China - Serbia

Serbia increasingly appears as a central hub in the Balkans for the Chinese-led "Belt and Road Initiative", both at an infrastructural and a political level. We discussed about it with Dragana Mitrović (University of Belgrade)

23/01/2018 -  Francesco Martino

Which are the most significant Chinese projects currently underway in Serbia?

There are several well-known ones, but probably the most important is the second phase of the modernisation of the Kostolac thermo-power station. It includes the construction of a 350 Megawatts thermal power plant B3 – the first new one built in Serbia in the last 26 years, the enlargement of the Drmno mine that supplies it with coal, and the construction of docks and the rail link between the two. The first phase, just completed, consisted of the reconstruction of sectors B1 and B2 of the power plant, for over 715 million dollars, and the ecological treatment of the used coal fields. The works for the second phase will start at the beginning of 2018 and will require an additional 300 million dollars. Both were financed through a 1.2 billion loan by the Exim Bank of China in 2012, supported by a state sovereign guarantee provided by the Serbian government which is also covering about 15% of the value of the project. The company engaged in implementing the project is dominantly Chinese, the China Machinery Engineering Corporation.

Chinese companies are also very active in modernising the Serbian road network...

Chinese involvement in traffic infrastructure started with the construction of the “Pupin bridge” in Belgrade, officially opened two years ago during the "16+1" summit in the Serbian capital. Today, several Chinese companies are involved in building sections of the highways part of the Pan-European Corridors X and the so-called Corridor XI that connects Serbia with Montenegro. The first one at the outskirts of Belgrade, Surcin-Obrenovac, is long 17.6 kms, costs 103 million dollars, and is built by Chinese CRBC. The connecting section Obrenovac-Ub is long 26.2 kms, costs 301 million dollars, and is also financed by the Exim Bank of China, while works are mainly carried out by the Shandong Hi-speed Group. There is also another section on this corridor, Lajkovac-Ljig (24 kms), which is financed by a loan for 301 million dollars and carried out by the same Chinese corporation. The works on these two sections are still ongoing, although they should have been completed by November 2017. Eventually, Chinese companies are involved in the construction of two sections of the 107 km-long highway to be built in central Serbia up to the border with Montenegro, starting from 2018. The area, quite impervious, will require the excavation of several tunnels, with expected costs up to 1.6 billion Euros. The patterns of financing and selection are not based on open public bids, but on an agreement on cooperation in traffic infrastructures between China and Serbia and following commercial memoranda and contracts.

China seems to be extremely interested in Serbia. Do you think this is just because of its geographical position?

Serbia's geographical position certainly plays a very important role: China wants to create corridors in South-East Europe from the Piraeus port towards Central Europe, and when it comes to the most important infrastructures, like the port, it wants to be directly involved in their operation. At the same time, Serbia and China have a long tradition of excellent bilateral relations. Serbia always supported the “One China” Policy, while China is a very important ally for Belgrade when it comes to supporting Serbia’s territorial integrity and sovereignty, when it comes to Kosovo's status in the UN Security Council and respecting the UNSC resolution 1244. Serbian governments have been very perceptive when it comes to Chinese initiatives. Moreover, Serbia is not a NATO member, so it may be easier for China to trust its political elite, even though China is very pragmatic and, when needed, it doesn't shy from creating intense relationships with specific NATO countries too. In this context, it is not surprising that Serbia became the first country in the “16+1” framework to attain the status of privileged political interlocutor and strategic partner of China and then to upgrade it to “comprehensive strategic partnership” level. However, we should never forget that Beijing's main interest is business: its policies towards the region, Serbia included, are first and foremost led by pragmatism and economic interests.

Chinese projects are often blamed for employing mainly Chinese workers and contractors. Is this the case in Serbia?

Yes, that is the case in Serbia too, also because of the current lack of technical and financial capacity of local companies. After the economic sanctions of the ‘90s, the Nato bombings that especially targeted civilian infrastructure, and the neo-liberal policies of the following governments, which refused to support their survival with public funds, many major companies in Serbia, previously famous in Africa and Latin America for building all sorts of strategic infrastructure, saw their potential to engage in big infrastructure projects severely cut down. Currently, we don’t have any major company capable of carrying on such complex projects alone, but only small ones pushed to accept any engagement, including subcontracts. In general, the Serbian public opinion is not happy with the current state of affairs and would prefer a more visible spill-over in the local economy, especially in terms of new jobs creation.

During the seminar in Brussels, you talked about the project to renew the Belgrade-Budapest railway. Can you give us an overview? What are the perspectives for the implementation of this idea?

The delay of the project remains unknown, as all sides kept pretending that all was going well. There were several trilateral agreements between China, Serbia, and Hungary, regular consultations, even working groups on custom procedures that included the Greek and Macedonian sides, but the actual works never started. To make things more interesting, Russian Railways International modernised and upgraded significant part of the railways on that corridor, the section between Stara Pazova and Novi Sad, through a Russian state loan. Moreover, Serbia and Hungary are in a totally different position: Serbia is not a EU member state, therefore it is in a position to give those sovereign guarantees that China wanted for such projects. On the other hand, Hungary had a lot of problems with the European Commission and we still don’t have any information that could lead us to expect a positive outcome from their side, although they expressed determination to complete the section and make it part of a wider stretch, one that could lead to Bucharest via Cluj Napoca and another one to Sarajevo. The high cost and the market distortion as the EC saw it (no bidding process, political allocation of engaged companies, voluntary pricing, etc.) are the elements of the project implementation that put it under severe scrutiny from Brussels. However, at the Riga Summit of 2016, the Serbian Transport Minister signed an agreement with Chinese consortium CRI-CCCC to modernise the section Belgrade-Stara Pazova for 319 million dollars. The total cost for the Serbian side should be up to two billion dollars, although the previously mentioned cost was 1.6. Immediately after the Budapest summit, the renovation works of Belgrade’s suburban Zemun train station were opened as a symbolic first step… Most likely, Hungary will respect market rules and procedure, like Greece did, and like in the Greek case Chinese companies may not win the bidding process. But the Chinese side will be satisfied to see this done, even with minor “losses” along the road.

The Chinese long-term plan seems to be to connect the Piraeus port to Budapest. Do you see any sign suggesting that China would be ready to renovate the line between Belgrade and the south, towards Macedonia and Greece?

Being involved in so many projects at the same time, China doesn't always share with its partner countries – even less the companies – its long-term plans or its next moves. So far, the priority has been the Belgrade-Budapest railway and there haven't been clear hints of a direct Chinese involvement towards the south, but this doesn’t mean that things won’t change. Along this route, though, other factors are in play too. In Greece, Chinese companies couldn't wit the bid to renovate local railways, also because Athens preferred to adhere to EU regulation that prescribes an open bid. Nevertheless, improving the Greek network works in favour of Beijing's interests, even if Chinese companies couldn’t be directly involved. Russia is also involved: Moscow granted Belgrade an 800 million dollars state-to-state loan, and through Russian Railways International it modernised two railways sections – the one between Belgrade and Budapest that we mentioned before and the other one south of Belgrade, Resnik-Valjevo. Russian Railways International also delivered some locomotives and engines and did a very good job within the time and financial framework.

The Budapest railway renovation was mainly a Chinese initiative. Do you think Serbia is capable of being proactive when it comes to directing Chinese investments in the country?

Currently Serbia is not proactive enough, it’s just responding to Chinese suggestions and ideas, mostly because the Serbian government wants to show some success in renovating the severely neglected traffic infrastructure and to build GDP growth that is insufficient. Moreover, Belgrade is not so prone to give details about the financing or the feasibility of such projects, but claims that they are reinvigorating the Serbian economy and making the country more attractive for foreign investments. Things, however, are slowly changing, especially with more recent projects like the modernisation of the Belgrade-Budapest railway. Here, Serbia requested more flexibility in technical terms and wanted to be more in line with the European directives. Serbia was eventually more demanding and asked more favourable terms, not simply accepting the whole package as it was offered by China.

Serbia is currently balancing between the EU and Russia: do you think that the increasing Chinese presence is complicating Belgrade’s geopolitical position, or that it can be seen as an opportunity?

I think both things can be true. This situation could benefit Serbia: when China engaged in the region, the EU eventually realised that it had neglected it far too long, pushing Brussels to come up with new policies and offer the Western Balkans a renewed commitment towards a future inclusion. At the same time, China's successes could complicate things: no great power likes others to intrude in its backyard. The EU, and especially Germany, looks at the Balkans as a natural area of its influence, Russia thinks pretty much the same, and now China is getting more and more involved too. Only far away in words, but actually very present, the USA want to keep dominating the scene. So the situation in the region is getting clearly more complex, including Serbia's geopolitical position. Some would say – nothing has changed, it has always been and will always be at the crossroads.

Is the increasing Chinese presence being debated in Serbia by political parties and the public opinion?

Not really. At the academic level, many experts look for the government’s approval and like the comfort of mainstream positioning, there’s not much room for criticism. Also, there is a huge gap in knowledge and understanding of China. At the political level, everybody seems to be pro-China: across the political spectrum the discussion remains at a very shallow level, and Chinese involvement in Serbia is simplistically described as a good opportunity for development and a chance to secure support for the Kosovo cause. China is also actively investing in public relations to support its interests: very often government official, journalists, and experts from Serbia are invited for long tours in China – when they come back, they have often turned into enthusiastic supporters of Chinese initiatives. So, at the moment I do not see any genuine discussion about what the Chinese so-called investments, actually loans, really mean for Serbia, how we should manage them, and how should we engage the Chinese business sector to really invest in Serbia with positive long-term effects for our economic revitalisation. 

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