China’s Influence in the Western Balkans

Matúš Babulík
Introduction

China has become a world power, and as of 2021, after the United States and the EU, it is the third-largest economy in the world, with a huge impact on the world economy and politics. Since 2012 China has a significant presence in a region of Western Balkans. Chinese companies have a huge influence in the countries of the Western Balkans, as they finance and build a number of infrastructural projects such as highways, railways, power plants. They also purchase key stakes in several key transport and energy companies. In addition to investments and loans, China also uses soft power tools such as cultural diplomacy or vaccination diplomacy to strengthen its position in the region.

After the reforms in 1978 led by Deng Xiaoping, China has opened to the world by starting its internationalization process. The Chinese government has put enormous effort into enabling its companies to operate in other parts of the world. Cooperation between China and the EU/EC began in 1985 with the signing of the trade and economic cooperation agreement. Until 2005, however, there were no significant investments by Chinese companies in Europe. The first ones appeared in 2005 after a strategic agreement was signed between the Chinese government and Great Britain, France, Germany and Portugal. Chinese investments in the period from 2006 to 2013 were mainly in traditional economies such as energy, finance, transport and logistics.(1) A significant change in Chinese investments in Europe was in 2013 after announcing the Belt and Road initiative.(2)

China’s Belt and Road Initiative (BRI), which is sometimes referred to as the „New Silk Road”, is one of the most ambitious infrastructure projects ever conceived. It was announced by Chinese President Xi Jinping during his official visits to Kazakhstan and Indonesia in 2013. BRI initiative are investments in the construction of land and sea routes connecting Asia and Europe, which will facilitate the transport of goods. These investments involve more than 60 countries. Xi’s vision included creating a vast network of railways, energy pipelines, highways, and streamlined border crossings, both westward—through mountainous Central Asia—and southward, to Pakistan, India, and the rest of Southeast Asia.(2)

„After the reforms in 1978 led by Deng Xiaoping, China has opened to the world by starting its internationalization process. The Chinese government has put enormous effort into enabling its companies to operate in other parts of the world.„

Map of the Balkan region; Graphics: Olinchuk/Shutterstock

„Chinese investment projects in the Western Balkans are financed by loans from the Chinese Exim Bank. It is easier for the Western Balkans countries to obtain loans from Chinese creditors, as, unlike the EU, they do not have lending conditions such as government reforms, transparency and cost-effectiveness of projects.“
Massive Chinese Investments in Western Balkan Countries

Since the Belt and Road Initiative was launched in 2013, China has financed a number of notable construction projects in the Western Balkans. Chinese investment projects in the Western Balkans are financed by loans from the Chinese Exim Bank. It is easier for the Western Balkans countries to obtain loans from Chinese creditors, as, unlike the EU, they do not have lending conditions such as government reforms, transparency and cost-effectiveness of projects. However, unsustainable financing investments could be a tool of China debt-trap diplomacy which poses a risk for Western Balkan countries. In the event of countries’ inability to repay their debts, China may acquire ownership of the indebted assets. The infamous example of China debt-trap diplomacy is the Sri Lanka port of Hambantota. From the Balkan countries, is Montenegro in trouble because of issues with repaying an unprofitable highway project.  According to data in 2018, 40% of total Montenegro’s debt is towards China. This percentage is 20 for North Macedonia, 14 for Bosnia and Herzegovina and 12 for Serbia.(3) In most of the cases are infrastructure projects designed from China, and their construction uses Chinese workforce and materials, which does not help local companies and local development.

Serbia is the country in which China makes the largest investments in the Western Balkan region. From 2013 to 2020, China invested more than 9,93 billion Euro in Serbia, according to data from the China Global Investment Tracker.(4) One of the most significant investments is the construction of a 350 km long high-speed railway line between Belgrade and Budapest, which will cost Serbia more than 2 billion Euro. This route is of great importance to China, especially because it connects the Greek port of Piraeus with Eastern Europe, which is an important transport hub for Chinese goods. The 150 million Euro investment with the Chinese company Huawei in providing high-speed broadband in Serbia is also significant. Huawei is also linked to a project to install 1,100 security cameras in Belgrade with facial recognition technology.(5) There are other significant investments include highways and power plants.

China invested more than 2,24 billion Euro in Bosnia and Herzegovina in 2013-2020.(4) In Bosnia, China invests primarily in the energy sector. The largest single post-war investment in the country is the thermal power plant in the town of Tuzla, which costs 785 million Euro.(6) The construction of the Tuzla power plant was criticized by European officials because of the choice of energy technology, which is not with the European policy of carbon reduction as well as for missing transparent cost-benefit analysis.(7) Another significant energy investment in Bosnia is the Stanari coal power plant in the Republika Srpska part of the country, with which are also concerns connected about pollution levels.(8) One of the most significant Chinese transport investments in Bosnia is the construction of the Banja Luka-Prijedor highway section worth 540 million Euro.(1)

In Montenegro, there is a 1,22 billion Euro of Chinese investments in 2013-2020.(4) China is present in Montenegro primarily through the construction of a highway linking the port of Bar and Serbian capital Belgrade. 165km long highway from Bar to Serbian border is one of the most expensive highways in the world, which costs 20 million Euro per km.(9) It is the most expensive project in the recent history of Montenegro, which, when completed, will cost 45% of GDP and increase the country’s debt from 63% (2012) to 91%. Former Prime Minister Milo Djukanovic has decided to sign the contract, despite the EU’s repeated warnings to Montenegro that the project is not financially sustainable.(10)

China’s total investment in North Macedonia since 2013 is 650 million Euro. Chinese companies are currently working on the construction of two highways, the Miladinovici-Shtip section in the eastern part of the country and the Kicevo-Ohrid section in the west. North Macedonia is very important in the context of China’s BRI strategy because it is on the most important route connecting the Port of Pireus in Greece and Budapest in Hungary.(1) In 2015 there was a corruption scandal connected with construction, and the Special Prosecutor’s Office opened a case against four high-level government officials.(11)

There are also Chinese investments in Albania. Canada’s Banker’s Petroleum, which has been since 2014 the largest company in Albania, decided to sell two oil fields to the Chinese company for 442 million Euro.(12) China is also building a nearly 200 million Euro highway from Tirana to Dibar in western Macedonia.(13) In 2016 Chinese Asset Management group purchased the airport shares in Tirana International Airport, expanding thus their influence and control over the transportation and logistics companies in the Balkans.(1)

The level of foreign direct investments in Kosovo remains extremely low. A China-led consortium submitted a bid to construct a new coal-based power plant in Kosovo, but the government selected another company. China doesn’t recognize Kosovo as an independent state, which is an obstacle to a proper bilateral relationship between the two countries.(14)

Influence of Chinese Investments on the EU Integration

The Western Balkans are made up of financially weaker states, which account for half of the GDP of Eastern European countries. Therefore, when financing large Chinese investment projects, they often need to borrow money from the Chinese Exim Bank. If governments are unable to pay Chinese loans for such projects, they could be contractually obliged to transfer ownership of assets to Beijing. This would provide China with some real leverage in the region, which is an obstacle on the horizon to the integration of Western Balkans countries into the EU.

Another negative impact of Chinese investment on European integration is the slowing down or even suspension of the reforms needed for the EU accession. The problem is low transparency and corruption. In all these cases of China-financed infrastructure projects, Chinese companies have been awarded the contracts directly by the governments rather than through a competitive bidding process, which is not in line with European standards, which have clear rules for spending every 500 Euro to make sure public money is used in the most effective way. This is in contrast with contracts for Chinese-built highways worth up to 500 million Euro are decided without any tender.(15)  A great scandal in North Macedonia was revealed in 2015 after a Chinese company got a contract for the construction of a highway because of bribes.

Chinese Power and Resignation of Western Countries

The reason why Western Balkan countries are turning to China could be that Chinese investments and loans are much more affordable for them. The strengthening of China’s position in the Western Balkans has been made possible in part by the resignation of Western countries on providing development assistance, which is connected with governance reform, fight against corruption and respect for human rights. Unlike Western countries, China does not condition its investments in democratization or respect for human rights. There are other conditions, such as the use of Chinese companies, workforce and material. Except for standard conditions, there are also “silent conditions”, such as refraining from criticizing the human rights situation in China. From 53 countries that supported Chinese activities limiting Hong Kong autonomy at the UN council in July 2020, up to 43 participate in the BRI project.

The examples of projects implemented within the BRI project clearly show that by financing various projects, China primarily pursues its own political and power goals. Economic cooperation is a tool in Chinese hands rather than a goal. Another good example is the recent scandal with the African Union headquarters, where confidential data was copied to servers in Shanghai. China built the headquarters for free as a “gift” and used it for its espionage purposes.(16) Whether these activities, which were originally conceived as a means of maintaining the power of the Chinese Communist Party, will lead to Chinese global dominance, still largely depends on the reactions of other powers.(17)

„If governments are unable to pay Chinese loans for infrastructural projects, they could be contractually obliged to transfer ownership of assets to Beijing. This would provide China with some real leverage in the region, which is an obstacle on the horizon to the integration of Western Balkans countries into the EU.“

Kostolac Thermal Power Plant, Serbia; Photo: Zarko Prusac/ShutterStock

„One of the main of China’s soft power tools in the Western Balkans is cultural diplomacy. The best example of Chinese cultural diplomacy are the Confucius Institutes.“
China’s Soft Power

Joseph Nye defines soft power as “an ability to affect others to get the outcomes one wants, and that can be done by coercion, payment or attraction”.(18) Soft power as part of Chinese policy was for the first time mentioned in October 2007 by former president Hu Jintao in his keynote speech in the 17th National Congress of the Communist Party of China. In 2014, Xi Jinping re-mentioned soft power as a tool in the 18th National Congress of the Communist Party of China and said that China’s soft power should be increased.(19) The reason why China is searching for a combination of hard power and soft power is that China’s hard power is growing rapidly; however, China does not prefer to frighten its neighbours and rivals since they could come together to damage its rapid growth. Therefore, China aims to combine its hard power with soft power.(18)

One of the main of China’s soft power tools in the Western Balkans is cultural diplomacy. The best example of Chinese cultural diplomacy are the Confucius Institutes. The Confucius Institute is an international name of Chinese cultural centres that work under the Chinese National Office for Teaching Chinese as a Foreign Language. According to the official web page of Confucius Institute, its main activity is to aim at promoting Chinese culture and language, presenting China to the people, connecting individuals and institutions who study Chinese language or culture, making a reference database of Chinese culture and language materials available, as well as other activities that include cultural cooperation between Western Balkans countries and China.(20)

In North Macedonia, Confucius Institute also provides courses for government officials. In Western Balkans, China also established Confucius classroom at primary and secondary schools. Serbia, Bosnia and Herzegovina, and Montenegro opened those classrooms in their schools. There are several other activities supported by Chinese embassies around the region, such as celebrations of the Chinese New Year, Spring Festival and a summer camp of Chinese language and culture for students in Sarajevo and Montenegro. China also uses social and traditional media, which are soft power tools, to increase its influence in the region.(19)

Vaccine and mask diplomacy

After the Covid-19 pandemic spread, there was a shortage of protective materials and ventilators in many states. Governments were desperately looking for medical supplies, turning to the world’s biggest manufacturing country: China. Before the coronavirus pandemics, China produced about half of the world´s face masks. The Chinese government decided to use “mask diplomacy” as a tool of soft power and donate medical supplies to countries around the world. It is not a secret that Chinese officials pushed state officials across Europe to express their gratitude and positive viewpoint on China in order to contribute to their image as a responsible world leader, saving public health across the globe. There were several examples of ceremonies and fanfares connected with the welcoming of donations.

Since March 2021, there have been several vaccine donations from the Chinese government in the Western Balkans region, accompanied by photos with Chinese ambassadors and packages with Chinese vaccines in the background. In Montenegro, there was donated 30.000 doses of the Chinese Sinopharm vaccine, which was welcomed at the premises of Montefarm by the Minister of Health, Jelena Borovinic Bojovic and the Ambassador of the People’s Republic of China Liu Jin.(21) In Bosnia and Herzegovina, China donated 50.000 doses of vaccine.(22) Minister of Civil Affairs Ankica Gudeljevic, when receiving the donation, said that China has shown its true friendship from the very start of the pandemic.(23) In Albania, there were 100.000 Chinese vaccines received from China (24), and another 100.000 were donated to North Macedonia in April 2021.(25)

Serbian president Vucić took expressing gratitude for the donations to the next level. In March 2020 Serbian president welcomed medical aid from China at Belgrade s airport in a pompous way. In addition to the big applause when the Chinese delegation got off the plane, Vucić even kissed the Chinese flag. He said that European solidarity does not exist, and it’s only a fairy tale on paper and that the only country that will help Serbia is China.(26) There were also several shipments of the Chinese vaccine in Serbia, which together delivered more than 2.5 million doses as of April 2021.(27)

„Since March 2021, there have been several vaccine donations from the Chinese government in the Western Balkans region, accompanied by photos with Chinese ambassadors and packages with Chinese vaccines in the background.“

Conclusion

In the last decade, China has gained great influence in the Western Balkans, mainly thanks to the Belt and the Road Initiative, through which it invests in infrastructure in the region, which is often financed by loans from the Chinese Exim bank. These loans pose a huge risk for financially weaker states in the region. If countries are unable to repay their debts, ownership rights will be transferred to the Chinese creditors, which will further increase Chinese influence in the region and complicate EU accession of Western Balkan countries. A low level of transparency in the process of obtaining contracts, which are decided without any tender and are directly given to the Chinese companies, also complicates the EU accession. In addition to its economic influence, China is gaining influence in the region through methods of cultural diplomacies, such as the establishment of Confucian institutes aimed at teaching the Chinese language and raising awareness of Chinese culture. In response to the Covid-19 crisis, China also massively supported the region with medical supplies and vaccines, which were associated with airport welcomes along with Chinese ambassadors.

Sources
  1. Zakić, K., Radišić, B. (2019). Influence of the “Belt and Road” Initiative on Chinese Investments in Europe Case Study: Balkan Countries. In: The Cooperation between China and Balkan Countries under the “Belt and Road” Initiative. Chinese Academy of Social Science, pp. 27-53. URL: http://repozitorijum.diplomacy.bg.ac.rs/561/1/China-EU-Balkan-2019.pdf
  2. Chatzky, A., McBride, J. (2020). China’s Massive Belt and Road Initiative. In: Council of Foreign Relations. URL: https://www.cfr.org/backgrounder/chinas-massive-belt-and-road-initiative
  3. House Foreign Affairs Committee Republicans. (2021). China Regional Snapshot: Western Balkans. URL: https://gop-foreignaffairs.house.gov/china-regional-snapshot-western-balkans/?fbclid=IwAR0BXrRDvRwpPr4NKu_FmeuTgefNWC8_DGuXhLQQlBuKwCl0E2eji0ZZywE
  4. The American Enterprise Institute. (2020). China Global Investment Tracker. URL: https://www.aei.org/china-global-investment-tracker/
  5. Vasovic, A. (2020). Serbia chooses links with China to develop economy, telecoms despite U.S. warning campaign. In: Reuters. URL: https://www.reuters.com/article/us-serbia-china-huawei-idUSKCN2592AN
  6. Lakic, M. (2019). Bosnia’s China-Funded Power Plant Gets Green Light. In: Balkan Insight. URL: https://balkaninsight.com/2019/03/07/bosnias-china-funded-power-plant-gets-green-light/
  7. Zuvel, M. (2019). EU official criticizes Bosnia’s backing of Chinese power loan. In: Reuters. URL: https://www.reuters.com/article/us-bosnia-eu-energy-idUSKBN1QU1JD
  8. Bank Watch. Stanari lignite power plant, Bosnia and Herzegovina. URL: https://bankwatch.org/project/stanari-lignite-power-plant-bosnia-and-herzegovina
  9. Arminas, D. (2021). Montenegro on the ropes over China deal. In: World Highways. URL: https://www.worldhighways.com/wh8/news/montenegro-ropes-over-china-deal?fbclid=IwAR17p8OIJgOZ3A0CKIS0XAdgW_P-B2t6DQIUK1vBD29NN2JFnF9K-kEN5Bk
  10. Vasilko, T. (2021). Zoberú im prístav? Čierna Hora nevládze platiť Číne za diaľnicu, prosí o pomoc EÚ. In: Denník N. URL: https://dennikn.sk/2349736/zoberu-im-pristav-cierna-hora-nevladze-platit-cine-za-dialnicu-prosi-o-pomoc-eu/
  11. European Western Balkans. (2020). „Quick” and „cheap” loans for expensive and aggravated capital project implementation. URL: https://europeanwesternbalkans.com/2020/11/23/pr-quick-and-cheap-loans-for-expensive-and-aggravated-capital-project-implementation/?fbclid=IwAR2VnZ6kpT5ctwHGik4Te0E8JMkuAVDbHzwXIFIhgfim-5BNUSkrzcXMn6Q
  12. Mejdini, F. (2016). Chinese Buy Rights to Oil Fields in Albania. In: Balkan Insight. URL: https://balkaninsight.com/2016/03/21/chinese-company-to-take-over-oil-fields-of-albania-03-21-2016/
  13. Erbara, G. (2015). Chinese to Build Albanian Highway to Macedonia. In: Balkan Insight. URL: https://balkaninsight.com/2015/03/17/chinese-corporation-to-build-new-albanian-highway/
  14. Zweers, W. et al. (2020). China and the EU in the Western Balkans. In: Clingendael. URL: https://www.clingendael.org/sites/default/files/2020-08/china-and-the-eu-in-the-western-balkans.pdf
  15. Makocki, M. Nechev, Z. Balkan corruption: the China connection. In: Das Center for Security Studies der ETH Zürich. URL: https://css.ethz.ch/content/dam/ethz/special-interest/gess/cis/center-for-securities-studies/resources/docs/EUISS-Alert_22_China-Balkan_corruption.pdf
  16. Satter, R. Exclusive-Suspected Chinese hackers stole camera footage from African Union – memo. In: Reuters. URL: https://www.reuters.com/article/us-ethiopia-african-union-cyber-exclusiv-idINKBN28Q1DB
  17. Kironská, K. Turcsányi, R. at el. (2020) Superveľmoc. Hadart Publishing. ISBN:
  18. Nye, J. S. (2012). ‘China and Soft Power’. In: South African Journal of International Affairs.
  19. Baykara, S.T. (2020). China’s Soft Power Tools In The Western Balkans. In: Ministry of Defence of the Republic of North Macedonia. URL: http://www.mod.gov.mk/wp-content/uploads/2020/08/SMO-38-za-web-2.pdf?fbclid=IwAR1Y8A4Ln9BJzkJ1x_3iqLizFASkzZOoOz5GOz1OWXkmxmCOrcEMUht3YYo#page=10
  20. Confucius Institute in Belgrade. URL: http://old.fil.bg.ac.rs/konfucije/about%20us.html
  21. Ralev, R. (2021). Montenegro receives 30 000 doses of China’s COVID-19 vaccine. In: See News. URL: https://seenews.com/news/montenegro-receives-30000-doses-of-chinas-covid-19-vaccine-733151
  22. (2021). China donates 50,000 doses of COVID-19 vaccine to BiH. URL: https://news.cgtn.com/news/2021-04-30/China-donates-50-000-doses-of-COVID-19-vaccine-to-BiH-ZTcucfPxe0/index.html
  23. (2021). China donates COVID-19 vaccine to BiH. URL: http://www.xinhuanet.com/english/2021-04/30/c_139916509.htm
  24. Petrushevska, D. (2021). Albania receives another 100 000 doses of China’s Sinovac COVID-19 vaccine – report. In: See news. URL: https://seenews.com/news/albania-receives-another-100000-doses-of-chinas-sinovac-covid-19-vaccine-report-737439
  25. Radio Free Europe. (2021). North Macedonia Leans On China For COVID-19 Vaccine Campaign. URL: https://www.rferl.org/a/north-macedonia-china-vaccines-/31232663.html
  26. Fruscione, G. (2020). How China’s influence in the Balkans is growing. In: Italian Institute for International Political Studies. URL: https://www.ispionline.it/en/pubblicazione/how-chinas-influence-balkans-growing-29148
  27. Ralev, R. (2021). Serbia receives further 500 000 doses of China’s COVID-19 vaccine. In: See News. URL: https://seenews.com/news/serbia-receives-further-500000-doses-of-chinas-covid-19-vaccine-736883

Matúš Babulik is a student of the Economic University in Bratislava, Slovak Republic and a participant of the Strategic Analysis’ Young Balkanist Programme.

Disclaimer: Views presented here are those of the interviewee solely and do not necessarily reflect the views of the Strategic Analysis.

Share This Blog, Choose Your Platform!