The Chinese Honey Money Moon in the Western Balkans

The photo op was more than symbolic.

A number of high-ranking Bosnian government officials posed recently with Chinese engineers following a successful tunnel break-through south of the picturesque town of Mostar. The 11.75-km Počitelj-Zvirovići motorway section is worth an estimated €100 million.

Clearly visible in the backdrop was the logo of the main contractor, the China State Construction Engineering Corporation.

Just a few months earlier, the first batch of Chinese engineers arrived in Tuzla, a gloomy Bosnian town known for its communist-era architecture and smoke-churning power plants. The engineers will take part in constructing the Blok 7 project, a thermal power plant worth €700 million and funded by a loan from China’s Exim Bank. It is the largest single investment in the country following the end of the 1992–95 war.

But why would China be investing in an impoverished region on the southeastern tip of Europe that is known for its endemic corruption and poorly performing economies?

The answer perhaps lies in the region’s strategic location.

Here is a backgrounder. In 2013, China unveiled its Belt and Road Initiative, a grand plan which aims to secure land and maritime trade routes from Asia to Europe and Africa. The Western Balkans, strategically positioned on Europe’s southern flank, is seen as a key access point for China to reach central Europe and beyond. In practical terms, it is far easier and cheaper for a Chinese cargo ship to dock in the Greek port of Piraeus and then transport its goods by road and rail towards central, eastern and western European countries, instead of going to the northern (and far pricier) ports of Rotterdam or Hamburg. In Beijing’s strategic calculus, the Balkans are merely a transit corridor towards more lucrative Western European markets, where real Chinese interests lie and where household consumption per capita is among the world’s highest.

To soften the political terrain, Beijing began holding annual ‘17+1’ summits with eastern and southern European states to discuss investment opportunities. At these summits, Beijing began luring money-short Western Balkan countries such as Bosnia, Montenegro, Serbia, North Macedonia and even Greece with its soft loans and generous payback schemes. It was an offer few could refuse.

Beijing then moved to hard currency. A starting point was the Greek port of Piraeus on the region’s southernmost tip and Europe’s fastest growing port. It is now effectively in Chinese hands, as the China Ocean Shipping Company invested €600 million in harbour facilities and acquired a controlling share in the port authority. North of Greece, China invested heavily in Serbia and Montenegro. Trade volume between Serbia and China continues to expand, topping €2.1 billion in 2018. With Chinese investments worth $10 billion, Serbia tops the list of Central and Eastern European states involved in the ‘17+1’ framework designed for cooperation between China and Central and Eastern European countries.

However, China’s flagship investment project in the region, though much delayed, is a railway line connecting Belgrade with Budapest. With mostly Chinese loans, Hungary and Serbia have agreed to modernise their respective sections of the 350-km Budapest–Belgrade line at a total cost of some €4 billion, split between the two countries. Another major project, which raised the eyebrows of human rights activists, is Huawei’s Safe City surveillance system project consisting of 1,000 high-definition cameras across 800 locations throughout Serbia’s capital. Using artificial intelligence, the system will employ facial and licence-plate recognition software and feed all the gathered information to Serbia’s Ministry of Interior. In Montenegro, a NATO member state, the China Road and Bridge Corporation (CRBC) is building the first section of the Montenegrin leg of the Bar–Boljare highway, covered by a €796 million loan from China’s Exim Bank. China has also become the largest investor in Montenegro with €70 million in direct investments in the first half of this year, according to the Central Bank of Montenegro. In Croatia, the CRBC is building the EU-funded Pelješac Bridge (the European Commission provided €357 million for it or roughly 85% of the project’s estimated cost).

The Chinese penetration of the Western Balkans should come as no surprise.

A poor investment climate, the lackluster performance of its economy and failed privatisation efforts of communist-era state-owned enterprises resulted in the entire region attracting little foreign direct investment. China saw this as an opportunity and simply filled a void made by the gradual retreat of Washington and the EU’s inaction.

Balkan political elites do not complain about the Chinese. In an aura of increasing kleptocratic authoritarianism, the region’s strongmen realised they would rather do business with Beijing than with Brussels. After all, Beijing will not lecture them on media and personal freedoms, nor will it object to shady business deals, kickbacks or similar corrupt practices. Additionally, among Balkan political elites, but increasingly among the population too, China is viewed as a credible source of economic growth that saves local jobs. For example, while the IMF or the EU might demand the privatisation of communist-era enterprises inevitably resulting in the loss of jobs for unskilled workers, the Chinese acquisitions of heavy industry assets are perceived as helping protect local jobs – as was the case with the takeover of the Serbia’s Smederevo steel mill.

Beijing is achieving much more than just paving the rough Balkan terrain for its Belt and Road corridor. By deliberately targeting the construction of critical infrastructure, China is in fact creating new economic dependencies abroad. So if a borrowing Balkan country defaults on its debts, there is serious risk that a Chinese state-owned company will seize ownership of the infrastructure it constructed and operate it for decades until the debt is paid off. The tiny state of Montenegro is at risk as it owes 40% of its total foreign debt to China.

China – just like any other major power – will also use its investments abroad as political leverage to extract concessions when it comes to Chinese human rights issues of international concern, such as the mass incarceration of Muslim Uyghurs in Xinjiang or repression in Tibet. A case in point is Serbia, Beijing’s closest ally in the Balkans, which has staunchly defended Chinese policies in Xinjiang.

Third, Chinese investments abroad serve a domestic purpose and legitimise the governing Communist Party and depict it as a benevolent Big Brother that takes care of a region neglected by the West.

While Moscow is developing its own political footprint through pan-Slavic, cultural, energy and media campaigns, China is focused on infrastructure development where Western states are reluctant to invest. However, unlike Russia, whose main objective in the Western Balkans is to stymie NATO and EU expansion, China’s approach seems to be ‘business first, politics later’. This is enticing to the short-sighted Balkan political elites who see the prospect of joining the EU or NATO as a long way off, hence greater engagement with China is a tempting auxiliary option and a way to soften Brussels’s conditionality. Low-interest loans and generous repayment schemes may be alluring for now, but they could well end up being honey-traps in the long run.

Though Chinese investments are perceived by local elites as an opportunity for faster development, they have not (yet?) translated into an institutionalised preference for Beijing as a political model. Western Balkan states who have not yet done so, still aspire to join the EU and NATO. However, without a credible and visible path toward Euro-Atlantic integration – that too could change and the region could easily succumb to the lure of generous Chinese offers. Serbia is an example of a country inching ever closer to Beijing, so close that Serbian President Aleksandar Vučić refers to China’s President Xi Jinping as a ‘friend and brother’. In March 2020, while the coronavirus pandemic was blazing and European states were squabbling among themselves over Germany’s decision to ban the export of face masks, China flew tonnes of medical aid to Serbia. President Vučić publicly stated that China was ‘the only country that can help us’.

So, while the West was preoccupied with Russia as its chief rival in this turbulent part of Europe, China has been slowly but steadily forking out for investments across the region and laying the groundwork for a coming geopolitical battle on the EU’s doorstep.

Harun Karčić is a journalist and political analyst based in Sarajevo covering foreign influences in the Balkans.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.