China in the Balkans: Controversy and Cost

[Emperor AAdmin]

China in the Balkans: Controversy and Cost


ANALYSIS

China in the Balkans: Controversy and Cost

Illustration: BIRN/Igor Vujcic.

Bojan Stojkovski, Ivana Jeremic, Samir Kajosevic, Ivana Nikolic,
Ivan Angelovski, Fatjona Mejdini, Irvin Pekmez and BIRN

Athens, Belgrade, Podgorica, Sarajevo, Skopje, Tirana

BIRN

December 15, 202116:29

BIRN has identified 135 Chinese-linked projects in the Balkans worth more than
32 billion euros. Few have come without controversy.

It started in 2009; the financial crisis that hit the world a year earlier
was storming through the Balkans, and the region was scraping the bottom
of the barrel to make ends meet.

Enter China.

Greece opened its door through the Port of Piraeus, while Serbia declared China the
‘fourth pillar’ of its foreign policy. Balkan countries needed money, and China needed
a friendly corridor from the Mediterranean to Europe. It was the beginning of a
beautiful friendship. But it came at a price.

More than a decade later, by BIRN’s own count, the region hosts 135 projects worth
at least 32 billion euros, that are in one way, or another linked to China. The
interactive map ‘China in the Balkans’ is a result of BIRN’s research into the
various types of cooperation between Beijing and countries in the region.

China is taking over metallurgy, mining, energy, and transport, with most of these
projects accompanied by allegations of corruption, exploitation and environmental harm.

Serbia: The main playground



Serbian President Aleksandar Vucic with the representative of the Linglong company
laying the foundation stone of the factory. Photo: Presidency of Serbia

The greatest concern is focussed on Serbia, China’s main playground in the region.

In January 2021, 26 MEPs wrote to the European Union’s enlargement commission,
Oliver Varheyli, to warn of what they said was the “growing Chinese influence in
Serbia and the impending damage to the environment caused by several heavy
industrial projects by Chinese companies in Serbia.”

Chinese investment projects, the MEPs wrote, lack transparency and sustainability,
and in addition to the damage to the environment, they also have a corrosive effect
on management. Serbia seems unperturbed.

China’s presence in the country, the biggest in terms of size and population to
emerge from the ashes of socialist Yugoslavia, is visible not only through its
investments, loans and cultural exchange but also in terms of strategic cooperation
when it comes to the security sector and digitalisation.

BIRN journalists identified at least 61 projects in various stages of completion
by or in cooperation with Chinese actors in the last decade, worth at least
18.7 billion euros.

Between 2012 and 2021, China’s companies have invested or allocated more than 2
billion euros in just 16 projects in Serbia, and the Chinese Export-Import Bank
has granted loans for projects worth at least 5.7 billion euros. At the same time,
China has donated millions of euros-worth of aid in the form of medical and other
equipment.

Experts warn of a worrying level of influence on Serbia’s legislature, with laws
being amended in line with the requirements of Chinese investors.

Wawa Wang, a program director of Just Finance International, which researched the
international track record of Chinese companies – including SOEs – operating in
Serbia, said that Chinese companies were doing untold harm.

“They cause irreversible environmental, social impacts and human rights violations
irrespective of where their operations are based, in China or overseas,” Wang told
BIRN.

Wang said that the projects concerned did not qualify for financing from Western
investors or financiers due to either policy restrictions such as coal phase-out
or questionable return on investments, and would have likely been shelved to make
space for a sustainable and just transition in Serbia had it not been for the interest
and support of Chinese actors.

“These types of investments – all facilitated with some form of Chinese governmental
support – ultimately benefit first and foremost the Chinese companies and SOEs
seeking profit centres overseas as China tightens control on polluting industries
at home.”

Some details about the projects are locked behind the seal of ‘state secret’.

Failure to use tools such as environmental impact assessments, or EIA, which are key
to transparent and participative decision-making, enables projects to proceed despite
potentially harmful effects on the environment and local communities.


Then there are the workers. A BIRN investigation in January 2021 revealed evidence of
exploitation of Chinese workers at the former Mining and Smelting Basin Bor, RTB,
Serbia’s only producer of copper and precious metals and which was taken over by
China’s Zijin Mining in December 2018.

Conditions appear to be even worse for Vietnamese workers brought in to build a
tyre factory for Chinese Shandong Linglong in Zrenjanin, about 80 kilometres north
of Belgrade. Experts in labour rights said the evidence collected by BIRN, including
contracts and other documents as well as interviews with workers, pointed to a
potential case of human trafficking.

Serbia and China are currently under the review for the fulfilment of obligations
of the International Covenant on Economic, Social and Cultural Rights.

“NGOs have made very clear in their comments to the UN body as recent as 2019 concerns
for how the Serbian state is failing labor standards and the rights of migrants,
refugees and migrant workers. The cases investigated and identified by BIRN and other
NGOs point to a systemic institutional incompetency where human lives are sacrificed
for the gain of the few, in this context, the Chinese companies,” Wang said.

In 2021, a number of Balkan and international NGOs testified to the Committee on
Economic, Social and Cultural Rights – an expert body under the United Nations that
monitors states’ compliance with the International Convention on Economic, Social and
Cultural Rights – that China is not fulfilling extraterritorial obligations when
Chinese companies operating in Serbia and the Balkans violate legal requirements for
environmental protection.

Part of the property of the Smederevo Ironworks, about 50 kilometres from Belgrade,
is also in Chinese hands, having been bought in 2016 by then Chinese Hestil, today
HBIS Group. China is also participating in the reconstruction of the Kostolac thermal
power plant in Serbia.

Serbia also has a deepening relationship with Huawei, despite signing up to an agreement
in Washington in September 2020 to keep the Chinese tech giant out of its 5G network.

A week after signing that deal, Huawei opened an Innovations and Development Centre in
Belgrade. Since 2012, there have been eight projects operated by Huawei. The company
has a 150 million euro contract with state-owned Telekom Srbija for an upgrade of the
landline network and has also been named as a partner in developing the 5G network
with privately-owned Telenor.

Huawei and the Serbian interior ministry also have a partnership agreement for the
introduction of Huawei’s ‘eLTE’ wireless broadband technologies and ‘Smart City’
public security systems including a large-scale surveillance network that is to be
installed in Serbia’s capital.

Under the ‘Safe Society’ project, Serbia’s interior ministry plans to install 8,100
biometric cameras in cooperation with Chinese partners, despite the law currently
forbidding biometric surveillance of citizens in Serbia.

Montenegro: Heavily indebted to China



The first phase of Bar Boljare highway in Montenegro. Photo: Government of Montenegro

Montenegro is seen by some as the first target of Chinese so-called ‘debt-trap
diplomacy’, after taking an 800-million-euro loan from China’s Exim Bank to finance
85 per cent of the first section of a highway from the coast to the border with Serbia,
sending Montenegro’s debt rocketing to a total of 103 per cent of economic output.

The highway is being built by the China Road and Bridge Corporation, CRBC. Buckling
under the burden of the debt, Montenegro cut a deal this year with European and US
banks to refinance the loan. But the fate of the highway remains unclear, given
Montenegro has tried and failed twice to secure European funding for the second
section after feasibility studies projected that traffic volumes would not justify
the outlay.

Vesko Garcevic, a former Montenegrin ambassador to NATO and a professor at Boston
University, said the damage had already been done.

“Montenegro is now more dependent on Chinese loans and unable to negotiate better
business deals with China in the future,” he told BIRN. “At the same time, such debt
has rendered Montenegro increasingly unattractive to non-Chinese investors.”

Across the region, Garcevic said, the way governments do business with China is
eroding already weak institutions, encouraging corruption and slowing down progress
towards EU integration.

“Chinese investors negotiated with political elites in Montenegro. This type of
business leads to the strengthening of investor influence due to the country’s
passivity towards the one with whom you cooperate,” he said.

Besides the highway, Montenegro has also previously turned to China for help with
the purchase of two Chinese-made bulk carriers for 41.9 million euros in January
2010. The country bought two more in 2012.

Chinese companies have also been involved in upgrading the railway network in
Montenegro, refurbishing the country’s only coal-fired power plant in Pljevlja
and procuring vaccines against COVID-19.

Bosnia: Energy takeover



China’s Premier Li Keqiang and Bosnia and Herzegovina’s Prime Minister Denis
Zvizdic are seen during their meeting, on the sideline of the 4th Meeting of
Heads of Government of China and Central and Eastern European Countries, at
the Great Hall of the People in Beijing (November 2015).
Photo: EPA/KIM KYUNG-HOON

Compared to other countries in the region, Chinese influence in Bosnia and
Herzegovina is relatively small.


“China is mostly focused on direct business with the state and on competitive
bidding,” said economy expert Admir Cavalic. “Getting into those areas is almost
always connected with lobbying and other diplomatic efforts. It must be said that
general risks are higher when it comes to infrastructure projects because the rest
of the economy depends on them.”

“When it comes to loans, there is not much exposure, but eventually that could become
a problem given the guarantees, especially those given by entity governments.”

Indeed, in terms of infrastructure and energy, China is most present in the predominantly
Serb-populated Republika Srpska, one of two entities that make up Bosnia. Of 29 Chinese
projects there, 18 are related to infrastructure and energy.

Cavalic identified dirty energy technologies as a particular problem: a Chinese loan of
more than 600 million euros, secured in 2019, is financing the construction of a new
coal-fired power unit at the Tuzla Thermal Power Plant, guaranteed by the mainly Bosniak
and Croat Federation, the other entity in Bosnia. The EU was scathing of the deal at the time.

Cavalic said that small states like Bosnia needed Chinese investment and other forms of
economic cooperation.

“But,” she cautioned, “the big question is how to formulate the means of maximising
economic goals and effects but minimising the political ones. It’s a challenge for
Bosnia and Herzegovina and a large number of other countries as well.”

Greece: Disillusionment and disenchantment



Chinese President Xi Jinping (R) accompanied by Greek President Prokopis Pavlopoulos
(C) is briefed by archaeologists on the Acropolis’s sculptures restoration during a
visit to the Acropolis Museum in Athens. Photo: EPA-EFE/KOSTAS TSIRONIS

In Greece, BIRN mapped 13 Chinese projects currently being implemented – from foreign
direct investment to trade, cultural diplomacy and various donations to aid with the
COVID-19 pandemic. BIRN identified ten other projects that either failed or were aborted.

In terms of FDI, the best known is China’s 64 per cent control of Piraeus Port via
COSCO Shipping, which initially paid 280.5 million euros for a 51 per cent stake in 2016.

That same year, China’s State Grid bought a minority stake of 24 per cent in Greece’s
power grid operator, ADMIE, for 320 million euros.

Then there are at least six projects in the sphere of cultural diplomacy, including
Confucius Institutes in the capital, Athens, Volos and Thessaloniki, as well as the
Centre for China Studies in Piraeus.

The roots of the cooperation can be found in the Greek economic crisis of a decade ago,
when Greeks felt betrayed by Western allies who imposed successive rounds of harsh
austerity on the country in exchange for repeated financial bailouts.

“Back then, a lot of people – both the elite and general public – believed that Greece
was betrayed by the West and they were looking for alternative sources of capital and
alternative political allies,” said Plamen Tonchev, an expert in Sino-Greek relations
at the Athens-based Institute of International Economic Relations, IIER. “And this is
how China stepped in.”

At the time expectations were “massive”, he said, but the reality disappointed and left
a sense of “disillusionment and disenchantment” not just in Greece but elsewhere in
the region.

Today, under the conservative New Democracy party, “the mood is very different,” Tonchev
told BIRN. The Greek government is strongly pro-Western and pro-EU, striking major
defence deals with France and the US. “China is just not in the picture anymore; it is
not a security provider,” he told BIRN.

Tonchev said he was sceptical about any future major Chinese infrastructure projects in
Greece, citing the health of the Chinese economy for one thing.

“They themselves are having second thoughts about investing abroad and I would argue that
there are many indications that the Belt and Road initiative is becoming a lot softer,”
he said. Instead, he predicted greater Chinese investment in cultural diplomacy.

Albania: Pushback




Albanian Prime Minister Edi Rama (L) and China’s Premier Li Keqiang (R) are seen during
their meeting, on the sideline of the 4th Meeting of Heads of Government of China and
Central and Eastern European Countries, at the Great Hall of the People in Beijing.
Photo: EPA/KIM KYUNG-HOON

Albania is one of the very few countries in South-Eastern Europe that in the last five
years has seen a decline in Chinese investment.

The high point came in September 2016, when the Chinese company Geo-Jade Petroleum paid
384.6 million euros for the concession to extract oil at the Patos-Marinza field, the
biggest oil-producing field in the country.

Just a month later, China Everbright Group, a state-backed financial firm, bought 100
per cent of shares in Tirana International, at the time the only airport in the country,
for 82.25 million euros. But far from opening the floodgates to more Chinese investment,
the deal instead turned sour.

Sources familiar with the situation told BIRN that the Chinese investors quickly grew
frustrated and felt unwelcome.

In December 2020, with seven years left to run on the concession contract, the Chinese
company sold up without explanation, handing over the reins to the Albanian Kastrati Group
for 71 million euros.

Enver Bytyci, a lecturer at Aleksander Moisiu University in the port city of Durres and an
expert in the history of diplomatic relations between Albania and China, said that Albanian
authorities had piled pressure on Chinese companies operating in the country via frequent
tax inspections.

“This is insane, and it was not done because a company had any issues, but to create
pressure on them to leave,” he told BIRN. “This is what they have done with the company
that bought the airport concession.”

Albania, which spent 45 years under a hardline communist regime after World War Two, is
firmly pro-Western and considers the US and EU its strongest strategic allies. Some
suspect the authorities were worried about the signal any influx of Chinese investment
might send.

There has been no Chinese investment in Albania since 2016.

North Macedonia: Lack of interest




Boxes with vaccine accessories which are part of the donation of 100,000 doses of the
Sinopharm vaccine against COVID-19, donated by the Ministry of Defense of Republic of
China at Polyclinic Jane Sandanski in Skopje. Photo: EPA-EFE/GEORGI LICOVSKI

Over the last two decades, North Macedonia has made several attempts to lure Chinese
investors, with only partial success.

The two major infrastructure projects involving Chinese companies are the highways
Miladinovci-Stip and Kicevo-Ohrid. The latter has been dogged by missed deadline and
is yet to be finished.

According to BIRN’s analysis, there have been far more donations and cooperation
agreements – medical, military and cultural – than actual projects and investments.

Experts say there is little real interest from the Chinese side in infrastructure
projects in North Macedonia.

“Basically, despite the desire to attract Chinese foreign direct investment, we fail
for a number of reasons – insufficient interest on the Chinese side, mismatch of our
supply and Chinese demand, difference in business culture and insufficient mutual
knowledge and a lack of institutional capacity and interest to cooperate with China,”
said Ana Krstinovska, a Skopje-based China expert and founder of the research and
consultancy services organisation ESTIMA.

“As for other projects, which I would not call investments because they are basically
public contracts for which we either borrow or announce procurement with budget funds,
China has a huge interest and it is in line with their global strategy.”

With a population of just two million people, North Macedonia might be small, but it
remains on China’s radar given its location on the route of the Belt and Road initiative
and its possible future membership of the EU.

“The Chinese philosophy in foreign policy is that there are no big or small countries,”
said Krstinovska. “We are important as a country with the right to vote in the UN
[United Nations], WTO [World Trade Organisation], WHO [World Health Organisation], NATO
and a number of other organisations and we will become even more important if we join the EU.”

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