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China returns to the Western Balkans

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Nine years after Montenegro committed to building a costly Chinese highway — which nearly bankrupted the country and remains unfinished — it has announced another highway project with a Chinese company.

Several Western Balkan countries have been waiting for decades for the European Union to take their membership and investments seriously. But some much-needed infrastructure projects couldn’t wait and, in the face of Brussels’ apparent disinterest, Beijing has become a major source of funding for the region’s projects.

There are clear advantages to working with China. The European Investment Bank (EIB) requires years of documentation and evidence of a project’s economic viability, but China is happy to work with Balkan politicians willing to announce projects before elections, even if they do not prove profitable. Beijing does not make public the conditions of its involvement and agreements are concluded directly between governments.

Beijing’s flexibility means that projects that might otherwise never see the light of day can be realized. However, these projects are not cheap and small countries can quickly go into debt for economically dubious projects, something the EIB would never allow.

As China doled out loans for its Belt and Road Initiative, Western media and hawkish officials accused it of using predatory lending practices to trap developing countries in debt in order to exploit them to obtain political allegiance. This is called “debt trap diplomacy”.

However, there is a growing consensus among think tanks and academic researchers that “debt trap diplomacy” is either a downright myth Or more complicated that it seems. Between 2000 and 2019, China canceled at least $3.4 billion in debt, restructured or refinanced an additional $15 billion in debt and seized no assets. It is true, however, that many of its projects lack transparency and are often approved by client countries without due diligence for political expediency.

Projects in Montenegro and Bosnia

The blocked toll highway in Montenegro, intended to connect the coastal town of Bar with Serbia to make travel within the country easier for tourists and locals, is apparently a classic example.

The project failed several feasibility studies, and the notion of profitability was met with skepticism, but in 2014, then-Prime Minister Milo Djukanovic took out a nearly $1 billion loan from the Export-Import Bank of China and a construction contract with China Road and Bridge Corporation (CRBC).

After years of setbacks and delays, the first 41 kilometers of the highway were inaugurated last July. Crossing mountains and ravines, 60 percent Most of the highway is made up of tunnels and bridges, and it is one of the most expensive roads in the world.

The rest of the 163-kilometer highway remains unfinished and it is unclear if it ever will be.

With only 620,000 inhabitants, Montenegro is a small country and struggles to service its debt, which represents more than a third of its annual budget. In 2021, Podgorica was able secure an agreement with two American banks and a French bank to restructure the loan and save Montenegro US$9.5 million per year.

“Montenegro managed to reduce the interest rate on the Exim Bank of China loan from 2 percent to 0.88 percent through a hedging agreement,” said Finance Minister Milojko Spajić. “Negotiations on the refinancing and optimization of Montenegro’s public debt continue, and this agreement provides much-needed time to achieve this in the best possible way.”

Emboldened, Montenegro announcement on March 29, it would once again partner with a Chinese company, this time the Shandong International Economic and Technical Cooperation Group, to build another new highway.

This project, however, is much smaller and less expensive: it will stretch 16 kilometers between the tourist towns of Budva and Tivat and cost 53 million euros. Rather than being financed by a loan from a Chinese bank, it will be financed from the country’s budget and thanks to a credit of 14 million euros from the European Bank for Reconstruction and Development (EBRD).

“This is only the first in a series of projects concerning the coastline, which should facilitate traffic. This construction was urgent, because during the summer tourist season more than 30,000 vehicles travel daily between these two cities,” outgoing Prime Minister Dritan Abazović said in March.

The Shandong International Economic and Technical Cooperation Group is involved in a number of projects in the Western Balkans. He helped build tram lines in Sarajevo, the capital of Bosnia and Herzegovina, and signed contracts to build two highways in Republika Srpska, but investigative journalists have critical the lack of transparency and public monitoring of its agreements with the Bosnian government.

Close ties with Serbia

Serbia also has contracted the Shandong International Economic and Technical Cooperation Group to build a road corridor.

Serbia is perhaps China’s closest partner in the Balkans and throughout Europe. Although Serbia is a candidate for EU membership, it has long distanced itself from the bloc in its foreign policy of maintaining favorable relations with Russia and “steel friendship» with China. Even though EU states in Central Europe and the Baltics to suspend cooperation, China and Serbia officially open negotiations for a free trade agreement last month.

Direct flights between Beijing and Belgrade were canceled in 2018 due to lack of passengers, but resumed last summer as Serbia courts Chinese tourists and business leaders.

“The (re)opening of the direct route is the result of the rapid achievement of a meaningful consensus between Presidents Xi Jinping and Aleksandar Vučić for continued improvement of cooperation between our two countries,” said the Chinese ambassador in Serbia upon landing. of Hainan Airlines’ first flight to Belgrade in four years.

Between 2009 and 2021, around 32 billion euros flowed from China to the Western Balkans, including 10.3 billion euros to Serbia.

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