COMMENT: China and the Balkans – ‘New Engine, New Power, New Platform’... and new graft

COMMENT: China and the Balkans – ‘New Engine, New Power, New Platform’... and new graft
Friendship Bridge across the Danube in Belgrade opens. / Photo by CC
By Alex Young in Belgrade March 31, 2016

The Balkans has already presented China with one sizeable gain – stealth fighter technology garnered from the wreckage of a US plane shot down over Serbia during Nato’s 1999 bombing campaign. The benefits it seeks to derive from its new regional focus, however, are somewhat harder to decipher.

The remnants of the former Yugoslavia were long deemed too insignificant for Chinese-supported infrastructure projects. Yet when viewed through the prism of China’s ‘One Belt, One Road’ – a 21st century silk road linking it to the heart of Europe – the region’s historical geographical significance takes on contemporary relevance. Improved transport and energy infrastructure will, however, come at the expense of ever more hollow states, prone to ignoring a common EU stance with China.   

During a December 2014 summit in Belgrade – under the motto ‘New Engine, New Power, New Platform’ – China committed to establish a $3bn investment fund for Central and Eastern Europe. The resources would be distributed “through public-private partnerships and leasing arrangements”, according to China’s prime minister, Li Keqiang. A year earlier, China had announced a $10bn credit line to support Chinese investment in CEE, plus a secretariat to facilitate cooperation and a commitment to double trade.

Serbia has been one of the main beneficiaries of China’s new-found enthusiasm. The Sino-Serbian Friendship Bridge across the Danube in Belgrade opened in 2014. Favourably-funded by the Export Import Bank of China and built by the China Road and Bridge Corporation (CRBC), some 7,000 Chinese workers helped fulfill the $260mn project.

China has also supported the revitalization of the Kostolac thermal power plant, and signed an agreement for a Belgrade-Budapest high-speed railway. China will also finance and help construct a section of the Corridor 11 highway from Belgrade to the port of Bar in Montenegro.

Chinese transport investments will eventually criss-cross the entire region, connecting ports, capitals and vital economic hubs. China provided €574mn of credit to Macedonia for two stretches of highway, one of which will integrate important economic areas into Corridor 10 (from Austria to Greece). Highways linking Albania's capital Tirana with western Macedonia, and Albania with Montenegro have also received Chinese support. Proposed high-speed rail connections would ultimately run from Budapest to the Greek port of Piraeus, whilst the vision for a “Maritime Silk Road” has attracted interest from the Croatian port of Rijeka.

China has also been pursuing stakes in the strategically vital energy sector. It was recently announced that China's Geo-Jade Petroleum had secured oil exploration and production rights in Albania from Canada’s Banker’s Petroleum for $442.34m. Banker’s Petroleum – the largest foreign company in Albania – had exploited the oilfields of Patos-Marinze and Kucova for over a decade. 

A Chinese consortium was previously named preferred bidder to construct a coal-fired power generation unit in Tuzla, Bosnia & Herzegovina. Worth €785.6m, the deal is one of the largest investments in the country’s energy infrastructure. Various hydroelectric power projects in Macedonia have also been planned, albeit delayed.

Hollowed out

Such infrastructure investments are highly-profitable, both from a development financing and state-owned enterprise perspective. Chinese firms, materials and labour are integral part of the deals for Chinese-funded contracts. Furthermore, new Chinese manufacturing plants in the region allow Chinese firms to access free trade areas and evade anti-dumping regulations, whilst allies in the EU help stem broader criticism of human rights violations and other foreign policy misdemeanours.

The tender and procurement procedures involved, however, have prompted concerns about the further hollowing out of state institutions and their processes, especially in terms of accountability and transparency. Whilst lapse business regulations and low salaries may act as an additional incentive in the short term, each will be expected to improve as countries advance towards the EU.  

In May 2014, a three-firm consortium was awarded by the Serbian government a $75mn contract for a section of Corridor 11, despite only one of the companies actually having any road-building experience. No public tender was involved. The two companies without highway building experience – Nukleus and Inkop (managed by Zvonko Veselinovic, who has admitted to being involved in erecting barricades in north Kosovo in 2011) – did, however, have strong connections with the ruling coalition led by Prime Minister Aleksandar Vucic.

Whilst transport investments will complement EU efforts to enhance regional connectivity, the associated hollowing out of tendering and procurement procedures bodes ill for a region grappling with networks of corruption and patronage. The EU should encourage CEE countries not to be overly swayed by the offers of cheap cash, but to insist on the same rigorous standards of accountability and transparency that other sources of financing (such as the European Bank for Reconstruction and Development) demand. The examples to date suggest that the Chinese temptation may be a little too hard to resist.

With Europe’s influence in the region continuing to dwindle, the rise of China and the Chinese model of investment will invariably become a template for other countries eager to establish a foothold in the region.