China pins hopes on Balkans as gateway to Europe but faces growing scepticism

Days before a summit between Chinese President Xi Jinping and 17 countries in Central and Eastern Europe earlier this month, nearly 90 Chinese investors gathered in a grand ballroom in a Beijing hotel to listen to an appeal from President Milo Djukanovic of Montenegro.

“If there is no skill in planning, it is difficult to achieve, and if there is no skill in planning, it will fail,” Djukanovic said, quoting the ancient Chinese military strategist Sun Tzu.

He told the event that the country of around 680,000 people welcomed Chinese investment in its tourism, energy and transport sectors.

He continued the pitch by saying: “China and Montenegro should better understand the challenges to the global economy and jointly look for a proper solution.”

Montenegro is one of the small Balkan countries looking for Chinese investment to repair their sluggish economies after Covid-19 despite increasing doubts about whether Beijing can fulfil its promises, observers say.

One project funded under China’s Belt and Road Agreement is a US$750 million highway that has been blamed for increasing Montenegro’s national debt to 80 per cent, but Djukanovic said he hoped it would “give a strong impetus to a faster economic recovery in the post-pandemic era”.

“In both geopolitical and market terms, the Chinese leadership perceives the Balkans as something of a bridgehead or an open door towards Europe. This is the product of the region’s strategic geography that places it at the crossroads between Europe and wider Eurasia,” said Vuk Vuksanovic, a researcher at the Belgrade Centre for Security Policy.

“Moreover, some countries like Serbia are EU membership candidates which is useful in Chinese ambitions to connect themselves more with the EU markets,” he said. “The political ties are a product of this Chinese ambition and desire by local nations to explore opportunities offered by China.”

Even though most of the Chinese infrastructure projects are loan-based, what China offers is particularly appealing to non-EU members from the western Balkans, which are eager for funds to help catch up with the rest of the continent, said Filip Sebok, an analyst with the Prague-based think tank the Association for International Affairs.

“The Balkan countries, in general, are more receptive to the Chinese model of doing business, which China successfully uses in developing countries,” Sebok said. “There are fewer regulatory hurdles and the friendly positive environment is also a factor.”

The shift is evident in investment figures. In 2010, four EU members – Hungary, the Czech Republic, Poland and Slovakia – received 78 per cent of Chinese investment in 16 Central and Eastern European nations, while only 20 per cent went to the Balkans.

But by 2019, a year before Greece joined the “17+1” grouping, investment in the Balkans had doubled to 41 per cent, compared with the 43 per cent that went to the four central countries.
China has also stepped up its investment in the Balkans and promised to supply Covid-19 vaccines to many non-EU states. Of the 53 commercial agreements and loans announced during the latest 17+1 summit, 25 went to five countries: Serbia, Bosnia-Herzegovina, Montenegro, Albania and North Macedonia.

But doubts still remain in the longer term.

“As the world struggles with the pandemic and the EU enlargement is not progressing in the region, the local nations are concerned with short and mid-term challenges of economic and infrastructural developments,” said Vuksanovic.

“A long-term question mark remains whether the Balkans will grow even more distant from the EU, as Chinese standards are different from the European ones.”

A decade after the establishment of the 17+1 initiative, many European countries are increasingly dissatisfied with the results, citing a growing trade deficit with China, a failure to create jobs and Beijing’s slowness in opening up its markets to agricultural exports.

“For a long time, China was seen as a new exciting potential investor that would bring a new impetus to [Central and Eastern European] economies,” Sebok said. “But in most cases, the actual results of the Chinese investments have fallen behind expectations.

“The fact that a lot of the investment was not actually job-bringing greenfield investment also made the situation worse. So the expectations that China will be a new promising investor are much more muted now.”

This year leaders from six EU countries – Bulgaria, Romania, Slovenia, Lithuania, Latvia and Estonia – all failed to attend the 17+1 summit with Xi, sending more junior representatives instead.

Xi promised China would import US$170 billion worth of goods and double the purchase of agricultural products from the region over the next five years, but the pledge may not be enough to dispel concerns. A 2012 promise to boost trade with the region to US$100 billion by 2015 was not met until last year.

“This is not simply about increasing trade, but actually about meeting [the 17+1] halfway and improving trade access. Once on the market, CEE agricultural goods also face tough competition, e.g. from Australia or New Zealand, which have free-trade agreements in place with Beijing,” Sebok said.

(SCMP)