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China in the Balkans: Economic Investments at What Cost?

October 4, 2019

Category
Region
  • Europe and Eurasia
Technical Area
  • Stabilization & Conflict Mitigation

While much has been written about China’s well-established presence in Africa, there remains relatively little coverage of its growing influence in the Western Balkans. Composed of seven nations—Albania, Bosnia and Herzegovina, Croatia, Kosovo, Montenegro, North Macedonia, and Serbia—the region is a gateway to most of greater Europe and its markets and politics.

Following years of war, civil unrest, political volatility, and humanitarian crises, many Western Balkans countries struggle with poor economic performance, corruption, high youth unemployment, and regional disputes. Given this, China’s investments, often without good governance strings attached, may seem like a much-needed antidote to the region’s economic stagnation.

But offerings of infrastructure assistance via immediate and favorable loan terms mean that Western Balkan nations’ debt to China is soaring and cannot be matched by an under-resourced European Union (EU). One Chinese-sponsored highway project is projected to increase Montenegro’s debt to nearly 80% of its GDP. Furthermore, Chinese funding is often conditional on hiring Chinese firms—almost always Chinese-state owned—and Chinese workers. Yet, to countries for which the road to EU membership remains long, China is an attractive alternative ally ready and willing to fill the gap of slow-moving Europe.

China’s interest in the Western Balkans stems from the region’s strategic geographic placement for trade and transportation. As such, one of the more well-known examples of their investments is China’s Belt and Road Initiative (BRI). Launched in 2013, the BRI was established to create a vast network of railways, energy pipelines, highways, border crossings, and trade agreements with nations located on the strategic corridor linking Europe to Asia.

All Western Balkan nations except Kosovo have joined China’s 16+1 forum to enhance connectivity, cooperation, trade, and cultural exchange between China and the Central and Eastern European countries through the annual signing of trade agreements. This year, all signatories reconfirmed their commitment to the BRI.

China is framing the initiative as a new Silk Road and evoking the legend of Marco Polo to make its increased presence more palatable. Meanwhile the BRI and the potential of other investments have spurred trips by Balkan leaders to Beijing and are being coupled with an increase in Chinese schools and cultural events in the region. Such activities have evoked memories of Chinese geopolitical influence in the region during the Cold War.

Given the overall lack of rigorous data and analysis, it’s unclear if China will replicate its African model and begin to further deepen and diversify its pursuits in the Balkans. We’ve seen China’s African investments rise over the past decade, spiking in 2015 with a $60-billion pledge, with the same level of aid being promised again last year. China’s approach of offering economic and military support in financing deals that are nearly impossible to repay, works best in countries with weak institutions and opaque transactional practices, as has been the case in a few African countries.

China’s flexing of its economic muscle to engage in “commercial diplomacy” across the continent of Africa has met with mixed reactions and results. Some individual leaders have welcomed China’s presence with open arms, and indeed, there has been indication that China’s investments have contributed to economic improvements in certain cases. Yet China’s inroads on the African continent have also been marred by accusations of troublesome labor practices, environmental concerns, and an overall lack of transparency.

Cooperation in some African countries has also included an increased involvement in the security sector. For example, the opening of the first Chinese military base in Djibouti in 2017, part of a larger deal that included infrastructure agreements, worsened Djibouti’s external debt to almost 75% of the country’s GDP. There are signs that similar patterns are taking place in the Western Balkans. Serbia and China are boosting their joint cooperation in the field of security with some of the latest developments including the use of Chinese made facial recognition technology, joint police patrols, and possible joint military exercises.

China’s loan-based economic investments in the Western Balkans have the potential to adversely affect the delicate political and economic dynamics of the countries in this region. Yet despite China’s inarguably increasing presence, little is known regarding the possible consequences of their interventions as agreements are often kept secret. For example, information about an agreement between the Serbian government and the Chinese firm Huawei for facial recognition cameras is sparse. Yet there are growing concerns that it could increase state surveillance of citizens and strengthen autocratic systems.

China’s aggressive growth and influence-building combined with the Western Balkans’ increasing geopolitical importance presents an unpredictable influence on regional political stability that the United States and its international partners must examine more closely. To understand the depth of Chinese ties in the region, we need to better identify, collect, and analyze China’s economic powerplay initiatives in the Balkans and equip local governments, civil society organizations, and implementers with findings and recommendations to make informed decisions moving forward.

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