Global News Insider

Author: Marián Šeliga

This article is the first in a series of articles devoted to the Chinese Belt and Road Initiative (BRI) in the Central and Eastern Europe region.

Content: This article analyzes the current state of the Belt and Road Initiative (BRI) in the Central and Eastern Europe (CEE) region, the latest projects realised within this strategy as well as the growing competition among some states in the region to deepen cooperation with China.

The Belt and Road Initiative (BRI) is one of the most grandiose initiatives proposed by China in the 21st century. This initiative has both active proponents as well as harsh critics. The first assume that it were Chinese investments which helped to complete massive infrastructure projects in many countries, the latter on the other hand, criticise China for conducting a “debt trap” policy, pushing partner countries into a situation, where they are not able to pay off loans provided by China. According to the critics of BRI, China is massively using debt as a tool to leverage over the countries receiving loans for infrastructure projects. Some of these accusations may seem realistic, but further analysis is needed to find out the real motives behind the Chinese strategy, as well as behind these accusations. Although some countries like Sri Lanka or Uganda have negative experience with massive Chinese investments, it seems that in the early of 2022 the Belt and Road Initiative is still a very successful one and it’s gaining momentum in some regions. The latest article on China’s BRI in respectful Diplomat points out that the accusation about China conducting a so-called “debt trap” policy downplay the fact that BRI debt is as much a problem for China as it is for borrowing countries. And as the latest development shows, since the spread of COVID pandemy and amid the growing aversy from Western countries against the Chinese projects, China is being more cautious about investing into highly risky projects overseas, which may cause reputation risks and unfounded accusations as in the case with Srilanka or Jakarta.

Croatian megaproject: Chinese CBRC builds bridge to connect Croatia with Dubrovnik

In the first article, devoted to the implementation of BRI in the CEE region, we look firstly at the Balkan peninsula, where the Chinese investors have been very active lately. Croatia has recently witnessed a major success of the Chinese “soft-power” policy as well as of the Belt and Road Initiative, when the Chinese CRBC (the China Road and Bridge Corporation) finished the construction of Pelješac Bridge, which connects mainland Croatia with the popular tourist destination of Dubrovnik. Despite the problems connected with COVID pandemic, this project was finished three months ahead of schedule. As a result of this success, the Chinese company is being given a great tribute both from the Croatian government as well as from the local people. What is more, there exist no prejudice in Croatia against Chinese involvement in the project and against BRI, as the project was fully sponsored by the EU funds and no credit had been provided to the country from Chinese banks. It should be pointed out that Pelješac bridge is the first significant infrastructure project completed practically solely by a Chinese company in the European Union and funded by EU funds, which creates a precedent in the whole Belt and Road Initiative as well as in the perception of this initiative among people living in the EU. At the same time, CRBC is planning to stay in Croatia and take part in other infrastructure projects, for example in the Zadar bridge project.

In the context of the latest successful story of the Chinese BRI we shall not forget about a controversial project in Montenegro (Montenegro’s first highway, the Bar-Boljare Highway). Montenegro’s government has faced challenges with paying off USD 1 bn loan to China’s EXIM bank for the construction of Montenegro’s first highway and even has tried and failed twice to secure funding from the EIB (European Investment bank). Despite the EU didn’t providing Montenegro with funding, the Montenegro government was able to swap the credit into euro and hence lower the burden on its credit pay-off. It shall be pointed out here, that the Montenegro project seems to be badly prepared from the very beginning in terms of risks hedging by the Montenegro side, especially when the estimated price of the project constitutes practically 40% of the country’s GDP. But in this case, neither of the parties is the winner. Montenegro is not able to pay off its debt and China has an unperforming bad loan on its balance sheet as well as it faces massive reputation risk connected with unfinished project along the New Silk Road. Many experts who accuse China of conducting “debt trap policy” neglect the fact that around USD 400 million out of USD 1 bn loan were sent to the local subcontractors which have links to the Montenegro President.

Serbia and Hungary

It is no secret that Serbia and Hungary have enjoyed the status of the most active countries in the CEE region in terms of deepening cooperation with the Chinese investors lately. Serbia is by far the largest recipient of Chinese investment on the Balkan Peninsula and many experts agree that Serbia is often considered as China’s crucial partner in the Balkans. Serbia may be seen by Chinese as a kind of “entering gate” to the Balkans and even to the whole of Europe, especially when we consider Serbia’s candidacy for European Union membership.

Talking about the concrete projects within BRI, China has invested actively in Serbia’s relatively outdated steel and mining companies. Such investments are more than welcome as Serbia is facing a high unemployment rate especially in its depressed industrial regions. Today, the Chinese investment in Serbia accounts for only about 1% of the foreign investment into the country altogether and is valued at 7 billion euros. Most of these funds are represented by Chinese loans. However, according to the statistics around 80% of all Chinese investment provided to the western Balkan region, including investment into Albania, Bosnia and Herzegovina, Kosovo, Montenegro, and North Macedonia, goes to Serbia. The first Chinese investment into the country dates back to 2016 when China’s Hesteel acquired Serbia’s steel plant in the town of Smederevo.

The critics of the Chinese investment into Serbia often point out that Chinese are either ignoring environmental standards and laws of the country as they argue was the case with the Majdanpek copper mine project or that they are actively breaking labour law by exploiting Vietnamese workers without proper wages and providing them with insufficient living conditions. Such a situation according to the critics of BRI projects happened in China’s Shandong Linglong Tire Co. in Zrenjanin. Nevertheless the officials from the Serbian government declare that no evidence of any serious breaches or malpractice have been found out during the state inspection sent to the factory. In this context, we may also mention another case of protest behaviour aimed against Anglo-Australian company Rio Tinto which planned to explore lithium in Serbia. Thousands of people have been demonstrating recently against Rio Tinto’s plan to mine lithium in Serbia which has led to the full annulation of the exploration licenses of Rio Tinto to mine in the country early this year. As the media in Serbia report, the official reason for the protests against Rio Tinto was also the environmental aspect of the investment.

It makes sense to analyse Hungary together with Serbia within the context of the BRI implementation in the region, as both states try to cooperate on some projects funded by China. Hungary remains at the forefront of promoting China’s interests in the EU. In 2015, Hungary was the first European country to join the Belt and Road cooperation with China as well as the first country that established an RMB clearing bank in CEE region. Hungary is trying to conduct a very diversified foreign policy. Although being a member of the EU and active recipient of the EU cohesion funds, the Hungarian government also supports big industrial and infrastructure projects funded by the Chinese institutions or at least with active Chinese involvement. At the same time, Hungary is being seen in Beijing not only as an economic partner, but also a party which may support China on some crucial international issues which in its turn may contradict with some general position on China agreed on the EU level.

When we look at the Chinese investment in Hungary, we will find out that the typical narrative used by the BRI antagonists about the Chinese providing loans instead of real investment does not work with Hungary. In this context we shall mention that in 2020 the Chinese have become the largest investor in Hungary. The investments from China are represented not only by acquisitions like the Wanda investment in BorsodChem Zrt chemical raw material manufacturing company in 2013 (€1.3 bn), but also by numerous greenfield projects. In 2020 the Chinese Semcorp Group established its first overseas lithium-ion battery separator film plant in Debrecen. This investment of Semcorp Group, considered as the largest Chinese investment in 2020 (EUR 183 million), will create 440 new jobs in Debrecen. Another Chinese corporation Lenovo also decided to open its production unit in Hungary in 2020. The automotive industry which is very well developed in Hungary has attracted investment from several Chinese companies, such as starters and alternators manufacturer S.E.G.A. Hungary Kft., a member of the Henan Machinery Investment Group in Miskolc, global automotive supplier Yanfeng in Pápa, Chevron Auto which invested more than EUR 50 mln in its newly established plant in Hungary or BYD factory producing electric buses in the city of Komarom. There is also an ongoing project on the establishment of a high-speed railway connecting Budapest with Belgrad, the capital of Serbia and other projects under way.

As in Serbia, there also exists a harsh opposition to closer cooperation with China in Hungary. It is mainly the Hungarian opposition as well as independent research institutions which criticise the PM’s policy of “Opening to the East”. They argue that the Hungarian Prime Minister uses the partnership with China as a tool of direct gain for his inner circle as well as for his political leverage in negotiation with Brussels. Nevertheless, it seems that Hungary is another EU member state which (together with Croatia) has, at least at a high political level, no prejudice against Chinese investment. High representatives of both countries support deepening cooperation with China and try to attract more investment from Beijing. It seems rational to point out that in case with Hungary the economic and trade cooperation with China does not substitute the same cooperation with EU or with the USA, but diversifying its trade partners and receiving additional FDI which create new jobs is beneficial to the Hungarian economy.

Growing competition in the CEE region

As many journalists are hashing furiously to find any clue of hidden interests behind Chinese projects or attempts to load great debt burdens on countries receiving credits from China, pragmatic businessmen and even bordering countries compete with each other to deepen cooperation with China. This is especially true in Eastern and Central Europe.

More to come. In the next article in a series devoted to the BRI in the CEE region we will analyse the current situation with BRI projects in Poland and Slovakia and their transport corridors. Poland enjoys the status of BRI logistic hub for BRI in the CEE region, which brings additional revenue to the Polish state budget. We will try to analyse the ambition of Slovakia to participate in the logistic operations of BRI taking into account the instability in Ukraine which plays an important role on this cargo route.

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