China’s Stealthy Advance in Balkans Should Worry EU

Author: Vesko Garčević

While Europe focuses on the threat of Russian penetration in Eastern Europe, it is neglecting the subtler dangers than come from China’s growing influence in the region.

The region is still unaware of potential risks of dealing with China. Hence, it’s not whether or not to do business with China; the question is how to make yourself able to negotiate a fair deal.

When EU officials, including foreign policy chief Federica Mogherini, refer to the Balkans as a new “chessboard where the big power game can be played”, Russia, not China, seems to be on their mind.

But, whether or not they wish to recognize it, China is becoming a powerful player in the strategic chess game in the Balkans.

Beijing’s “One Belt One Road” policy is already affecting the Balkans, and its presence is visible in almost every corner of the region.

Its economic engagement in this part of Europe is growing, as is its influence, fuelling concern that the EU could be gradually outplayed by China’s fast-rising power – as has happened in Africa.

Beijing recently reconfirmed its commitment to Central and Eastern Europe, CEE, when it sent Prime Minister Li Keqiang to the Sixth China-Central Eastern European Summit of Leaders in Budapest in November.

Eleven of the 16 participating countries in the so-called 16+1 framework are EU members while five others are EU aspirant countries. Created in April 2012, the framework constitutes a platform that brings heads of states together annually to strengthen cooperation between China and the CEE region.

Hosting a meeting with China has become a matter of prestige, and some EU members in the group consider it as important as hosting EU summits.

It is not surprising that Bulgaria, the current EU president, eagerly and successfully argued for Sofia to host the next event.

Hungary won the right to host the meeting last year when Prime Minister Viktor Orbán visited China and met Prime Minister Keqiang, who reportedly green lighted the idea.

For countries in the Balkans, China is a perfect case of a successful marriage of interests. The Balkan states all need money – and China seems willing to invest it in their region.

Moreover, unlike the EU, the Chinese do not ask difficult questions, preach, or push for privatization and restructuring of inefficient state-owned enterprises.

Acquisitions of industrial assets by China are presented by local politicians as safe investments that will create jobs – which is of key importance for countries struggling with unemployment.

In some cases, the EU cannot even compete with China because the its burdensome and complicated rules attached to EU funding.

Balkans is ‘window of opportunity’ for China:

On the other hand, with a population of over 120 million, CEE/Balkans is a window of opportunity for Chinese products and Foreign Direct Investment, FDI.

At the first glance, the Balkan/CEE countries and China are in the honeymoon phase of their relationship. 

From 2010 to 2015, mutual trade increased by 20 per cent, reaching a total of 56.2 billion US dollars.

In November 2016, during the 16+1 Summit in Riga, Latvia, China launched a 10-billion-euro investment fund to finance projects in the CEE region.

Most of the investment is centered on highway infrastructure, the energy sector and heavy industries.

Chinese companies have invested in the steel mill in Smederevo, Serbia, and are building numerous mostly coal-fired power plants, notably in Serbia, Bosnia and Herzegovina and Bulgaria.

Most Chinese investments in Bosnia go only to the Serb-dominated entity, Republika Srpska.

Serbia has a particular place in China’s Balkan strategy. It has already attracted over 1 billion US dollars in investment in the form of soft loans to finance road-building and energy projects.

Other notable investments in the region include a 580-million-euro loan granted in 2013 to Macedonia from China’s Exim Bank for a motorway, and a 3.2-billion-dollar project led by the China Pacific Construction Group, CPCG, the country’s largest private builder, to build an expressway between Montenegro and Albania, which will be a part of the Adriatic-Ionian highway.

At the same time, Montenegro got a more than billion-dollar loan from Exim Bank for a motorway running from the coast to the border with Serbia and to renew Montenegro’s shipping fleet.

Unlike Russia, Beijing profits from stability:

Unlike Russia, which tries to benefit from destabilization in the region, China supports and economically benefits from the region’s stability.

Also unlike Russia, China does not rely on propaganda to export its ideology or try to undermine the aspirations of states in the region to join NATO or the EU.

Beijing does not sell an alternative ideological or political model for the Balkans. Driven by more economic and political interests, China stands to benefit from the region’s integration into the EU.

At the same time, its growing “soft” power hinders the EU’s own model for the Balkans.

This is why China is in some ways a more difficult actor to deal with than Russia.

The region itself seems unaware of the potential risks of dealing with China. Hence, it’s not whether or not to do business with China; the question is how to make yourself able to negotiate a fair deal.

Unlike the EU, which offers a long, demanding and sometimes politically hurtful process of democratic reforms – that will eventually, however, lead to the creation of economically viable and politically accountable democratic systems – China is not interested in democracy.

Hiding behind “non-interference in domestic affairs”, not only in the Balkans, it presents itself as an easy alternative to Western demands for painful democratic reforms.

It gives a preference to state-led, top-down, leader-to-leader type deals that take no account of whether projects are market-driven, transparent and environmentally friendly.

Stability in Chinese eyes also means keeping the current political elites in power as long as they can secure new state-endorsed economic projects. Any change of leadership, democratic or not, brings a degree of risk that China would prefer not to see.

China’s ‘generosity’ comes at a cost:

Given the democratic deficit on the Balkan side, states in the region have put themselves in a position of passive dependency on China.

Beijing arranges the financing of projects, and sends its own workers, keeping the participation of local companies to a minimum.

Chinese loans, granted under soft and permissible conditions, have also led to an increase in the region’s debt burden.

Serbia has already borrowed 2.12 billion dollars and Bosnia 1.78 billion dollars from Chinese banks. In Montenegro, the cost of Chinese loans has already forced the government to scale down some of its social welfare projects.

Another issue is the extent to which China abides by European rules and standards when it develops its investments.

The much-propagated high-speed railway [costed at 3.8 billion dollars] between Belgrade and Budapest has almost come to a dead-end; the EU is investigating possible violations of European requirements for public tenders.

Serbia has begun work on its side, borrowing nearly 300 million dollars from China to do so.

But the question is where this high-speed railway will actually end if the EU stops it from being realized on the Hungarian side.

It is clear why the EU is, and should be, getting nervous when it comes to Chinese inroads in its backyard.

The experience of other regions where China has established itself as a strong player suggests that, behind China’s alleged generosity and goodwill, lies a clear interest to project Chinese economic influence and political interests.

China’s current approach is a part of a broader, well-thought-out strategy aimed at utilizing its power in CEE/Balkans countries to influence the EU from within.

In these circumstances, the EU should reinvigorate its own model and reconfirm the EU membership perspective for the Western Balkans.

Growing discontent with the model of liberal democracy and reform fatigue on the Balkan side, and complicated and bureaucratized procedures on the EU side, have facilitated Chinese advances.

The EU cannot compromise its reform agenda. However, more initiatives, such as the Berlin Process, along with the continuation of democratic transformation are needed.

If China is not to win out, the EU must assist the Balkan states in building up strong and accountable institutions – and offer new and tangible opportunities for investment.

Vesko Garcevic is a former Montenegrin Ambassador to NATO, the OSCE and other international organisations. He is currently a professor at the Frederick S. Pardee School of Global Studies, Boston University. The opinions expressed in the Comment section are those of the authors only and do not necessarily reflect the views of BIRN.