Serbia continues to expand its ties with China

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While China’s presence in Central and Eastern Europe has been affected by the crisis of the erstwhile “17+1” format after the withdrawal of the Baltic countries, Beijing still has committed partners in the region.

Serbia continues to expand its ties with China, relying on both already established areas of cooperation, such as infrastructure development and investment, as well as moving to the fields of energy and security, all the while boosting bilateral political cooperation and coordination on sensitive political issues.

Welcoming Chinese Representatives

In late 2022, Belgrade has become a hotspot for the official visits of Chinese representatives. These interactions have provided a chance to highlight some of the main narratives that both Serbian and Chinese officials are using to promote bilateral cooperation.

Jiang Yu, the Chinese MFA’s special representative for the CEE countries, visited Serbia on November 6. The several tours of the recently-appointed Chinese ambassador across the region have been often interpreted as “damage control” to keep the China-CEE cooperation format alive and find ways to keep countries within the platform. This did not really ring true for the Belgrade visit, which instead sent out a message of booming cooperation.

Jiang met with Ivica Dačić, the newly appointed Serbian foreign minister, using the opportunity to praise the high level of bilateral cooperation and express interest in “intensifying political dialogue.” In addition to meeting with Dačić, who also holds the position of the president of the ruling-majority member – Socialist Party of Serbia – the Chinese ambassador also met with the Foreign Affairs Committee of the Serbian Parliament and its chairman, Borko Stefanović. Stefanović is a member of the opposition Party of Freedom and Justice, but the reports from this meeting showed alignment with the overall narrative portraying China as a beneficial partner. Stefanović particularly expressed gratitude for China’s stance on the Republic of Serbia’s territorial integrity, adding that Belgrade would also reciprocate on this issue.

Qian Hongshan, vice-minister of the CCP Central Committee’s International Department, was the second high-level official to visit Belgrade in November. On Qian’s busy agenda were meetings with representatives from various parties, including the Socialist Party of Serbia led by Ivica Dačić, the Movement of Socialists led by former minister of defense and newly appointed Chief of the Serbian Security Information Agency, Aleksandar Vulin, and, most importantly, the leader of the ruling Serbian Progressive Party and Serbian President Aleksandar Vučić.

During their conversation, Vućić expressed his support for China’s Global Development Initiative, stating that “it is a format that advocates the creation of a favorable environment for the acceleration of global development while encouraging an equal and balanced development partnership.” The two sides reiterated the mutual understanding on territorial integrity, adding the now-routine references to friendship and good relations between the Chinese leader Xi Jinping and the Serbian President.

The focus on territorial integrity in these interactions is not new, but has recently become more salient, especially with rising tension over the Taiwan issue and deteriorating relations between Serbia and Kosovo. Serbia supports the “One-China” Policy due to the need for consistency on the issue of territorial integrity as a part of attempts to challenge Kosovo’s independence. There is a significant benefit in having Beijing on its side, especially since China is a permanent member of the UN Security Council. Keeping this in mind, Beijing’s support for Serbia sends a strong message that China will not align with any ‘separatist’ intentions, strengthening China’s stance on Taiwanese independence and its declared intentions to gain full control over the neighboring island.

Economic Cooperation Remains the Cornerstone

The narrative of economic development promoted by both Serbian and Chinese officials is based on three main aspects of economic cooperation between China and Serbia. This comprises loan agreements for infrastructural projects, foreign direct investment, and foreign trade exchange.

National budget of Republic of Serbia shows that the current debt of Serbia towards the Chinese Exim bank for numerous infrastructural projects surpasses €2.1 billion. According to reports, Serbia is paying off debt from 13 infrastructure projects that are either still in the construction phase or have already been completed. Belgrade will not be able to repay these loans until at least 2039 (for the Novi Sad to Subotica segment of the Belgrade-Budapest railroad), which would keep Belgrade financially dependent on Beijing for at least another 17 years.

Moreover, loans obtained from other Chinese banks and projects financed from unidentified sources are not accounted for, leading to concerns that the level of debt created by the Chinese-backed projects may be substantially higher.

The most notable omission from the official data is the construction of the “Clean Serbia” sewer system and wastewater treatment facilities. The €3.2 billion project will be constructed by the China Road and Bridge Corporation. However, it is unclear where the project’s primary funding will come from. According to previously adopted laws, the Serbian government and the Bank of China Limited Hungarian Branch agreed on the project’s initial financing arrangements, which total more than €203 million, while the source of financing for the remaining part of the project remains unknown.

Apart from loan-based projects, Chinese investment is becoming an increasingly important field of bilateral cooperation. According to data provided by the National Bank of Serbia, investment from China (including Hong Kong) surpassed investment from any individual EU country in 2021, while in the first half of 2022, the total FDI from China of €491.5 million even exceeded the €401 million of investment from 27 EU countries combined. The majority of Chinese investments are flowing to already established companies like Hesteel’s Smederevo steel mill and Zijin’s mines in Bor, but there are also new greenfield investments, such as Shenchi Automotive’s factory in Kragujevac. All of this indicates that Serbia is creating an environment that is increasingly appealing to Chinese investors, while there are limitations and potential uncertainties regarding future EU investment in Serbia.

An additional argument used by the Serbian officials to highlight the benefits of the cooperation for the Serbian economy is the increased level of foreign trade exchange between Serbia and China. In 2021, foreign trade exchange volume between Serbia and China surpassed €4.4 billion, with majority of that number being Serbian import from China (€3.6 billion). When it comes to the export from Serbia, the main products remain copper, and copper derivates out of the Chinese owned mines (Zijin Mining and Zijin Copper).

This picture can substantially change with the new free trade agreement (FTA) between Serbia and China. The FTA was first mentioned during Vučić’s visit to Beijing for the opening of the Winter Olympic Games. In early July, Sinisa Mali, Serbian minister of finance and national coordinator for cooperation with China within the China-CEEC mechanism said that the working group for drafting the FTA met for the first time. In November, during the ceremony of the opening of the first Belgrade-Tianjin flight in two decades Serbian Prime Minister Ana Brnabić stated that FTA is a developmental opportunity for Serbia, because it will attract new investments, arguing that Serbia does not employ economic protectionism measures ‘’like some other countries’’ when it comes to Chinese economy.

It is worth noting that Chinese firms are also becoming more prevalent in Serbia’s energy sector. This has become a part of Serbia’s pursuit for diversification away from Russian gas and to mitigate the consequences of the energy crisis. It is not a new development, as one of Serbia’s largest thermal power plants was refurbished in 2017 with the help of Chinese loans by the China Machinery Engineering Corporation (CMEC). The same company is currently finalizing the construction of a new facility at the Kostolac power plant based on a loan agreement signed in 2015. The Chinese company was able to complete the construction despite Beijing’s decision to stop funding carbon-intensive projects outside its borders, as it preceded the announcement. This means that facilities built by the Chinese company will be operational by October 2023.

Chinese companies have also participated in the construction of gas-powered power plant as a part of the Serbian-Russian-Chinese endeavor and the construction of a heating pipeline from the thermal power plant in Obrenovac to New Belgrade. The Pančevo plant was built in 2021 by Chinese Shanghai Electric in cooperation with Gazprom on the premises of the Gazprom-owned refinery. In 2017, city of Belgrade signed a MoU with Power China for the construction of a €170 million heating pipeline energy project financed by Exim Bank loan.

In addition to these projects, Chinese companies have expressed interest in sustainable energy production, with CMC Europe announcing plans to build a 100-MW solar plant in northern Serbia, near the city of Sombor. Chinese presence in the energy sector is mostly demand-driven. Serbia is trying to stay afloat in the times of energy crisis and is finding the most accessible solutions, provided by China in this case.

While the official narrative highlights the benefits of the cooperation, there are also questions about potential negative effects on Serbia. The lack of transparency in financial arrangements continues to be a burden on economic cooperation, and new worries have been raised in light of the FTA and the potential inability of the Serbian economy and Serbian businesses to compete with Chinese businesses on the domestic market and succeed in the Chinese market. The primary concern is whether the distribution of the benefits from the agreement will not be overly lopsided.

Evolving ‘’Steel Friendship’’

Belgrade and Beijing continue to boost ties, steering clear of the larger developments that have plagued the China-CEE cooperation framework. The official representatives from Belgrade and Beijing have continued to use the established mechanisms of cooperation between the two nations to portray ties as mutually advantageous and as a source of growth prospects for Serbia. The fact that Serbia is now a frequent stop on Chinese officials’ diplomatic missions and that Serbian authorities are now actively promoting Chinese narratives is telling.

It is reasonable to anticipate that the partnership will expand to other fields and sectors of collaboration in the coming years. Although it is well known that Serbia is China’s most devoted partner in the Western Balkans, recent and upcoming developments indicate that the “steel friendship” may continue to grow, increasing China’s position at the EU’s doorstep and in the center of the Western Balkans.

Depending on the EU’s future stance toward China, close relations between Belgrade and Beijing could further muddy the waters in the already difficult process of European integration. In the meantime, as the EU lacks a unified perspective on the issue, and Serbia still has no definitive indication on whether and in what timeframe it can join the bloc, there are no institutional barriers to expanding the established comprehensive partnership with China, China Observers writes.

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