The Rise of the Dragon in Western Balkans: China’s Geo-economics after the Great Recession.

The Rise of the Dragon in Western Balkans: China’s Geo-economics after the Great Recession. November 2, 2014

Posted by proeconomia in Geo-economy.
Tags: Geo-economy
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by Dimitrios Stergiou, PhD Candidate.

Sino – South (Jugo)Slave and Sin0 -Albanian relationships have a long history. Since the Hoxha and Tito era, China remained a supporter even in periods when the area was isolated from both sides of the Iron Curtin. The “good chemistry” continued also during the Milošević years and nowadays is developing into a multilayer geo-economic association. During and after the Big Recession[1] China’s Institutions and SOE[2], rich with cash, have launched a multifrontal commercial “assault”, with desired End State to gain influence through partial of complete control of economic «commanding heights». The Dragon endeavors to acquire a dominant position vis a vis to 5 of the «sisters» of Geo-economics: Energy, Infrastructure-Industry-Transport (I²T) and Education.

Even in December 1999 in the midst of Yugoslav isolation and sanctions targeting the regime, $300 million in grants and very soft loans had been transferred from China. During that period Serbia opened its doors to Chinese immigrants and goods. The partnership between Belgrade and Beijing was sealed in arms, in Mai 1999 in the course of NATO operation Allied Force, when the Chinese embassy was hit during the bombardment. UN Resolution 1244, which embodied (among other things) the peace terms (actually dictating them) with Serbia, was approved by the UN Security Council in June 1999 by 14 votes to none and 1 abstention from China.

At the beginning of 2014, Milan Bačević a Serbian government minister, has announced that China is to invest €10 trillion ($13.5 trillion) in the Balkans and central and eastern Europe and that Belgrade is to be the center for its infrastructure projects. This figure however, which he insisted was correct, represents a little less than the entire American GDP therefore is unlikely to be right. However it indicates the measure of Τhe Dragon’s interest in the area.

Energy

In April 2011, the Public Power Corporation of Greece signed an agreement with Sinovel Wind, China’s top wind turbine maker, to develop a 200-300 MW onshore project at Rodopoli, northern Greece, an offshore wind park and a turbine manufacturing plant. The same month, China International Water and Electric Corporation signed a Memorandum of Understanding with the government of FYROM to build 12 hydropower plants along the Axios-Vardar River, from Kosovo to the Greek border. The €1.5 billion, 15-year superproject will be financed up to 85% by a loan from the China Development Bank.

In 2011, Serbia has received a €1 billion soft loan from Exim Bank[3] to upgrade its national power grid. Furthermore, Elektroprivreda Srbije (EPS) signed in October 2011 a deal with a Chinese consortium to jointly build a 744 megawatt coal-fired unit at an estimated cost of more than €2 billion. Under the deal, the consortium that includes China Environmental Energy Holdings Co. Ltd, Shenzhen Energy Group Co. Ltd, and EPS will form a joint venture for the project, which includes the construction of the coal-fired unit in the southwestern town of Obrenovac, part of its Nikola Tesla power complex, and upgrade of the Radeljevo coal mine that will feed the plant.

China Machinery Engineering Corp. (CMEC) signed in November 2013 a $716 million deal to build Serbia’s first new coal-fired power plant unit in 23 years and expand a mine. The unit planned at Serbia’s Kostolac plant east of Belgrade and the expansion of the Drmno open-pit lignite mine will be 85% funded by the Exim Bank of China by a 15-year loan with a 3% interest rate and a 5-year grace period

In May 2013 began the construction of the 300 MW power plant in Stanari, northern BiH, by Dongfang Electric Corp (DEC), a Chinese SOE. The project was financed by a China Development Bank loan of €350 million at favorable terms. The Chinese consortium Gezhouba Group has been chosen by the federal government for the realization of a project concerning the construction of bloc 7 of the thermal power plant (450 MW) in Turza, as well as the first thermal power plant in Banovići. The existing project specifies an 85% financement by the Chinese, whilst Elektoprivreda BiH, the largest energy company in the country, will cover the remaining 15%. According to the contract, the power plant will remain a 100% property of Elektoprivreda BiH, while the Chinese will control the modalities of electricity sales, thus allowing them to set the price.

BiH is particularly popular because it is one of the few Balkan countries to export electricity due to significant hydropower, which can store surplus. In that respect, China’s SOE hydropower engineering firm Sinohydro will build a 35MW, $79 million plant, on the Neretva River.

Infrastructure-Industry-Transport (I²T)

In November 2013, at the third China-CEE[4] Economic and Trade Forum held in Bucharest, Chinese Prime Minister announced that in 2014 a high-speed rail from Budapest to Belgrade will be build by the Chinese State Railway Company and co-financed by the China Exim Bank.

In Belgrade, the construction on the «Serbian-Chinese Friendship Bridge» (Zemun-Borča Bridge) started in late October 2011. The main contractor is the China Road and Bridge Corporation (CRBC). The construction of the bridge has a budget of €170 million, 85% of the figure comes from a low-interest loan by the Chinese Exim Bank, while the remaining 15% will be supplied by the government of Serbia and the city of Belgrade.

Tirana is also counting on Beijing’s financial support for the “Rruga e Arberit” (Arbër Highway) project, a highway which aims to link Albania’s capital with the border town of Debar in FYROM. The highway will cost several hundreds of millions of Euros and it will be the first 4-lane highway linking the two countries.

In 2013 the Chinese Exim Bank, granted FYROM a credit worth €574 million, with an interest rate of 2%, paid in 20 years, in order to improve it’s national motorway network, linking Skopjie to Stip in the center of the country and Ohrid to Kicevo in the west. Through those improvements, the motorway network will be linked with the Pan-European transport corridors VIII and X

Beijing, in an effort to shorten the travel time via the sea-road from the Chinese ports of Shanghai and Guangzhou (a duration of 36 days by container ship through the piracy-ridden Gulf of Aden), is planning to revive the Silk Road in the form of an Iron Silk Road, which will run, via trainway, from Western China through Central Asia, Iran, Turkey and across the Bosporus onto the Balkan Peninsula (a duration of a dozen days by freight train).

In November 2009, SOE auto-giant Donfeng reached an agreement with Serbian truck maker FAP in order for the later to assemble Chinese vehicles in Serbia.

China National Electric Engineering Company Co (CNEEC), is ready to invest $1,2 billion in tree projects in Serbia: The construction of Stublenica-Ub industrial zone next spring, the refurbishing of Serbia’s Kolubara A thermal power plant and the constructions of an another plant – Kolubara B. CNEEC is also interested in investing in three companies working in the mechanical industry sector in Serbia, IMR, DMB and IMT and as the biggest tractor maker in China, is planning to manufacture tractors in Serbia, under a Serbian name, but using its own technology.

China’s state SOE China Ocean Shipping Company (COSCO) Pacific, the world’s fifth largest container terminal operator through it’s subsidiary Piraeus Container Terminal (PCT) has upgraded and will manage pears 2 and 3 in the frame of a 35 years concession, aiming to turn Piraeus port into a regional hub. The agreement was signed in 2009 with a total value of €5bln. Last year it agreed to invest an extra €230m (the biggest Foreign Direct Investment-FDR during the last years) in Greece to boost the port’s handling capacity over 7 years and in return, it would stop paying fees. The importance of Piraeus port for the Chinese commerce lies to the fact that now 80% of Chinese commerce with Europe is shipped through the Suez Canal and Piraeus thus reducing the time from 7 to 11 days. providing Chinese commerce easier access not only to SEE but also to Mediterranean Basin and the Black Sea. Chinese Premier Li Keqiang during its June 2014 visit in Athens identified the Piraeus project a «pearl» in bilateral cooperation. Premier Li pledged to make Piraeus one of the world’s most competitive ports by cooperating with Greece in such industries as ship repairing and equipment, and actively participating in reconstructing the rail linking the port to inland Europe.

Beijing also expressed vivid interest on acquiring shares of the Hellenic Railways Organization, the Greek national railway company, in order to gain control to a maritime and rail network, transforming Greece into a Southern rival for Northern Europe’s Rotterdam.

In 23 January 2014, Tirana and Peking, concluded an agreement that stipulates the enhancement of the cooperation between the two countries, with a first «gift» of $1,7 million offered by the Chinese at the Albanian government. This new partnership will put the accent on the fast economic development of Albania, with two priorities: Infrastructure and training.

While all the above major geo-economic operations are in place, Beijing’s presence in the «traditional» field of low-cost retail market is flourishing. A number of trade centers close to major roadways and densely populated areas are in place. The China Trade Center «Zmaj» was inaugurated near Belgrade in June 2010, imitated by Zagreb’s Chinatown Center two months later.

Education

In November 2013 an antenna of the Confucius Institute was inaugurated at the university of Tirana. Albania’s former Prime Minister Sali Berisha, discussing the new law on the pre-university education in 2012, pointed out : «It is necessary that in our education system, in certain percentages, teaching the Chinese language be a second [foreign] language». Through the Hanban, a government entity, China provides the centers worldwide with paid-for instructors and sponsors cultural events at them. The funding of this instrument of Chinese «soft power» projection, in 2013 reached globally the level of $278million.

Serbia signed, in March 2012 a memorandum of co-operation to introduce Chinese language classes for 2,462 Serbian students in elementary and high schools.

Guns and movies

Although the cooperation in the defense sector is rather complicated due to the participation or aspiration of Western Balkan country’s into NATO structures, in August 2014 Beijing offered a €350,000 donation in medical supplies and equipment to the Serbian Army. This contribution followed a $2 billion donation in 2013.

On April 2014 a Chinese film company China Star Media announced it’s plans for a remake of the movie «Walter Defends Sarajevo». The 1972 movie, a cult movie, depicts the heroic defense of the Bosnian capital in WWII when Josip Tito’s Partizans fought the Germans occupation forces. The project has been estimated to €3,5 million, the actors will be Bosnian while the director will be Chinese.

In Conclusion

The Final Objective of this «geo-economic operation» is the establishment of a strategic anchor point in the SEE[5] area and the opening of a «backdoors» axis leading to central and northern Europe, allowing Beijing to short-circuit anti-dumping regulations of the European Union. Western Balkans (excluding Greece and Croatia) remain, unfortunately, a black hole in terms of Euro-Atlantic integration. China is exploiting relatively cheap labour force at the threshold of EU market and looser business regulations.

China’s strategist seem to believe in the area’s commercial prospects. Western Balkans have a long (and recent) pass of violence and instability. However, despite the remaining «frozen» issues (dysfunctional state in BiH, difficult minorities situation, name dispute between Greece and FYROM) the trend seem to shift towards a safe and long-term market climate where the business environment is steadily improving. According to World Bank data, in Europe & Central Asia, Albania ranks 1^st in «Protecting Investors» yardstick, FYROM ranks 2^nd in «Starting a Business» and Montenegro 1^st in «Getting Credit».

Still in embryotic stage, a strategy of controlling/setting prices in vital national markets (energy) is emerging in China’s planning objectives. Occasionally, employing considerable discount (Dongfang Electric bid in BiH was half of what cash-drained Europeans could afford) positions the Chinese offers in an advantageous position.

China played a proactive role in helping Greece through the financial crisis setting the target for the annual trade to reach $8billion by 2015. In June 214 was decided the organizing of a China-Greece Marine Year program for the following year. Regarding the Piraeus port, the mild climatological conditions, it’s characteristics (the deepest port in the Mediterranean and with no tide issue) and the proximity with the Suez Canal (the closest European port), could transforming it into the main sea-gateway to Europe. In 2013, became the Mediterranean’s 3rd largest in terms of container traffic. In the frame of this development Beijing has already decided to gradually stop using the ports of Naples and Constantinople COSCO has also expressed interest in a majority stake in Piraeus port.

Greece must assert its role as a dominant player in China’s geo-economic aspirations. Using the Piraeus port to spearhead its participation in I²T projects[6] must not remain inert. The clock is ticking and the emerging markets in the area are most willing to step forward. Serbian Prime Minister, Aleksandar Vučić, attending in the summer of 2014 an economic forum in China, has agreed with Li Keqiang that the Chinese Prime Minister will visit Belgrade in December 2014, when they will jointly host a summit of 16 Central and Eastern European leaders in Belgrade.

On the other side of the hill, Europe (see Germany) hasn’t forgotten it’s ambitions in the area. In the 28th August meeting in Berlin attended by leaders from FYROM, Serbia, Montenegro, Kosovo, Albania and BiH, was underlined the European perspective of Western Balkans. The document that was adopted at the conference paves the way for infrastructure, energy and tourism projects. It was also underscored that security passes through economic cooperation and development.

Geo-economy is, among others things, the «long arm» of Geo-strategy. Commercial and economic expansion constitute the most effective form of projection of power. It has been always the case, but today multinational corporations headquarters and strategic business plans, may substitute to a large scale, aircraft carrier operations. It is very clear now that China Corp is throttling for take off.

Sources

Poulain, L. (2011) China’s New Balkan Strategy, Center for Strategic and International Studies (CSIS)

The Ecomonist, (2014), Confucius says, Sep 13th, p. 59

http://www.balkaninsight.com/en/article/china-aims-to-boost-trade-with-eastern-europe

http://www.economist.com/blogs/easternapproaches/2014/01/balkan

http://english.hanban.org/article/2014-01/03/content_520538.htm

http://www.ft.lk/2014/06/23/chinese-pm-says-greek-port-pearl-of-the-mediterranean/

http://www.bbj.hu/politics/the-beijing-belgrade-budapest-axis_77786

http://inserbia.info/today/2014/01/zemun-borca-bridge-to-be-completed-by-december-2014/

http://www.reuters.com/article/2011/10/20/us-serbia-china-power-idUSTRE79J6O420111020

http://www.bloomberg.com/news/2013-11-20/serbs-sign-716-million-coal-plant-mine-deal-with-cmec.html

http://www.tanjug.rs/news/138541/defense-ministry-signs-donation-protocol-with-china.htm