Page 68 - BNE_magazine_bne_September 2019

68 Opinion
bne September 2019
Beijing has frequently been accused of ‘debt-trap diplomacy’, extending excessive credit aimed at securing economic and/ or political advantage. Whether such a fate could befall the Western Balkans is uncertain. The omens, though, are not good. The weak economies of Montenegro, North Macedonia, Bosnia and Serbia owe 39%, 20%, 14% and 12% of their
total external debt to China respectively, leaving Podgorica particularly vulnerable. As of last year, 80% of Montenegro’s foreign debt consisted of Chinese infrastructure loans.
An €809mn loan to Montenegro for the first section of a road linking its coastline to the Serbian border was last year projected to swell the country’s debt to 80% of GDP, forcing the government to raise taxes and partially freeze public sector wages. The IMF cau- tioned that the country could not afford to take on more liabilities to finish the project. Private Public Partnerships have been pro- posed to finish the project, but their viability has been questioned.
In March, Johannes Hahn, the EU commissioner responsible for enlargement, expressed concern about the consequences of relying on Chinese loans. “China never cares how and if a country is able to pay its loans. And if they cannot pay, there is some pressure that things are transferred into [Chinese] ownership,” he said.
If their economies become increasingly dependent on Chinese financial largesse, Western Balkan states may find the long wait for EU accession extended even further. Beijing will likely continue to take advantage of loose regulations on state aid, procurement, transparency and the environment. But Brussels has suggested that countries in the region could undermine their membership hopes if they fail to comply with the bloc’s stringent stipulations on these issues.
The terms and nature of some Chinese-funded projects have already come under Brussels’ scrutiny. The Hungarian sec- tion of a planned $3bn upgrade of the Budapest to Belgrade railway was stalled last year after the EU warned Hungary, a member of the bloc, that the contract for its stretch of the
line may have breached a rule requiring public tenders for big infrastructure projects. And earlier this year, Bosnia’s parlia- ment approved a loan guarantee covering €614mn worth of Chinese finance for the expansion of a coal-fired power station in the northern city of Tuzla, despite the move contravening state aid rules and sparking environmental concerns.
The EU has for some time been alert to Russia exploiting its cultural links across the region’s fragile democracies in order to undermine the bloc. Brussels, it seems, has only latterly woken up to the threat posed by China. A foreign investment screening process introduced earlier this year was aimed in large part at deterring Chinese acquisitions of strategic assets, but the measure does not apply to the Western Balkans.
In many ways, Europe benefits from China’s investment in the region, especially transport infrastructure as improved roads and faster railways will be as advantageous to member states as they are to Beijing once the likes of Serbia and Bosnia are firmly ensconced in the European family of nations.
But the potential dividends for the EU come with risks, such as inheriting undesirable coal-fired power stations and roads that have been half built because the money has run out – or, of far greater concern, economies whose debts have reached unsustainable levels through Chinese lending.
For Beijing, there is also a downside to all of this. If Western Balkans investment is all about placing China in a commercial- ly strong position once the region is eventually incorporated into the bloc, irresponsible lending and the fostering of weak regulatory environments could discourage the very reforms the EU requires of aspirant members. That could leave the Western Balkans’ EU membership bids in limbo and set back Chinese hopes of increased European market penetration.
Yigal Chazan is the head of content at Alaco. Alaco Dispatches is the business intelligence consultancy’s take on events and developments shaping the CIS region.
International leaders at the second Belt and Road Forum for International Cooperation in April 2019.
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