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China in the Balkans: opportunities and risks

Roundtable meeting of leaders at Belt and Road international forum | President of Russia

The crossroads between East and West; has long proven an important territory for the economic, political and geopolitical interests of great powers. 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 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.

According to Forbes, Labor costs in the region that remain low are one reason that drive Chinese investment in the Balkans. 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.

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 favor.

Sources say that 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.

However, 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 neighboring 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.

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.