Blow to the forehead that could have benefits: on relations with China

Lithuania got angry with China by allowing the Taiwan office to open but is looking for new markets in Asia. Recently, Foreign Minister Gabriel Landsbergis travelled to Singapore and Australia. This year, he plans to visit Japan, South Korea, India, Vietnam, Indonesia, and Israel with the Prime Minister, Eglė Samoškaitė writes on tv3.lt.

The development of economic relations with East Asian countries was planned at the beginning of the Government’s work when Lithuania had not yet had time to anger China by demonstrating friendship towards Taiwan. These aspirations are briefly reflected in the Government’s programme, which notes that Lithuania needs to exploit the potential of cooperation with the democratic countries of East Asia more fully, to expand its network of diplomatic missions strategically, and to politically become a space of freedom, where not only Russian and Belarusian dissidents but also Asian democrats defending their rights, can find a place to live.

Vidmantas Janulevičius, President of the Lithuanian Confederation of Industrialists, says that Lithuania’s pivot to the Asia-Pacific region can be positive. Still, it would have been even better if our country had first established relations with these countries and then spoiled its relations with China. “It would have been ideal”, says Mr Janulevičius, “But we are already looking at the situation as it is. It is too late to throw fists after a fight. If you’ve been hit in the forehead, you have to look at how to get out of it, to deal with the wounds.”

According to the speaker, access to other markets requires at least a year of preparatory work, so it will not happen quickly. Still, East Asia and the Pacific is promising region, with several countries in the region seeking to emerge from China’s shadow, and cooperation with them could be worthwhile.

Rasa Uždavinytė, Director of the Export Department of the Entrepreneurship and Export Development Agency “Versli Lietuva”, said that Lithuania needed to diversify its exports despite the problems with China, because currently, about 80% of exports of goods and services go to the European Union, which could have negative consequences if something happened in Europe, such as an armed conflict in Ukraine.

China has made a good recovery, but there may be benefits

Lithuania plans to open embassies in Singapore and Seoul and a trade mission in Taipei. “The embassy in Singapore will be a regional embassy responsible for maintaining relations, primarily economic, with South-East Asian countries,” the Foreign Ministry said.

Among the East Asian, Indian and Pacific countries with which Lithuania plans to build stronger economic ties, embassies exist in Japan and Australia. Here, the aim is to strengthen economic representation. Moreover, Australia itself is planning to establish a trade mission in Lithuania. Although de facto, Taiwan has already established one of the mission functions as an embassy, which makes China most nervous.

V. Janulevičius, President of the Lithuanian Confederation of Industrialists, says that diversification is logical, especially in China’s anger over Lithuania’s policy towards Taiwan.

“It is clear that we should have prepared earlier. You are well aware that such things are not done so quickly. We need to consult, mobilise allies to support us, and assess the maximum damage. But this is the first time that China has come down on Lithuania. In any case, there have never been any such cases of withholding of paid goods from China, either from the Australians or from anyone else. We have been like guinea pigs”, remarked the industrialist leader.

In his view, it is good when a country decides not to focus on one big country or market but has several alternatives. In his opinion, it would be best to emphasise economic cooperation with democratic and developed countries that are closer to us, as Lithuania itself is still developing, even though it is a member of the European Union. Mr Janulevičius mentioned Japan and the USA, but in his view, cooperation with any other country that has a free trade agreement with the European Union can be excellent. Such agreements, he said, guarantee greater trust between businesses.

“I think that this global story with China can pay very high dividends for us in the long term. It may well mobilise us a little bit to review how we deal with our strategic sectors and export geography. So it may be a shock in the short term, but in the long term it may be a good thing that will bring even more benefits”, says R. Uždavinytė of Verslios Lietuvos.

A must-go for heads of state

V. Janulevičius noted that China is surrounded by many developing countries that are eager to crawl out of Beijing’s shadow. In his view, these countries are behaving in a similar way to China in its time: first, they produce goods cheaply, then they adopt technology, and then, as the affordability of the local society increases, they turn to domestic consumption, especially if the country has a large population.

“China has been attracting investment, adopting technology and producing everything for export. It has learnt how to manufacture. In the beginning, the affordability of the domestic market was very low. They could not afford the products that the European Union was using. And what do they have now? Now the overall Chinese level has risen. The average salary is close to the level of Eastern Europe, and they are starting to use the products themselves. This makes them feel secure because they have their internal consumption. The trend will be similar for all countries. In the beginning, they wait for investors. The investors invest because there is a higher return, and then when the investor recovers part of the investment, they usually sell the same factories to locals. This is a global trend. And if the affordability of people and families goes up, they turn to domestic consumption. That is what China is doing,” says Mr Janulevičius.

Asked how Lithuania could now move quickly towards relations with other countries in East Asia, India and the Pacific, the President of the Confederation of Lithuanian Industrialists says that Lithuania must first consider what is interesting for it in this region.

“At the beginning, it is good to see what Lithuanians need, even to make a list, ” says the Lithuanian Confederation of Industrialists president.

According to him, the best way to get in touch with a country that interests us is to establish contacts with that country’s Chamber of Industry or Crafts, or something like Versli Lietuva, so that we can communicate directly and decide what we are interested in, and what is of interest to business in that country, by area. In addition, as a small country, Lithuania needs to find export markets.

“It is necessary to go to the country’s top leaders first if we want to have some breakthroughs in the Eastern countries. Then, we have to go with specific things, what areas we are interested in, but with the head of state or at least the prime minister. And, of course, the ministers must accompany the delegation. And do business forums. Then there would be a supportive relationship, control, and the embassy should always be close by,” said Mr Janulevičius about the practice of establishing economic relations with foreign countries.

It is important to note that each country has its own culture and traditions, but generally, the further east you go, the more contacts with top-level VIPs are valued. For example, R. Uždavinytė, Director of the Export Department of Verslios Lietuvos, pointed out that cultural peculiarities have a significant impact when dealing with Japan: “We have a long-standing economic relationship with Japan, we participate in various initiatives, we try to do both, but culturally, the mentality is that you need to invest a lot of time, to build trust. Therefore, they are not so quick to enter into partnerships”.

V. Janulevičius pointed out that some Asian countries have already established close economic relations with the European Union, facilitating the establishment of links with Lithuania.

“From start to finish, the momentum takes a minimum of a year to two to three to five years. You know, there is no upper limit, but nothing starts without a year. There are pilot batches. Then you have to look at certification. If a country is already exporting to the European Union, it already has the certificates. Then they do not need to be certified separately. If there is a new supply, then certification is required. And if we import from that country, we need to contribute to the certification. Each case is unique and depends on the product group, the culture of the country and the reliability of the country,” said Mr Janulevičius.

How are markets selected?

“R. Uždavinytė, Director of the Export Department of Verslios Lietuvos, notes that even if the situation with China was not taken into account, Lithuania had to diversify its export markets, because currently, about 80% of its exports go to the European Union, which is not sustainable, especially if something were to happen in Europe.

“If we want to have sustainable exports in the future and to reduce risks and dependence on certain markets, we need to broaden the portfolio and the geography of markets. Right now about 80% of our exports go to the European Union. The European Union is essentially one market. So if something happens here, say a military conflict in Ukraine or something, it weakens the market. And it is quite difficult for us to compete with other countries. So, naturally, it is more sustainable and safer to diversify the portfolio. We need to have other markets where these processes are happening faster, where trade relations are being established because demand is high,” she said.

R. Uždavinytė said that all the Asian countries that Foreign Minister G. Landsbergis and Minister of Economy and Innovation Aušrinė Armonaitė are going to visit this year are very different. Still, the further east one goes, the more political impetus is needed for cooperation. The more critical various memoranda, official agreements or declarations become because this obliges state institutions and agencies to respond more quickly and attentively.

“In Asian countries, this political attention is a kind of push, an impetus to build good relations. Moreover, various cooperation agreements encourage businesses to cooperate more”, says the representative of Verslios Lietuvos. 

“So it is not that a country takes a random decision and decides randomly. We take stock of the markets”.

For example, India is a huge and inhomogeneous market, where Lithuania could work on a regional basis. It is assessed that this country could become a technology and innovation partner in pharmaceuticals, the food industry, educational technology.

Singapore is a high-income country and therefore attractive for cooperation. Singapore’s high concentration of scientific institutions and high-tech companies means that it has the potential to export mechanical engineering, engineering and organic chemical products. However, the high-tech sector is considered the most promising. The Lithuanian food industry has been reticent about Singapore because it imports finished products from the European Union, while Lithuanian companies mainly export raw materials.

There is potential for cooperation with Australia in the fields of cyber-security and lasers. At the same time, South Korea is also seen as a promising partner in the areas of lasers, optics, biotechnology and e-commerce. Indonesia is a very large Muslim country, and there is potential for exports of food products based on Islamic traditions and chemical products, optics, medical devices, and information technology services. Vietnam could become a market for chemicals and chemical products produced in Lithuania and export textiles, food products, agricultural products and industrial engineering products.