1

INSTITUTE FOR MARKET, CONSUMPTION AND BUSINESS CYCLES RESEARCH

CHINESE AND SOUTH KOREAN INVESTMENT IN POLAND

– A COMPARATIVE STUDY

Ewa Kaliszuk

Abstract

The paper is a comparative study on Chinese and South Korean foreign direct investment

(FDI) in Poland. The comparison is presented in the broader context of Poland’s systemic

transformation and the accession to the European Union, and comprises the FDI inflows into

Poland, the characteristics of Chinese and South Korean companies operating in Poland,

including their entry strategies and motives of investment in Poland. A special attention is

paid to linkages between FDI trends and trade, given a huge Poland’s trade deficit with Asian

countries. The paper also analysis the incentives used by the Polish government and local

authorities to increase Poland’s attractiveness as a location for foreign investors, mostly tax

preferences in the economic special zones.

South Korea started investment in Poland in the 1990s and through investment primarily in

manufacturing sectors participated in Poland’s systemic transformation. Chinese investors,

who arrived in Europe a decade later, could benefit from Poland’s economic growth and its

location within the European Union. This factor, apart from the policy on outbound

investment of Chinese and Korean governments, had an important impact on character of FDI

flows into Poland.

Keywords: Central and Eastern Europe, foreign direct investment, trade imbalance,

investment motives, investment incentives.

2

1. Introduction

Both China and South Korea are Poland’s strategic partners and are interested in investing in

Central Eastern Europe (CEE), however their investment paths differ substantially. South

Korea started investment in Poland in the 1990s and through investment mainly in

manufacturing sectors participated in Poland’s systemic transformation. Chinese investors,

who arrived in Europe a decade later, could benefit from Poland’s economic growth and its

location within the European Union (EU). This factor, apart from the Chinese and South

Korean official policy on outbound investment, had an important impact on character of FDI

flows into Poland.

The paper compares Chinese and South Korean foreign direct investment (FDI) in Poland in

the broader perspective, that is Poland’s systemic transformation and the accession to the

European Union in 2004 (first part). Poland has an enormous trade deficit with Asian

countries, therefore linkages between FDI flows and trade are explored. The paper also

analysis the incentives used by the central and local authorities to increase Poland’s location

attractiveness, mainly in the form of tax preferences in economic special zones.

The subsequent three sections compare Chinese and South Korean FDI inflows into Poland,

the characteristics of Chinese and South Korean transnationals, including entry strategies and

motives of investment in Poland, and the impact of investment from both countries on

Poland’s trade pattern.

Finally, new political initiatives in Poland’s relations with China (“One Belt, One Road”

project and the Asian Infrastructure Investment Bank - AIIB) and South Korea (the EU-South

Korea FTA) are discussed.

Methodical remarks

The most of FDI statistics used in this paper is based on the data of the National Bank of

Poland (NBP), expressed in US dollars. Since 2013, the NBP measures FDI flows pursuant to

new guidelines outlined in Balance of Payments and International Investment Position

Manual (BPM6) and to the OECD Benchmark Definition of Foreign Direct Investment

Manual 4th ed. (BD4). As a result of the statistics reform, there is a break in the time series in

statistics on direct investments in accordance with the directional principle. Data available till

2012 are pursuant to the BPM5 basis, while data for 2013 and subsequent years pursuant to

BPM6 basis (National Bank of Poland, 2014). The differences in the FDI flows in particular

years are not large, except for the year 2013, when the FDI net inflow measured by the old

method was negative and amounted to nearly 6 billion dollars, while measured by the new

method was positive and accounted for 2.9 billion dollars. Data for 2013 in the figures and

tables in most cases are based on BPM6 standard. The explanations are placed under the

figures and tables. The time series differ as they depend on the topic.

For the convenience, the term South Korea (the Republic of Korea) has been further shortened

to Korea.

2. Literature review

In general, there is an extant literature on Chinese direct investment in Europe, and rather

modest on Korean investment on this continent. Several papers on Asia investment focus on

Central and Eastern Europe (Fung, et. al., 2008; Szczudlik-Tatar, 2012; Stephan, 2013; Sakali,

2012; Kuźmińska-Haberla, 2012). A few of them concern exclusively on Poland as a host

country (Heiduk and McCaleb, 2014), Nawrot, 2012; Wiśniewski, 2012). The literature

directly comparing Chinese and Korean investment in CEE countries seems to be rather

scarce (Szunomár and McCaleb, 2014).

The topic which arrives regularly in almost all papers analysing FDI flows concern the quality

of statistical data, including a considerable amount of discrepancy in official numbers. In spite

3

of common problems with the research on FDI, specific problems occur with Chinese data.

The following problems are frequently indicated:

Chinese official statistics (the Ministry of Commerce - MOFCOM) do not capture

Chinese investment abroad by intermediaries or their subsidiaries or affiliates

operating outside China (Parello-Plesner, 2012; Heiduk, 2014; Apoteker, 2012). In

addition, MOFCOM normally registers reinvested earnings of Chinese affiliates

abroad as new outward FDI.

The administrative reforms of 2013 have decentralized the approval system of smaller

investment projects which may enhance underreporting (Apoteker, 2012; Korniyenko,

and Sakatsume, 2009; Heiduk, 2014). An enterprise is required to report to relevant

authorities for verification only when it invests in fixed assets projects listed in the

Catalogue of Investment Projects Subject to Government Verification (2013 Edition).

All the other investment projects not listed in the Catalogue are subject to filing

procedures. As a result, data are underreported.

An aspect widely discussed in the context of Poland and other CEE countries as host countries

is an impact of EU accession on FDI flows. Most authors agree that EU membership was a

strong pull factor for overseas investors and also beneficial for CCE countries (Kaloty (2006),

Barry (2002), Svetličič and Jaklič (2006)). Kalotay predicts the spillover effects caused by

the productivity advantages of foreign affiliates over local forms (however limited). In his

opinion, a favourable fiscal environment and access to EU funds used partly to finance

infrastructure development, combined with the competitive wage levels of the new EU

member countries, were expected to remain major pull factors in attracting efficiency-seeking

FDI.

However, there are also opinions that the attractiveness of single market has not been a

decisive motive for overseas investors. For instance, Narula and Bellak (2009, pp. 76-78)

argue that while EU membership may help promote FDI, the positive effects of EU

membership for FDI have been decreasing, partly because these advantages are available for

greater number of EU members. Furthermore, firms from outside the EU are no longer

“forced” into EU-based production, since tariff and non-tariff barriers are fewer. Finally,

growing trade and investment agreements with non-EU members may also weaken the effects

of EU membership. The authors come to the conclusion that EU membership per se does not

necessarily lead to an increase in the quality or the quantity of FDI that a country receives,

giving as example the case of Greece. Svetličič and Jaklič (2006, pp. 12-13) draw attention

that transition-specific factors, general liberalisation and privatisation, has been coming to end

while EU integration-specific factors will be gradually enhancing its impact. Clegg and Voss

(2012, p. 24) point out that at present Chinese investors do not perceive the EU as a single

integrated market. If this were the case, there would probably be a more even distribution in

Chinese investment across the EU.

Turcsányi (2014) analyses the rationale for the relationship CCE-China from three

perspectives – China as the initiator of the platform; the involved CEE countries as apparently

the main beneficiaries; and the EU as the ‘mother’ unit partly encompassing the CEE region.

He discussed the reasons why China has become interested in developing relations with this

region.

An interesting issue widely discussed in the context of Chinese investment in Europe is the

importance of security and political aspects. Parello-Plesner (2012, p. 22) pays attention to a

potential danger that the CEE secretariat established at the Chinese foreign ministry might

link access to loans with concessions on infrastructure deals – something that would be a

departure from the EU’s strict rules on public procurement and tender procedures. Therefore,

4

the author recommends more efforts on the European side in explaining the rules of the game

for investing in Europe such as EU state aid rules, standards on public tenders or

environmental, social and labour legislation. He hopes that the future EU-China investment

agreement by setting clear rules for investing in the EU will resolve points of tension such as

questions of national security or standards of corporate governance. Hanemann and Rosen

(2012) point out, among others, that the in China related state ownership and influence creates

special concerns about government-driven, non-commercial motives for investing. Clegg and

Voss (2012) and Nawrot (2012) highlight that Chinese investors need some kind of assistance

and guidance. Thus, proactive policies at the national and EU-level are important, as is some

clarification regarding the sectors where Chinese are welcomed to invest and the areas where

there might be issues. Attention is also paid to new phenomena such as the rise of private

equity funds and other financial investors in the Chinese outward investment, and a change in

investment strategy from full to part ownership. Some commentators state that minority stakes

can help to preserve and create value for less experienced Chinese investors (Baker &

McKenzie, 2015), while others argue that they are to calm down the European anxious

reactions generated by Chinese investment expansion (Nawrot, 2012, p. 26).

There are also interesting studies on FDI flows into Poland as a background literature for the

topic analysed in this paper (Gorynia, Nowak and Wolak (2003), Chojna (2014). Chojna pays

attention to rather unexpected phenomenon, that is the strengthening of national companies in

the period of Poland’s membership in the EU. In the pre-accession period (1994-2004) the

companies with foreign capital recorded better economic results than national ones due to

their ownership and internationalisation advantages, expressed in terms of the structural-

efficiency indicators (productivity, exportability, a share of high-and medium-high technology

in sold production and exports). However, after 2004 foreign investors started losing their

advantage over domestic companies in terms of structural and efficiency indicators (Chojna,

2014, pp. 49-71).

Szunomár and McCaleb (2015) analyse and compare motivations and location determinants

of Chinese, Japanese and South Korean FDI in the largest recipient countries within Hungary,

Poland, the Czech Republic and Slovakia – with special focus on the role and impact of host

country macroeconomic and institutional factors. The authors analyse similarities and

differences in characteristics and motivations of Chinese, Japanese and South Korean FDI in

CEECs (CEE countries). Their paper provides also a detailed description of the impact of both

macroeconomic and institutional factors based on several case studies of and interviews with

East Asian firms established in the CEECs. The authors conclude that the CEE region is not

homogeneous and that there are also differences in the economic relations between CEECs

and East Asia. While in the past Japan and South Korea were more active, recently China has

been pushing forward. The characteristics, motivations and location determinants of Chinese

investments in CEECs differ somewhat from Japanese and South Korean FDI: while in the

case of the latter two countries macroeconomic factors (such as labour costs, market size,

corporate taxes) have a decisive role in selecting FDI locations, Chinese firms additionally

attach particular importance to institutional factors.

3. Inward foreign direct investment in Poland – a general picture

The FDI inflows and the activities of companies with foreign capital played an important role

in Poland’s transition towards market economy and its real convergence with EU countries.

Foreign investment stimulated the development of entrepreneurship, growth in productivity

and investment in fixed assets. They simultaneously levered internationalisation of the

economy by entering in global supply chains, greater than in the case of domestic companies

propensity to export, structural changes in industrial production and export patterns towards

5

more technologically advanced goods (Chojna 2014, p. 46). Economic activity of foreign

companies had also a positive indirect impact on economic growth and transformation process

through spillover effects. Foreign investors have brought also intangibles such as

organizational and managerial skills, and marketing networks.

This section analysis FDI inflows into Poland in the years 1990-2013 and their geographical

breakdown, as well as the relationship between Poland’s inward foreign direct investment

(FDI) and trade, and main investment incentives in Poland.

3.1. Fluctuating FDI flows

Taking into account not only the value of investment, but also dominant external or internal

factors affecting investors’ decisions, we may distinguish in the FDI inflow into Poland four

phases: 1) the period of economic transition, symbolically ending with Poland’s accession to

the European Union (1990-2003), 2) the first years of EU membership (2004-2007), 3) the

period directly affected by the global financial and economic crisis (2008-2010) and 4) a

recent post-crisis period (2011- present) (Fig. 1).

Figure 1. Specified phases in the FDI flows into Poland, 1990-2014

($ millions)

Note: Until 2012 – BPM5; since 2013 –BPM6.

Source: The NBP data.

Phase 1. Taking into account size of the FDI flows, the period of economic transition should

be divided into two sub-periods; the years 1990s and the first years of 2000s. In the 1990s, the

FDI flows were constantly growing, especially rapidly in the second half of the decade, when

they were fuelled by trade liberalisation – multilateral (GATT/WTO) and regional (European

integration) and privatisation of state-own assets. The expansion of FDI flows was possible

due to relaxation of capital flows as a result of implementation of the commitments stemming

from the Europe Agreement1 and Poland’s accession to the OECD. The FDI inflow into

Poland started with the beginning of transformation in 1990, and in 2000 it came close to 10

billion US dollars, mainly due to very high level of merger and acquisition (M&A) activity

(Sakali, 2012, p. 125). This outstanding growth in FDI was not only faster than worldwide,

but also faster than the average growth of FDI inflows into Central and Eastern Europe. As a

result, Poland’s share in global FDI increased from 0.03% in 1990 to 0.75% in 2000 (Gorynia,

1 The Europe Agreement entered into force on 1 February 1994. Poland has been a full member of the OECD

since 22 November 1996.

6

Nowak, Wolniak, 2003, p. 42). In the years 2001-2003, FDI inflows weakened, reflecting

deteriorated economic situation in the country and abroad, and the completion of the major

phase of privatisation (Chojna, 2014, p. 45).

Most FDI at that phase was market seeking, more rarely – resource- and efficiency seeking

investment. Market-seeking investors often pressed the Polish authorities for higher border

protection (e.g. tariffs on cars2).

Phase 2. The second wave of increased FDI inflows was connected with EU accession. In

2004-2007, FDI flows grew rapidly, reaching in 2007 a record level of 2.3 billion US dollars. Two new phenomena can be attributed to the ‘EU effect’: the growing share of reinvested

earnings in FDI flows (in 2004-2006 – 36%-51%, while in 1998-2003 they had negative

contribution) and the expansion of export-oriented investment (export platform FDI), mainly

greenfield investment. The EU membership has evidently increased Poland’s location

advantages. The EU internal market, with almost free movement of persons, capital, good and

services, and the regulatory convergence, created advantageous conditions for market-seeking

investment. European funds boosted the country’s investment potential and were a strong pull

factor for foreign investors. Poland’s ownership advantages have been strengthened by

knowledge and technology transfer to local firms, funds for innovation projects and

improving managerial and technical skills through employees’ movement between firms

(Kaliszuk, Wancio, 2013, p. 117).

On the day of accession Poland adopted all the EU measures applying to trade with non-EU

countries, including external tariff and trade defence instruments. The adoption of EU tariffs

generally lowered the average level of tariff protection in Polish trade with third countries,

thereby weakening the tariff-jumping motive for FDI. However, customs duties on certain

goods increased (e.g., from 12% to 14% on TV sets and LG displays). High tariff protection

encouraged several Asian multinationals to invest in TV manufacturing centres in Poland in

2005-2007 (Kaliszuk, 2009). Due to the extension of EU anti-dumping measures Poland

experienced the phenomenon called ‘anti-dumping tariff jumping’ (Belderbos, 2003, p. 3-4).

Anti-dumping duties imposed on goods originating in Asian countries (e.g. bicycles,

television sets, refrigerators, polyethylene terephthalate - PET) constituted an additional

incentive for establishing plants within the EU (see Box). However, it is difficult to attribute

the investment exclusively to the desire to avoid anti-dumping duties. Proximity to Western

markets, enabling shortening lead time in supply chain and minimising distribution costs,

skilled and relatively cheap labour, and – at last but not least – Polish investment incentives

were more important factors. Box

‘Anti-dumping tariff jumping’ of Chinese and Korean companies in Poland after EU accession

An extension of EU anti-dumping duties on Poland strongly affected Poland’s imports of Chinese bicycles

because of high EU anti-dumping duty (a fall from 606 thousand pieces in 2004 to 383 thousand in 2005, and to

276 thousand in 2006) (Central Statistical Office - CSO). An imposition of 48.5% anti-dumping duty in 2005 on

Chinese bicycles and anti-dumping duties on bicycles originating in Vietnam (to avoid anti-circumvention)

influenced the decision of Chinese EIW Industrial Development (part of Athletic Group) to set up in 2005 a

plant of bicycles and moto-bikes in Poland - Athletic Manufacturing Ltd. (however, tax incentives within the

special economic zone also were an important stimulus).

The EU anti-dumping duties on cathode-ray tube (CRT) TVs originating in China had, in turn, an indirect impact

on the decision of Chinese company TCL to produce in Poland liquid crystal display (LCD) TVs and plasma

TVs. As EU protective measures targeted low- and medium-end TV-sets, Chinese producers speeded up the

development of high-end products and established manufacturing centers overseas, among others in new EU

member states (HiSense in Hungary, TCL in Poland). Poland benefited from this strategy of Chinese companies

(as well as of Korean and Japanese ones) as the country has become soon the largest centre of production of

2 Poland maintained high tariffs on passenger cars (35% MFN duty) and liberalised them under free trade

agreements, including the Europe Agreement with the EU, as the last in 2002.

7

LCD TVs in Europe.

The anti-dumping duty imposed in 2006 on Korean side-to-side refrigerators as a result of the complaint lodged

in 2005 by Whirlpool on behalf of EU producers was as an additional incentive for Korean investments in

Poland. The anti-dumping duty imposed on refrigerators manufactured by LG Electronics Corporation

constituted 12.2% and by Daewoo Electronics Corporation – 3.4%. Refrigerators manufactured by Samsung

Electronics Corporation were subject to zero anti-dumping duty (de minimis dumping margin)3. Thus, it seems

rational to link LG’s investment in 2006 in greenfield plant of refrigerators in Kobierzyce in Poland with ‘anti-

dumping tariff jumping’. Samsung investment - the purchase of the washing machine and refrigerator plants

from the Polish company Amica Wronki in 2009 may be assessed as a preventive move.

The investment of Korean corporation SK Chemicals Co. in production of PET in Poland may constitute another

example of such a preventive strategy. In the EU, imports of PET from Korea were in the years 2000-2007

subject to antidumping-duties (ranging from 28% to 148%, depending on the company). SK Chemicals was

excluded from the scope of the measure due to de minimis dumping margin4. Nonetheless, it decided to launch

production of PET granules within the EU, choosing Poland. In 2005, the company has become a majority owner

(with shares worth 70 million euros) of SK Eurochem, localised in Włocławek (PAIiIZ).

Phase 3. Poland was the only economy within the EU, which avoided recession in 2009

(Poland noted GDP growth of 1.6%, while the EU – a fall of 4.3%). This astonishingly good

performance was attributed to a combination of several factors weakening the impact of

external shocks or stimulating the consumption, just to mention the stable banking system, a

lower, in relation to countries in the region, share of international trade in the country’s GDP

and in the level of indebtedness of Polish enterprises and households, the sizeable inflow of

EU funds and floating exchange rate of the zloty (Marczewski, 2010, p. 120-137).

Nonetheless, the 2008-2009 crisis and the deterioration in the economic situation in the

eurozone following the debt crisis, negatively affected the FDI inflow into Poland. After a

sharp drop in 2008, in the years 2009-2010 FDI stagnated (Fig. 1). A collapse in the FDI

inflow into Poland lasted a year longer than on average in the world, that is till 2010. In 2009,

the FDI flow into Poland declined by 13% and the global flows by 32%, in 2010, in contrast,

it fell by 30%, while global flows by 9% (Chojna, 2012, p. 181). This drastic plunge was

caused by a sevenfold fall in FDI in the manufacturing sector, to the lowest level in the whole

period after joining the EU. The growth in FDI flow in 2011 was driven by the tenfold growth

in M&A investment (two great transactions in the telecommunication and banking sectors).

The crisis influenced the FDI investment structure: the number of new projects in capital

intensive and production-oriented sectors has fallen but increased in the services sector,

among others, in business process outsourcing (BPO).

Phase 4. In the years 2012 and 2013, the FDI inflows fell comparing to 2011, the

phenomenon observed also in the whole EU. In 2013, FDI measured pursuant to BPM5

standard was even negative (-5.2 billion US dollars) (Fig. 1), while measured according to

BPM6 it accounted for 2.9 billion US dollars. Except the recession in the eurozone, another

explanation for the weakening of FDI inflows into Poland might be structural changes in FDI,

in line with the trend observed in Europe, i.e. a steadily falling share of manufacturing sectors

and a growing share of services sectors (Chojna, 2014, p. 48). The former are usually capital-

intensive, while the latter – labour-intensive. The statistical data confirm this supposition: the

share of services sector in FDI stock increased from 29% in 1996 to 57% in 2003 and 60% in

2013, while the share of manufacturing sector decreased respectively from 45% to 37% and

30%5. A fall in foreign investment was especially deep in such internationalised branches of

Polish manufacturing as electrical and optical devices, where the value of FDI stock at the end

of 2013 diminished by half comparing with the end of 2010 (from 3 billion US dollars to 1.5

billion) (Ambroziak, 2015, p. 272). In 2014, the FDI flows recovered.

3 Council Regulation (EC) No 1289/2006 of 25 August 2006. 4 Council Regulation (EC) No 2604/2000 of 27 November 2000. 5 Own calculations based on the NBP data.

8

3.2. A geographical distribution of Poland’s inward FDI

The EU countries remain major investors in Poland. Although their dominant role in Poland’s

FDI inflows is undisputable (Fig. 2), the geographical structure of inward investment should

be analysed with caution. First, they can be biased towards the EU due to investment by

special purpose entities (e.g. investment from Malta, Cyprus and the Netherlands). Second,

some non-EU countries’ FDI were counted as European ones because of transfers via

company's subsidiary based in the EU or due to acquisitions of shares in European companies.

Nevertheless, the official NBP data indicate that EU’s share in FDI in Poland oscillated

around 85%, with the exception of the crisis 2009 year, when it dropped to 71% (Fig. 2).

Since that time, the EU’s share has been growing. One of the reasons was the declining

involvement of American investors (Table 1). The United States, which played a crucial role

in the early stage of economic transformation in Poland, has been steadily losing its position

after Poland’s joining the EU (the U.S. share in Poland’s cumulated inward FDI fell from

9.5% in 2003 to 3.6% in 2014).

Figure 2. Shares of EU and non-EU countries in Poland’s cumulated FDI, 2003-2014, in %

(as of 31 December)

Source: Own calculations based on the NBP data.

What is interesting, in the case of FDI we do not observe the ‘de-europeanisation’

phenomenon, which is visible in Polish foreign trade, in particular in imports. In the last

decade, the EU’s share in Polish trade dropped: in exports by 5 p.p. (from 82% in 2003 to

77% in 2014), and in imports by 10 p.p. (from 69% to 59%, respectively)6. This connotation

will be commented in the next section.

6 Own calculation based on Comtrade data.

9

Table 1. Cumulated FDI in Poland - selected investors as of 31 December, 2003-2013

($ millions))

World EU USA Korea China Hong

Kong,

China

2003 57 851 48 833 5 030 106 29 -3

2004 86 636 74 067 6 245 720 23 4

2005 90 582 77 144 6 615 579 65 24

2006 125 657 106 662 9 130 1 268 96 26

2007 178 163 150 680 11 661 1 550 204 61

2008 163 955 140 527 9 946 981 336 -7

2009 185 688 158 239 12 122 915 188 186

2010 215 615 181 854 12 627 802 304 387

2011 203 109 187 042 9 239 778 414 151

2012 235 111 206 205 10 723 825 288 268

2013 220 963 199 654 9 412 1034 106 263

2014 208 635 17 706 7 586 912 179 264

2014 (%) 100,0 91.5 3.6 0.4 0.0 0.1

Note: Until 2012 – BPM5; since 2013 –BPM6.

Source: The NBP data.

Taking into account the position of EU countries one could conclude that the investment of

Asian countries in Poland must be marginal. On the other hand, it seems unrealistic, given

numerous examples of Asian FDI in Poland, confirmed by the Polish Information and Foreign

Investment Agency (PAIiIZ). However, one should have in mind the already mentioned

discrepancies in FDI statistics. The majority of Poland’s cumulated FDI from this region has

come from Japan and Korea (Fig. 3)

Figure 3. Cumulated FDI of selected Asian countries in Poland at the end of 2014

($ millions)

Note: BPM6.

Source: The NBP data.

3.3. An impact of FDI flows on Poland’s balance of trade

A distinctive feature of FDI flows into Poland is their strong relationship with the volume and

geographical breakdown of Poland’s trade balance. Figure 4 shows a strong correlation

10

between the balance of trade in goods and the FDI level: the higher the FDI inflows, the

higher trade deficit and vice-versa. However, such a direct correlation is not visible in the case

of FDI inflows into the Polish manufacturing sector (Fig. 5), which share, on average,

constituted 29% of total FDI flows into Poland and never exceeded 40% except for the years:

1996 (40.1%), 2003 (44%) and 2012 (59%).

Simple time-series analysis also reveals a strong correlation between exports and imports of

goods (Fig. 5), what can be explained by import-intensive character of exports and the high

participation of Polish companies in GVC. However, the slower dynamics of imports than

exports after 2009 allows to deduce that a part of imported intermediate goods have been

substituted by domestic ones. The growing share of domestic companies in the Polish exports

(from 42% in 2003 to 58% in 2013 ) and a shrinking share of companies with foreign capital

support this observation.

Figure 4. Poland’s overall balance and FDI flows into Poland, 1996-2013

($

millions)

Note: BPD5.

Source. The NBP data.

Figure 5. Poland’s overall trade balance and FDI flows (total and into manufacturing sector),

1996-2013

($ millions)

Note: BPD5.

Source. The NBP data.

11

Figure 6. Poland’s merchandised exports and imports, 2003-2014, ($ millions)

Source: Comtrade database.

A deep structural shift in the Polish trade pattern observed after EU accession is especially

visible in the geographical composition of trade balance. Poland, which regularly noted the

deficit in trade with the old EU (EU15) in the pre-accession period, and incidentally in the

first years after joining the EU, since 2009 has recorded a surplus in intra-EU trade, the

highest with the United Kingdom, Germany and the Czech Republic. However, the positive

trade balance with the EU28 has been accompanied by an enormous deficit with Asian

countries, mainly with China (Fig. 7). It has resulted not only from vertical investment of

Asian investors, but also from the strategy of European investors seeking cheaper inputs for

their products assembled in Poland and other CEECs. Poland has served as the export-

platform for transnational companies in automotive industry, electronics and white goods,

transforming itself in the recent decade from a net-importer into a net-exporter in these sectors.

Figure 7. Poland’s trade balance with selected trading partners in 2003, 2010 and 2014

($ billions)

Source: Own compilation based on Comtrade data.

12

It is worth adding that foreign investors’ preference to provide activity in original equipment

manufacturers’ proximity in order to secure just-in-time deliveries has led to the creation of

industrial clusters like Lower and Upper Silesia and even cross-border multi-cluster around

the borders of Poland, the Czech Republic, Slovakia and Hungary.

3.4. Polish incentives for foreign investors

Poland, like other CEE countries, with which it often competed over new investments, has

offered several incentives for foreign investors. The major tool have been special economic

zones (SEZs). Poland has 14 such zones. The first SEZ was established in 1995 in Mielec,

under the Act of 20 October 1994 on Special Economic Zones (as amended). Each zone has

various sub-zones. SEZs are located across Poland, and encompass over 18 thousand hectares,

out of which 39% is still available for new investors (Information on the implementation of

the law on special economic zones, 2015).

Initially, the main purpose of establishing special economic zones was to support the areas of

collective redundancies being a result of the liquidation of state-owned industrial companies,

which were located mainly in Southern and Western Poland. Recently, the zones have focused

on innovativeness and modern technologies, as well as developing co-operation between

business and academia. Their important task is to attract investors into Eastern Poland.

The operation of SEZ is based on a system of incentives aimed at encouraging domestic and

foreign entities to invest in the zones. Initially, the incentives included total exemption from

CIT and PIT taxes on incomes from economic activity on SEZ territory for the time equalling

half of the period for which the zone was established. Incomes obtained later until the

statutory phasing out of the zone’s functioning were exempt from 50% of income tax.

Poland, when acceding to the EU, had to make the rules for operating in SEZs compatible

with the EU law. However, there were temporary arrangements on SEZs included in the

Accession Treaty, which maintained (under certain conditions) previous tax preferences for

small enterprises till 2011 and for medium ones till 2010. In 2004, in order to discourage large

investors to sue Poland for changing the rules of game (large companies were granted only

limited previous privileges under the Accession Treaty), the Polish government implemented

the incentive package. It provided, among others, the possibility of changing the volume of

planned employment or value of investments without the loss of permit and deducting losses

from the income acquired within the permit on the territory of the zone (Ambroziak and

Kaliszuk, 2004, pp. 188-195).

The EU rules introduced, among others, aid intensity instead of unlimited aid in a limited time

period. The rules providing state aid to entrepreneurs operating in SEZs have changed

according to the EU Guidelines on national regional aid (for 2007-2013 and for 2014-2020).

The new EU regional aid intensity map in force since 1 July 2014 has furthered reduced the

average level of regional aid intensity in Poland7.

Investment regulations vary in each SEZ, but in general, the investor needs to agree with the

zone’s authorities number of jobs that will be created through the investment. The minimum

value of an investment is usually 100,000 euros. The level of tax depends on size of the

investor and voivodship where the subzone in question is situated (it ranges between 15% and

70% of the value of invested capital). The main benefit is CIT exemption.

Initially, the SEZs were established for the period of 20 years (i.e. until 2015-2017 depending

on the zone). In 2008, their lifetime was prolonged till 2020 and the area expanded by 66% to

20 000 hectares (moves aimed at improving attractiveness of SEZs facing a falling interest of

7 The Commission Regulation (EU) No. 651/2014 of 17 June 2014.

13

foreign companies during the crisis period). In 2014, the lifetime of SPEZs was extended till

20268. The decision was preceded by a hot debate. Generous privileges for investors, such as

possibility of benefiting from both EU funds and governmental grants or tax exemptions,

were widely criticised by companies outside the privileged areas as well as by some

academics pointing out that SEZs distort competition and have not brought expected effects

for poor regions (Grzegorczyk, 2015). In contrast, investors argued that non-extension of

SEZs after 2020 would negatively affect their investment plans. The proponents of the SEZ

lifetime prolongation stressed that all competing countries provided tax incentives to investors.

The controversies also existed within the Polish government. The Ministry of Economy –

focusing on jobs and competitiveness of Polish businesses - opted for the extension of the

SEZs operation, while the Ministry of Finance – having in mind foregone budget revenues -

was against it. Finally, an argument prevailed that it was necessary to protect investors

carrying out long-term projects, especially in sectors with low returns (Ministry of Economy,

2015b, p. 21).

The establishment of SEZs has resulted in investments worth 102 billion zloty (ca 30 billion

US dollars), the creation of 214,000 new jobs and maintenance of nearly 82,000 jobs (as of

December 31, 2014) (Ministry of Economy, 2015a). At the end of 2014 over 74% of the value

of the capital invested in the zones came from six countries: Poland, Germany, the United

States, the Netherlands, Italy and Japan (Table 2).

Table 2. Top-10 investors in the Polish special economic zones, as of 31 December 2014

No Country Value of the

cumulated capital

invested

(PLN millions)

%

No Country Value of the

cumulated capital

invested

(PLN millions)

%

1 Poland 19 404.8 19.0 6 Italy 6 963.9 6.8

2 Germany 18 043.9 17.7 7 Korea 4 335.9 4.3

3 USA 12 545.6 12.3 8 France 3 470.6 3.4

4 Netherlands 11 742.4 11.5 9 Switzerland 3 419.9 3.3

5 Japan 7 024.7 6.9 10 Sweden 2 672.5 2.6

Total 101 953.3 100.0

Source: Information on the implementation of the law on special economic zones. As of 31

December 2014.

The Polish capital accounted for the largest share of investment in the zones (19%). Korean

capital with the share of 4.3% ranked seventh. Korean investors (LG Display, LG Electronics

and Heesung Electronics Poland) dominated in the Tarnobrzeg SEZ. Till now, only one big

Chinese company invested in the SEZ ( that is TPV Displays Polska in Kostrzyn-Słubice SEZ

(near the border with Germany).

European funds have brought new opportunities for foreign companies. Poland was the largest

beneficiary of EU Cohesion Policy, receiving 22.5 billion euros in the years 2004-2006 and

above 67 billion euros in the financial perspective 2007-2013 (European Commission, 2009).

The current financial perspective 2014-2020 allocates for Poland about 82,5 billion euros,

which will be spent i.e. on education and research, development of infrastructure and

entrepreneurship, digitalization of Poland and vocational activation The funds will be

distributed through central and 16 regional programmes, targeting special needs of each of the

8 On 23 July 2013 the Council of Ministers issued 14 regulations introducing amendments to the respective

regulations regarding each individual SEZ (Official Journal of 2013, items 968 to 981).

14

country’s voivodships. For example, of approx. 11 billion euros for research and development,

8.6 billion will be spent on the Smart Development.

Another incentive available for foreign investors are governmental grants in cash provided

within the Program for the support of investments of considerable importance for Polish

economy for years 2011-2020. In the case of big investment (there are specified thresholds) in

the priority sectors such as automotive, aviation or biotechnology, the investor can achieve a

non-repayable financial contribution.

In 2012, the Polish government announced the creation of the Polish Investments Program,

with the aim to utilise ‘frozen state treasury assets’ on the market. The assets are being used to

finance strategic projects under the project finance formula, and as Private-Public

Partnerships use the mechanism of financial leverage The program involves energy

(production and distribution), gas and shale gas (storage, extraction), transport, heavy industry

and telecommunications sectors, as well as local government projects. All investments will be

conducted by two entities: Bank Gospodarstwa Krajowego (BGK), the only fully state-

controlled bank in Poland, and a special-purpose vehicle called Polskie Inwestycje

Rozwojowe S.A – PIR (Polish Development Investment) (PwC, 2013, p. 115).

A substantial role in bringing foreign investors to Poland plays the Polish Information and

Foreign Investment Agency. In July 2015 it provided assistance to 179 projects worth 3.17

billion euros (PAIiZ website). Since 2011, China – Poland Economic Cooperation Centre has

been operating in PAIiIZ as a "one-stop shop" providing information on investment

opportunities in Poland and offering support for Chinese companies.

PAIiIZ promotes Poland’s attributes as the host country, pointing out the following aspects:

a favourable location of Poland at the crossroads of main trade,

access to the single European Union market,

comparatively low labour costs,

skilled workforce,

new investment projects that generate demand for products and services of suppliers

from the electronics and white goods industry (PwC, 2013, p. 8).

4. Direct investment from China and Korea in Poland

China and Korea substantially differ as Poland’s trading and investment partners (Fig. 8 and

9). In 2014, the Polish trade turnover with Korea constituted 18.7% of Polish trade turnover

with China, while in contrast, the Chinese FDI in Poland (on the cumulated basis at the end of

2014) accounted for 19,6% of the Korean FDI in Poland. However, both countries have at

least one important common feature as far as economic relationships with Poland are

concerned – a huge asymmetry between exports and imports, especially large in the case of

China (Fig. 10). The trade imbalance with China is not only much bigger, but also steadily

growing.

15

•

Source: Own compilation based on the NBP and Comtrade data.

Figure 10. Poland’s trade with China and Korea, 2003-2014

($ millions)

Source: Comtrade database.

4.1. Korea as a pioneer investor from Asia

At the end of 2014 the total value of cumulated Korean investments in Poland accounted for

912 million US dollars (Table 1), what placed this country on the twentieth position among

the largest investors in Poland and the second investor from East Asia after Japan (Fig. 3).

Korea’s share in total FDI stock in Poland is small (0.4% at the end of 2014), but when one

takes into account only the manufacturing sector, this share is significantly higher (around

2%9). In the statistics on activity of companies with foreign capital in Poland, which exclude

the financial sector, Korea’s share in the whole foreign capital in Poland at the end of 2013

amounted to 1.08% (Table 5.)

According to the Korea Exim Bank data, at the end of 2014 Korea invested in Poland 1435

million US dollars, and at the half of 2015 – 1422,6 million US dollars, of which 90% gone

into manufacturing sector and 5% into wholesale and retail trade. Although as of 30 June

2015, Korean investment in Poland, on the cumulated terms, accounted only for 0.005% of

total Korean investment abroad (for comparison – for Europe it was 16.8%), Poland was the

biggest investment destination for Korean companies in Central and Eastern Europe. Poland

9 The share was calculated upon NBP data on FDI stock in manufacturing sector and Korea Exim Bank on

invested amounts in manufacturing sector in Poland, which are not fully compatible.

16

also was the third largest recipient of cumulative Korean investment in manufacturing sector

in Europe (after the Netherlands and Russia).

Korean FDI inflows into Poland were subject to large fluctuations (Fig. 11). Starting at the

beginning of 1990s, they were rapidly growing during the 1990s up to a slowdown caused by

the Asian financial crisis. The significant increase in FDI flows started in the years 2003-2004

and expanded after Poland’s joining the EU. Investments of large transnational corporations

were followed by those of their subcontractors and partners, and also rivals, attracted by the

success. This ‘snowball effect’ initiated a virtuous circle broken by the recession of the

eurozone.

Figure 11. Korean FDI in Poland, 1998-2014

($ millions)

Note: Until 2012 – BPM5; since 2013 –BPM6.

Source: the NBP data.

In the crisis years, 2000-2002 and 2008-2009, the phenomenon of ‘divestment’ occurred (in

2000, deepened by the collapse of Daewoo investment in the Polish Automobile Factory -

FSO). It allows to draw a conclusion on a strong correlation between Korean capital

involvement in Poland and business cycles.

4.2. China – a promising new comer?

Chinese investment in Poland started a decade later than Japanese and Korean ones. Chinese

FDI into Europe, which barely existed until 2004, since 2008 had been growing at

unprecedented rate till 2013. In 2009, Chinese companies speeded up their penetration into

the European market, benefiting from the weak financial position of European firms. In the

years 2010-2012, the total stock of Chinese direct investment in the EU had almost tripled

(from 12.5 billion US dollars by the end of 2010 to nearly 31.5 billion by the end of 2012)

(WIR 2015). CEECs, mostly Hungary, also experienced Chinese ‘going out’ strategy.

However, according to the Polish data, the value of FDI stock originating from China was in

Poland very modest – less than 180 million US dollars at the end of 2014, which stands for

about 0.08% (0. 2% together with Hong Kong, China) of total FDI stock in Poland. It was

definitely less than the amount invested by Japan or Korea (Fig. 6). The value of Chinese

capital present in Poland is actually higher than the official data report, because it does not

17

include investments by holdings and subsidiaries registered in other countries. As examples

may serve acquisition of the American Smithfoods (along with its Polish subsidiary) by

Chinese Shuanghui International in 2013 and acquisitions of the China Investment

Corporation (CIC) made in Poland through American companies. Part of Chinese outward

FDI is routed through third countries, a practice used extensively by Chinese firms due to

capital controls and inadequate legal and financial infrastructure at home (Hanemann, and

Rosen, 2014, p. 4).

Fig. 12. Chinese FDI in Poland, 2001-2014

($ millions)

Note: Until 2012 – BPM5; since 2013 –BPM6.

Source: the NBP data.

The value of FDI flows from China reached its peak in the years 2007-2008 as a consequence

of several greenfield projects, including two industrial plants. On the other hand, in 2009 a

relatively large divestment process was recorded (Fig. 12) as a result of negative reinvested

earnings (Table 3) and repayments of loans by the Polish subsidiaries of Chinese investors to

their parent companies. In 2011, the FDI flows increased, but in the following two years,

despite of two big acquisitions (see next point), they diminished.

Table 3. Reinvested profits and Chinese and Korean FDI flows into Poland, 2009-2013

($ millions)

Year China Korea

Reinvested profits FDI flow Reinvested profits FDI flow

2009 -20.5 -209.0 154.0 113.5

2010 63.6 0.4 91.9 63.6

2011 -5.4 101.2 107.4 112.2

2012 4.1 -148.4 111.6 -17.6

2013 4.9 -26.4 115.2 177.5

2014 1.2 91.6 79.6 28.2

Note: Until 2012 – BPM5; since 2013 –BPM6.

Source: the NBP data.

18

5. Chinese and Korean companies in Poland

According to the Polish statistics (CSO) 90 Korean firms were registered at the end of 2013

(Table 4). PAIiIZ placed on its list of major foreign investors operating at the end of 2014 in

Poland 26 Korean companies, out of which 23 were active in manufacturing sector. In June

2015, according to Korea Exim Bank data, 156 Korean enterprises were operating in Poland,

of which 65% in manufacturing sectors such as electronics, white goods, chemicals,

automobiles and car parts. The main investment sites for Korean companies in Poland include

the LG cluster in Wrocław, Samsung center in Wronki (Wielkopolska), and a complex of five

electronics companies in Mława (all in special economic zones).

The largest investor LG Display set up a manufacturing and assembly site for the production

of large TFT- LCD TV modules in Wrocław. In 2006, LG Electronics set up a new TV sets

plant, and together with six partner companies set up an electronic cluster in Kobierzyce near

Wrocław, the first of this kind in Europe. The LG Display panels were supplied to LCD

television sets manufactured by LG Electronics, Toshiba, Sharp and other TV manufactures in

Poland and Hungary. In 2009, LG Display produced over 10 million LCD panels. The major

Korean investors also include Heesung Electronics Poland Ltd., and Mando Corporation

Poland Ltd., producing brake systems and steering systems in Walbrzych (the biggest Korean

investment in Poland in 2012), and SK Chemicals (a PET granules plant in Włocławek and

coatings for LCD screens in Dzierżoniów).

Samsung Electronics Poland Manufacturing has four research centres (in Warsaw, Łódź,

Poznań and Cracow), and one of the most modern production lines for washing machines and

refrigerators in the world (in Amica Wronki), which exports its products to 34 countries. The

total value of investment in the years 2010-2016 is to be 470 million US dollars. As a result of

the growing cost of transport and realisation of the ‘just in time’ strategy, the company has

been recently looking for local Polish suppliers of components in order to replace the existing

suppliers from Asia (Subcontracting, 2015). The Korean investors have created a total of over

20,000 jobs (Korean Business and Investment in Poland, 2011).

On the list of major foreign investors operating at the end of 2014 in Poland there are 13

Chinese companies: eight in manufacturing sectors, two in distribution of goods and repair of

motor vehicles and motorcycles, another two in IT sector and one in construction. The list

includes Guangxi LiuGong Machinery, which in 2012 acquired assets of a civil branch of

Huta Stalowa Wola and its subsidiaries for about 100 million US dollars, and the biggest

Chinese investment in Poland, the Tri-Ring Group, which bought in 2013 89% shares of

Polish turning bearing factory in Kraśnik for about 300 million US dollars (PAIiIZ website).

Both investment as well as the acquisition of Aero AT – an aviation production plant located

in Mielec by Jiangsu LanTian Aerospace Industrial Park are examples of a recently popular

Chinese strategy, that is to invest in manufacturing industries in order to acquire European

technology, brands, and global distribution channels (strategic-assets seeking). TCL’s

operation in Poland is given as a good example of the impact of the GVC of Chinese

manufacturers on their backward and forward linkages with local business communities (EU

SMS Report, 2014, pp. 9-12)

Chinese companies are increasingly interested in the Polish infrastructure projects, including

renewable energy, engineering and construction. A Chinese construction firm COVEC was

the first Chinese company to win a public bid in the EU for construction of part of A2

highway. However, in 2011, COVEC broke the contract with an official explanation of

soaring costs. The road had to be completed by Polish firms. There were fears that it might

have negative impact on other Chinese companies participating in public procurement in

Poland (Golonka, 2012, pp. 28-29). However, in 2014, the Pinggao group, a subsidiary of the

State Grid Corporation of China won three infrastructure tenders owned by a Polish

19

transmission system operator Polskie Sieci Elektroenergetyczne (PSE) S.A (Deloitte, 2014).

The same year CEE Equity Partners, an investment vehicle created by the Export-Import

Bank of China in partnership with state-backed financial institutions from CEE to invest in

the region, bought a 16% stake in Poland Energy Partners (PEP), Poland's biggest private

utility, for about 89 million US dollars.

Except large companies there are registered 706 small Chinese firms employing up to 9

persons (Table 4). In 2013, the micro-scale firms constituted 85,4% of all Chinese companies

operating in Poland (in the case of Korea – 51%). The dominance of small Chinese companies

as investors in Poland seems a long-standing tendency, in line with the Chinese investment

strategy. A similar tendency is observed in entities with majority of foreign capital (Table 5).

Table 4. Chinese and Korean capital in Poland in 2005, 2011 and 2013 (as of 31 December)

Specification China Korea

2005 2011 2013 2005 2011 2013

Number of entities

- up to 9 persons employed . 574 706 . 72 71

- 10 and more persons employed . 83 120 . 61 69

- Total 71 657 826 64 133 140

Number of shareholders

- up to 9 persons employed . 1062 1298 . 98 108

- 10 and more persons employed . 151 231 . 81 94

- Total 109 1213 1529 83 179 202

Foreign shareholders' capital (PLN million)

- up to 9 persons employed . 74.1 145.9 . 51.1 .

- 10 and more persons employed . 73.5 2026.1 .

- Total . 147.6 265.8 1866.6 2077.2 1999.8

Country share in the whole foreign capital,

in %

- up to 9 persons employed . 0.23 0.35 . 0.16 .

- 10 and more persons employed . 0.06 0.08 . 1.52 .

- Total . 0.09 0.14 1.68 1.26 1.06

Note: Data do not cover entities having foreign shares at the end of 2013 in the financial

sector, higher education schools, individual households in the agricultural sector, independent

public healthcare centers nor the cultural institutions being legal entities.

Source: CSO, Economic activity of entities with foreign capital. 2005 and 2013 editions.

Table 5. Chinese and Korean capital of companies with over 1 PLN million of foreign capital

in 2013

China Korea

2005 2011 2013 2005 2011 2013

Number of entities . 0 14 22 31 35

Number of shareholders . 0 28 26 38 41

Foreign shareholders' capital (PLN

million)

20.9 0 155.2 1847,3 2031.7 1961,6

Country share in the whole foreign capital,

in %

. 0 0.09 1.73 1.28 1.08

20

Note: as in Table 4.

Source: CSO, Economic activity of entities with foreign capital. 2005 and 2013 editions.

A number of Chinese companies operating in Poland is eight times higher than Korean ones.

In general, Korean companies are bigger than Chinese ones: they employ more persons and

jointly engaged much more capital. There are two and a half more Korean companies with

over 1 million US dollars of foreign capital than similar Chinese ones. This pattern results

from the strong position of chaebol companies in the Korean economy and its outward

investment, despite a generous official financial support for overseas expansion of SMEs

(Export-Import Bank of Korea, 2014).

In 2013, capital of Korean shareholders in the whole foreign capital in Poland was nearly

eight times higher than China’s one (Table 4). Consequently, Korea’s share in the whole

foreign capital in Poland (1.06%) was higher than China’s one (0.14%), with the exception of

micro companies, where Chinese share was over twice higher (0.35%) than Korea’s one

(0.16%). However, Korea’s share in the whole foreign capital in Poland has been decreasing.

In contrast, the China’s share has been steadily growing.

6. An impact of Chinese and Korean FDI on Poland’s trade

The analysis of commodity pattern by broad economic categories (BEC), showing the extent

to which production processes are geographically fragmented, may be a good measure of

vertical integration between countries (Ho, and Lu, 2012). During Poland’s membership in the

EU, the size of trade in intermediate and capital goods in relations with Korea has changed

substantially. In the years 2005-2008, the share of capital goods in Polish imports increased,

while the share of intermediate goods declined. However, since 2008 the importance of

intermediate goods has been steadily growing. In 2014, they constituted nearly ¾ of all Polish

imports from this country, among others, due to a substantial increase in imports of industrial

processed supplies. In contrast, the share of capital goods dropped by 19 p.p. (Table 6), what

may be linked with the weaker Korean investment activity in Poland after 2007 (Fig. 11).

Intermediate goods dominate also in the Polish exports to Korea (67.8% in 2014).

Contrary to trade with Korea, in the analysed period Poland’s commodity pattern by BEC in

relations with China has not changed substantially. Although the share of intermediate goods

increased by 4 p.p., at the expense of consumer goods, it was still twice smaller than in the

case of Korea. However, in the absolute values, Poland’s imports of intermediate goods from

China were almost three times bigger than imports of such goods from Korea (Table 6).

Table 6. Commodity pattern of Polish imports from China and Korea in the years 2005, 2008 and 2014 by BEC

China

Korea

2005 2008 2014 2005 2008 2014

% $ bn % $ bn Total 100.0 100.0 100.0 23.0 100.0 100.0 100.0 4.3

Capital goods 29.5 32.1 31.4 7.2 26.6 37.1 18.1 0.8

Intermediate goods, including: 35.7 37.4 39.7 9.1 62.0 54.1 72.5 3.1

- Industrial supplies not elsewhere specified, processed 18.3 18.4 17.4 4.0 16.6 15.7 25.2 1.1

- Parts and accessories for capital goods 12.8 14.9 18.6 4.3 42.3 31.3 40.7 1.8

Consumer goods 34.8 30.5 28.9 6.6 10.7 8.6 9.4 0.4

Source: Own calculations based on Comtrade data.

Most Korean investments have gone into hi-tech industries, fuelling qualitative changes in the

Polish-Korean trade. The analysis of Poland’s trade according to technology intensity (Table

5) confirms the importance of high technology imports from Korea. In 2014, imports of high-

tech goods constituted half of total Polish imports from this country (together with middle-

21

high imports they amounted to 83%). At the same time there was a sharp drop (by almost 13

p.p.) in the share of low technology imports.

In Poland’s exports to Korea middle-high-tech products dominated; the share of high

technology exports almost doubled to nearly 10%. The share of low technology exports

declined by 10 p.p. in favour of middle-low exports.

Table 7. Technology intensity in trade with China and Korea in 2005 and 2014

( %)

Technology intensity

China Korea

2005 2014 change

in %

2005 2014 change

in %

Export

s

Total 100,0 100,0 - 100,0 100,0 -

Low 6.2 16,5 +10.3 18.4 8.5 -9.9

Middle-low 41,4 41,4 0,0 8.7 20.9 +12.2

Middle-high 41.6 28,7 -12.9 62.5 60.5 -2.09

High 4.7 7,1 +2.4 5.4 9,6 +4.2

Other 6.1 6,3 +0.2 5.0 0.5 -4.5

Import

s

Total 100,0 100,0 - 100,0 100,0 -

Low 28.3 24,6 -3.7 5.4 2,0 -3.4

Middle-low 12.4 11,4 -1.0 7.3 15,0 +7.7

Middle-high 21.5 24,5 +3.0 27.6 32,1 +4.5

High 35.0 38,3 +3.3 59.7 50.8 8.9

Other 2.8 1,2 -1.6 0.2 0.1 -0.1

Source: Own calculations based on Comtrade data.

The share of high and medium-high technology products in Poland’s total imports from China

is still lower than in the case of Korea, but a gap decreased by 10 p.p. (from about 30% to

20%) – Table 7. In exports to China the commodity pattern is different: middle-low and

middle-high technology goods prevail. In the years 2005-2014, the share of low technology

exports increased by ca 10 p.p. (mainly due to the growing exports of copper – a major

position in Poland’s exports to China). This increase occurred at the expense of middle-high

exports that substantially decreased.

7. Challenges

The most important Chinese recent initiatives of foreign policy – the China’s Silk Road policy,

known as ‘One Belt, One Road” programme and the related establishment of the Asian

Infrastructure Investment Bank (AIIB) are expected to have a positive impact on Poland’s

economy.

Poland is one of 57 founding members of the AIIB. On 25 August 2015, the government

accepted Poland’s access to AIIB. The agreement between Poland and the AIIB is to be

signed by the end of 2015. Poland will contribute the sum of more than 830 million US

dollars. The Polish authorities treat the accession to AIIB structures as a strategic decision in

line with the guidelines on Poland’s non-European policy, which involve building and

enhancing political and economic relations with China and the whole Asia. It should help in

building Poland’s image as a country interested in development challenges in the region.

Poland expects from the accession to AIIB several benefits, such as tapping into the

22

knowledgebase of major infrastructure investments in Asia and, in the longer term, attracting

infrastructure investment to Poland (Ministry of Foreign Affairs, 2015).

The new Bank has been involved in the development of the direct marine and rail connections

(road connections in the perspective) between Asia and the EU. Two railways have already

connected Chinese cities Chengdu and Wuhan with Łódź in Poland. Projects in transport

connections can create new business opportunities for the Polish companies.

The initiative the ‘Belt and Road’ is expected to promote the development of employment and

industries, creating new supply chains and value chain, and deepening the industrial

integration between China and countries within the region (MOFCOM, 2015). Poland, as the

first EU country on the revitalised Silk Road, can play an important role in this endeavour.

In the relations with Korea as optimistic facts should be mentioned the reinvesting of profits

in Poland by Korean companies and investment in R&D. The liberalisation effects of EU-

Korea Free Trade Agreement (in force since 1 July 2011) for Poland are mixed. In 2012-2013,

Poland’s exports of goods and imports of services between related companies have increased.

However, Poland’s imports of goods were falling (fig. 10), what confirms that for Korean

companies external demand in eurozone is much more important pull factor than free access

to European market.

8. Conclusions

Although during recent years Poland has become the fastest growing economy in the EU and

now has the largest economy in CEE region, it has not been so far a strategic market for Asian

investors, except for Koreans. Poland has not capitalised on Asia’s emerging market boom.

Vast potential for trade with Asia remains untapped.

Korean, and especially Chinese FDI inflows into Poland still constitute a tiny share of

Poland’s inward investment. Investment from both countries were mostly efficiency seeking.

However, while Korean multinationals treated them as export platform, Chinese ones - rather

as an opportunity to get brand and better access to European distribution channels. In the case

of wealth funds a major motive were capital profits. Korean investment are more concentrated

and use synergy effects. The character of export platform makes them vulnerable on external

demand.

Poland will need foreign direct investment, especially after 2020, when European funds end,

for modernisation of the economy, in particular the energy sector. Therefore as a host country

it should in advance inform potential investors about own needs and potential changes in

investment incentives.

Recently, in Poland and abroad one may often meet opinions that while international capital

movements can support long-term growth, they also pose short-term risks, including those

associated with undesirable consequences of exchange-rate appreciation, financial and asset-

price cycles, the risks of economic overheating and sudden reversals in capital flows (OECD,

2011). In this context it is worth reminding that in the years 2004-2013 foreign investors

transferred from Poland dividends worth 81.7 billion US dollars, what by nearly 59%

exceeded reinvested profits during this period (51.5 billion US dollars). In the years 2012-

2013, high transfer of dividends remained despite a strong decline in the FDI inflow. In effect,

transferred dividends exceeded the value of the inflows in both years (Chojna, 2014, p. 49).

Poland has noted high GDP growth comparing to other European countries, but now it has to

face new challenges – how to escape middle-income trap to reach a high-income level, how to

move up the value added and technology ladder, how to satisfy aspirations of young

generation in the field of wages and solve demographic problems. There is a growing

23

conviction among Polish politicians and society that the economic policy should change. Low

wages cannot be the main pull factor in attracting foreign companies. Poland has to replace

the present model by the model proper for the knowledge-based economy. Foreign capital

should play a greater role as a stimulator of technical progress and the development processes,

like in the period of economic transformation. It is a cute problem, given a lower than the EU

average level of innovation of Polish companies.

Thus, Poland is interested in attracting investors who will establish stronger economic ties

with Poland and develop R&D activity. Samsung’s recent investment in R&D is an

encouraging example of the investment bringing more direct and indirect benefits to the

development of high value-added industries in Poland. China’s ambition to upgrade its

economic development by focusing on quality and efficiency (a ‘New Normal’) (Green and

Stern, 2015) also fits well to Poland’s ambition to move up the value added ladder.

For Poland it is also important to be treated by the Chinese partner as the EU member state,

and not as part of ex-Soviet bloc. The change in perception would allow Chinese companies

to explore better opportunities resulting from EU projects. For example, to coordinate the EU

“Connecting Europe” initiative with Chinese One Belt initiative, which could help eliminate

the gaps between the transport networks of particular EU countries, or to contribute to

Junker’s Investment Plan.

24

References

Chapter in

Book

Ambroziak, A. and Kaliszuk, E. (2004). Conditions of granting state aid in Poland

after EU accession. In Poland in the European Union edited by E. Kawecka-

Wyrzykowska and E. Synowiec. IBRKK. Warsaw..

Journal

Article

Ambroziak, Ł. (2015). Impact of Production Fragmentation on Polish Foreign Trade

in Machines and Equipment in Foreign Investment. In Poland in the years 2012-2014.

IBRKK. Warsaw.

Paper Apoteker, T. (2012). Chinese Investment in the Greater Europe Zone. Europe China

Research and Advice Network.

Note Baker & McKenzie (2015). Chinese investment into Europe hits record high in 2014.

http://www.bakermckenzie.com/news/Chinese-investment-into-Europe-hits-record-

high-in-2014-02-11-2015/

Paper Barry, F. (2002). EU Accession and Prospective FDI Flows to CEE Countries: A

View from Ireland, University College Dublin, August .

Report Casarini, N. (2013). Brussels – Beijing: changing the game? Report N° 14, February,

Institute for Security Studies. Paris.

http://www.iss.europa.eu/uploads/media/Report__14.pdf (accessed 30.8.2015).

Project

Report

Chaminade, C. (2015). Technology-Driven FDI by Emerging Multinationals in

Europe, CIRCLE, Lund University.

Website

article

Chinese investment in Central and Eastern Europe (2012). Intelligence Quarterly.

November 18, www.intelligencequarterly.com (accessed 30.8.2015)

Paper Clegg J.& Vos, H. (2012). Chinese Overseas Direct Investment in the European

Union. Europe China Research and Advice Network.

Chapter in

Book

Chojna J. (2012). Foreign direct investment in Poland. In Polityka gospodarcza Polski

w integrującej się Europie (Poland’s economic policy in the integrating Europe).

IBRKK. Warsaw.

Chapter in

Book

Chojna, J. (2014). The Role of the Foreign Sector in Poland’s Economic

Development in the Pre- and Post-Accession Period. In 10 lat Polski w Unii

Europejskiej (10 years of Poland in the European Union). IBRKK.Warsaw.

Journal

Article

Chojna J. (2015). Foreign direct investment in Poland .In: Polityka gospodarcza

Polski w integrującej się Europie (Poland’s economic policy in the integrating

Europe).

Report Deloitte (2012). “Enter the Dragon. A successful case study of Chinese investment in

Poland”, November 2012, http://www.deloittelegalce.com/en/content/enter-dragon-

successful-case-study-chinese-investment-poland (accessed 30.8.2015).

Report Deloitte (2014). More experienced buyers. Higher return expectations.

Book Eason, A.J.(2004).Tax Incentives for Foreign Direct Investment. Kluwer Law

International.

Report EU SMS Center (2014). Chinese Outward Foreign Direct Investment in the EU.

Report Export-Import Bank of Korea (2014). Annual Report 2014

Working

Paper

Ekholm, K., Forslid R., and Markusen, J.R. (2003). ‘Export-Platform Foreign

Direct Investment’, National Bureau of Economic Research, Working Paper 9517.

Report European Commission (2009). European Cohesion Policy in Poland.

Working

Paper

Fung, K.C., Korhonen, I., Li, K., and Ng, F.(2008). China and Central and Eastern

European Countries: Regional Networks, Global Supply Chain, or International

Competitors? The World Bank Development Research Group Trade Team. Policy

Research Working Paper 4689. August.

Report Golonka, M. (2012). Partners or rivals? Chinese investments in Central and Eastern

Europe. Warsaw: Central & Eastern European Development Institute. Poland.

Hanemann, T. and Rosen, D.H, (2014). New Realities in the US-China Investment

Relationship. Rhodium Group. April.

25

Report Ho, G. and Lu, Y. (2012). Republic of Poland. Selected Issues. IMF Country Report

No. 12/163. IMF. July.

Policy Brief Green, F. and Stern, N. (2015). China’s “new normal”: structural change, better

growth, and peak emissions, The Grantham Research Institute. Policy Brief. June.

Government

al Document

Informacja o realizacji ustawy o specjalnych strefach ekonomicznych. Stan na 31

grudnia 2014 r. (Information on the implementation of the law on special economic

zones. As of 31 December 2014). Parliament Document No 3458. 29 May 2015.

Journal

Article

Gorynia, M. Nowak J., Wolniak, R.(2003). Globalisation of a Transitional Economy:

The experience of Poland. Journal of East-West Business, 10(2).

Grzegorczyk, M. (2015). Special Economic Zones have hardly boosted growth,

Obserwator. Finansowy.pl. 6 August.

http://www.obserwatorfinansowy.pl/tematyka/in-english/special-economic-zones-

have-hardly-boosted-growth/ (accessed 30.8.2015).

Chapter in

Book

Heiduk, G. and McCaleb, A. (2014) Chinese FDI and Financial Engagement in

Poland. In Chinese Investments and Financial Engagement in Visegrad Countries:

Myth or Reality? Edited by A. Szunomár. Institute of World Economics, pp. 55-73.

Budapest.

paper Kratz, A. (2013). A Quantitative Summary of Chinese Investments in the Baltic Sea

Region, Baltic Development Forum.

Journal

Article

Kaliszuk, E. (2009). Trade policy and regulation: lessons from Poland's accession to

the European Union, International Journal of Public Policy, Inderscience Enterprises

Ltd., 4(1/2).

Chapter in

Book

Kaliszuk, E. and Wancio, A. (2014), The Investment Development Path in the

Context of Poland’s Accession to the European Union and the Global Financial and

Economic Crisis. In: International Business and Institutions after the Financial Crisis,

edited by Y. Temouri and Ch. Jones, p. 109-129, Palgrave Macmillan.

Journal

Article

Kim J.M. and Rhe, D.K. (2009) Trends and Determinants of South Korean Outward

Foreign Direct Investment. The Copenhagen Journal of Asian Studies 27(1)

Internet

publication

Kornecki L., FDI in Central and Eastern Europe Business Environment and Current

FDI Trends In Poland. Embry Riddle Aeronautical University. Economics OC09064.

Working

Paper

Korniyenko, Y. and Sakatsume T.(2009). European Bank for Reconstruction and

Development. Working Paper No. 107.

A Guide KPMG (2012). KPMG in Poland. 20 years of Special Economic Zones in Poland. A

Guide to SEZs.

Journal

Article

Kuźmińska-Haberla, A. (2012). Promotion of Outward Foreign Direct Investment in

Emerging Markets – the Example of South Korea. Ekonomia Economics 3(20).

Wrocław University of Economics.

Conference

Paper

“Investment Incentives – The Good, The Bad, and the Ugly: Assessing the Costs,

Benefits, and Options for Policy Reform” (2013). The Eighth Columbia International

Investment Conference on Investment Incentives. November 13-14, Columbia

University. Draft as of November 8, 2013

Chapter in

Report

Marczewski, K. (2010). Reactions of companies with foreign capital to symptoms of

the economic crisis’. In Foreign investment in Poland 2008-2010 edited by J.Chojna,

IBRKK, Warsaw.

Government

Notice

Ministry of Economy (2015a). The effects of the functioning of the Special Economic

Zones,

http://www.mg.gov.pl/Wspieranie+przedsiebiorczosci/Wsparcie+finansowe+i+inwesty

cje/Specjalne+strefy+ekonomiczne/Efekty+SSE, (accessed 30.8.2015)

Report Ministry of Economy (2015b). Bezpośrednie inwestycje zagraniczne w Polsce w

2013 roku (Foreign Direct Investment in Poland in 2013). March.

Government

Notice

Ministry of Foreign Affairs. Meeting for entrepreneurs on investment challenges in

Asia, MFA Press Office

26

http://www.msz.gov.pl/en/c/MOBILE/news/meeting_for_entrepreneurs_on_investmen

t_challenges_in_asia

Government

Notice MOFCOM, 18-09-2015.

http://english.mofcom.gov.cn/article/newsrelease/significantnews/201509/2015090112

2353.shtml.

Note National Bank of Poland (2015). Revisions in the Balance of Payments and

International Investment Position Statistics Introduced in 2014.

Paper Nawrot, K.A. (2012). Kierunki inwestycyjne Chin. Jakich inwestycji chińskich może

oczekiwać Polska, (China Investment Destinations. What Kind of Chinese Investment

Can Poland Expect). Poznań, December.

Report OECD (2011) International capital flows: Structural reforms and experience with the

OECD Code of Liberalisation of Capital Movements. Report from the OECD to the

G20 Sub-Group on Capital Flow Management. June.

Chapter Parello-Plesner, J. (2013). EU-China Investment Relations. In Brussels – Beijing:

Changing the Game? In European Union Institute for Security Studies, edited by N.

Casarini. Paris, pp. 19-26. http://www.iss.europa.eu/uploads/media/Report__14.pdf

(accessed 30.8.2015).

Website

information

PAIiIZ (2005). SK Chemicals rozpoczyna produkcję w Polsce. June,

http://www.paiz.gov.pl/nowosci/?id_news=467# (accessed 30.8.2015)

Guide PwC Polska Sp. z o.o (2013). Investing in Poland 2014. Featuring Trendbook.

(accessed 30.8.2015),

http://www.pwc.pl/pl/publikacje/2013/investing-in-poland-2014.htm (accessed

30.8.2015).

Chapter in

Book

Sakali, Ch. (2012). Mergers and Acquisions in Central and Eastern Europe and the

Impact of the Global Economic Crisis. In Mergers and Acquisitions as the Pillar of

Foreign Direct Investment. In edited by A. Bitzenis, V.A. Vlachos and P.

Papadimitriou, pp. 121-140. Palgrave Macmillan. October.

Industry

report

Subcontracting 2015 - summary report, June 2015. International Poznan Fair.

http://www.subcontracting.pl/en/subcontracting_in_a_nutschell/subcontracting_2015-

_summary_report/ 10.07.2015

Book Stephan, J. (2013). The Technological Role of Inward Foreign Direct Investment in

Central East Europe. Palgrave Macmillan.

Bulletin Szczudlik-Tatar, J. (2010). Central and Eastern Europe in China’s foreign policy after

the last EU’s enlargement. In: Panorama of Global Security Environment, Centre for

European and North Atlantic Affairs (CENAA), Bratislava.

Conference

Paper

Szunomár, A. and McCaleb, A. (2015). Comparing Chinese, Japanese and South

Korean FDI in Central and Eastern Europe: macroeconomic versus institutional

factors. World Congress of Comparative Economics. Roma Tre University, 25 June.

http://editorialexpress.com/conference/WCCE2015/program/WCCE2015.html

(accessed September 10, 2015).

Report UNCTAD (2015). World Investment Report 2015.

Journal

Article

Wiśniewski, P.A. (2012). Aktywność w Polsce przedsiębiorstw pochodzących z Chin

(Activity of Chinese companies in Poland). Zeszyty Naukowe No 34, Institute of World

Economy, Warsaw School of Economics.

Website

Article

Zhang, K. (2015).‘One Belt One Road’: Its relevance to the European Companies.

The European Sting. European Business Summit. May 6.

http://europeansting.com/2015/05/06/one-belt-one-road-its-relevance-to-the-european-

companies/ (accessed 30 August 2015).

27