Ever since the foundation of the 16+1 cooperation platform with Eastern European countries, China has become one of the most influential players in the Balkans too.

China’s Increasing economic presence in the region has led many analysts to focus on the effects of rising Chinese influence. While this is a sound observation, it must necessarily be followed by two questions – to what end is China building its influence in the region and why are Balkan leaders so keen to accept Chinese propositions?

China’s core interests in Balkans

At first glance, the Balkans do not appear to be an overly important region for China. They are too far away to present a security risk and do not offer a market of important size to Chinese companies. This poses the question of what interests China is pursuing in the Balkan countries.

China’s foreign policy goals can be generally quite well explained by using the ‘core interests’ framework laid out by the former State Councilor Dai Bingguo. In his 2010 remarks, Dai argued that China’s international behavior is motivated by a set of three core interests: leadership of the Chinese Communist Party; protecting China’s sovereignty and territorial integrity; and ensuring China’s sustainable socioeconomic development. Within this analytical framework, China’s activities in Balkans can be explained as well.

First, China can use the created economic dependencies as leverage to extract political concessions from the Balkan states, especially when it comes to those core interests that touch upon China’s sovereignty, such as Tibet and Taiwan. To illustrate, take Serbia as an example. Serbia, the largest recipient of Chinese finance in the region, has been a staunch supporter of China on Tibet and Xinjiang issues.

Second, China’s successes in the Balkans can be quite easily turned into narratives of Chinese grandeur, thus serving to legitimize the governing Communist Party both at home and abroad.

Finally, the Balkans also offer opportunities for Chinese companies to explore European markets, establish bases, and gain valuable references that might be used later on for further expansion into the rest of Europe.

Balkan interests in China

While Chinese activities in the Balkans contribute to China’s core interests, it is questionable whether Balkan countries get a fair share in return from China.

Currently, there is a big discrepancy among individual Balkan countries in the amount of foreign direct investment that they receive from China. According to the China Investment Tracker by the American Enterprise Institute, the largest recipients of Chinese foreign direct investments (FDI) are Serbia ($US10.26 billion), followed by Bosnia and Herzegovina ($US2.4 billion) and Slovenia ($UD2.18 billion). On the lower end, there are Croatia ($US690 million), Macedonia ($US400 million), and Bulgaria ($US330 million). Overall, however, the amount of Chinese FDI in the region is less than 5% of the FDI from the EU.

The fact that the EU outspends China in the Balkans is not at all surprising. After all, the Balkan countries are not EU members but rather candidates for membership. However, that does not necessarily mean that all projects proposed by the Balkan countries will receive support from the EU (be it in grants or loans). Here, China offers a financial plan B to the Balkans.

Take for instance the case of the Bar-Boljare highway in Montenegro, which is financed by a loan from China and also constructed by the China Road and Bridge Corporation. The project, which was proposed back in 2005, repeatedly failed to attract funding from EU lenders and in the end the Montenegrin authorities resorted to obtaining a Chinese soft loan of 809 million euros covering 85% of construction costs.

Similar arguments can be made about another infrastructure project financed by Chinese credit, the Budapest-Belgrade railway. To construct the railway infrastructure connecting the two capital cities, China is to provide a loan of over $US3 billion. To justify the loan, Hungarian Finance Minister Péter Szijjártó claimed that no competitive financing was available on the European market to fund the project.

What the two projects have in common is low estimates of financial returns. In the case of the Budapest-Belgrade railway, there have been even speculations that the project will cover the construction costs in staggering 2000 years.  As for the Montenegro highway, two feasibility studies showed the project is not economically viable, yet the government still decided to enter into the deal directly with China, after other lenders withdrew. This clearly illustrates that there is demand in the Balkans for financing infrastructure projects despite their low financial feasibility. As EU lenders are not willing to finance risky projects with low economic returns, this creates a space for Chinese financial institutions to provide plan-B finance, and as a bonus the construction deal too.

A question for the EU

This raises important questions for EU policy towards the Balkans. Even though China does its best to frame its activities in the region as pro-EU and contributing to the EU integration process, this should not be taken at face value. China was recently labelled a ‘systemic rival’ of the EU, promoting alternative models of governance around the world, the Balkans included. Completing the integration process is in the interest of both the EU and the Balkan countries. However, to accomplish that, they must meet demanding Maastricht and Copenhagen criteria regulating political and economic (including fiscal) demands for accession.

As Chinese economic activities in the Balkans often neglected fiscal stability (as in the case of Montenegro), the resulting debt levels create obstacles for the Balkan countries to accede to the EU. The same goes for the rule of law, transparency and other political issues.

In order to prevent Balkan countries from backsliding in their accession procedures, the EU must step up its game in the region. This includes making sure that non-EU Balkan states see a clear path to EU membership, which would motivate them to hold China accountable to EU standards. Secondly, a larger portion of the pre-accession funding the EU offers to the Balkans should be released for infrastructure investments. Thirdly, investments by European companies in the Balkans should be promoted.