China entering the Western Balkans: the long-term perspectiveAdriatic Journal 10 December 2020
China – new leader in Western Balkans? As a result of the Belt and Road Initiative, China is emerging as a significant actor in the Western Balkans. The increasing number of strategic Chinese investments in the region are beginning to put the EU on alert.
Author: Nina Pejič, Centre of International Relations, Faculty of Social Sciences, University of Ljubljana
The Chinese presence in the Western Balkans region has become increasingly visible especially since the global announcement of the Belt and Road Initiative by Xi Jinping in 2013. The initiative seeks to (re)connect international trade routes, as once did the ancient Silk Road. One of the first steps to this goal that gained international attention was the acquisition of (later majority) shares of Port Piraeus, which China transformed into one of the leading container traffic ports in the Mediterranean.
The increased regularity of diplomatic visits (through frameworks like 17+1 Summit), business delegations and business forums led to increased economic exchange between China and the countries of Western Balkans – investments in several important sectors, such as transport industry, building materials and energy. As China continues to stack strategic investment projects in the region, it is becoming evident that Western Balkans are emerging as part of China’s global ‘going-out’ strategy, welcomed by the Western Balkan countries.
The most recent Chinese projects that put the EU on guard were the acquisition of the Smederevo steel mill in Serbia (the biggest equity investment in the region), construction of Belgrade-Budapest railway and Pelješac Bridge in Croatia, as well as the recent investment into Trieste port’s infrastructure. In energy sector, China`s investments have been concentrated on hydro and thermal power plants, notably in North Macedonia, BiH, and Serbia.
As such, Serbia stands out as the main recipient of Chinese-funded projects. Since China–CEEC summit in Suzhou in 2015, Serbia is a leader among CEECs in implementing joint infrastructure and energy projects with China. The two countries also abolished mutual visa requirements in 2017. More recently, countries’ Ministers of Interior signed the Memorandum of Understanding, establishing joint exercises of special police units patrolling the streets of Belgrade.
It is, however, evident that China established a particularly close relationship with Serbia. The country appears to take a special place in China’s strategy towards the Western Balkans, due to its central location and its position as region’s largest market.
Large Chinese SOEs that bring ‘the whole package’
Some of the heavy players investing not only in Serbia but also in other parts of Western Balkans are PowerChina; China Road and Bridge Corporation (CRBC); Shandong Hi-Speed Group Corporation (SDHS) ; Sinohydro Corporation Limited; China National Building Material Ltd (CNBM) ; and China Communications Construction Company (CCCC). Some of those companies have common characteristics: they are state-owned, but largely publicly traded companies that specialise in several areas, as opposed to just one. For example, CNBM is primarily a cement producer, but at the same time a construction company that is also building cement plants and then operating them, which is different from the European model. Hence, the leading Chinese companies entering the Western Balkans market tend to integrate the ‘whole package’.
This is largely a consequence of Chinese policies aiming to lower domestic overcapacities in the sectors connected to Belt and Road infrastructure goals. China has set two targets with its eleventh and twelfth Five Year Plan in this regard: to eliminate waste and high competition between the Chinese firms with similar business structures and to reduce the number of local enterprises that are inefficient or too damaging to the environment. The Government’s national industry target for 2020 aims to concentrate at least 60% of Chinese domestic capacities for construction amongst the top 10 manufacturers.
Investments in the region are focused on transport and logistics infrastructure that can ensure a more rapid flow of Chinese exports through the Piraeus to the Western European markets.
These moves are questioned internally, especially in the China’s Rust Belt where there’s fear of social unrest associated with the risk of job losses. However, Chinese companies that are also investing in Western Balkans with the ‘whole package’ are guaranteeing themselves enough projects around the world to use their capacity and avoid making redundancies at home.
New land route to Western Europe and reduced maritime costs
While economic potential of Western Balkans is limited due to small markets and low domestic consumption, the region has other attractive features for China’s long-term ‘going-out’ strategy. At the same time, the Adriatic ports gathered in the NAPA association provide a shorter route to the same markets that are reached via Piraeus. The route is almost 2000 miles shorter, taking 6 days less to reach Western European market.
NAPA ports can therefore be viewed as representing a Plan B to port Piraeus. However, this is only possible if there is a good land connection to the European markets. Koper is already in the process of improving its transport infrastructure through Divača-Koper second railway track. Port of Rijeka is still searching for an alternative in building a lowland railway from Rijeka to Zagreb which would eliminate the steepness issue for otherwise very appropriate port, that is among the deepest in this part of Europe. The land connections will improve also in Italy, through the reconstruction of parts of the single-track main line between Udine and Tarvisio, which will offer improved direct access to Austrian markets. With the newest investments and terminal leases in the Adriatic ports, combined with the new construction of modern railway connections, increased Chinese cargo can be expected in the Western Balkans region.
While the EU bodies have already proposed screening measures to enforce the protection of critical infrastructure and retain control over key assets, the Western Balkans still represent a less ‘burdensome’ and more flexible regulatory framework for Chinese companies. Although the region’s leaders have increasingly attempted to use China as a bargaining power versus the EU, the EU still represents the biggest investor and trading partner of the region, while the Chinese investments represent a potential risk of trade imbalance and dependency.