A dozen Chinese engineers recently arrived in Tuzla, a heavily polluted, nondescript Bosnian town dotted with communist-era housing blocks. They are the first batch of what will eventually become a 1,000- strong Chinese workforce working on the biggest post-war foreign investment in the war-torn country: a coal fueled thermoelectric plant.
The investment will cost a staggering U.S. $872 million, 85 percent of which will be funded by a loan from China’s Ex-Im Bank and constructed by a consortium of companies led by China Gezhouba Group. Envisioned as an addition to the derelict Tito-era thermoelectric plant, the new Chinese made ‘Unit 7’ is expected to produce 2,756 GWh of electricity per year.
In other words, a Chinese company will employ Chinese workers and engineers to build an energy plant in Bosnia using money granted by a Chinese bank.
If such a modus operandi sounds familiar, well, it's because it is. It has been applied in Sri Lanka, Pakistan, Congo and now – the Balkans.
But why would China be making mammoth investments in a region where the EU and US have for long wielded influence?
The answer perhaps lies in the fact that Brussels and Washington no longer wield as much influence as they did a decade ago.
To oversimplify, the West has lost interest in the Balkans, despite having had nearly 60,000 troops in Bosnia in the late 1990s. America still maintains a significant presence in Kosovo’s Camp Bondsteel. However, the U.S. has been drawn away from the region because of security developments in the Middle East and Washington’s strategic pivot to Asia.
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On the other hand, the EU’s softball approach to the Balkans and its vague offer of eventual EU membership was not very enticing to region’s population or political leaders.
The Balkan region does have a poor investment climate. A lackluster performance of its economy and failed privatization efforts of communist-era state-owned enterprises resulted in the entire region attracting less than 0.57 percent or $10 billion of the world foreign direct investments in 2018. For comparison's sake, the European Union attracted 25 percent of global FDI in the same year.
The region lags significantly in infrastructure development compared to EU countries – a quick glance at Google maps will show you the non-existence of highways in Bosnia, Montenegro, Kosovo and Macedonia and you'll see mere pin-pricks in Serbia.
Furthermore, Balkan countries are characterized by endemic corruption permeating all strata of society. A weak rule of law and occasional war-mongering adds to feelings of insecurity. It is debt-burdened, cash-strapped and has soaring unemployment rates reaching nearly 35 percent. With a total regional population of less than 18 million, the region has an average per capita gross domestic product of some $6,000, which is only 14 percent of the EU average ($44,467).
Being neglected by others, yet strategically located along the path of China’s planned Belt and Road Initiative, Beijing eyed its opportunity. In Beijing’s strategic calculus, the Balkans are merely a transit corridor towards more lucrative Western European markets, where real Chinese interests lie and where household consumption per capita is among the world’s highest.
Beijing took its first diplomatic steps into the Balkans back in 2012 when it inked agreements to deepen economic cooperation with Central and South East European countries in a format known as "17+1."
Labelled by some as China’s attempt to divide and rule Europe, the informal group resulted in the signing of 40 bilateral deals during their 2019 meeting alone, and hundreds of millions of dollars in Chinese loans to Central and South European countries.
China’s top-down, often opaque approach to doing business, heavily reliant on personal relations seemed perfectly fit for the region’s strongmen, as neither side was very fond of the European Union’s rules-laden procedures for doing business.
Over the past decade, Chinese investments in the region have been truly mind boggling.
In Serbia, China’s flagship investment project is a much delayed but nevertheless pricy $3 billion high-speed railway connecting Belgrade to Budapest, awarded to a Chinese firm without open competition. Another is Huawei’s "Safe City" surveillance system project consisting of 1,000 high-definition cameras across 800 locations throughout Serbia’s capital, which will use facial and license plate recognition software, all linked to a central law enforcement database.
In Croatia, an EU and NATO member state, Peljesac Bridge, one of the EU's major infrastructure projects worth $419 million and funded mostly by the European Commission, is paradoxically being built by the China Road and Bridge Corporation.
In tiny Montenegro, the Chinese Exim Bank granted the Montenegrin government an $809 million loan for the Podgorica-Kolasin highway project. As part of the terms and conditions of the 20-year loan, the Chinese construction company involved is exempted from taxes and custom fees.
In the Greek city of Piraeus, being strategically located and fastest-growing port in Europe, the China Ocean Shipping Company (COSCO) invested $704 million in harbor facilities and recently acquired a controlling share in the port authority.
While China’s footprint sometimes receives more media attention than its size warrants, Beijing’s presence in the Balkans has grown so exponentially so fast that Serbia’s President Aleksandar Vuči now publicly refers to China’s President Xi as a ‘friend and brother.’
Beijing is achieving much more than meets the eye. By deliberately targeting the construction of critical infrastructure, China is creating new economic dependencies abroad. The tiny state of Montenegro is a case in point – it owes 40 percent of its total foreign debt to China.
Then, China – just like any other major power – also uses its investments abroad as political leverage to extract concessions when it comes to issues of human rights in China is of international concern. A case in point is Serbia, by far the largest recipient of Chinese finance in the Balkans, which has staunchly defended Chinese policies in Xinjiang.
Finally, Chinese investments abroad are also used for domestic consumption by serving to legitimize the governing Communist Party and strengthening the regime narrative of communist grandeur at home.
Beijing has never concealed its ambition of reestablishing the Eurasian landmass as the largest economic powerhouse in the world. Its ambitious Belt and Road Initiative aims, literally, to flood the EU market with affordable Chinese goods and services. However, unlike Russia, whose main objective in the Western Balkans is to stymie NATO and EU expansion, China lacks the ambition to indulge in a full-fledged rivalry with other major players.
In a region with backsliding democracies and an ever more authoritarian atmosphere, China has emerged as a new player who won't lecture anyone on human rights or rule of law. That is exactly why Balkan elites have come to appreciate the value of befriending China – not only a means to diversify their direct foreign investments and trade partners, but as a means to soften NATO and EU conditionality.
For Balkan strongmen who see the prospect of joining the EU or NATO as unlikely or a long way off, greater engagement with China is a tempting auxiliary option. Balkan states are taking a bet on Beijing and 'Brother Xi' without fully considering the future costs and consequences.
Harun Karcic is a journalist and political analyst based in Sarajevo covering foreign influences in the Balkans, with a particular focus on Middle Eastern influence in the region. Twitter: @HarunKarcic