2021.03.15 17:30

Can China punish Lithuania over support for Taiwan? – analysis

BNS2021.03.15 17:30

Lithuania’s plans to open a trade office in Taiwan and the decision to shun China's 17+1 economic format have irked Beijing. What levers does the country have over Lithuania?

Baltic News Service (BNS) wire polled the leading business reps and political scientists in Lithuania to get an overview.

'Chain of bankrupcies'

"Lithuania is making that important step [to open a trade office in Taiwan] , which will probably attract major attention from both Beijing and other countries in the region, and we will probably hear more about this decision even beyond this region," said Konstantinas Andrijauskas, political scientist at the Vilnius University Institute of International Relations and Political Science (TSPMI).

"The government is leaning towards admitting that attempts to create fairly close economic ties with China [...] have not produced the expected result," he added.

According to Andrijauskas, once Lithuania establishes a trade office in Taiwan, it could expect Beijing's stronger diplomatic rhetoric and measures of economic punishment.

However, Lithuanian-Chinese relations are not deep enough for economic sanctions to have any major effect.

"We have our business interests, [...] but that’s not something that would be existentially significant for the Lithuanian [economy], that if China suspended cooperation, then a chain of bankruptcies would follow. That's definitely not going to happen," he said.

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Rimas Varkulevičius, president of the Association of Lithuanian Chambers of Commerce, Industry and Crafts, says he backs the Lithuanian government's plans to expand its economic presence in Taipei.

"Taiwan is not a very big market but for some goods, including agricultural food products and some other items, is really important. Taiwan is also a very active exporter of tech and various business solutions, and is a certain hub into the Asian region markets. [...] Taiwan would be a very important economic partner for Lithuania," Varkulevičius told BNS.

Despite the reactions from China, Lithuania has its export policy and should follow it, he added.

"We should feel like an independent country economically as well. Nobody can dictate to Lithuania what partners [it can] choose. If politicians take such drastic steps, it's a welcome thing," Varkulevičius said.

Politics or business?

Following Lithuania's statement on its representation in Taiwan, Chinese Ambassador Shen Zhifei tweeted about different trade volumes and said that Lithuanians would have to make a choice.

"According to Lithuanian official data, the export from Lithuania to China’s Mainland in 2020 amounted to 315 million Euro, up by 14.1%, while the export from Lithuania to Taiwan region registered 19 million Euro only, down by 2.92%. The choice is to be made by Lithuanians," the tweet reads.

Aleksandr Izgorodin, an economist from SME Finance, says imports of raw materials could be under threat if the bilateral ties between China and Lithuania sour.

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"Speaking of the political risk, I would see it more not in terms of exports to China, as its volumes are fairly small, but in terms of material imports from China as temporary import disruptions might occur, perhaps import prices might go up,” the economist told BNS.

"Our industry is now already facing a rise in prices of crude and raw materials due to the situation in the financial markets as oil prices are going up, metal prices are going up, so in this context that additional political risk might bring in some negativity," he added.

Lithuania might need to think about alternative supply chains and seek alternative impot sources for raw materials. It would, however, mean an increase in costs for businesses or the consumers.

According to Izgorodin, the strengthening of economic ties with Taiwan would not help Lithuanian businesses.

"Since we are in the middle of a difficult time, it would be important for exporters for the state to help businesses to establish ties with new partners and key and biggest export markets,” he said. “Taiwan is a fairly distant market and almost all Lithuanian exports to other non-European countries go via major European producers. So, that impact on exports will be fairly insignificant, perhaps tourism flows might increase in the future.”

Tomas Fedaravičius, president of the China-Baltic Association for Industry and Business, says the business representation issue is more political than economic.

"Certain political powers in Lithuania are engaged in political advertising and are trying to gain political dividends. Looking from the Lithuanian business side, in general, I don't think this issue is now important for our companies. Perhaps it is for individual companies," Fedaravičius told BNS.

Read more: China slams Lithuania’s move to build ties with ‘Taiwan separatists’

Lithuania and China trade – in numbers

In 2020, Lithuania's exports to China stood at 315.8 million euros, up 14.1 percent from 2019, according to the preliminary figures from Lithuania's statistics office. Meanwhile, exports to Taiwan were valued at 19 million euros, down 2.9 percent.

Lithuania's imports from China rose 26.2 percent last year to 1.2 billion euros. Imports from Taiwan dropped 4.8 percent to 66.1 million euros.

China ranked 20th in Lithuania's export destinations, and was 7th in terms of imports, compared to Taiwan's 67th and 36th positions respectively.