In April 2019, China convened the second forum of its Belt and Road Initiative, a vast network designed to promote new economic corridors and to link cities and ports through existing and new routes and infrastructure.

Though its immediate focus is on Asia, Belt and Road investments are spreading through southeastern Europe, a region in which China’s economic influence is recent, but its impact is drawing significant attention.

Chinese foreign direct investments in Europe have reached record levels over the past decade, reaching €37.2 billion in 2016. Combined with Beijing’s ‘going out’ policy to encourage the internationalisation of Chinese companies, these levels of investment are linked to the state of the European economies.

The euro debt crisis of 2008, the decline of the euro against the renminbi between 2008 and 2016, and a process of de-industrialisation all served in different ways to attract Chinese investments, according to Philippe Le Corre, a China expert.

China began to increase its investment in the region in the early 2000s. This might appear surprising given the severe impact of the financial crisis on the area and the limited size of those markets.

With a strategic location, however, the region works as a major transport corridor connecting the Mediterranean to central Europe, reducing transport costs for Chinese goods into Europe and providing new markets for its thriving industries.

The route that China is setting up is known as the ‘Balkan Silk Road’. It begins in Greece at the port of Piraeus, the first major European container port for ships entering the Mediterranean from the Suez Canal.

Travelling through an upgraded Piraeus-Budapest transport corridor, the containers arriving will benefit from a faster journey to central Europe through North Macedonia, Serbia and Hungary.

The Balkan Silk Road comprises two main elements: transport connectivity and energy investments. The most significant transport investment is the 30-year concession awarded to the state-owned China Ocean Shipping Company (COSCO) in 2008 to manage two terminals in the Piraeus Port Authority. In 2013, COSCO was awarded a contract to build a third terminal and to renovate the existing terminals.

It finally assumed full management of the port in 2016 by buying a majority stake in the authority. Piraeus port is now the main platform in Europe for China’s maritime ambitions, part of what Beijing refers to as the Maritime Silk Road.

In North Macedonia, Greece’s land-locked neighbour to the north, the main priority is road and rail transport: the future A2-A3 Kicevo-Ohrid highway and the improved Miladinovci-Stip motorway form part of a larger European east-west corridor.

These roads will improve links between the capital Skopje and the other North Macedonian regions, as well as access to neighbouring countries.

Serbia is the largest recipient of Chinese investment in the Balkans, and the Belgrade-Budapest high-speed railway is the first stage of a proposed train link between Belgrade and Athens. Initially planned for 2017, the project stalled after the European Commission launched an investigation into the lack of public tender for the contractor.

Energy investments are not immune to problems either. In Bosnia and Herzegovina, the planned construction of a power plant in Tuzla is mired in controversy. Dating back to 2010, the project finally received parliamentary approval to guarantee a large portion of the loan in March 2019. Criticism of the project has focused on the need to comply with the European Union state aid regime, and questions about the environmental impact assessment and procurement procedure.

In addition to its investments, China is promoting a 17+1 forum which links Beijing to 17 countries, ranging from Poland in the north to Greece in the south.

Created to improve economic relations among its members, the group is viewed as an institutional means for China to increase its influence in the region. It can also be regarded as a tentative regional coalition exercising symbolic power, as well as a future multilateral setting for regional projects.

Tool of Geopolitical Influence

With President Xi Jinping stating China’s aim to become a global leader by 2050, the Belt and Road Initiative is perceived as an instrument of soft power in southeast Europe.

For example, China opposed Kosovo’s 2008 declaration of independence from Serbia and lodged a legal recourse against its sovereignty at the International Court of Justice; a position apparently rooted in concerns over the possible consequences that recognising Kosovo’s sovereignty might have on the delicate issues of Tibet and Xinjiang.

Belgrade maintains its alignment with the ‘One-China policy’, having no relations with Taiwan, and, together with Hungary, has supported Beijing’s territorial claims in the South China Sea.

The objections of Greece were widely understood to be behind a somewhat watered down EU statement following the International Arbitration Court ruling on the South China Sea. Meanwhile in 2017, over the objections of the EU, China secured Hungary’s signature on a joint communique on the Belt and Road Initiative.

Other Concerns

European and other officials have further concerns. The first stems from the provisions attached to Belt and Road financing which are often described as softer than those of other commercial or multilateral loans, potentially leading unwary countries into a debt trap.

The loans typically involve longer maturities and grace periods, lower interest rates, and the backing of the China Export Import Bank. Given the small size of some of the countries in the region, some projects may result in loan defaults eventually placing the country under China’s political influence.

For example, as of 2018, 80 per cent of the external debt of Montenegro with a population of 623,000 consisted of Chinese infrastructure loans, according to the latest Munich Security Report.

The second concern relates to the targeting of European strategic and sensitive assets by China through its Belt and Road investments. Several European governments have updated their own screening regimes, and in February 2019 the EU formalised this process by issuing a framework to screen foreign investments.

The concern remains, however, for non-EU members in the region which lack an equivalent screening regime in their national laws.

Finally, Chinese investments appear to be loose on procurement procedures and social and environmental requirements. They frequently rely on Chinese workers and supplies rather than local staff and resources, and there is a suspicion that Chinese contractors have close ties with the Chinese government.

These criticisms overlook the fact that support from an export credit agency is a common feature of international financing when states want to promote the international expansion of their companies. Similarly, tied sub-contracting is a traditional feature of export credit financing’s. China appears not to be deaf to these concerns.

At the Belt and Road Forum in Beijing, President Xi explicitly referred to a couple of documents the ‘Guiding Principles on Financing the Development of the Belt and Road Initiative’ and a ‘Debt Sustainability Framework for Participating Countries of the Belt and Road Initiative’. Some commentators have interpreted this as a sign than in future Belt and Roads projects will be more sustainable in both fiscal and environmental terms.

At the EU-China summit in Brussels also in April, it was agreed to intensify efforts to develop a new set of guidelines for government-supported export credits.

The summit expressly acknowledged the need to abide by ‘market rules, transparency, open procurement’, ‘fair competition’, as well as ‘established international norms and standards’.

If the guidelines referred to by President Xi in his speech at the Belt and Road Forum are implemented and a strengthened form of cooperation between the EU and China takes shape, it would go some way to addressing the Europeans’ concerns.