China’s investments in the West Balkans: gaining a foothold in Europe
Updated: Nov 2, 2021
Is Beijing set to replace the EU in shaping the region’s future?
analysis by Simona Tarpova
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Earlier in October, the Slovenian Presidency of the Council of the European Union brought together EU representatives and the leaders of Albania, Bosnia and Herzegovina, Serbia, Montenegro, the Republic of North Macedonia, and Kosovo. The primary purpose was to discuss the perspectives of these six Western Balkan countries (WB6) joining the supranational organisation. The summit produced a declaration reaffirming the EU’s commitment to the region and introducing an investment and development package of €30 billion that would advance the integration of the WB6.
The meeting, however, did not lead to concrete dates for EU accession. While EU members extend the widening versus deepening debate – prioritising either geographic enlargement or strengthening EU institutions and introducing reforms – Western Balkan states continue to lag economically and politically. Integrating the six countries has not been a priority while facing the migration crisis, Brexit, and the Covid-19 pandemic in the last several years. Such a power vacuum opens a window of opportunity for other actors – Russia, Turkey, and more recently China – to enter the competition for regional influence. Since the introduction of the Belt and Road Initiative in 2013, Beijing has become a key stakeholder in the Western Balkans.
Photo courtesy of julientromeur via Pixabay
China’s investment rationale
What incentivises China to invest in the region is the countries’ location. The WB6 are key to the EU single market of approximately 500 million consumers. The Greek port Piraeus, partly acquired by the PRC in 2008, is the starting point of a new economic corridor extending China’s export market towards the EU. For this reason, the majority of Chinese funds for the Western Balkans are directed towards infrastructure projects.
The principal initiative is the China–Europe Land-Sea Express Route (LSER), enabling Beijing to transport its goods via sea to Greece and train through the Western Balkans and Central Europe. New undertakings along the coasts of Bosnia and Herzegovina, Montenegro and Albania indicate that China aims to secure strategic commercial locations in the Adriatic Sea as well.
The Sino-Western Balkan cooperation has another purpose beyond economic gains. Investments come with political implications. Commercial programmes increase both China’s influence and the six states’ dependence. The Belt and Road framework is at the core of Chinese foreign policy as economic partnerships guarantee greater international leverage. If the WB6 succeed in becoming EU members, such influence will enhance in value in the long term. In the short term, the PRC expects these states to support its external and internal disputed policy choices. So far, none of the Western Balkan governments has condemned the investor’s actions towards Taiwan, the South China Sea and the Uyghur minority in north-west China.
Achieving the objectives
Beijing has a multi-layered approach involving political, business and media stakeholders and projects on transport, energy and communication. China’s relationship with the WB6 is developed at a bilateral level. However, many of the activities also fall within the China-CEEC or the 16+1 (previously 17+1) framework, where 16 stands for the number of Central and Eastern European countries and the +1 is their external partner – the PRC. The China-CEEC aims to advance economic ties between national businesses and the target countries as well as to improve the One Belt One Route connectivity from the Baltic and Black seas to the Adriatic.
Chinese foreign direct investments in the region are close to $2.5 billion. Moreover, infrastructure loans are calculated to be $6.8 billion. Loans, however, create vulnerabilities. It would be challenging and even impossible for these countries to repay the debts. As a consequence, they might need to reimburse the investor by transferring property rights. Moreover, Beijing may request political favours instead of economic restitution.
For this reason, the International Institute for Peace refers to China as a ‘lending power’ rather than an ‘investment power.’ Instances of projects based on loans include two highways in North Macedonia, equalling €714 million and two energy undertakings in Bosnia and Herzegovina amounting to €1.1 billion. Nevertheless, the most severe case is Montenegro. The country borrowed $1 billion for the construction of the Bar-Boljare highway. Upon the pandemic, the already fragile financial situation in Montenegro worsened and repaying the debt became unrealistic.
Thus, one might argue that the risks of the WB6-China partnerships outweigh the possible gains. The Western Balkans are not the only example of China utilising so-called debt-trap diplomacy – a concept entailing a powerful state lending extensive credit to small economies with the motive of gaining leverage when the debtors inevitably fail to meet financial obligations. The country adopted this approach for several developing African and South Asian economies as well.
On top of creating economic dependencies, China also strives to promote its undertakings and maintain a positive image. Correspondingly, the country relies on soft power methods to increase its global leverage. One way to achieve this is the development of educational and cultural institutions, Sinology and China-related research programmes. Beijing has invested in constructing Confucius Institutes in five of the six Western Balkan countries and committed to building two cultural centres in Belgrade and Tirana. Western governments, media, and non-profit organisations such as the Human Rights Watch have accused these institutions of censoring liberal ideas and topics like the conflicts with Tibet and Taiwan.
Another instrument is media engagement and control. Chinese ambassadors and representatives collaborate with various news outlets, including newspapers, radios and social media channels, to share content regarding China’s investments and criticise Western approaches. For instance, articles reporting on the Belt and Road Initiative in Albania two years ago were almost five times as many as in 2016. In general, such stories aim to present the PRC as an altruistic friend who is happy to boost the development of its Western Balkan partners.
In addition to improving its position among the public, Beijing strives to strengthen its relationship with government officials and institutions. Underdevelopment, a history of conflict and lack of sufficient EU engagement have made the WB6 a fertile ground for corruption. China is taking advantage of the political context by liaising with party representatives and elites to advance its agenda. This approach is considerably different from the EU’s – instead of signing a set of legal agreements and establishing institutional frameworks, China prefers to settle arrangements behind closed doors.
Benefits and Costs for the six Western Balkan states
What makes Chinese investments more attractive than EU ones is that they do not have conditionalities. All agreements with the EU are subject to transparency, the rule of law and ethical standards, including fair working conditions and environmental protection. Instead, China lures corrupt leaders into ‘short-term political gain’ at the expense of their ‘country’s long-term prosperity’.
In terms of political advantages, Serbia has the biggest motivation to maintain relations with Beijing. During the Kosovo war in the late 1990s, three Chinese journalists were killed due to NATO bombings. After the conflict, the country did not recognise Kosovo as an independent state and continued to support Serbia in blocking the newly founded country from joining the United Nations.
For the rest of the WB6, economic prospects hinder political ones, particularly reducing their chances of EU membership. Backdoor deals, corruption, media control, democratic flaws, and Chinese interference in the regional affairs of the Western Balkans states impede EU accession.
Other incentives are linked to the economic advancement of the PRC. Over the past years, countries from the region have benefited from incoming Chinese tourists and business investments. Albania, Bosnia and Herzegovina, and Serbia abolished visa requirements to attract even more nationals of the East Asian state.
Implications for the European Union
While Chinese presence in the Western Balkans is surging, many core EU policies and values are affected. Although China accounts for less than 10 per cent of the total trade in the region, it is gaining more influence than long-established external actors, for instance, Russia and Turkey. Beijing could benefit from the EU integration of the WB6; however, its untransparent approach harms free-market competition, fair public procurement and the initiation of anti-corruption and legal reforms. Furthermore, the construction of China-funded coal power plants aggravates the environmental pollution of the region and its neighbouring EU members.
Nevertheless, PRC-supported press endeavours to avert any information that would impair the investor’s reputation. Instead, the country gains any momentum that can vilify the supranational organisation. One example is the Covid-19 pandemic and Serbian president Aleksandar Vučić’s criticism over the lack of EU solidarity and his praise of Chinese doctors who arrived to stabilise the initial crisis. The symbolic gesture of Vučić kissing the Chinese flag earned a front page in Serbian media outlets and aimed to demonstrate Beijing’s importance. Soon after the event, the European Union provided emergency medical support of $18 million and long-term aid of $94 million. In contrast, this gesture was not as widely advertised.
The new EU package would support the region with funding exceeding the total Chinese commitment for the past decade. Additionally, the organisation plans to remain the leading economic partner of the WB6, contributing to 70 per cent of their total trade.
Despite the different views of the member states, enlargement towards the Western Balkans is a step towards a more united and secure Europe. Further political and economic incentives for the countries in the region could counter Beijing’s influence.