The Balkans: the crossroads between East and West; has long proven an important territory for the economic, political and geopolitical interests of great powers: The Russian, Austrian, and Ottoman Empires, America and the USSR; and now China. In 2013, China’s President Xi Jinping announced the “Belt and Road Initiative” (BRI) a grand Eurasian strategy that seeks to connect Chinese trade with the rest of Asia, Africa, the Middle East and Europe.
The geo-economic implications of the project from China are vast and long-term. The Balkans has been a focus of China as an extension of the BRI in Europe, and its presence is visible in almost every corner of the region.
But what is driving Chinese investment in the Balkans? Firstly, labour costs in the region remain low. Secondly, it will enhance China’s presence in Europe via countries that may one day be members of the European Union. At least $4.9bn of deals, were concentrated in Albania, Bosnia and Herzegovina, Macedonia, Montenegro and Serbia. For the smaller Balkans states especially, this represents an enormous investment in their economies.
However, Chinese investments in the Balkans has caused concern among some EU Member States, as they may create unsustainable debts for Balkan governments. Among the poorest countries in Europe, with fragile economies, high levels of unemployment; corruption and weak democratic institutions have put the Balkans in a position of susceptibility to Chinese investments. The region does lack certain and crucial infrastructures, and is in dire need of new roads, power plants, and railways (to name a few).
Related Article: Building Bridges in the Balkans.
But, Chinese investment has had some immediate and overwhelmingly positive impacts. For instance, one of the biggest Chinese investments in Serbia was the purchase of the steel mill Železara Smederevo by the He Steel Group for €46 million. The Serbian plant is economically of little relevance to China, but the deal saved 5,200 local jobs – bought China enormous political goodwill and consequently gained Serbia’s political favour.
However, Chinese loans are often granted under soft and permissible conditions. At first glance, a soft loan with few strings attached appears attractive to countries desperate to revive their economies.
But it has led to an increase in the regions’ debt burden and is dangerous in the long-term. For example, infrastructure is a key element in China’s policy towards the Balkan region. A Chinese-built highway for Montenegro, designed to link the port of Bar on Montenegro’s Adriatic coast to neighbouring Serbia, is anticipated to increase Montenegro’s debt to nearly 80 percent of its GDP. The effects of this debt, on a small country like Montenegro, are likely to be profound.
A look at other smaller economies dealing with BRI related debts does not bode well for Montenegro: in Sri Lanka their Chinese debts spiralled so out of control that China took possession of a strategically valuable Indian Ocean port as part of a repayment deal. Meanwhile Uganda has built a $580 million highway from its capital to its largest airport. But there was no competitive bid for the contract, and the road itself may end up becoming a disadvantage and unprofitable.
Also Read: Bank of China offers $300m Loan to Sri Lanka.
Nevertheless, the Montenegrin government hopes the highway will boost the economy and strengthen trade with Serbia- as well as improving its notoriously dangerous roads. Doubts about the highway have already been raised however, as the first 41-km section is yet to be completed. But now that it has been started, it is difficult to stop. Montenegro was certainly attracted by the easily obtained Chinese loans desperately needed for their infrastructure projects and development.
From a Balkan perspective, Chinese investments present both opportunities and risks. The BRI can help to completely transform the Balkans for the better, but the visionary projects can also burden governments with large debts and or economically unviable infrastructure and increase dependency on China.
Editor’s note: The article reflects the author’s opinion only, and not necessarily the views of editorial opinion of Belt & Road News.