Serbia will have to pay Chinese banks an average of around 220 million euros a year just for interest in the next 20 years

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For more than a decade, China’s role as a political and economic great power has changed, gaining in importance. China’s new role is reflected not only in developed countries, but also in those less developed countries around the world. By creating a more balanced international order, a space was created that China, as a growing economy, used not only for its own further strengthening, but also for a greater presence in the world by achieving various forms of political and economic influence. Apart from the fact that they can indisputably bring profit, various forms of economic cooperation and investments of the People’s Republic of China sometimes cause multiple harmful effects on the host country.
Chinese view of freedom of expression
During May, journalists from a Dutch television station were interrupted by security at the Linglong tire factory in Zrenjanin during the filming of a report with a local activist. This television report referred to the plan for the company to illegally expand to several hectares of land around the factory. Thus, a similar incident was repeated at the beginning of June when Newsmax Adria journalist Zeljko Veljkovic tried to record an article about the construction of this factory. In both cases, it was the television crews who used the public area, which is several meters away from the entrance to the Linglong factory. Here, any explanation in favor of defending the company’s private property, and to the detriment of freedom of expression, simply has no basis.
This appearance of the representative of the Chinese investor represents a blow to the freedom of the media, especially because it is an informative article that has something of great importance for the public as its topic. Apart from being essentially wrong, this behavior of one side of the company is extremely incomprehensible from the point of view of public relations. It would have been much more effective if they had tried in some other way to influence the recording and flow of the TV reports themselves, for example, if one of the company’s managers had simply appeared in front of the cameras.
It is important to understand that in this case it is not only about the arrogant behavior of a foreign investor, but also about the state, institutions and the system that enabled such behavior, and then closed its eyes and remained completely silent. The question arises as to who enabled one company to, in addition to first planning the illegal expansion of its factory space, completely publicly prevent journalists from doing their job. What is the system that enabled a foreign company to violate the Constitution and the laws of the host country, and what results in such a privileged position.
In the past few years, Chinese investments in Serbia have intensified, strengthening economic and strategic cooperation between the two countries. From 2010 to 2019, the value of Chinese investments amounted to 1.6 billion euros. However, in addition to investing in production, new technologies, servicing old debts, some of these investments have brought with them harmful effects on the environment, but also further collapse of the legal order and institutions.

During 2018, the representatives of the Government of the Republic of Serbia signed a strategic agreement with the Chinese company Zijin on taking over 63% of the ownership of the Mining and Smelting Basin Bor. Zijin is one of the largest Chinese producers of gold and copper ore. According to the plan presented at the time, Zijin pledged 1,260 million dollars, including 350 million dollars, to recapitalize RTB, while Serbian government officials raced to praise the economic venture, announcing a sharp increase in exports and an increase in GDP. This company has invested around 700 million dollars since arriving in Serbia, while 360 million US dollars were invested last year alone. That this investment still brings with it a certain price, in terms of the quality of life of the citizens of Bor, is shown by the fact that at the beginning of 2020, the Ministry of Environmental Protection initiated proceedings against the company Zijin for releasing dangerous substances into the air. Somewhat later, the City of Bor itself filed a criminal complaint against those responsible in this company for air pollution due to multiple exceeding of the concentration of sulfur dioxide. According to the available data, the concentration of sulfur dioxide was repeatedly exceeded than the allowed 350 micrograms, and ranged from 400 to as much as 2,000 micrograms. Such moves by the representatives of the republic and local authorities followed, at least in part, as a reaction to the protests of the citizens of Bor due to the direct threat to the health of its inhabitants.
Such moves by the representatives of the republic and local authorities followed, at least in part, as a reaction to the protests and protests of the citizens of Bor due to the direct threat to the health of its inhabitants.
Serbia is at the top of Europe in terms of mortality due to polluted air, with about 10,000 deaths annually. It seems that even this black record is not a sufficient alarm for domestic institutions to adequately respond to the harmful effects of the actions of certain foreign investors. On the example of Zijin, one can see what it looks like when there is a combination of profits, regardless of the price, and a weak and underdeveloped institutional milieu, which as such represents fertile ground for this type of capital.
Ironworks Smederevo
Unfortunately, the company Zijin is not the only Chinese investment that brings with it harmful effects on the environment. After a series of privatizations, contractual management of Zelezara Smederevo since 2002, after the state bought the company for one dollar in order to save jobs, in 2016, this industrial giant was sold to the Chinese HBIS group, ie the Chinese company Hestil for 46 million euros. The debts of the company were taken over by the state, while the Chinese investor announced the investment of 300 million euros and the preservation of 5,200 jobs. Jobs have been saved, exports are growing, the company’s profit is increasing from year to year, however, the price of that and such an economic endeavor has also been paid. Thus, the largest employer in Smederevo became one of the largest polluters in Serbia.
Since 2016, the problem of air pollution in Smederevo has been accumulating more and more. The biggest sources of pollution in this city on the Danube are, in addition to the Smederevo Ironworks, also individual fireplaces, city fuel oil boilers, as well as traffic. In 2018, the Environmental Protection Agency published a report on the state of air quality in the Republic of Serbia, stating that the air in Smederevo was excessively polluted as a result of exceeding the limit value of suspended PM10 particles and the tolerant value of suspended PM2.5 particles. In this report, the agency also states the negative effects of Zelezara’s business on the environment, primarily in the form of emissions of powdery substances that negatively affect air quality. To make matters worse, the annual report for 2018 states that during 2018, the air in Smederevo was bad for 146 days.
Bad air, as well as fear for one’s own life and health, have recently led to the outbreak of dissatisfaction of the citizens of Smederevo, which resulted in protests in 2020 and the blocking of the railway near this city, but also the port on the Danube. According to the citizens of Smederevo, the problem of air pollution in this city has existed for several decades, but it has become especially pronounced since 2016 after the arrival of the company Histel. The company, as they state, brought with it an increase in production, but not environmental and air protection standards. In addition, a warning from members of the European Parliament followed, pointing out the harmful practices of Chinese investments in Serbia and calling on domestic institutions to respect and implement national legislation and EU standards. However, the authorities in Serbia remained completely silent on all these appeals.
The company, as they state, brought with it an increase in production, but not environmental and air protection standards.
Investing in big giants does not give anyone the right to disobey the laws. This is especially emphasized when it comes to environmental protection that directly affects the health of citizens. The citizens of Smederevo, environmental activities and the professional public, do not demand the closure of the factory with over 5,000 employees and the closure of production lines, but simply respect for environmental standards that should apply equally to all – domestic and foreign investors, small or large companies. Investing in new technologies in order to reduce the level of emissions of harmful particles, and thus air pollution. However, why this does not happen is primarily a question for the management of this company, as well as for the institutions of the Republic of Serbia that ignore the growing problems whose negative consequences are increasingly visible.
Loans and the danger of debt bondage
In addition to investments in heavy industry, the share of Chinese loans for various, mostly infrastructure projects in Serbia has increased in the last few years. Chinese lending is not surprising, considering that in the last two decades, China and its state-owned banks have become the world’s largest lender, approving over 700 billion dollars in loans, more often to underdeveloped countries in Africa and Asia.
The experience of these countries shows that some cases of inability of states to service their debts to Chinese banks have catastrophic consequences for these underdeveloped countries. The most famous examples of these and similar consequences have led to the surrender of the military base in Djibouti to China or the complete surrender of the largest port in the case of Sri Lanka. These loans are often contracted behind the scenes, non-transparently, by direct contracting between the two parties. Backed by interstate agreements, such loans are used for large infrastructure projects such as the construction of highways, railways and ports around the world.
The difference in relation to lending by international financial institutions, or the European Union itself, lies in the corrupt space, for both sides. That is why the representatives of the countries that take loans easily reach for Chinese money. On the other hand, China itself and its banks completely bypass the complicated and democratic procedures required by international creditors.
Representatives of the authorities in Serbia, in their media appearances, equate such Chinese loans with investments, although these two categories are far from similar. In the case of Serbia, the ratio between Chinese investments and loans is 1: 3, which means that one quarter of economic cooperation is investments, while three quarters are loans.
One of the most famous examples is the loan for the construction of the so-called Corridor 11, ie the Belgrade-South Adriatic highway, and only its sections from Surcin to Obrenovac of 17.6 kilometers, which amounts to as much as 208 million euros, at an interest rate of 3 percent. Such and similar loans for infrastructure development, China is conditioned by benefits for itself, such as obliging Serbia to hire Chinese contractors, sometimes even using Chinese material. The condition is also that Serbian companies will participate in that business with a maximum of 49 percent of engagement.
It is estimated that in the next 20 years, Serbia will have to pay Chinese banks an average of around 220 million euros a year just for interest.
In this way, in addition to concluding economically viable deals as a lender, China also pursues its strategic interests, creating political dependence on less developed countries through economic dependence. The constant risk of debt bondage and financial burden creates a relationship of subordination and dependence that can easily be used to project political influence.
Chinese investments and loans have been present in Serbia for some time, but they have definitely gained momentum in recent years. Unfortunately, they did not always bring with them only profit, but often also negative political, economic or environmental effects. Domestic corrupt practices and disrespect for institutions and laws are once again proving to be a breeding ground for foreign capital that is out of control. There would be no such investments, or at least they would be significantly less if the government and domestic institutions did their job protecting the Constitution, laws, and in the first place the interest of the citizens. It is justifiably suspected that the People of the Republic of China has established close personal relationships with local powerful people who provide them with special treatment, which they use to pursue their economic and other interests. On the other hand, stronger critical tones and warnings are coming from the European Union regarding the issue of cooperation with China, and they will undoubtedly intensify as time goes on. Any special treatment or privileged position that implies non-compliance with domestic laws and regulations, negligence towards the environment or negotiating too expensive business arrangements will lead to the highest price paid by future generations, which seems to be poorly thought of at the moment, Talas reports.