The Bank of Lithuania has calculated the possible impact that China’s unannounced economic sanctions could have on the country’s economy.
China’s restrictions on Lithuanian businesses might lead to the country’s GDP growth decreasing from 0.1 to 0.5 percentage points in 2022 and from 0.3 to 1.3 next year, according to the Central Bank’s estimates.
Based on the 2021 January-September data, Lithuania’s trade with China accounted for 0.7 percent of the country’s total exports and 3.7 percent of total imports.
But trade links were much more significant in certain sectors. For example, around 30 percent of Lithuanian lasers were sold to China, while 69 percent of the country’s amine compound imports were also Chinese.
If products exported to China via other countries were taken into account, the share of Lithuania's exports to China would increase to 3.2 percent of total exports. Similarly, the share of imports from China would increase to 3.5 percent of total imports.
Twofold impact
China’s sanctions on Lithuania could affect trade and foreign investment in the country, according to the Bank of Lithuania.
In a scenario of the complete halt of direct exports to China, Lithuania’s GDP could decrease by 0.1 percentage points in 2022 and 0.2 next year.
The indirect effect on investments could lead to Lithuania’s GDP growth decreasing by up to 0.5 percentage points in 2022 and up to 1.3 in 2023, according to preliminary estimates.
In December 2021, Vidmantas Janulevičius, president of the Lithuanian Confederation of Industrialists, said that around 60 Lithuanian companies were facing difficulties in exporting to China.
Tada Povilauskas, an economist at SEB bank, shared data, showing that in December last year, Lithuanian goods worth 3 million euros were cleared through Chinese customs, compared to 35 million euros a year before.
On Wednesday, Kristijonas Vizbaras, co-founder of the laser manufacturing company Brolis Group, said that due to difficulties in exporting to China from Lithuania, the firm is planning to invest 20 million euros to build a new plant in Belgium and 30 million euros in other countries.
Read more: 'We have been sacrificed' – laser sector representatives decry Lithuania’s China policy
Possible benefits
In response to China’s economic pressure on Lithuania, Taiwan has announced a 1-billion-dollar fund to offer loans for joint Lithuanian-Taiwanese investment projects on top of the planned 200 million US dollars in investment.
According to the Bank of Lithuania, the Taiwanese fund and investment in Lithuania could add 0.1 percentage point to the country’s GDP. A further 0.4 would be added in 2023 and 2024, as well as 0.3 percentage point in 2025. This is based on the assumption that 75 percent of the fund would be invested within four years.
Lithuania will also allocate 6 million euros to companies affected by Chinese sanctions to search for new markets, as well as expand and diversify the existing ones.
Lithuania has angered China by allowing Taiwan to open a representative office in Vilnius under its name. Amid the Vilnius-Beijing diplomatic row, Lithuania’s businesses have complained of various restrictions in trade with China.
According to media reports, China has also been pressuring international companies to drop their Lithuanian suppliers.
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