China’s Influence in the Western Balkans: 

China is a relative newcomer to the Western Balkans. While the EU remains the main trading partner and investor in the region (and other external actors such as Russia, the U.S., and Turkey maintain significant influence), Beijing is making inroads.

The Western Balkans lag behind most of Europe in infrastructure, economic development, and the consolidation of democratic institutions, making them an attractive target for China’s Belt and Road Initiative (BRI). Beijing also does not have to contend with the EU standards and regulations in its business dealings there.

China has a vested interest in seeing infrastructure in the Western Balkans improve so it can transport goods shipped in from Greece’s Port of Piraeus (in which China holds a majority stake) through the region and into the EU’s common market — where Beijing real interests lie. Moreover, China’s investments in the Western Balkans are viewed as a means to gain an economic foothold in countries that will eventually join the EU.

Of note, China does not recognize Kosovo’s independence and has limited economic activities there.

 

China’s Foreign Investment in the Western Balkans: 

Albania, Bosnia and Herzegovina (BiH), Montenegro, North Macedonia, and Serbia have formally joined China’s Belt and Road Initiative.

They are also all members of the 17+1 framework, a Beijing-initiated platform meant to expand cooperation between Beijing and Central/Eastern Europe.

China’s economic footprint in the Western Balkans is mostly comprised of large state-guaranteed loans for transport and energy projects. Loan terms often require at least partial use of Chinese contractors, labor, and supplies.

China’s state-owned enterprises dominate Beijing’s activities in the region.

China’s investments and contracts in BiH, Montenegro, North Macedonia, and Serbia amounted to $14.6 billion from 2005-2019.

  • During that time frame, Chinese investments in Serbia reached $10.3 billion, making it the largest recipient in the region. Unlike other states in the Western Balkans, Serbia hosts several large Chinese equity investments, most notably the Chinese Hesteel Group’s 2016 purchase of the Smederevo steel mill.

The Western Balkans has become a pollution hotspot in Europe. Yet, China’s government loans have financed coal-fired power plants in Serbia and BiH that have been criticized by the EU for worsening the region’s air pollution.

 

Debt Trap Diplomacy Concerns:

The majority of China’s financing in the Western Balkans consists of opaque government loans. The concern is debt owed to China may become a tool of influence that Beijing can wield in the region.

Projects in the region are not bound by EU standards and regulations, which specifically evaluate the financial sustainability of projects.

As of 2018, Montenegro (a NATO member) owes almost 40% of its external debt to China, followed by North Macedonia (also a NATO member) with 20%, BiH with 14%, and Serbia with 12%.

China’s highway project in Montenegro is the clearest case of China’s debt trap diplomacy in the region. The $1 billion loan from China’s ExIm Bank to fund the first part of the project sent Montenegro’s debt-to-GDP ratio soaring to just over 80% in 2019. This raises serious concerns about how Montenegro can finance the remainder of the project without increasing its debt burden.

 

Case Study: China’s Security and Law Enforcement Support in Serbia

Except for Serbia, China’s security and law enforcement cooperation in the Western Balkans is limited.

Huawei has signed an agreement to set up its “Safe City” surveillance equipment in select Serbian cities, including Belgrade, where it will install 1,000 high-definition cameras with facial-recognition software.

Serbia was reportedly considering Huawei as a partner in rolling out its 5G network.

  • However, in a U.S.-brokered September 4, 2020 agreement to normalize economic relations with Kosovo, Serbia also pledged to remove 5G equipment provided by “untrusted vendors” like Huawei from its mobile networks, and to prohibit such vendors from bidding in the future.

Serbia is also reportedly considering Huawei as a partner in rolling out the country’s 5G network.

Interior ministers from China and Serbia have signed a memorandum of understanding allowing for joint exercises of special police units and cooperation on cybercrime and antiterrorism.

In September 2019, Serbian defense officials announced the purchase of nine Chinese Wing Long UAVs. The first batch was delivered in July 2020. The deal also reportedly provides for technology transfer that will allow for domestic production of UAVs in Serbia. 

 

China’s Soft Power in the Western Balkans:

China has established seven Confucius Institutes in the Western Balkans. Confucius Institutes are Chinese-state funded institutions that are embedded in universities throughout the world to promote the CCP’s political agenda.

Beijing has also established a media presence in the region, including Xinhua News Agency and China Global Television Network, which are active in making the case for BRI investments.

Government-friendly Serbian media, echoing the country’s political leadership, often (incorrectly) presents Chinese financing as “gifts,” rather than loans.

China is constructing an eight-story Chinese cultural center in Belgrade on the former site of the Chinese embassy, which was bombed during the 1999 NATO airstrike against Serbia.

Chinese and Western Balkan universities have numerous cooperation agreements. The Chinese Academy of Sciences, for example, engages in scholarly exchanges and joint research in S&T with universities in Serbia, North Macedonia, and Montenegro.

Serbia and BiH have visa-free regimes in place with China.

 

*Last updated: 9/9/2020

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