The construction of the Belarusian-Chinese plant MAZ-Weichai took eight months, from scratch and on the completely undeveloped site. The company’s next plan is to produce 20,000 engines a year, ambitiously increase exports and pay off the investment within the next five years.
The goal seems quite feasible since the plant is registered in the Great Stone industrial park. Residents of the park have significant tax benefits and international guarantees that those conditions will not change in future. As part of a joint project, we headed to MAZ-Weichai plant for insights about work in the Belarus-China industrial park.
Our project started in 2017 when a special working group was set up at the Minsk Automobile Plant (MAZ). MAZ did not have its own engine production. One of the key ideas was to build a joint company with the Chinese corporation Weichai and provide MAZ with engines.
As a result, the MAZ-Weichai plant was created, and in less than a year a full-fledged production appeared at the construction site in the Great Stone industrial park. Here’s how we achieved such effectiveness.
Choosing where to register the company
We knew from the beginning that the plant would be built in the Great Stone. There are several reasons for that:
1. The park provides a lot of tax benefits on real estate, profit, contributions to the social security fund, and dividends.
2. Security for investors. Belarusian legislation is still young and subject to constant change, while residents of the park can be sure that no major changes will occur to their project, as a special international legal regime is applied.
Therefore, for example, you can have a long-term lease and plan business development for decades ahead.
3. Convenient logistics: the heart of Belarus, proximity to the airport and international highways. Minsk, where main consumers work, is nearby.
It is easier to deliver products from here, the centre of the country. Meanwhile, any cargo can be delivered to the plant quickly. A new railway is in the plan – in future, it will save even more time on loading and transporting products from the warehouse.
4. Prompt problem-solving. Not only does this apply to the project launch phase – being residents of the park, we do all the necessary paperwork through the park administration.
For example, if a company needs a car to be registered at the police, we don’t have to head to Smolevichi road police office (resident companies in the park are registered and interact with state agencies of Smolevichi district of Minsk region – note). Instead, the officials will come to our office to get the matter settled.
Choosing where to build the plant
We chose the construction site ourselves. Our Chinese partners requested that no runways should pass over it.
Another requirement was for office buildings to face south. Maybe, it is a Chinese tradition. But a more practical benefit of such location is that sun lights workplaces almost all day long.
So you use electricity for fewer hours. Belarusian experts carefully studied the future site – it was raised high above the road. Level differences make up to 8 meters.
At present the area of 3.6 hectares accommodates several buildings:
- Assembly line
- Painting line
- Testing facility. The facility has a special room where the engine is placed for tests. The motor works in real-time, and computers record all data. Operators control the process by looking at the displays.
We embarked on the construction of the plant in April 2018 and completed it in November 2018. Eight months is a short time.
“One worker at a plant should do several jobs”, “Make one day count for two” – are just some of the principles our Chinese partners like to recite
This is what also helped complete the construction on time:
1. Selection of equipment suppliers. We had two major conditions – compliance with the technical specifications and compliance with the delivery dates (until August 2018). I should note that not all companies managed to match the latter.
2. Participation of the park development company. They provided us with the entire infrastructure (access roads, connection to electric networks, water supply, etc.) in no time.
How is the plant working at present
The commissioning is going on. We are checking the equipment, and produce test models of the engines. The conveyor production will be fully launched this year.
At this initial stage, the production will amount to 10,000 engines of several models per year. When operating at full capacity – 20,000 Euro-5 engines per year volume should be reached in a few years. According to the business plan, the project should become cost-effective by 2026.
Now all the parts are supplied to the plant by the Chinese side – the only assembly will take place here. Then, production will switch to localization, which will happen in two stages. At first, we will start our own production of the external elements of the engine; later also of the internal ones.
We have ambitious plans:
- 50% of the engines produced will be delivered to MAZ
- 30% will be exported to Russia, Ukraine, Kazakhstan; the rest – to other countries.
We have already presented the first engine models at exhibitions, for example, at an industrial forum in Moscow. Surely, we are interested in a long-term partnership, as the engine is the inside of a vehicle and must be produced taking into account design and technical characteristics of specific models.
Our plan is to promote our products with the support of Weichai. Under the contract, we have a preemptive right to sell.
This means that if somebody wants to buy an engine manufactured by us on the Belarusian market, the can only buy it from us. Weichai can’t sell it from China.
What we already achieved
Is there any economic effect yet? As an employee, I feel it in the reduced income tax. The effect is that new jobs are being created. Now we have 45 employees. With the two-shift schedule, we plan to hire up to 140 people.
We also plan to create a free customs zone inside the enterprise. This will allow us to import parts and equipment for domestic consumption from abroad without paying customs duties and VAT.
For example, components for engine assembly, start-up and commissioning are delivered from China.
How Chinese and Belarusian businesses benefit each other
What are the benefits of Belarus for China? The investment in the construction was $20 million, 70%of which is the share of the Chinese side.
Joint ventures are China’s channels to stable access to foreign markets and promotion of products. They create products with higher added value.
What are the benefits of Belarusian partners? In addition to the joint economic benefits, we learn about doing business and personnel training.
If, for example, a Belarusian plant mover to a foreign market, as a rule, it does it alone. Often it turns out that it’s hard to work and sell in another country. When Weichai entered the Belarusian market, they invited Belarusian companies, lawyers, tax consultants; they examined the market and legislation.
And at the moment when we decided to create an enterprise, many peculiarities were already explained and predicted. For example, there were no specialists who can service Chinese products in Belarus. So we made an agreement with a specialized college in Minsk to train personnel to work with us. An ultramodern laboratory was created in the college, teachers came from China.
In China, manufacturers now place a great emphasis on after-sales service.
Perhaps, the main goal of large Chinese factories is to not only establish production but also provide quality service
Therefore, increasing demands are placed on the qualifications of workers.
What benefits do residents of Great Stone gain?
Commentary of the park development company:
“Great Stone” is an international platform, and we welcome capital from any country. Companies from China, Belarus, America, Germany, and Russia already work here.
The benefits package, the support we provide does not depend on the region; we are equally suitable for Belarusian businesses and investors, as well as for any overseas ones. The support that the park claims is not just words, we prove it in practice.
Take the example of the MAZ-Weichai plant. It was built and launched from scratch in a short time. Such pace is fast even for China, not to mention Belarus and neighbouring countries, where, according to general legislation, land issues alone can take up to six months or longer.
The legal status of the park allows resolving many issues much faster – in just a few days. For example, those related to infrastructure services:
- Allocation of land, making land contracts
- Issuance of technical specifications, connection to infrastructure (electricity, water supply, sewage)
- Creation of temporary porches, clearing of green spaces, etc.
The park has a lot of authority to resolve issues such as issuing permits for design and survey work, construction, and headhunting of foreign labour. Together, this helps to quickly launch perspective business projects in the park.
Economic benefits. Here are the incentives that now and in the future will support the work of the plant:
- Customs incentives. For example, imported equipment is exempt from customs duties, VAT, and other fees
- Income tax exemption. When the MAZ-Weichai plant starts functioning and receives a certificate of its own production, it will not pay this tax
- Savings on salaries in 2−2.5 times. A special procedure for contributions to the Social Security Fund allows the employer to optimize salary costs, increase social package, and allows for additional bonuses and perks
- 9% income tax for employees (the general income tax in Belarus is 13% and more – note)
- Dividend tax exemption for 5 years from the date of the decision on the distribution of dividends
- The industrial park fully exempts investors from paying tax on land and real estate
- The investor is not restrained in the construction of any buildings, structures required for a full production cycle.
The location of the park, its proximity to Minsk and Smolevichy, plays its role, too. This allows attracting workforce, and scientific specialists rejected by large enterprises that had optimized work processes. Park offers job opportunities for such employees.
What happens after the project in the park has been launched
In fact, by the start of the construction sites are already connected to all communications – gas, fibre optics, sewage.
In case any additional power is required during the construction, we guarantee that everything will be done by the time the investor needs it. Thus, the park adjusts the plans for the construction of technical communications for specific projects.
Sometimes we even help with temporary power supply or access roads. This is also important at the initial construction phase.
We are very interested in receiving feedback from the residents of the park
Each quarter we meet with their chairpersons and communicate in a direct dialogue. We discuss issues. For example, recently, one of the companies mentioned that it needed additional parking spaces – not on the territory of the plant, but nearby. When a large number of workers are hired, it will be more convenient for them to move around.
Also, it is possible to submit suggestions or complaints online if any of the park’s administration employees did not properly help a resident or did not give full information. We pay a lot of attention to it.
We also see the demand for social infrastructure for the park’s employees: accommodation, shopping facilities. We are now completing a residential block where part of the apartments will be allocated to the employees of MAZ-Weichai.