Chinese Economic Influence in the Balkans: How can the EU Offset increased Chinese Investment in Serbia?

Today the Balkans has once again become a region where major powers compete for influence in the realm of media, religion, culture and economics. One such power in recent decades has been the People’s Republic of China, which although only accounting for 5.7% of trade in the region, is a vital player due to its other economic endeavors that are used to ensure dependence from those who accept Chinese aid. The largest recipient of this is Serbia, which in September 2018 signed agreements adding up to around $3 billion in economic and military investments by China being injected the Serbian economy. Although the EU still holds the title of largest investor in the state, China has the benefit of not having to abide by EU legal rules, and many of the Chinese companies in Serbia are an extension of the Chinese state. We will discuss the overall Chinese influence in the western Balkans, its relationship with Serbia, and possible ways in which the EU can keep Serbia firmly in its camp.

 

Chinese Infrastructure lending in the Western Balkans

Many people unfamiliar with China’s interest in Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia might wonder why an economic behemoth like China takes an interest in such small and economically impoverished states. The answer lies in their location, which plays an important role in China’s long-term plans for the BRI or “Belt and Road Initiative” which looks to connect Asia, Eurasia, the Middle East, and Europe. However, the main investor in the area is the EU, which contributes around 60% of the total FDI and over 73% of trade. China on the other hand as mentioned previously only contributes 5.7% of the trade and a measly 3% of FDI, with much of those figures going towards Serbia. What China does instead is contribute its money in the form of loans, which it does in the form of lending for infrastructure projects in energy and transportation. It does this regardless of the debt already present in these states, with Montenegro owing almost 40% of its debt to China, and Serbia with roughly 12% debt owed to the Asian superpower.

 

Serbia-Chinese Economic Relationship

Regardless of these somewhat underhanded tactics, China and Serbia have in recent years embarked on an increasingly profitable economic partnership. Serbia has exported as much as $38.1 million dollars to China from January-June 2018, and Chinese imports to Serbia as much as $100,026 million in that same span. As mentioned earlier, the $3 billion deal signed in 2018 was another step towards the Chinese camp, with $900 million going towards the construction of a Chinese owned Shandong  Linglong Tire Company factory in the Serbian city of Zrenjanin, and a $1.46 billion investment by the Zijin Mining group over the next six years into the Serbian RTB-Bor mines. Furthermore, the start of an industrial park near Belgrade hosting over 1,000 Chinese companies was announced, with it reportedly being the biggest Chinese industrial park in Europe.

 

EU Concerns

The EU is already concerned over Russian influence in the region in the realm of culture and media, but China poses a much more dangerous threat in the economic realm. In a 2017 report from the European Bank for Reconstruction and Development, “legitimate concerns” were raised about Chinese investments. As discussed previously, China offers loans to the impoverished and debt ridden western Balkan states due to lax regulations, thus being able to slip under the EU system and offer loans regardless of the huge sovereign debt already accumulated by the region as a whole. With Serbia set to grow closer the to Western bloc, many in the EU see the Chinese as being dangerous competitors due to their difference in morals and pragmatic approach to doing business. As said by German foreign minister Heiko Maas to MPs in a September 2018 speech, “It's important that we offer these [Western Balkan] countries a European perspective, and a reliable one, because they're otherwise turning to other countries, such as China, which are already ready and don't have the values we have.”

 

How Can the EU combat Chinese Carrots?

Chinese investments can be likened to carrots, sources of life that can be repeatedly offered, and sometimes those eating the carrots do not care if they are half-rotten, because they keep them fed. The EU can combat these carrots with their own soft power initiatives: increased funding under the legal EU framework, offering a European alternative and stability, and continue to be reliable and offer consistent incentives to Serbia so that it continues to work its way towards the western camp. While this might sound easy to achieve, when the Balkans have a plethora of competing powers around them, with each offering their own special deal, it can be easy to take a piece from each rather than simply go all with one of those powers. With the great chess game in the Balkans heating up even further, the EU will need to continue to promote itself or risk falling behind to the likes of China, and as European Commission President Jean-Claude Junker has said, “We must find unity when it comes to the Western Balkans - once and for all ... should we not, our immediate neighborhood will be shaped by others.”