China in the Balkans: Serbia wants business but its future lies in Europe

Two decades after the Yugoslav wars of the 1990s, the Balkan region is still going through a rigorous process of reconstruction and reconciliation. Time has not healed all the wounds in this part of the world yet, but efforts are made, with considerable success, to sustain a culture of cohabitation, and to ensure economic development, as well as political and social stability. China’s increasing activism in this part of the world, while being part of Beijing’s ‘going out’ strategy, is also welcomed by the governments of the countries in question as it brings much needed investment into efforts for economic development. Following Chinese president Xi Jinping’s visit to Serbia earlier this month, Asia Times columnist Dr. Altay Atlı went on a tour of five Balkan countries, observing China’s engagement with the region and the reflections it spurs among the local population.

BELGRADE–If you were driving through Belgrade’s main artery, Arsenija Čarnojevića Boulevard, only a few days after China’s president Xi Jinping did with his entourage, you were surprised probably neither by the billboards celebrating the ‘Serbian-Chinese friendship’ nor by the sight of hundreds of lamp posts lining both sides of the road decorated with the logo of China’s globally powerful telecommunications company Huawei. A small and temporary gesture for a visiting leader, you thought.

But if you had taken a detour from the main road, you would come across larger and permanent signs of Chinese presence in the Serbian capital. In Novi Beograd, the central business district traversed by the boulevard, take a left turn, and you soon arrive at the famous Blok 70 Kineski Tržni Centar, a series of buildings transformed into a gargantuan market that overflows with Chinese products of any imaginable kind.

Serbia is said to be home to around 10,000 Chinese citizens, and most of those in Belgrade are making their living in Blok 70. Or, turn right, towards the direction of Borča on the other side of the Danube. The bridge you will be crossing, Mihajlo Pupin Bridge, was built by China Road and Bridge Corporation, finance provided by the Chinese Eximbank as a low-interest loan to the Serbian government.

China is a major investor in Serbia. Apart from all the retail trade and the 170-million euro bridge on the Danube which happens to be the largest Chinese infrastructure investment in Europe to date, Chinese companies have upgraded a thermal power plant in Kostolac, purchased a steel plant in Smederovo and now modernizing it, they operate automobile and farming machinery factories using Serbia as a production and export base, and they construct parts of the railroad between Belgrade and Budapest.

Huawei, whose logo is decorating Belgrade’s main streets, is not only serving 80% of the country’s users but also investing in technology employing local talents. And more collaboration is on the way. During Xi’s visit, a total of 22 agreements were signed covering a wide range of economic cooperation projects such as currency swaps and joint undertakings in renewable energy, infrastructure construction with a focus on highways and railroads as well as telecommunications.

From the Chinese perspective, having a foothold in Serbia is crucial because it is, or can be, a gateway into Europe; it is one of the relatively stable countries in the Balkan region, and it is located on the route of the “One Belt, One Road” project.

From the Serbian point of view, on the other hand, China can be source of desperately needed funds to finance the country’s economic development. Serbia needs alternatives, and China can be a good one.

As a candidate country to the European Union (EU), Serbia has access to EU funds, and in fact, within the framework of the Pre-Accession Assistance program, Brussels has allocated a total of 1.5 billion euros to be used for reforms, economic, social and regional development.

However, Serbia’s accession process to the EU is in rather slow progress, and the first negotiation chapter is yet to be opened. Serbians are dismayed by the lack of progress, and believe that although they carry the burden of the ongoing refugee crisis in Europe and although they accepted the difficult-to-swallow condition of normalizing relations with Kosovo, they are not getting their fair share from Brussels.

Serbia has a special relationship with Russia, but it is an awkward relationship, because despite all the political alignment between Moscow and Belgrade and the rhetoric of Slavic brotherhood, Russia is charging a hefty amount on gas sales to Serbia, which depends on Moscow for 80% of its gas imports.

Closer relationship with China can bring more cash into Serbia’s fragile economy, it can help to improve the country’s logistics infrastructure, and it can also help to reduce the dependence on Russian gas by developing alternative sources. In the meantime, the China card can also, or at least it is hoped to, strengthen Belgrade’s hand when negotiating with the EU or dealing with Russia.

One reason why there are good prospects for the Serbian-Chinese relationship is that the economic ties are supported by political convergence between the two sides. It would not be an aberration to argue that Serbia is the most compatible partner for China in the entire European continent, particularly on issues related to national sovereignty and territorial integrity.

During the 1990s, China was a staunch supporter of Yugoslav unity, and considered the acts of Serbian paramilitaries as legitimate actions in defense of Yugoslavia’s unity. In 1999, when the NATO aircraft bombed the Chinese Embassy in Belgrade, allegedly by mistake, this made the Chinese and the Serbs “victims of Western imperialism” from Beijing’s vantage point.

China also opposed Kosovo’s independence declaration in 2008, and went so far as to initiate legal challenge against Kosovo’s decision at the International Court of Justice.

While Beijing’s aims are less related to Balkan affairs than to avoiding setting a precedent for its own domestic affairs such as the Tibet and Xinjiang issues, its support for Serbia was fully reciprocated with Belgrade remaining strictly faithful to the One China policy, and, as a recent development, providing open support for China’s position with regard to the ongoing disputes in the South China Sea.

China and Serbia are in a mutually beneficial relationship and both sides are willing to enhance it further. There are, however, two factors that can undermine the future progress of the relationship.

The first is related to the economic structure of the relationship. Serbia’s economy is fragile; it requires structural reforms to improve the productive capacity, to create jobs, and to reduce poverty as well as inequalities.

This is not an easy task as the political institutions of the country have not adequately developed yet and good governance is in short supply. The Chinese are eager to invest more in Serbia. However, if the improvements they expect do not materialize in the near future, they might have second thoughts and Chinese investment can be channeled to more attractive destinations.

Having leverage over Serbia and a strong economic presence in that country are crucial for Chinese interests. Moreover, Chinese companies are known for doing business even in the most unstable parts of the world. However, without improvements in the business environment, there will be limits on how much the Chinese can invest in Serbia.

Secondly, the future of Serbia’s relations with the EU will certainly impact how the linkages between Serbia and China will develop. Serbs’ relationship with Europe has had, and continues to have, its ups and downs, but Serbia is an official candidate for accession. According to a recent poll, 48% of Serbian citizens are in favor of EU membership, 28% are against and the remainder undecided.

Serbia does not have to choose between the EU and China (and Russia), but progress in the EU accession process might require better compliance with European norms on Serbia’s behalf, and this might require a distancing from China’s interests to a certain extent. Needless to say, if Serbia becomes a member of the EU, the rules of the game will completely change.

During his visit to Belgrade, Xi visited the site of the Chinese Embassy that was bombed in 1999 and paid homage to those who lost their lives there. A Chinese company will build a new Chinese Culture Center on this very location.

One can expect more Chinese buildings and more Chinese-made infrastructure to emerge around Belgrade and elsewhere in Serbia. However, taking a stroll down the city’s popular Knez Mihailova Street, observing the people, talking to them, and sharing their experiences, one gets the strong feeling that this is a European capital, of a country that welcomes doing business with China but whose future lies in Europe.

Dr. Altay Atlı is a scholar and freelance writer based in Istanbul, Turkey.