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BALKANALYSIS

May 11, 2017

Balkanalysis.com editor’s note: this new analysis covers China’s current economic focus in the Western Balkan countries, and includes links to our other coverage of similar topics in the last few years. For additional (and earlier) coverage of China in Greece, see our 2014 report here.

By Antonela Dhimolea*

Relations between China and the Balkan countries have been developing swiftly in recent years, with the establishment of the new platforms such as “The Initiative of Cooperation between China and 16 Central and Eastern European Countries”, “One Belt, One Road”, as well as annual summits, further specialized forums and seminars, and perspective for an upsurge in investment and trade cooperation.

The Initiative of Cooperation between China and Central and Eastern European Countries was established first with the Warsaw Forum on April 26, 2012. The initiative for this had come from the Chinese Prime Minister, Wen Jiabao. The goal of this Chinese initiative is to use the CEE countries as “the gateway” to enter the European market.

Similarities and Differences: China’s Developing European Partners

For this reason, China is trying to revive its political dialogue with 16 member countries, as well as to promote the extension and intensification of economic, trade, agricultural, energy, infrastructure, cultural, education, and human cooperation with them. It is an interesting fact that 11 of the member states of the platform 16+1 are EU member states, while four of them (Serbia, Montenegro, Albania and Macedonia) are EU candidate countries.

In order to implement her ambition, China has chosen CEE countries. considering them as not only a community having a common history and values, but an easy way to penetrate the European market.

In reality, the differences between the EU countries, which are member of the platform 16+1 and Balkan countries (including Croatia and Slovenia) are significant in many respects. These include level of development, size, historical experience, culture and religion. The only shared characteristic among the latter countries would be the degree of socialist government before 1989; still, these forms differed quite significantly. Similarly, all these countries have experienced the transformation of their economic, social, and political systems, although again with different strategies and degrees of success.

Background on the Chinese 16+1  Initiative of Cooperation: a ‘Work in Progress’

The new Chinese platform was launched during the global financial crisis, which mostly affected EU countries such as Greece, Italy, Spain and France. The initiative  was highly appreciated by CEE countries, which were eager to cooperate with China. In the framework of the Initiative of Cooperation 16+1, five Summits have been held, including economic, cultural and transport forums, as well as several meetings of National Coordinators.

The First Leader’s Summit, held in 2012 in Warsaw, approved the final document of the Initiative of Cooperation composed of 12 points on the mutual benefits and concrete collaboration on economy, tourism, infrastructure, renewable energy, culture, education and so on.

The Initiative of Cooperation included also the establishment of Secretariat China – CEE Countries which coordinates the overall cooperation. Apart from the Secretariat, some centers covering different fields such as agriculture, tourism, business, transport etc are being established in CEE countries, including Balkan countries.

The main pillars of the platform are: economy and trade; infrastructure and transport (aiming to improve the road and marine interconnections between China and European countries); the green economy (supporting projects on hydro, solar, wind and nuclear energy with high technology); financial cooperation and local government cooperation (twinning projects); cultural cooperation (organizing forums on culture and education, encouraging interaction among young politicians, expert groups, media and so on).

The other potential field of cooperation is agriculture. The Chinese market’s need for meat, dairy and high quality wine products would increase trade exchanges between China and CEE countries. The agriculture products of Balkan countries are highly appreciated in China.

Recently, the Chinese project has also started to focus on cooperation in industry, manufacturing, connectivity, telecommunication and infrastructure. In the field of transport, the focus is on railway connection (containers shipping, industrial parks and distribution centers), and also on roads, marine and air infrastructure in the framework of regional networks. In this way, the Initiative of Cooperation is serving the larger project “One Belt, One Road” which will connect Asia with Europe.

However, the quality and efficiency of this cooperation should be improved. The further success of the platform will depend on the commitment and dedication of each member country and their choice of cooperation fields.

In order to succeed, CEE countries must try to better understand Chinese intentions and expectations, while China has to be clearer in introducing the two projects “the Platform 16+1” and “One Belt, One Road.”

Furthermore, CEE countries highlight that the platform 16+1 has to follow EU rules and will be conducted under the EU-China framework cooperation. They also are approaching this platform as a useful channel for their bilateral relations with China.

Chinese Investment Activity with Balkan Countries: Serbia as the Key Player

China’s most important regional relations are with Serbia. The two countries are working to raise their strategic partnership to a new level. In the framework of the Initiative of Cooperation 16+1, among the Balkan countries, Serbia was chosen as the host country for the Summit of Leaders in 2014. During the Summit, Chinese Prime Minister Li Keqiang also paid an official visit to Serbia. He was the first Chinese Premier to visit the country in 28 years.

Apart from this, the visit of Chinese President Xi Jinping attracted significant public attention. After his official visit to the Czech Republic, in June 2016, he visited Poland and Serbia. These visits aimed to boost Chinese economic and trading relations with both countries and to increase China’s presence in the Balkans and Europe.

This, the first visit by a Chinese head of state in more than 30 years was justly deemed “historic.” During this visit, President Xi visited the Chinese-owned steel plant at Smederevo, and signed 22 cooperation agreements. Most of them were focused on the economy, investment, infrastructure, energy and cultural exchanges. These results were considered of great importance in Serbia, where economic difficulties and high unemployment have been concerns. Serbia is also hoping to attract Chinese investments for the privatization of state enterprises. A closer relationship with China will also bring more cash into Serbia’s economy, and help to improve the country’s infrastructure.

Serbia has signed the trilateral agreement on the construction of its part of the Hungary-Serbia rapid railway (€800 mn in Serbia out of the total €1.5 bn). The contract for the construction of a the E763 highway in Western Serbia (total cost €900 mn) has also been signed, as has the contract for the construction of the bridge over the Danube in Belgrade (€170 mn).

Formerly, the Mihajlo Pupin Bridge (China’s first major infrastructure construction project on the European continent), became the second bridge over the Danube River in Belgrade when it was completed in July 2014. Additionally, Phase II of the motorway E763 has been completed.

In the field of energy, Chinese companies are involved on the revitalization of the Kostolac power plant (total cost €700 mn) and the reconstruction of the Kolubara A power plant. China also intends to participate in the construction of the Kolubara B power plant. In July 2016, Belgrade’s Smederevo steel plant, which was founded in 1913, was officially taken over by the Chinese firm Hesteel, for a total of 46 million euros ($51.2 mn).

More recently, in January 2017 the Bank of China opened its first Balkan branch, in Serbia.

China and Bosnia-Herzegovina

Here, areas of interest for cooperation with China are infrastructure, construction materials, energy, culture and education. Bosnia has signed the contract for the construction of a Banja Luka-Split motorway (total cost €600mn). In the field of energy, China and Bosnia have signed the contracts for the construction of MW unit at Tuzla thermal power plant (total cost €786mn), 350 MW Banovici thermal power plant (total cost €400mn) and 300 MW Stanari thermal power plant (total cost €350mn), which was opened in September 2016.

China and Croatia

The year 2015 marked the 10th anniversary of the establishment of the Strategic Partnership between Croatia and China. China intends to expand bilateral relations in the construction of the railway network, higher education and scientific research, renovation of ports and construction of industrial parks.

Croatia has introduced several projects to the Chinese in the maritime field (such as port renewal), infrastructure and nuclear energy. In October 2014, Croatia signed a contract with CMBM Chinese Company for the modernization of a terminal port in the south of the country.

China and Montenegro

In the framework of the platform 16+1, Montenegro has benefited from loans from China’s Exim Bank, signing contracts for the construction of the Podgorica-Kolasin highway (total cost €809.6 mn), the renewal of the ship fleet of Montenegro (total cost about  €100 mn) and the construction of the Bar-Boljare highway (total cost €689 mn).

Investors in various energy projects potentially also include China’s Poly Group Corporation and Norinco. Both have been interested in developing major energy projects in Montenegro, such as the construction of hydropower plants on the rivers Moraca and Komarnica. Chinese companies were also interested in the new unit at Pljevlja thermal power plant. China Machinery Engineering Corporation (CMEC) was one of two companies that submitted offers in a recent tender, however unsuccessfully.

For more on China’s economic activity in Montenegro, see this August 2016 report from Podgorica.

China and Macedonia

Macedonia has benefited from the Exim Bank loans for the construction of the Kicevo-Ohrid highway (€580mn) and the Miladinovci-Stip highway ($306mn). The interest rate will be 2 percent annually and will be paid over the next 20 years.

China intends to build some hydropower plants on the Vardar River, which is on the key Corridor 10 that is anticipated to comprise the main Silk Road route from the Aegean Sea to Central Europe.

China and Albania

Albania has not yet benefited from an Exim Bank loan. Last year, however, two big Chinese companies entered Alban,ia: the Everbright Company purchased the Tirana International Airport, while Geo-Jade Petroleum Company purchased Banker’s Petroleum, one of the biggest  foreign investors in Albania. (See this 2012 Balkanalysis.com analysis for further context on Banker’s and offshore energy projects in Albania at the time).

Some Chinese companies are also operating in the mineral sector in Albania. For more information on general Chinese activity in Albania, see this Balkanalysis.com article from June 2016.

The Blue Corridor Motorway: A Potential Project for Albania and Montenegro

Albania and Montenegro have also signed an MoU with the Chinese company Pacific Construction Group, which opens the way for the construction of the Blue Corridor motorway project. The Blue Corridor, or the Adriatic-Ionian motorway, is a project that will stretch along the entire eastern shore of Adriatic and Ionian seas, from Trieste in Italy to Greece via Croatia, Montenegro and Albania. The route is seen as a matter of national importance for both Albania and Montenegro.

The Future of China in the Balkan Region

China’s economic expansion in the Balkans is inevitable. China is using all diplomatic strategies available to achieve her European ambitions. First, China introduced the platform 16+1 and through the Exim Bank, and then worked hard to seduce the Balkan and CEE countries with $10 billion of loans for projects in different sectors. China succeeded in the Balkans because the countries (except Albania and Croatia) benefited from the loans, and signed several contracts in the fields of infrastructure and energy.

After unveiling the 16+1 initiative, China introduced its main project, the “One Belt, one Road.” This ambitious trade corridor also involves China’s infrastructural investments in Southeast Asia, North Africa, and Central and Western Europe. The project “One Belt, One Road” is an important instrument for China’s global strategy geo-politically as well.

The rationale of the project is global connectivity. “One Belt, One Road” will deepen China’s infrastructural, economic, institutional and cultural connectivity with key parts of the globe. Projected investments are estimated to benefit 4.4 billion people in 65 countries. In financial terms, according to some estimates, the project could be more than 12 times bigger than the Marshall Plan created by the US to aid Western Europe after WWII.

Besides infrastructural investments in ports, high-speed rail, power generation and other utilities, China is offering some private-sector investment opportunities in real estate, telecoms, e-commerce, finance, tourism, education, the creative industries and green technologies. According to the Chinese approach, “One Belt, One Road” is not a one-way street of China’s outbound investments but also represents a huge export potential for Western products, technologies and services to enter China.

The EU has expressed constant concerns about the Chinese entrance into Europe through the 16+1 Initiative of Cooperation, and the “One Belt, one Road” project. The EU presumes China as a new economic threat in Balkan. While China considers the 16+1 platform as a part of larger China-EU relations, the EU does not agree with this perception. Brussels is conscious that the Chinese projects have found support in Balkan countries, because their economies are fragile and the unemployment figures are high. In order to prevent the Chinese expansion in the0 Balkans, the EU is trying to observe the relations between China and Balkan countries as well as with other CEE countries.

In any case, China cannot replace the EU’s overall influence in Balkan countries, because these countries seek to join the bloc. Therefore they cannot challenge the EU’s political approach and regulations. Recently, China has been exploiting all diplomatic channels to gain the support of Balkan countries for the South East China Sea issue, but these countries unanimously approve the EU stand on this issue. This indicates that politically, the perspective of Balkan states remains geared towards EU integration. At the same time, however, they remain keen to explore the economic potential of being China’s “gateway” to European markets.

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*Antonela Dhimolea is an expert in Asian and Balkan issues, and has worked for many years as an Albanian diplomat. She holds a Master’s Degree in Diplomacy from the University of Malta’s Mediterranean Academy of Diplomatic Studies, and has attended training courses in international relations and diplomacy, at La Sapienza University in Rome, the Diplomatic Academy of Croatia, the Diplomatic Academy of Poland, as well as the Diplomatic Institutes of India, Montenegro and Egypt.

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