President Xi Jinping's visit to Poland is expected to boost bilateral relations with the Central and Eastern European nation, as well as trade between the two countries which is still lagging well behind the nations' comprehensive and close political exchanges.

Vehicles operate beside Chinese containers at the railway container terminal in Lodz, Poland. Photo: Song Shengxia/GT

At dusk on an early summer evening, in the railway container terminal in Lodz, the third largest city in Poland, a huge crane was busy unloading dark red containers off a train that had traveled thousands of miles from Chengdu, Southwest China's Sichuan Province.

The terminal, which serves as the terminus of the fastest and busiest direct rail cargo service linking China and Europe, works around the clock.

Since 2013, the Chengdu-Europe express  has run from Chengdu, through Kazakhstan, Russia and Belarus, all the way along parts of the ancient Silk Road to Lodz, carrying containers loaded with electronics, textiles, auto parts and clothes. It usually takes 11 to 13 days to transport goods from China to Poland. However, in the first two years of its operations, cargo trains returned to China empty and only last year did they begin carrying goods in both directions, twice weekly in 41 containers.

The asymmetric cargo flow between China, the world's second largest economy; and Poland, the biggest Central and Eastern European (CEE) country; is a sign of the unbalanced trade between the two countries.

"Frankly speaking, our economic relations are left behind political relations. On the Polish side, there is no reason for it. Such a powerful global economy as China and such a strong and growing economy in Europe like Poland should generate more (economic activities)," Slawomir Majman, Board Advisor for Strategic Affairs of the Polish Information and Foreign Investment Agency (PAIiIZ) said.

Recent political relations between China and Poland have been the best in history. The two nations established a strategic partnership in 2011. Ties were reinforced in 2012 by Chinese then-Premier Wen Jiabao's visit to Poland in 2012 when the 16+1 format - annual leaders' summit of China and CEE countries - became institutionalized.

High-level visits by leaders of the two countries have also intensified in the past few years. Polish President Andrzej Duda visited China last year, followed by visits to China by Polish foreign and agriculture ministers early this year. The visit by President Xi Jinping between June 19-21, his first trip as president to the largest country in the CEE region, is bound to add to the momentum for closer political ties between the two nations.

Poland also applied to join the China-initiated Asian Infrastructure Investment Bank (AIIB) as a co-founding member last year. The decision was recently rectified by the Polish parliament, making Poland officially the only AIIB co-founder out of the CEE countries.

Guards stand at the gate of the Polish Presidential Palace in Warsaw. Photo: Song Shengxia/GT

Unbalanced trade

However, it seems that the warm political atmosphere has not produced significant economic results.

Poland has a large trade deficit with China, with imports from China accounting for around 11 percent of total imports while exports to China account for only 1 percent of total Polish exports, according to PAIiIZ data.

There are certain practical factors restricting the further expansion of Polish exports in China.

"Poland has a lot to catch up with in developing its modern technology and its own brands. China has advantages in this regard. For example, Huawei is such a hugely successful Chinese brand in Poland," said Marek Magierowski, a spokesman for the Polish president.

"Building our own national brands is both our challenge and dream ... We are striving toward that goal and currently our more sophisticated products such as trains, buses and electric cars can be found in major cities in Europe. I hope one day a Polish-designed train can run on Chinese rails," Magierowski said.

Adam Brozek, director of Department of International Cooperation under the Polish Ministry of Economic Development, said he witnessed how the Chinese government and companies work hard to promote awareness of Chinese brands when he worked for Huawei in Shenzhen between 2013 and 2015.

"Poland is a very diversified market with too many small firms that cannot match their Chinese counterparts. The key element to building a strong Polish brand is encouraging consolidation and mergers to allow firms to go to overseas markets such as China, India and Indonesia under one brand," Brozek said.

"But it is not easy. You need to persuade these companies to cooperate and it is going to take a while to make sure they effectively cooperate without suspicions and concerns about intellectual property right issues," Brozek said.

Poland is famous for its high-quality food and agricultural products. It is the largest net exporter of processed food in the EU. It is also top apple producer in Europe and one of the largest apple exporters in the world. However, food exports to China still account for a small portion of total Polish exports. Take apples as an example. Poland is keen to export apples to China after Russia's ban in 2014.

According to PAIiIZ board advisor Majman, talks about admitting Polish fruits into the Chinese market have lasted for three years.

"Polish food exporters complained about tremendous bureaucratic torture in going through sanitary and quarantine inspections in China," Majman said.

The monument of Prince Józef Poniatowski in front of the Presidential Palace, Warsaw. Prince Józef Poniatowski was a Polish patriot, military hero and an inspiration for Polish freedom fighters. Photo: Song Shengxia/GT

Untapped market

Chinese investment in Poland is still quite small, which does not reflect the economic potential of China. Foreign direct investment from China totaled $877 million by the end of 2015, accounting for only about 1.2 percent of the total foreign capital invested in Poland.

The Chinese and Polish do not understand each other's markets. There are great differences in business registrations, tax policies and cultures, Brozek said.

For instance, it is not easy to obtain approval to bring non-EU employees to Poland. Not only Chinese companies but also Japanese and Korean companies have complained about the country's labor policies, Brozek said.

Despite Poland's past as a communist state, its economy has become more and more assimilated into Europe after it joined the EU in 2004. All its policies regarding trade, investment, labor and environmental protection must fit within the EU legislative framework.

There are lessons to be learned from an unsuccessful attempt by the China Overseas Engineering Group (COVEC) to break into the Polish infrastructure construction market several years ago. COVEC was awarded a contract to build a 50-kilometer highway between Warsaw and the German border in 2009. But due to unfamiliarity with local markets and policies, it met financial difficulties because the company pushed its bid too low. The contract was later cancelled by the Polish government.

"The biggest challenges are mainly about understanding local laws and market practices," Adrian Au, COO of the Chinese-invested New Silk Road Company Limited in Poland, told the Global Times.

"The EU has very different market practices and different laws. These are things that we need to get used to. We have been very careful in things such as how to structure the company based on taxes because taxes are very high in Europe and very different from country to country," Au said.

Prospects

Despite these challenges, China and Poland have been seeking ways to take their economic relations to the next level and President Xi's visit will be another step in this direction.

"We hope China will provide financial support to grow green technology in Poland. We expect to cooperate with China in some strategic areas such as energy, infrastructure, food processing, innovation and modern technology. We expect that a lot of agreements and memoranda of understanding will be signed during Xi's visit," Brozek said.

Creative ways to boost economic cooperation have already been sought by both countries to fill the strategic partnership with real meaning.

Poland-China Regional Forums, which have been held yearly since 2013 to bridge local governments and businesses from both countries, have gained growing importance as local governments are more aware of their needs and find it easier and more efficient to identify the areas in which they can cooperate.

"The forum is a unique model for cross-border regional cooperation and China is the only Asian country with which we have created such a regional platform for promoting projects, especially in the area of infrastructure," said Katarzyna Kacperczyk, Polish Deputy Minister for Foreign Affairs, adding that more than 40 Polish cities and regions have signed contracts with their Chinese counterparts.

Poland is also particularly keen to jump on the bandwagon of China's One Belt and One Belt initiative. Located in the heart of Europe with major European transport routes intersecting in Poland and four seaports, the country is in an excellent position to serve as a gateway in Europe for the New Silk Road.

"Poland can be a distribution hub for Chinese exports to Europe, but infrastructure in Poland is lagging compared with other European countries. We need to build new highways, railways and a transport network from north to south," Magierowski said.

Meanwhile, Poland, with its political and economic stability as well as a relatively cheap skilled labor force, is in the midst of re-industrialization. It has launched 14 special economic zones (SEZ), offering exemptions from income or corporate taxes. The country was also awarded EU funds totaling 105.8 billion euros ($119 billion) for the period of 2014-20.

"That means Chinese investors can also benefit from the EU fund if they invest in Poland," Majman said.

"The key to avoiding the 'strategic partnership' being reduced to an empty slogan is that both sides should focus on areas of cooperation that are reciprocal," Zhao Yongsheng, an expert on EU studies told the Global Times. 

"Chinese investors should focus on projects in infrastructure, high technology, R&D and green fields that are more compatible with Polish interests. For the Polish side, they should be more aggressive in promoting their brands and more active in proposing projects and solutions that are beneficial for Chinese partners," Zhao said.

Back in the Lodz SEZ, managers proudly presented a newly designed project that can bode well for the future of both countries.

About one month ago, the Chinese-invested New Silk Road Company formed a joint venture with the Polish firm Hatrans Logistics, the only rail freight logistics operator of the train on the route between Chengdu and Lodz to develop a new multimodal terminal in the Lodz SEZ.

"Our Polish partners show a high level of professionalism, patience and understanding in working with their Chinese partners. We are very optimistic about the prospect of the new terminal," Adrian Au said.