Home Venture Capital Is China facilitating corrosive capital in Serbia? – The diplomat

Is China facilitating corrosive capital in Serbia? – The diplomat

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China’s engagement in Serbia has had far-reaching consequences. To understand this trend, it is imperative to answer two crucial questions. First, what is the justification for Belgrade’s decision to allow such significant participation from China, especially since Serbia is a candidate for membership in the European Union (EU)? Second, what are the strategies employed by Beijing to establish itself as Belgrade’s first foreign partner?

The rise – and risks – of Chinese capital in Serbia

Serbia, classified as a developing country, is faced with an urgent need for financial resources to promote its development. In 2021, Serbia’s gross domestic product (GDP) amounted to $63.08 billion, with an annual growth rate of 7.5% that year, the study said. World Bank data. While Serbia has been a candidate for EU membership since 2012 and accession negotiations began in 2013, progress in the accession process has stagnated, making the timetable and likelihood of accession uncertain. from Serbia to the EU.

The genesis of the comprehensive strategic partnership between Serbia and China dates back to 2009. Economic and technical cooperation agreement for infrastructure projects, signed while Serbia was facing the consequences of the global financial crisis. This seminal agreement functions as a legal precedent for all subsequent infrastructure agreements between the two nations. Having received ratification According to the Serbian Parliament, this agreement stipulates that future agreements, including loans, must comply with the Serbian legal framework. However, there are still apprehensions about the deal due to its ability to circumvent domestic legislation, including tender processes.

Since 2009, Serbia has approved projects and secured preferential loan agreements from Chinese financial institutions, raising a sum exceeding 8 billion dollars. These initiatives encompass important projects such as the Belgrade-Budapest railway, the Belgrade-Montenegrin border highway and sewerage systems covering various municipalities. Alarmingly, these contracts often stipulate that disputes must be resolved within the required time frame. Chinese courts in accordance with Chinese laws, thereby setting aside Serbia’s legislative jurisdiction.

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Furthermore, the management of these infrastructure projects by Chinese companies has resulted in a workforce comprised predominantly of Chinese labor, thus limiting employment opportunities for Serbian workers. According to the National Bank of Serbia, the unemployment rate in Serbia it was 9.7% in 2020, before the start of the COVID-19 pandemic. This figure rose to 11 percent in 2021 before stabilizing around 9.5 percent in 2022.

The exclusion of Chinese workers from Serbian labor regulations, detailed in the Social Security Agreement, raises concerns about the potential denial of rights and services guaranteed by national legislation. This arrangement also raises questions regarding Serbia’s legislative sovereignty, as China claims jurisdiction over its citizens on Serbian territory.

Beyond preferential loan agreements, Chinese foreign direct investment (FDI) in Serbia has seen growth substantial increase since 2016. These FDI mainly target acquisitions of brownfield sites and the acquisition of obsolete industrial systems, exemplified by the acquisitions of the Smederevo steelworks and the Smelting and Mining Combine Bor. While new Chinese investments tend to focus on land not developed for industrial purposes, as evidenced by the Linglong tire factory in Zrenjanin, reservations persist over labor rights and ecological consequences. Although the legal framework governing Chinese FDI mirrors that which applies to other foreign investments, concerns remain over labor conditions and environmental safeguards.

Nevertheless, Serbia’s choice of China as its main partner in infrastructure development can be attributed to the accessibility of financing and China’s pragmatic approach in executing projects. The ease of obtaining funds from China was an important factor in Serbia’s choice. The Economic and Technical Cooperation Agreement established a streamlined process for project implementation, bypassing usual due diligence procedures.

This approach has raised concerns about the transparency of trading procedures. The rationale for selecting Chinese companies for specific projects, considering alternative offers, and assessing whether the Chinese proposal represented the optimal financial choice for Serbia remains unclear. The lack of thorough oversight by national institutions, as well as the absence of official investigations, has fueled speculation about possible corrupt practices.

The concentration of authority and attenuation of democratic mechanisms in Serbia have allowed domestic actors to align with China without sufficient checks and balances. Freedom House 2023 World Freedom Report describes Serbia as a partially free country, noting that “The ruling Serbian Progressive Party (SNS) has gradually eroded political rights and civil liberties, putting pressure on independent media, the political opposition, and civil society organizations.

Serbia’s largest political party, the SNS, led by President Aleksandar Vučić, has been the country’s dominant political force since 2012. Ana Brnabić has been Prime Minister since 2017 and most ministers are SNS deputies, meaning that almost all important political positions are occupied. are held by members of the SNS. In the absence of democratic mechanisms and strong oversight, monitoring all projects with China – including both loan agreements and foreign direct investments – becomes a formidable challenge.

The consolidation of power within a single political entity has created limited possibilities for control. The absence of opposition to collaboration with China, apart from sporadic protests, reflects a general lack of substantive discourse on this issue.

What does China get?

For its part, China has exploited Serbia to strengthen its regional cooperation platforms and highlight its European achievements. From a kleptocratic perspective, Serbia has served as an instrument to advance China’s foreign policy goals and collaborative mechanisms. Above all, Serbia is an example of cooperation between China and Central and Eastern European countries (formerly known as 16+1 and 17+1). This mechanism has encountered disillusionment, leading to the departure of three Baltic states in 2021 and 2022, thereby reducing the number of European participants to 14 in February 2023. Yet Serbia has remained committed to the China-CEEC platform, even though its image tarnishes.

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China presents itself as a facilitator of economic progress, a discourse adopted by Serbia. China’s priority has been to avoid the potential debt trap for Serbia and, to this end, the importance of the stability of the Serbian economy cannot be overstated. With overall public debt below 55.2 percent, the risk associated with joint projects with Serbia, both economically and politically, remains minimal.

Furthermore, Serbia and China have forged political alignment regarding territorial integrity, a central concern evident in their mutual expressions of unwavering support. Serbian territorial integrity and sovereignty have become key themes in official statements by Chinese authorities. Conversely, Serbia has reaffirmed its adherence to the “One China” policy, recognizing Taiwan as an integral part of China. For Serbia, the advantages are obvious. China, as a permanent member of the UN Security Council, can support Belgrade’s efforts to challenge Kosovo’s independence. For China, this represents an opportunity to assert its position on secessionist and independence movements, thus underlining its attachment to the principle of territorial integrity.

Prevent corrosive consequences

To cultivate a resilient society and political system in the face of corrosive capital and kleptocracy, Serbia should prioritize national capacity building, internal reforms, and strong institutions based on checks and balances. The decentralization of political power between institutions is crucial, accompanied by a clear affirmation that the rule of law and values ​​such as environmental protection are as important as economic progress. Instead of identifying the origin of corrosive capital or kleptocratic behavior, the focus should be on recognizing and countering domestic actors who propagate these trends.

Serbian policymakers and relevant stakeholders have options that would limit and mitigate the corrosive aspects of China’s growing influence, including establishing a system of checks and balances to monitor China’s loan agreements. infrastructure based on existing parliamentary mechanisms and the revision of certain worrying agreements. Beyond this, Serbs must work to build the capacity to understand, monitor and evaluate future Chinese activities in Serbia.

This piece is derived from a report the author wrote for the International Republican Institute.

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