Addressing China’s political and economic impacts on the EU and Western Balkans

How Can the EU and the Western Balkan Countries Address the Political and Economic Impact of China’s Involvement in the Region?

 

1 . Executive Summary

1.1 Context

The study analyses political and economic relations between China and the five Western Balkan (WB) countries (Albania, Bosnia and Herzegovina (BIH), Montenegro, North Macedonia, and Serbia. The aim is to unravel the nature of China’s increasing involvement in the region and examine its implications for WB and EU political and business actors, in the context of the region’s ongoing EU accession process. Building on these findings, recommendations are developed for WB and EU policymakers, as well as for business actors, in order to maximise the benefits from the Belt and Road Initiative (BRI) projects, and address the potential challenges.

1.2 Situational Analysis

  • Economic cooperation takes the front seat in the overall China-Western Balkans relations.

China’s interest in the Western Balkan region to some degree predates the BRI. Nevertheless, the BRI opened the door for further intensification of economic and political relations with the region. In that regard, economic topics seem to prevail in discussions between China and regional countries. Increased frequency of political contacts was followed by company visits and business forums. The BRI and China-WB cooperation mechanisms have widened the scope of possibilities for realisation of various projects in the WB countries, while also serving China’s economic interests. Regional politicians are keen to establish a trilateral formula – local projects, the BRI and EU connectivity agenda – as a part of their own EU accession push or as a part of the overall economic development. There are no significant distortions in the economic policies of the WB countries in order to accommodate China’s rising economic presence.

Through the BRI, China has offered a mixed set of components in political and economic terms, and this is occurring at a higher official level than in the preceding periods. Greater political cooperation between China and the WB manifests itself via the increased number of annual summits, diplomatic contacts, and discussions. China has established a particularly tight and intensive relationship with Serbia, which appears to have a special significance for China’s strategy in the WB – owing to the specificity of its political and economic context, notably its Kosovo*[1] policy, central location in the region, and attractiveness as the largest market in the region.

  • The European Union remains the biggest player in the Western Balkans in terms of political and economic influence.

Despite China’s increasing presence in the WB, it nevertheless falls short from constituting a serious challenge to the EU overall economic and political influence in the region. China certainly took the opportunity to present itself as a potential new economic partner for the WB, whether as a creditor or as a strategic partner and investor, in areas where the businesses from EU member states were slow or indeed reluctant to act. Yet, while the BRI was generally focused on the infrastructure, so far it has delivered only fragments of the overall regional needs. In that regard, China has been offering a “leopard skin” picture of its presence rather than a full-throated implementation of the ultimate logic of the BRI in the region, namely, to connect Greece with the Western markets. China’s financial impact, either in terms of its weight on local sovereign debt, or as a trade partner, is relatively low and limited.

  • China’s political agenda in the Western Balkans remains formally supportive and practically neutral towards the region’s EU accession process.

With their outside-the-EU position, lack of strategic resources, fairly poor markets functioning, the WB region remains to be of secondary importance on China’s global business agenda. Similarly, foreign policy issues discussed on a bilateral basis between China and WB countries have so far been either of symbolic value or merely reflecting mainstream and established positions. These include China’s successful efforts to reverse North Macedonia’s recognition of Taiwan’s independence some 15 years ago, or through the political terms of China – Serbia (comprehensive) strategic partnership which calls for mutual respect for sovereignty, territorial integrity, and mutual bilateral support. Furthermore, it is difficult to find any public statement of China’s diplomats that could be seen as detrimental either to the local EU accession efforts or for the overall EU policies towards the Balkans. The notion of the WB countries as potential ‘Trojan horse’ has no credibility whatsoever.

1.3 Scenarios & Underlying Hypotheses

In the following, three key scenarios regarding the evaluation and expectation of China’s involvement in the WB are presented, each accompanied by a set of hypotheses (H). The winning hypothesis is presented at the end of this sub-chapter, with an explanation of why it stands out from the rest, with more detailed reasoning presented in the sub-chapter IV.3.

Scenario 1: China’s increased economic engagement is beneficial and non-threatening to the WB. It’s accompanying political impact remains limited.

  • H1: China increases and diversifies its financing offers to the WB.
  • H2: Chinese investments in the BRI could support the EU accession process of the WB countries as they contribute to enhancing regional connectivity and addressing the region’s infrastructure gaps.
  • H3: China does not increase its political engagement nor leverage its economic presence to pursue political goals detrimental to the WB political stability or to the EU enlargement process.

Scenario 2: China’s economic and political footprint is on the rise in the Western Balkans. As such, it is not threatening to the regional stability and EU accession process.

  • H1: The BRI offers a higher level of political and economic relations between China and the WB countries, and, to some extent, raises the stakes for the EU and its approach in the region.
  • H2: While the BRI was generally focused on the infrastructure, so far it was able to deliver only fragments of overall regional needs, with limited spillover on domestic economies.
  • H3: Through its (comprehensive) strategic partnership with Serbia, China has positioned itself close to Serbian political leadership, allowing it to potentially expand its influence in the future.

Scenario 3: China’s economic and political involvement has a destabilising effect in the Western Balkans’ political and economic landscape.

  • H1: WB’s heavy reliance on BRI-related projects can make it over-dependent on China that could, in turn, use the prospects of region’s future EU membership for its own particular interests via a ‘Trojan horse’ approach at the cost of EU’s unity.
  • H2: Centrality of state-to-state approach to business and lack of transparency are creating a climate favorable for the spread of corruption and various practices out of line with regards to normative needs of EU accession process.
  • H3: China’s credits are raising levels of national debt, which is particularly worrying in the case of Montenegro and might lead to major fiscal issues.

The research shows scenario #2 as the most realistic one that explains the present and future of China’s involvement and effect in the Western Balkans.

China does not seem to be disruptive of the process of the EU integration of the Western Balkans, and it is not clear that it will have the motivation to do so in the future. Financial leverage in terms of debt of the WB towards China is not of significance, with an exception of Montenegro. China focuses on developing bilateral relations, whilst simultaneously acting under the auspices of a wider and multilateral 16+1 Platform. Among the WB, China has acquired the most visible foothold in Serbia, geared towards strengthening political relations and reaffirming mutual support in the international arena, whilst gaining further economic inroads based on business logic. There is some room for improvement of cooperation within the EU-WB-China triangle, with a focus on the economy more than politics.

1.4 Recommendations

Recommendations for EU Policymakers

  • Align EU connectivity initiatives with ongoing BRI-related projects.
  • Promote a constructive and solution-oriented dialogue with China, with active inclusion of the Western Balkan representatives.

Recommendations for Western Balkan Policymakers

  • Strengthen the regional approach towards cooperation with China.
  • Ensure transparency and greater involvement of experts in negotiations with Chinese counterparts.
  • Governments should strive to achieve better credit terms and conditions.
  • Keep Brussels in the loop on the overall engagement with China.

Recommendations for Business Stakeholders

  • Address WB companies’ lack of competitiveness and production capacities.
  • Use the chance offered by the new Chinese economic activity in the region.

[1]  This designation is without prejudice to positions on status and is in line with UNSC 1244 and the ICJ Opinion on the Kosovo Declaration of Independence.

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Strategy Development Section 

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