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Serbia, The West is second to none, the credits are in China

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The largest reservoir of capital for financing economic, social and democratic development in Serbia from 2000 to today was the West – the EU and its development banking institutions, but also the USA and international financial organizations.

In the previous two years, Serbia became the world champion in borrowing from China. Serbia acquired half of the total capital taken from China in 2021 and 2022. Three possible reasons why progressives chose China. What is missing from Chinese capital?

Serbia is the world champion

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It is rare to find news with such a title. Sometimes it appears in connection with a sports competition, but almost never in the economy. The last time was in the nineties of the last century during the regime of Slobodan Milošević, when Serbia was world champions in terms of inflation.

Now we are again leaders in one area of the economy. When the two previous years – 2021 and 2022 – are added together, Serbia is the world champion in taking capital and borrowing from China.

According to the “China Global Investment Tracker” study, which is traditionally published by the American Enterprise Institute and the Heritage Foundation, there is no country that borrowed more from Chinese financiers and construction companies than Serbia during that period. And Serbia took – 8.03 billion dollars in loans.

“China Global Investment Tracker” (CGIT) is the world’s only comprehensive set of public data on Chinese global investments and construction financing in the period from 2005 to 2022. For the sake of clarification, Chinese investment investments include ownership and unlimited presence in the host country and they are most often associated with the construction of railways, ports, roads, power plants, mines… And the financing of the construction of (mostly) infrastructural facilities and related lending does not imply either the unlimited presence or ownership of Chinese companies.

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For all those years, CGIT detected 4,300 large transactions in the sectors of transport, mining and metallurgy, real estate, high technology, construction of power plants, oil and gas pipelines, agro-industry, health… (this includes more than 350 problematic transactions) and calculated that the total value of Chinese “capital exports” in the past 18 years – 2.27 trillion dollars.

It is an intriguing fact that Serbia has become world-class the leader in borrowing from Chinese banks and companies just in the period when the country’s overseas investment expansion – due to the covid-19 pandemic and the problems faced by its economy – cooled down significantly. CGIT analysts calculated that before the pandemic (from 2017 to 2019), China invested 390 billion dollars abroad. Using the same methodology, CGIT claims that China invested only 133 billion dollars during the pandemic (2020 to 2022).

By the way, the largest number of official investments in 2021 was beyond the well-known Chinese “Belt and Road” initiative, created on the basis of the “Silk Road” project, which could suggest that that project has also caught up with “material fatigue” ( lack of capital).

The slight recovery of Chinese capital exports in 2022 first showed itself in financing the construction of infrastructure projects, but direct investments are still at a low level. CGIT analysts note that in the second half of 2022, a slight recovery of Chinese financing (lending) of infrastructure projects abroad, especially in transport and energy, began.

As the largest beneficiary of Chinese capital, Serbia took out loans in 2021 and 2022 to finance the construction of traffic and communal infrastructure, which (in addition to the tender) was awarded to Chinese companies to build. The individual annual record was achieved in 2021, when Serbia borrowed a total of 6.27 billion dollars from China.

Then two loans (1.37 + 1.09 billion dollars) were taken for the construction of traffic infrastructure from the Chinese company Power Construction Corp. and Shandong Gaos, and a record loan ($3.81 billion) was taken for communal infrastructure from the China Communications Construction company. With the same company, in March 2022, Serbia concluded another contract on the financing and construction of traffic infrastructure worth 1.76 billion dollars.

Serbia got “hooked” on Chinese capital in the spring of 2010. From then until the end of last year, Serbia – partly through loans and partly through investments – obtained a total of 17.01 billion dollars in China. The cooperation between the two countries was formally legalized in 2009, when an agreement was signed, according to which it is allowed to deals between the Serbian and Chinese sides are concluded in violation of the Serbian Law on Public Procurement.

From then until today, 28 contracts have been signed, either on financing the construction of infrastructure facilities or on direct investment in the Serbian economy, with a total value of 17.01 billion dollars (and almost half of that amount – 8.03 billion – was obtained in just two year, 2021 and 2022).

The first deal with Chinese financiers was the contract of Mirko Cvetković’s government with China Communications Construction from 2010 on the construction of a section of Corridor 11, worth 260 million dollars.

The next loan, worth 330 million dollars, for two 50-kilometer sections on that highway (Obrenovac-Ub and Lajkovac-Ljig) was taken in 2013 by the progressive government that won the elections the previous year.

The coming to power of the Serbian Progressive Party marked a major turning point in the selection of strategic partners in the financing of the Serbian transport and energy infrastructure and the development of the Serbian economy in general.

Until 2012, the main source of capital for Serbia was the West (EU member states and the USA), from where, in addition to loans, significant financial resources came in the form of donations.

The EU and the European development banks (EBRD and EIB) supported Serbian economic reforms and transition with significant capital (financing of infrastructure, health and education, investment in the ownership shares of companies and strengthening the portfolio of commercial banks) and the strengthening of the democratic capacity of society and the state.

The intervention financial aid of the EU from 2000 and 2001 of 900 million euros for the purchase of electricity before winter and the rehabilitation of the power system will be especially remembered.

Immediately after coming to power, the Serbian Progressive Party decided on a strategic turn to the East and diversification of funding sources.

Although they never publicly explained the reasons for choosing the Chinese “financial tit”, the progressives had at least three possible reasons for such a decision. One is purely economic and refers to their assessment that the West is financially exhausted by the 2008-2010 crisis. year and that it will not be able to support Serbia’s needs for fresh capital in the long term.

The development of events and the recovery of the financial system and economy in the West showed that this assessment was wrong. The second reason penetrates into the sphere of politics and is formulated by the so-called strategy of sitting on three chairs (the West, China and Russia).

That strategy coincided with the decision of China and its leader Xi Jinping to formulate a large project of global expansion (soft political power), known as the “Silk Road”, which was later renamed the “Belt and Road”, and Serbia itself saw as a significant beneficiary of the Chinese “chair”, which eventually led to the fraternization of the Serbian and Chinese presidents. The third reason is probably related to the intention of progressives to reduce blackmail capacity

The EU, which decided to tie Serbia’s progress in political and economic reforms (rule of law, independent judiciary, free market, independent media) and European integration to its access to European funds.

That strategic political-economic turn gained incredible momentum immediately in 2013 and 2014, when, firstly, the company Shandong Gaosu financed the section of the Lijig-Preljina highway on Corridor 11 with 330 million dollars, and then the company China National Machinery Industry (Sinomach ) with 1.6 billion dollars (640 + 970 million) credits the construction of new plants in the Serbian energy sector (TE Kostolac).

In 2017, the telecommunications company Huawei Technologies also decided to invest in Serbia and invested 170 million dollars in Telekom Srbija in the All-IP transformation project, which enables access to the Internet at gigabit speeds.

By the way, Telekom Srbija had to terminate the cooperation with Huawei Technologies on the introduction of the 5G network in Serbia due to the request of the USA written in the Washington Agreement from 2020 and opted for the technology of the Ericsson/Nokia company. That turn was seen in 2021, when the Serbian telecommunications company received a loan of 70 million euros from the EIB for the modernization of the network.

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