Describes recent investments by China in order to influence the policy, culture, and politics of the Balkans and increase leverage in Europe

1. China’s New Best Friend- Beijing’s
Strategic Investments in the
Western Balkans
Created for:
The ISOA Conference- Dubai, U.A.E.
Presented by: Greg Kleponis, Ph.D, LL.M, MA
Colonel, USAF (ret)
University of Bolton, Dept. of Research
19 March 2019

2. China’s Next Global Move
• The Balkans: Crossroads between East and West - long proven
an important territory for the economic, political and
geopolitical interests of great powers: (Forbes, 2019)
▫ Russian, Austrian, and Ottoman Empires, America, the USSR;
and now China.
• 2013 - China’s President Xi Jinping announced “Belt and
Road Initiative” (BRI) – grand Eurasian strategy that seeks to
connect Chinese trade with the rest of Asia, Africa, the Middle
East and Europe.
• Geo-economic implications of 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.

3. Why the Balkans?
• Geographical position
▫ Albania, Kosovo, Montenegro, North Macedonia, Serbia & Bosnia
–Herzegovina – Part of the Silk Road Strategy
• Balkans represent an excellent entry point to Europe & to
promote Chinese interests in the region
• Region requires massive investment for infrastructure
• Governments easy to deal with
• EU has not been aggressive with development projects
▫ EU has been distracted with political and economic issues within
the union

4. Why the Balkans?
• Chinese view Balkans as ripe strategic target
▫ Region suffers from huge infrastructure gap and short of
cash.
▫ Balkans also heavily in debt- Chinese don’t care
• Chinese attracted by lax public procurement rules (read
corruption) and labor regs
• Chinese, like in Africa are interested in infrastructure
(transportation and energy) (Zaneli, 2019)

5. Investment?
• Western Balkan economies small & underdeveloped
▫ Too small for China? Not so.
• Labor costs in the region remain low.
• Enhance China’s presence in Europe via countries that may one day be
members of the European Union
• $4.9bn of deals, were concentrated in Albania, Bosnia and Herzegovina,
Macedonia, Montenegro and Serbia.
• Chinese investments in the Balkans causing concern among EU Member
States,
▫ May create unsustainable debts for Balkan governments.
▫ Fragile economies, high levels of unemployment; corruption and weak democratic
institutions put the Balkans in position of susceptibility to Chinese investments.
▫ Region lacks crucial infrastructures, f new roads, power plants, and railways
• Europe’s loss is China’s gain
• EU bureaucracy and rules attached to EU funding turning Balkan countries
off
• Chinese investment is easy vis a vis EU and could be both a boon and
challenge in the future of Balkans

6. • Beijing is buying-up properties and assets in region
• China purchase of large percentages of Athens main port (Piraeus)
• Purchasing strategic air-hubs and infrastructure in Europe
(Hahn/Frankfurt, Flughafen Germany)
• Aim to increase political influence and bind local governments and industry
• Africa model of investment and development – Good models to study
• Appealing to under-funded states that feel “neglected” by Europe
▫ Balkans
▫ Greece
▫ Central Europe

7. Trade & Investment in Region at
Present
• EU main trading partner -- 73% of all trade
• China share – 5.7%
• EU – main investor – 60% of FDI
• Chinese – 3% of total stock
• Serbia is the only Balkan country that has
attracted significant Chinese investment so far
• FDI numbers not a good analytical frame
▫ China “flies under the radar” with approach which
relies on loans – not actual investments

8. Beijing’s Latest Projects
• Just announced the building of two highways in North Macedonia
and one in Montenegro
• Currently China focused on Serbia- regions largest economy- 44% of
regional GDP
▫ Serbia targeted for over 2.5 billion euros- railroad upgrades
• China has take an controlling stake in the main seaport in Athens
Piraeus. Railroad will connect Greece and Western Europe via
Northern Macedonia, Serbia, and Hungary.
▫ China’s influence already felt- Pressure on Athens by Beijing to
solve the Macedonia question.
▫ The present hold up is with the EU which has blocked the rail on
the Hungarian side on claims of lack of transparency and finance
arrangements between Hungary and China.

9. Strings Attached?
• Not bound by EU standards and regulations
• Soft loans with few strings attached appears attractive to
countries desperate to revive their economies.
▫ The Argument– not required to abide by financial
sustainability- looser approach to risk creates fiscal
instability for those governments – entering into large debt
obligations.
▫ Projects lack transparency – rules on procurement?
▫ Balkan Debt- levels around 70% - more debt results in loss
of sovereignty
▫ Montenegro 40% of debt to China- North Macedonia-20%,
Bosnia-Herzegovina -14% and Serbia (source: MERICS)

10. No Strings Attached?
• EU loans less appealing than Chinese
▫ EU has rules and standards aimed at reducing risk and prevent
reckless governments serving own interests
▫ China has only one rule- Projects. Funding conditioned on letting
Chinese companies (state-owned) implement projects and
Chinese workers.
▫ Does it help local economy?
• China engaged in “project export”
• China also engaging in non-economic ways
▫ Culture, Education & Science
• Clear objective is to solidify bonds between Beijing and individual
governments

11. Loan Risks
• 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.
• Has led to increase in 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 spiraled 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.

12. Loan Risks
• Chinese investments in the Balkans has caused concern
among some EU Member States
• 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).

13. Public Opinion- Is There Any?

14. Public Opinion
• Balkan public has no real idea of China or Chinese politics- no
historical connection
• No public debate on the advantages or challenges of presence
• “Soft power” – media, think-tanks, Confucius centers etc
▫ Popular perceptions are shifting favorably toward China
• Western European critics refer to this as a form of “neo-
colonization”
• China – unconcerned- Serb people view China increasingly as
second-most important player and “credible investor” after
Germany.
• EU warned that “Balkans can easily become one of the chessboards
where the big power game can be played.” – now a reality.

15. EU’s Fault- Neglect?
• China is determined to use the Balkans as an entry point
to the European Market
▫ Also promoting its political model in countries in the region
exploiting their weak governance
• Balkans have no clear prospect for EU membership
▫ Balkans may also avoid membership or alignment to EU
▫ Pain of reforms – may want to avoid them
• Balkans taking a short-term view for their own interests
• China looks like a palatable solution to their problems
▫ Short term satisfaction but longer term pain
▫ See Greece as an example- Chinese may be worse

16. Loan Consequences (Case Study Precedent)
• Loans have increased regions’ debt burden and dangerous in long-term.
▫ Infrastructure is a key element in China’s policy towards the Balkan region.
• 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.
• Montenegro was certainly attracted by the easily obtained Chinese loans
desperately needed for their infrastructure projects and development.
• 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.
• 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.

17. Conclusion

18. • China’s engagement in Balkans driven by strategic logic
• Main goal is to use the region as a springboard for
commercial entry into Western Europe
• Markets, knowledge & Technology
• The moves by China need not be interpreted as a net negative
• Investment in an under-developed and under-invested region
could be a good thing for the people of the region
• Increased infrastructure and integration could help to further
develop local regional markets but also create the necessary
conditions to stimulate and build Western European Markets

19. • From a Balkan perspective -Chinese investments present both opportunities and
risks. The BRI can help to completely transform the Balkans (for the better)
BUT
• These visionary projects can also burden governments with large debts and or
economically unviable infrastructure – and increase dependency on China.
• EU, NATO, United States should consider its present engagement with Western
Balkans…….
• Presently feel like unwanted step-children- and treated somewhat so in reality
• China is looking for these gaps in economic and political relationships world-
wide and intend to capitalize on them if it is in their strategic interests.
• Rather than whining about China’s unfair business practices and wringing our
hands about their aggressive postures in developing countries, perhaps we need
to reconsider our aid priorities.
o Building infrastructure rather focusing on ideological social programs
o Engaging developing countries rather than leaving them to “develop &
learn” on their own
High School Dance Lessons.

20. References:
• Zeneli, V. (2019). China in the Balkans - The Globalist. [online] The
Globalist. Available at: https://www.theglobalist.com/balkans-china
-fdi-belt-and-road-eu/ [Accessed 15 Apr. 2019].
• Forbes.com. (2019). China In The Balkans: Good Or Bad?. [online]
Available at:
https://www.forbes.com/sites/rebeccabanovic/2019/01/26/china-
in-the-balkans-good-or-bad/#470b9e1e588a [Accessed 15 Apr.
2019].
• Balkan Insight. (2019). China’s Influence in Balkans Poses Risks,
Report Warns. [online] Available at:
https://balkaninsight.com/2019/02/11/chinas-influence-in-balkans
-poses-risks-report-warns/ [Accessed 15 Apr. 2019].