The EU’s vulnerable periphery: China in the Western Balkans

July 13, 2021 3:25 PM

At present, when Montenegro's tourism-dependent economy is battered due to the pandemic, the repayment of the first debt instalment to China that is due this month has become a cause of concern.

chinaThe Chinese economic presence in the Western Balkan countries is framed by Beijing's muscle in roads, railways, and the energy sector coupled with concessional credit. (Photo source: Reuters)

By Dr Yatharth Kachiar and Priya Poojary, 

Montenegro, a NATO country at the periphery of Europe in the Western Balkans, has become the latest victim of China’s ambition to gain global influence. It is also proving to be a critical test case for the European Union on countering China’s growing clout in its strategic backyard. In 2014, the small mountainous country took a massive loan of USD 1 billion from China for a 165 km road development project that would connect its port city of Bar to Belgrade, the capital of Serbia. The initial phase of the project that covers 41 km of road construction began in 2015. At present, when Montenegro’s tourism-dependent economy is battered due to the pandemic, the repayment of the first debt instalment to China that is due this month has become a cause of concern.

Interestingly, before China decided to invest, all the major global financial institutions such as the IMF and European Investment Bank had denied funding the project after two major feasibility studies questioned the project’s economic viability.However, adverse feasibility reports of the project did not deter the Chinese government from stepping in and financing the project.Here, the question arises: Why would China want to invest in a project that has high risk and low feasibility?

It is not the economy, but geostrategic positioning

For China, investing and gaining influence in a NATO country that aspires to be a part of the EUis a huge strategic win. Although the terms and conditions of the loan sanctioned to Montenegro are not yet clear, similar loans to other countries like Sri Lanka required collateral in land and infrastructure. Beijing has repeatedly used this strategy of alluring economically weak countries with easy investments and eventually tied them into the debt trap and forced loyalty.Earlier in April, the Montenegrin government appealed to the EU for assistance as its national public debt soared to 103% of the GDP.

In addition to the COVID-hit economy, Montenegro’s public debt situation has worsened due to a decline in Russian investment in the region post-2014. Debates over financing the project have been deeply polarizing. The EU had warned early on over the socio-economic, environmental, and financial effects of Chinese investments in the country. Montenegro is holding talks with the European and US Banks to swap or refinance the Chinese loan. The way the EU responds to the Montenegro crisis would set the tone for future Chinese engagements in the region.

EU-Russia-China power tussles in the Western Balkans

The European Union

The Western Balkans region has emerged as a powerhouse of competing interests entangled by the EU, China, and Russia. Situated at Europe’s periphery, the Western Balkans has always occupied a critical geostrategic position within the European and transatlantic security architecture. After the dissolution of Yugoslavia, as the ethnic tensions and civil war engulfed the region, the EU became more actively involved with the countries in the Western Balkan to ensure peace and stability. Since then, the EU has facilitated peacekeeping and peacebuilding activities in these countries and provided economic and military assistance. During the 2003 Thessaloniki Summit, the EU moved even closer to the Balkan region by proposing the membership opportunity to these countries.

Nevertheless, after almost two decades since Thessaloniki Summit, Slovenia and Croatia are the only Balkan countries that have secured membership of the EU. In the Western Balkans, Albania, North Macedonia, Serbia and Montenegro are still the candidate countries in the EU accession process, whereas Kosovo and Bosnia & Herzegovina have expressed interest in joining the EU. In recent years, the development needs and the growing fatigue with the EU enlargement process have pushed the countries towards Beijing.

Russian interest

Similarly, the region has immense strategic importance to Russia for several reasons. Firstly, the region serves as a crucial energy supply route given its geostrategic location between the Black and Mediterranean Seas. Since the 1990s, Russian energy firms have been prominent in the Balkan region, making the states dependent on Russia for economic reasons. Secondly, the Western Balkans is the region in which Russia seeks to present itself as a credible political, economic and military ‘alternative’ to the Euro-transatlantic duo. It has been critically observing the growing presence of NATO in the region and attempting to shift allegiances towards Moscow, away from Brussels and Washington. Thirdly, the Western Balkan countries serve as a critical historical and cultural link to Russia, occasionally stepped up by Russian public diplomacy efforts.

China’s ambitions

Complementing the existing spiral of competition in the region is China. The Chinese economic presence in the Western Balkan countries is framed by Beijing’s muscle in roads, railways, and the energy sector coupled with concessional credit. Although China’s economic merit in the region is small, it is slowly emerging as a debt partner for most Western Balkans countries.China’s economic policies and investment in the western Balkans directly contradict the EU’s financial and environmental policies. It also poses a direct threat to the bloc’s core values, such as democracy, the rule of law, respect for human rights, and good governance.Consequentially, it weakens the EU’s integration process with the Western Balkans. Indeed, Montenegro has become a stark example of the Chinese debt-trap diplomacy, as the country is due for repayment this month. Beijing may thus be positioned to make crucial decisions on the financial fate of the country if it fails to deliver its obligations.

Need for the EU to step in

Compared to Beijing and Moscow, the EU has political, economic, and institutional linkages with the Western Balkans through treaties, accession agreements, and regular summits. However, the growing Chinese and Russian clamour in the region has gravely concerned the EU.The Montenegrin government’s request for help from the EU has once again drawn attention to the debates over China’s growing presence in the EU’s immediate neighbourhood. The EU has clarified that while it is willing to assist Montenegro in sustainable financing, bailing countries is out of the question. However, leaving Montenegro to fend for itself in this critical juncture might send a message to other countries in the belt that the EU is not serious about them.

How the EU will respond to Montenegro – whether bailing out or ignoring it – will shape the bloc’s existing relations with the Western Balkans region in the future. Additionally, continuing developmental gaps between the region and Brussels will only strengthenChinese hold in the EU’s periphery in the coming decades.

(Dr Yatharth Kachiar is an Assistant Professor, and Priya Poojary is a Lecturer at Manipal Center for European Studies (MCES), Manipal Academy of Higher Education (MAHE), Manipal, Karnataka. Views expressed are personal and do not reflect the official position or policy of Financial Express Online.)

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