Balkans Anchored to EU – Despite China's Growth, Report

China is making major economic inroads into the Balkans under its Belt and Road Initiative, but the EU remains their main political and economic anchor, a new report by the EBRD says.

China PM Li Keqiang at the 2014 Trade Forum in Belgrade. Photo: Beta

Trade volume between China and countries along the “Balkan Silk Road” reached 3.3 billion euros in 2015-16, but Europe still remains the most important foreign trade partner of Balkan countries, according to a new report commissioned by the European Bank for Reconstruction and Development, or EBRD, and published on Thursday.

According to the report, there are “legitimate concerns” about the Chinese engagement in the “16+1” framework, which was set up as part of China’s Belt and Road Initiative to improve trade and economic relations with 16 European countries.

The focus of concern is that Chinese companies serve as proxies for the Chinese state, and employ few locals, while infrastructure projects and lending agreements burden governments with large debt obligations.

According to data, the total trade volume between China and selected Western Balkan economies reached 3.3 billion euros in 2015-16. Serbia accounted for almost half of that total trade volume.

Balkan countries’ trade exchange with China in millions of euros. Source: EBRD

The report took a close look at three Balkan countries – Serbia, Macedonia and Bosnia and Herzegovina – whose trade exchange with China is balanced “almost exclusively” in favour of the Asian giant.

The most recently available international trade data for Serbia show that China was the country’s fourth largest trading partner in 2016 and second largest import originator. However, China does not feature even in the top ten destinations for Serbian exports.

Serbia’s importance to the Chinese initiative has been emphasized by Chinese President Xi Jinping, who sees Serbia playing a “leading role in the cooperation between China and the countries of Central and Eastern Europe”, the report says.

Seeking to back up such diplomatic statements, Beijing is becoming a major lender for infrastructure projects in Serbia, setting up a Bank of China branch in Belgrade, as part of a wider strategy to penetrate Balkan and European markets.

Data for Macedonia show China was that country’s fourth largest trading partner in 2016, and came in ninth position as Macedonia’s export destination.

Chinese investment in Macedonia remains limited but has a strategic focus, as Macedonia represents a connecting link between port facilities being expanded or acquired in neighbouring countries and transport infrastructure projects.

Bosnia does not yet feature prominently on the radar of Chinese economic activities in south-eastern Europe, the report said. However, the volume of finance in play – committed or offered – from China could still be considered substantial.

“If indeed agreed and implemented – and this is a rather big if – then the total sum would exceed 2 billion euros,” the EBRD commissioned report says.

But in Bosnia and Herzegovina, the report noted a disconnect between what Chinese companies and banks are considering doing and what various representatives in the media, politics and the business community of the country wish to present.

It gives the example of the motorway operator Autoputevi Republike Srpske in the Bosnian-Serb entity Republika Srpska, which claims it has signed a preliminary agreement with the Chinese firm Sinohydro to construct a motorway section.

According to observers on the ground, however, this is just a “dream” of the entity’s president, Milorad Dodik, entirely driven by his own “political considerations”, the report says.

Overall, Chinese investments along the Balkan Silk Road are welcomed by policy makers in the region, based on their pragmatic considerations.

However, regional countries remain committed to European Union accession and NATO membership, the report concluded.