russia and the European Union.

In 2014, it signed an “Association Agreement” with the EU. Similar deals agreed with the EU by Georgia and, in particular, Ukraine have rankled Moscow.

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Signing a free-trade deal with China, however, should not be a cause for concern for the landlocked nation, according to Cui Hongjian, director of European Studies at the China Institute of International Studies in Beijing.

“On one hand, Moldova wants to increase its links to the EU, but on the other it doesn’t want to irritate Russia,” he said. “China, however, is not in direct competition with either Russia or the EU in this region.”

That said, China has a clear goal to negotiate FTAs with as many partners as possible, and the time for discussions to start with Moldova was ripe, Cui said.

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“There are too many obstacles to overcome before China and the EU can begin FTA talks, and China’s trade with Russia is undergoing a big transformation, so the conditions there are also not right,” he said.

“If China can reach a deal with Moldova, it could set an example in the region.”

China established diplomatic relations with Moldova in 1992 and has invested heavily in the country since the late 2000s, including agreeing a US$1 billion loan in 2009.

The former Soviet Union’s second-smallest state – by area, after Armenia – is hungry for foreign funds. In 2016, it had a gross domestic product of US$6.75 billion and a GDP per capita of US$1,900, according to World Bank figures. The corresponding numbers for China were US$11.2 trillion and US$8,123.

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Moldova exported US$14.5 million worth of goods – mostly wine and furniture – to China in 2016, while the value of its imports from the world’s second-largest economy – including electrical machinery, plastics, rubber and chemical products – totalled US$394 million.

Aside from the free-trade negotiations, representatives from China National Nuclear Power Company and their Moldovan counterparts last year held talks to boost cooperation in the energy sector.