The economic relations between China and Bulgaria are traditionally good, and recent years have witnessed a substantial growth of two-way trade, which exceeded US$1.3 million in 2010.
The excellent treaty framework between the two countries, including agreements on investment protection and the avoidance of double taxation, undoubtedly contributes to this relationship. The bilateral Agreement on Economic Cooperation is particularly important in this respect, as it identifies the priorities for cooperation. These include industry and mining, science and technology, transport, energy and telecommunications.
Other vital areas in which cooperation is pursued are legal, banking, technical and consultancy services, as well as the promotion of small and medium-sized enterprises. Six agreements totalling US$850 million were signed at the end of 2009; among these a contract for the purchase of electrolytic copper amounting to US$800 million and an agreement between Litex Motors and Great Wall Motor Company to establish vehicle manufacturing are particularly impressive.
An agreement on cooperation in information technology and communications, signed recently between the relevant ministries in the two countries, is also expected to give a strong impetus in this field.
Access to Europe
Bulgaria’s membership of the European Union allows investors to take advantage of the hospitable investment environment in Bulgaria to develop production and services which enjoy easy and duty-free access to the entire European Union.
That is why electronics, mechanical engineering, agriculture, the automotive industry, construction and the energy sector, including renewable energy sources, offer worthwhile prospects. A new renewable energy sources law was recently adopted in Bulgaria which, despite certain weaknesses (fixing the price for the entire period: 20 years for photovoltaic plants and 12 years for wind plants), provides the state guarantees and security that are so essential for investors.
The favourable tax treatment in Bulgaria (10% corporate tax and 5% withholding tax on dividends), as well as the fact that tax paid in Bulgaria can be deducted from tax due in China, represent a major incentive to invest in Bulgaria. Additional incentives are available for hiring the unemployed or investing in municipalities with a rate of unemployment above the national average.
The excellent investment climate is complemented by measures included in the Investment Promotion Act, such as expedited administrative services, the sale of state and municipal immovable properties without an auction or tender, and financial support for personnel training. The Bulgarian government desires foreign investments and supports them.
All this has led to a sizable growth in the number and size of Chinese investments in Bulgaria, which added up to nearly €18 billion (US$24 billion) in the period 1996-2010.
Chinese investors, such as Huawei Technologies, ZTE, SVA, Great Wall Motor Company, Polar Photovoltaics and Wiscom; INSIGMA in a consortium with Italy’s Idreco; and the Austro-Chinese consortium STRABAG-CBMI, have already established themselves in Bulgaria.
There is still untapped potential in high technologies; the energy sector, including nuclear power and renewable energy sources; agriculture, transport, tourism and many other areas. At the same time, the export to China of traditional high-quality Bulgarian products like yogurt, cheese, wine and rose oil offers further potential for the formation of joint ventures in Bulgaria.
Vladimir Penkov is the managing partner of Penkov Markov & Partners in Sofia. He may be contacted at +359 29713935 or by email at vladimir.penkov@penkov-markov.eu
