When President Xi Jinping of China chose an industrial town on the Danube River to announce that Serbia was at the center of a $900 billion “One Belt, One Road” infrastructure initiative, it was a bold declaration that his country had set up shop on Europe’s southeastern flank.
Standing on the grounds of a Communist-era steel plant here in Smederevo, about 28 miles east of Belgrade, the capital, Mr. Xi promised last year to pour money into roads and railways to create a transport corridor for Chinese goods to flow to West European markets.
Called the New Silk Road, the route would run from China to Germany, via the port of Piraeus in Greece, passing through the Balkans.
Mr. Xi’s decision to extol his signature policy in Serbia, one of the poorest countries in Europe, was a canny move that put the initiative on a collision course with the European Union’s projects in the region.
His strategy also exploited the European Union’s troubled relations with the West Balkan countries seeking to join the bloc, and signaled that — as the United States retreated from the world stage — China was aiming to expand its influence right into the heart of Europe.
But what was in it for Serbia?
During Mr. Xi’s state visit, he said China would bring more jobs, improve living standards and lift the country’s economic growth. More important, by opening its economy to China, Serbia cemented Beijing’s support against European Union pressure to recognize Kosovo’s independence.
“It would not be immodest or wrong to say that Serbia is China’s main partner in Europe,” Serbia’s minister for construction, transportation and infrastructure, Zorana Mihajlovic, declared about Mr. Xi’s overtures.
Some in China have questioned the economic viability of Beijing’s investment spree. And outside of China, some fear that China’s ambitions would keep the authoritarian leaders of countries like Serbia in power and leave the nations deep in debt and stuck with environmentally flawed projects.
But Mr. Xi’s words saved 5,200 jobs in Smederevo, a city of 100,000 that has depended on the steel mill for decades. China’s state-owned HBIS Group bought the steel mill, the only one in Serbia, for 46 million euros, or nearly $55 million at current exchange rates. Its previous owner, U.S. Steel, sold it to the Serbian government in 2012 for a symbolic $1.
“We want to create a win-win situation,” Mr. Xi said, shortly after the sale.
Now, China’s ambitions in the Balkan region have set up a potential clash with the European Union’s plans — with countries like Serbia placing themselves in the middle.
Promises Not Kept
Mileta Gujanicic, a steelworker and union leader, is one of those who hope China fulfills its vision for the Smederevo mill: He has worked there for 40 years and says he got used to the ways of the Americans, whom he called “the aristocracy of the industrial world.”
“All my life I have been told that capitalism, particularly the American type, was bad,” Mr. Gujanicic, 63, said. “But we workers have been valued, well paid and respected when the Americans ran this place.”
The Chinese approach to running the mill, he said, is sharply different. So far, the new owners have maintained their pledge to retain jobs. But none of the promises Mr. Xi made during his visit have been kept.
Workers’ contracts are veiled in secrecy, safety standards have fallen, maintenance is at the bare minimum, and contact between the owners and the employees does not exist, he said. The erosion of workers’ rights and the employers’ disregard of labor laws are troubling, he said.
Serbia’s ambitious president, Aleksandar Vucic, has embraced Mr. Xi’s visions. Mr. Vucic was elected in May with a stated goal of bringing the Slavic nation of seven million people closer to the West.
He has vowed to transform a country that was once part of the Communist-ruled Yugoslavia into an attractive destination for foreign investment, after years of international sanctions for Serbia’s role in the Balkan Wars during the 1990s.
Corridors of Power
While China sets its eyes on the region, the European Union is still the most powerful force there, and the bloc’s projects are surging ahead. The styles of the two powers could not be more different.
For example, to prevent a new round of conflict in the Balkans, the Europeans drew up a plan in 2014 to connect old foes like Serbia and Albania with new highways and rail lines to speed travel and the flow of goods.
The initiative, known as the Berlin Process and championed by the German chancellor, Angela Merkel, is part of a broader European integration plan for the Balkan countries. The plan aims to align the countries’ national transport laws with those of the European Union and strengthen cooperation across contested Balkan borders.
At the last regional summit meeting, in July in Trieste, Italy, the participating countries — Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Montenegro and Serbia, all seeking to join the European Union — also agreed to create a regional economic zone as part of an effort to consolidate a market of 20 million people.
But Balkan officials have long complained of a protracted bureaucratic process, taking as long as a year, for getting funds from Brussels for the work. Crucially, while Serbia’s president has embraced the initiative, Albania and Kosovo have political reservations, fearing that the infrastructure project and a common regional market would become a substitute for full membership in the European Union.
In Serbia’s case, its traditionally most generous patrons — Russia and European Union members such as Germany — have demanded that Belgrade alter its governing style in exchange for funds.
Brussels has stipulated a series of judicial, political and economic changes before Serbia can join the 28-member bloc. And Russia, seeking to keep Serbia as far away from the West as possible, has promised weapons and energy at discount prices as a deterrent against NATO forces in Kosovo and Montenegro, which joined the alliance in May.
Russia also controls much of Serbia’s energy sector and has commanded considerable influence over successive leaders in Belgrade elected since the fall of the strongman Slobodan Milosevic in 2000.
Now comes China, a relative novice in the turbulent Balkan region, offering cash with what appear to be only a few — but important — strings attached.
For China, the attraction to Serbia is evident in its high state subsidies, lower environmental standards and diminished pressure for transparency in business dealings. But Serbia must embrace Beijing’s model of state-led development.
Serbia is also likely to be saddled with huge debts. Most of the investments are loans from Chinese banks, typically for 20 to 30 years with a 2 percent to 2.5 percent interest rate. So far, China has lent Serbia about €5.5 billion for the construction of bridges, highways and railroads.
China is also pouring money into Serbia’s neighbors, raising fears that Beijing’s largess in the Balkans is not just about business, but also about geopolitics. Ms. Mihajlovic, Serbia’s infrastructure minister, bluntly said that it was both — a sign to officials in Brussels that their Balkan headache had now become a migraine.
Ms. Mihajlovic said Beijing was defending Serbia’s interests in the world, and she praised China for not recognizing what she called an “illegally declared independence of Kosovo.” Recognizing the sovereignty of Serbia’s former and majority-Albanian province is a key requirement for Belgrade to join the European Union.
Elsewhere in the Balkan Peninsula, China has lent Montenegro hundreds of millions of dollars and thousands of its workers to build a strategic but costly highway between Belgrade and Montenegro’s Port of Bar on the Adriatic Sea.
China first tested its construction model in Serbia in 2010, when it brought hundreds of workers from the state-owned contractor China Road and Bridge Corporation to build a mile-long bridge over the Danube.
In 2014, Premier Li Keqiang inaugurated the €170 million bridge, built with a loan from the Export-Import Bank of China and named after the Serbian scientist Mihajlo Pupin.
Another major infrastructure deal is a planned high-speed rail line connecting Belgrade and Budapest. The 217-mile link will include a cargo track along the old passenger line that once carried the trains immortalized in the Agatha Christie novel “Murder on the Orient Express.”
But some European countries view with skepticism China’s leadership role in economic integration in their own backyard, fearing that the “One Belt, One Road” initiative’s new norms, along with the Balkans’ old governing values, will challenge those of the European Union, according to Michal Makocki, an expert in Europe-China relations.
“Chinese economic corridors and infrastructure projects replicate China’s preference for state-led rather than market-based decisions, with the politicization of investment, subsidy and contract decisions, rejecting the E.U.’s model of open and transparent bidding procedures,” Mr. Makocki wrote in a policy paper for the European Council on Foreign Relations.
Mr. Gujanicic, the union leader from Smederevo, says Serbia’s leadership has bulldozed labor laws in exchange for foreign funds.
“I can’t say I understand Chinese Communism, but what they’re doing here is destroying us,” Mr. Gujanicic said of Serbia’s leaders. “They are collecting points for the next election with other people’s money. All they care about is to stay in power on the back of our hard work.”
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