Could growing Chinese relations undermine EU influence in Serbia?

Introduction

The 2022 Russian invasion of Ukraine could be seen as the last step in the return of geopolitics to the European Union. EU’s Strategic Compass, published in March 2022, aims to assess the strategic environment and geopolitical threats facing the EU (Council of the European Union, 2022). Examining the security domain, the Compass points to foreign interference (i.e. Russia and China) in the Western Balkans as a threat that risks causing instability and insecurity (Council of the European Union, 2022). Conversely, Serbia is China’s main ally in the Balkans, and indeed Belgrade’s foreign policy seems to be aiming for greater cooperation with China (Lađevac, 2020). At the same time, given the poor performance of democracy in the Western Balkans, the EU enlargement in the region is an increasingly distant and tiring prospect, especially for Serbia. Hence, the question that this paper addresses is whether and to what extent growing Chinese influence in Serbia could weaken the EU’s enlargement in Western Balkans.

Sino-Serbian (growing) relations

While China is experiencing an unstable and uncertain relationship with the European Union – see the increased use of golden power in Italy, that is the special power to stop direct investments or acquisitions of industries in sectors of national importance (i.e. defence, security) – Chinese interactions with Belgrade are becoming more positive, thus potentially generating economic growth in Serbia and further strengthening Beijing’s presence in the Balkans (Dimitrijević and Jokanović, 2016).

Historically, the relationship between China and Yugoslavia – a federation of six republics established in the Balkans from 1918 to 1992 – was only stabilised in 1955 (Lađevac, 2020), with the ending of the so-called “Informbiro” crisis, a period of ideological contrast between Yugoslavia and the Union of Soviet Socialist Republics (USSR), the latter sustained by China. When China decided to distance itself from the USSR to gain its own influence in Asia and the rest of the world, relations with Yugoslavia grew deeper (ibid.). 

The main foreign policy changes happened with the fall of Milošević’s regime, President of Serbia from 1989 to 1997, and relations with China have improved ever since, partly due to the failure to join the EU, accession to which was considered inevitable at the start of the EU-Serbian negotiations (ibid.). While Serbia continues to negotiate with Brussels, the stalled accession negotiations have led since the beginning of 2000s to establishing trade, economic, and security relations with China (Lađevac, 2020). In 2009, the two countries signed a Strategic Agreement, which was reinforced in 2013 with the Joint Statement (Dimitrijević and Jokanović, 2016). In the meantime, many political and economical agreements have been reached between China and Serbia (ibid.): today, the collaboration encompasses many areas other than infrastructure, such as culture, media or academic research (ECFR, 2022). A close relationship between Serbian political parties and China has also developed (ibid.). In Central and Eastern Europe, China has developed the 16+1, an international economic cooperation platform involving Serbia, among other states (Dimitrijević and Jokanović, 2016; Lađevac, 2020).

The motivations for both China and Serbia to strengthen relations are varied. For this particular reason, China is supporting Belgrade in its aspiration to become a member of the European Union, since that would favour Chinese’s penetration of the European Single Market (Dimitrijević, 2017). On the other hand, Serbia plays an important role in the Belt and Road Initiative, the Chinese project of connecting Asia and Europe through land and maritime infrastructures (Council on Foreign Relations, 2020). For instance, its geographically strategic position is central for connecting the Balkans with Central and Eastern Europe, which could explain the massive Chinese investments in infrastructure projects in Serbia (Gazdic and Vujošević, 2021). Overall, China chooses to invest in Serbia because Belgrade prefers “state-led decisions […] rejecting the EU’s model of open and transparent bidding procedures” (Le Corre and Vuksanovic, 2019). From a Serbian point of view, the benefits of cooperation with China relate to two areas: firstly, economic and financial cooperation and Chinese direct involvement in infrastructure construction and investments playing an important role in the Serbian economy in general, and secondly, the political advantages of mutual support in bilateral agreements and multilateral institutions (i.e., United Nations) which helps to maintain the status quo in both countries, as they equally support the partner’s preservation of territorial integrity regarding the case of Taiwan and Kosovo (Dimitrijević, 2017; Jojić, 2017).

Chinese Foreign Direct Investments (FDI) in Serbia have grown since 2010, going from 2 million euros to 528.5 million euros in 2020 (ECFR, 2022). The main companies involved in close cooperation with China are Serbian, but led by Chinese-owned firms, and engage in the mining field (ECFR, 2022). Serbian-owned companies in China do not have the same relevance in the Chinese market, and the attempt to create a Sino-Serbian business club did not have any impact (ECFR, 2022). Although researchers have difficulties in exactly  measuring Chinese investments due to inflated and conflicting data presented by different sources (i.e., the Serbian government, Chinese embassies), Serbia is considered to be the Western Balkan country with the highest level of FDI and infrastructure investments, up to 9.7 billion euros (Matura, 2021). Furthermore, trade between the two countries tripled from 2005 to 2016, reaching almost $1.6 billion (1.5 billion euros); China is exporting $1 billion worth of goods, while is importing only $1 million of Serbian products (Le Corre and Vuksanovic, 2019).

Cooperation between the two countries involves multiple aspects of the Serbian market and follows the Chinese government’s strategy of investments through the Belt and Road Initiative (Dimitrijević, 2017). Chinese intervention can, thereby, be divided into three main spheres: bilateral currency exchange between the People’s Bank of China and the Serbian Central Bank, upgrading of transport infrastructure (e.g.. railways, highways, and ports), and enhancement when it comes to economic integration (i.e. deepening Chinese presence in Serbia) (Dimitrijević, 2017). Among the many projects that Beijing has been carrying out in Serbia, it is worth mentioning the modernisation of the Belgrade-Budapest railway, which will more broadly connect the Piraeus port in Greece with Central and Western Europe (Lađevac, 2020). Another ambitious project is the construction of the E-763 highway that will link Belgrade with Montenegro (Global Times, 2022). Both projects are led and controlled by Chinese-owned companies, thus creating economic and geopolitical opportunities for Beijing. However, concerns have been raised about the transparency of procurement and licensing, as well as environmental and health impacts (Just Finance, 2022; Vladisavljev, 2022). Furthermore, some criticism has arisen from the fact that most of the projects rely on Chinese loans, thus casting doubts on the actual ability of the beneficiaries to repay the large loans: some governments may prefer immediate aid to the economy through Chinese loans, without paying too much attention to debt sustainability (Pavlicević, 2015). 

Accession of Serbia to the European Union

Relationships between the European Union and Serbia have been marked by numerous crises, notably the Yugoslav wars in the 1990s and the economic crisis of 2008 (Samardžić, 2020). After the Serbian governmental change in 2000, both the EU and Serbia were eager to begin Serbia’s integration in order to stabilise and consolidate the country (Dragisic, 2008). The Thessaloniki Declaration, which resulted from the EU-Western Balkan summit in June 2003, was the main political agreement at the time, as it “opened a membership perspective for all the Balkan countries capable of fulfilling the conditions of association” (Samardžić, 2020; 142). In 2005, negotiations for the Stabilisation and Association Agreement (SAA) were opened; however, EU and Serbian delegations immediately faced numerous issues; for instance, in 2006 negotiations were interrupted as Serbian cooperation with the International Criminal Tribunal for the former Yugoslavia (ICTY) on Yugoslavian war crimes had not improved (Dragisic, 2008). They resumed in 2007 when Serbia showed its commitment to cooperate with the ICTY, only to return to a state of crisis shortly afterwards, around 2008, with the declaration of independence of Kosovo, recognised by most European countries (Samardžić, 2020; Dragisic, 2008).

Although the European Council confirmed Serbia’s candidate status in 2012 and the SSA came into force in 2013, the cooperation between the EU and Serbia has not made significant progress (Samardžić, 2020). In addition, the EU changed the criteria of the European integration process of the Western Balkan, which can be divided into two spheres: socio-political criteria and the criteria related to the post-conflict recovery of the region (Petrović, 2019). Regarding the former, the major political constraints concern the Copenhagen criteria, namely respecting good governance, effective rule of law, and respect for human rights. The additional criteria, specific to Western Balkans, focus on the collaboration with the ICTY, regional cooperation, and maintaining good neighbourly relations (Rangelov, 2006). 

Future perspectives for EU influence in Serbia

The Chinese presence in Serbia presents several challenges for the EU and its enlargement attempts in the region. Firstly, apart from alleged corruption and human rights violations, the main fear concerns legal clauses that could affect Serbian companies: in what has been called a debt trap (Chellaney, 2017), some compensation could take place through the transfer of ownership of companies (Stanicek and Tarpova, 2022). This would distance the Serbian market from the European single market, as Chinese companies would not meet the transparency and free market criteria required by the EU (Stanicek and Tarpova, 2022; Larsen, 2020). Furthermore, in the event of the insolvency of certain states or companies, there are concerns that China may demand political favours or activate legal clauses that could lead to the appropriation of assets or land (Stanicek and Tarpova, 2022). Secondly, the Chinese strategy employs its economic power to change political arrangements in its favour: most investments or loans concern the construction of roads, rails, or port hubs crucial not only for Serbia but for the entire Balkan and Central and Eastern Europe region. Hence, the economic dependence, in the form of debt, of some Balkan states like Serbia and Montenegro on China, is part of a broader Chinese strategy which aims to impose itself on the European market, thus disadvantaging EU industries and regulatory intervention (Larsen, 2020).

The reliance on the Chinese economy to strengthen its own internal market currently seems to affect only a few specific states, and not the entire Balkan or Central European region. In the case of Serbia, strengthening the relations with Beijing may be driven more by a lack of incentive and the intangibility of EU membership than by an actual willingness to side with China (Petrović, 2019). EU-Serbia relations thus face a stalemate: an enlargement in the Balkan area could only take place with the proper fulfilment of the Copenhagen criteria (Stanicek and Tarpova, 2022). Yet Chinese influence over Serbia may be driving Belgrade away from its commitment to the EU criteria, such as human rights protection (Stanicek and Tarpova, 2022).

References