If the EU suddenly seems more interested than it was in integrating the Western Balkans, it is partly because the expansion into the region by large regional powers such as China has got Brussels worried.
It is unsurprising that the Region of the Western Balkans, tucked away in the Southeast corner of Europe, has become fertile ground for the expansion of China’s Belt & Road Initiative, BRI.
China’s long-term political and economic strategy encompasses developing a series of intercontinental land and maritime routes around the globe, funding multiple infrastructure projects, and strengthening economic, political and cultural ties with more than 60 Countries across Europe, Asia, Africa & the Middle East.
Many of the overland routes being integrated into the BRI framework are not dissimilar to those that were once part of the ancient “Silk Road” from Centuries ago.
The region of the Western Balkans is strategically located and offers China several advantages with respect to its evolving BRI strategy.
Despite its relatively small size in terms of total population and economic output, this six nation area, comprising Albania, North Macedonia, Serbia, Montenegro, Bosnia and Herzegovina, and Kosovo is next door to the European Union and its market of 440 million people.
The Western Balkans not only provides China with a convenient foothold inside of Europe but is also in need of infrastructure investment and possesses a well-educated and reasonably priced labour force.
Furthermore, the region’s comparatively weaker and looser regulatory policy framework that governs business activity also makes the Western Balkans appealing to Chinese corporations.
The Western Balkans region has already been actively integrated into the China-led “16+1” framework, also known as China-CEE, a grouping which fits into China’s BRI Strategy.
Founded in 2012, the group now includes 17 Central, Eastern and Southern European countries, with Greece recently becoming the latest member (the group is now 17+1).
The Western Balkans has received the dominant share of infrastructure investment among group members, with over half of China’s $9.4 billion 2016-2017 infrastructure investment for China-CEE countries going to the countries of the Western Balkans.
The China-CEE has also seen significant investment in cultural ties, including the funding of local media outlets to promote a more positive image of China in the region and the establishment of the Center for Cultural Cooperation and Coordination in North Macedonia in 2018.
Among the six nations of the Western Balkans, Serbia is by far the largest recipient of Chinese infrastructure project lending and investment. According to a 2018 report by the European Investment Bank, out of all China-CEE group members, 29.4 per cent of all major construction funding was earmarked towards Serbia, 20.7 per cent towards Bosnia, and 7.4 per cent towards Montenegro. Serbia received over 1 billion euros in loans to develop a Belgrade-Budapest rail link.
In Montenegro, state-owned Chinese companies are beginning the construction of a highway between Montenegro and Albania. In Bosnia, Chinese companies are constructing coal-fired thermal power plants, while China is opening two highways in North Macedonia. Croatia has partnered with China to carry out construction of the Peljesac Bridge to provide better access to the tourist town of Dubrovnik.
Albania’s considerable energy resources and extensive coastline make it very attractive to China’s BRI Maritime Silk Road strategy. Chinese companies have purchased oil fields as well as the operating rights for the Tirana International Airport.
Kosovo is the odd country out in this regard and does not receive Chinese investment, since it is not recognised by China in deference to Serbia’s position on Kosovo’s status.
The Western Balkans’ larger neighbours in Southern Europe have also become important destinations for Chinese investment. Italy
became the largest EU country and the first G-7 economy to formally join the BRI initiative. The March 2019 memorandum of understanding between Italy and China includes over 50 sub-agreements in the spheres of economic cooperation, cultural cooperation, and infrastructure investment.
The Chinese state-owned shipping company COSCO acquired a controlling stake in the Greek port of Piraeus, one of Europe’s busiest ports, back in 2016.
The extent to which China’s BRI strategy has expanded within the Balkans and beyond has raised concerns within the United States, the European Union and also among governments of the Western Balkans region itself.
To be sure, the EU still accounts for approximately 75 per cent of all trade and around 60 per cent of all FDI coming into the Western Balkans. By contrast, China currently only accounts for around 6 per cent and 3 per cent of regional trade and FDI, respectively. However, China continues to steadily increase its lending, and consequently its leverage, in the Western Balkans.
Moreover, a worrying debt picture is emerging. For example, in 2018, 40 per cent of Montenegro’s debt was owed to China, while North Macedonia owed 20 per cent of its national debt to China.
Debt repayment will burden these small countries over the medium to long term. As with other countries around the globe, Balkan countries that fall into debt with Chinese companies and have trouble repaying loans risk losing their stake in these infrastructure projects.
The EU’s reluctance over the past few years to proceed with accession negotiations with the Western Balkan states of Albania and North Macedonia likely has served to encourage China’s assertiveness in the region.
Over the past few years, although the Western Balkans were invited to join EU Energy Community Treaty, creating a common market in electricity and natural gas, EU officials and member state governments repeatedly have expressed preference for greater institutional “deepening” and strengthening over any further “widening” of the EU and the admission of new members from the region.
Nevertheless, very recent events signal a breakthrough in the position of European member states. The recent announcement of the Council of the European Union in March 2020 that accession talks with Albania and North Macedonia would move forward points to a growing interest by the EU in the future of the Western Balkans.
This decision was in no small part motivated by the EU’s concern that other great powers, including China, but also Russia and Turkey, were flexing their muscles in the region.
In short, while there is little doubt that China’s footprint in the Western Balkans will likely grow in coming years, it appears that so too will EU actions to bring the Western Balkans closer to EU member states and EU institutions.
While investment by Chinese companies have the potential of contributing positively to regional economic development and to the region’s overall prosperity, Western Balkan governments should avoid allowing themselves to become burdened by onerous debts arising from infrastructure loans.
Investment and economic partnerships should be geared towards strengthening the effectiveness of governance structures and economic institutions within the Balkans.
In other words, great powers need to bring tangible benefits and growth opportunities to the region and avoid immersing the countries of the region in great power power plays.