The Republic of Serbia is China’s closest ally in Southeast Europe. Serbia has continued to build on the diplomatic work of former Yugoslavia and China considers it to be the principal successor state of the defunct federation. The two sides therefore date the establishment of diplomatic relations between Serbia and China to 1955, when Stalin’s death opened the ideological space for China to relax its anti-Yugoslav line. More than ideology however, it was pragmatic interests that defined their relationship following the break-up of Yugoslavia in 1991. Although China did not veto the economic sanctions imposed by the United Nations on Serbia after 1992 (it abstained), their relationship significantly improved following the US bombing of the Chinese embassy in Beijing in 1999. Serbia has been a vocal supporter of the One China policy, while Beijing reciprocated by opposing Kosovo’s independence and still does not recognise it as a sovereign state. In 2009, the two countries signed a strategic partnership agreement, which was upgraded in 2016 to a comprehensive strategic partnership—one of China’s highest-ranking bilateral agreements. Chinese president Xi Jinping visited Serbia in 2016 on a three-day tour, during which the Smederevo steel mill was formally reopened under Chinese ownership.
Serbia formally joined the list of BRI countries in 2015, when it signed a memorandum of understanding with China on the Initiative. However, Serbia can be considered a key ‘proto-BRI’ location, where infrastructural projects predating Xi’s grand initiative were rebranded with the BRI label. Sino–Serbian infrastructural cooperation is based on an agreement signed in 2009, which has since been amended to exempt Chinese companies from public procurement rules.
Serbia’s cooperation with the BRI is formally overseen by the National Council for the Coordination of Cooperation with Russia and China, headed by former president Tomislav Nikolić. Practically, however, most BRI projects first appear on the agenda during meetings of the joint Sino–Serbian intergovernmental commission.The Serbian half of the commission was headed by infrastructure minister Zorana Mihajlović, and her ministry and staff lead on matters such as negotiating, contracting, and financing BRI projects in the country. In November 2020, finance minister Siniša Mali took over the post, signalling a shift of emphasis towards supporting Chinese FDI. Serbia is also a member of the 17+1 China–Central and Eastern European Countries forum, and hosted the group’s summit in 2014. While the multilateral arena has served Serbia well, only the Belgrade–Budapest high speed rail can truly be considered a concrete result of the multilateral forum, with all other Sino–Serbian projects agreed bilaterally.
Trade: Bilateral trade between China and Serbia is marked by a remarkable imbalance. According to the Serbian government, Serbia imported over 2.5 billion USD worth of goods from China in 2019, and exported only $330 million. Although Serbian exports to China have been steadily increasing, China is not even among the top ten export destinations.
Investment: More than trade, investment and loans are the main driver of Sino–Serbian economic relations. China accounted for 7% of cumulative foreign direct investment into Serbia from 2010 to 2019, although its share has risen steeply in the past few years to around 20% of total FDI value in 2019. In comparison, the European Union accounts for a staggering 71% of FDI. Yet, Chinese investors receive more political attention and support, having acquired nationally important (though often dysfunctional) companies with great fanfare, such as the acquisitions of the Smederevo steel mill by HeSteel, inaugurated by Xi Jinping himself, or of the Bor copper mining and smelting complex by Zijin. Serbian politicians furthermore often use the term ‘investment’ to describe Chinese state bank loans for infrastructure projects, which could exceed 7.6 billion EUR if all planned projects go ahead (data collated by author from Ministry of Construction, Transport and Infrastructure of Serbia estimates, current October 2020). Chinese lenders have also been receptive to funding roads that have a high political value and low economic feasibility, such as the Belgrade-Bar highway connecting Serbia and Montenegro.
Aid: A 2020 poll revealed nearly 40% of Serbians believe China gives the most aid to Serbia, ahead of 17.6% who believe the EU to be the greatest source of aid. Yet China is estimated to have pledged only 56 million EUR between 2010 and 2020, of which only 6.6 million EUR have been delivered. While data on Chinese aid is not widely accessible or reliable, the figure quoted above can be corroborated with the total amount of official intergovernmental assistance registered in Serbia’s Official Gazette, which comes up to 25 million EUR in grants and a further 26 million EUR in concessional loans between 2013 and 2017. In contrast, the European Union has provided Serbia with over 2.1 billion EUR in grants since 2007 through the Instrument for Pre-accession Assistance alone. Much like with investment and loans, this perception gap can be ascribed to a high degree of political support for China’s activities in Serbia. During the early stages of the Covid-19 pandemic in Serbia for example, prime minister Vučić scolded the European Union for banning the export of medical equipment, adding that only China could help Serbia and calling Xi Jinping his ‘brother’. Soon after, giant billboards declaring ‘Thank you, brother Xi!’ sprang up in Belgrade.
Transparency: Many of the controversies surrounding Chinese-led projects in Serbia reflect the high risks that infrastructural projects carry in countries with weak institutions and strong, sometimes predatory, special interest groups. Yet specific requirements introduced by Chinese state actors to exempt its bidders from public procurement rules significantly raise risks for corruption and waste. Subcontractors on Chinese-run sites were also selected without public tenders, leading to lucrative deals awarded to politically connected companies with no previous construction experience. Furthermore, these exemptions insulate Chinese contractors from the need to adopt and/or understand European legal standards in areas such as transparency, environmental protection, or labour rights. Serbian politicians have however publicly extolled the advantages of circumventing public tendering, favourably comparing efficient Chinese-backed projects against delays on a road section financed by the World Bank.
Environment: Environmental compliance has been the bane of many Chinese projects in Serbia. The Kostolac coal power plant expansion was successfully challenged domestically over its environment impact assessment. It was investigated as a breach of state aid by the Energy Community, an EU-led treaty mechanism charged with extending the EU’s internal energy market beyond its borders. Lastly, the Kostolac project was also investigated for transboundary effects under the Convention on Environmental Impact Assessment in a Transboundary Context, also known as the Espoo convention. The Bor copper mine has meanwhile found itself in court after the Ministry of Environmental Protection found it regularly exceeded SO2 emission limits. Environmental non-governmental organisations have successfully organised both legal and protest action in both cases. In a bizarre turn of events, they have been attacked by pro-government media as ‘George Soros mercenaries’ and accused of using lies to undermine valuable Chinese investment in the country.
Labour practices: In 2017, HeSteel pressured the Serbian government to review sick leave rules that the company claimed were being abused by its employees at the Smederevo steel mill. The labour ministry in turn announced a ‘pilot project’ to review and monitor potential sick leave abuses despite having no legal competency to do so. Apart from labour issues, the takeover of the Smederevo steel mill by HeSteel has raised concerns the plant will be used to dump Chinese steel onto the European market, though Serbia has not been singled out and its EU import quota allocation remains similar to South Korea and Turkey.
Illiberal politics: China’s role in Serbia’s democratic backsliding is another topic of concern. The ruling Serbian Progressive Party (SNS), a right-wing populist party in power since 2012, is no stranger to clientelist and authoritarian rule, but the availability of Chinese loans and politically mediated investment has the side-effect of reducing the reliance of the Serbian government on Western lenders, thus removing some of their leverage. Recent attacks on NGOs critical of Chinese-backed projects by pro-government tabloids illustrate that defending Chinese interests is a matter of defending the government’s own record, which emphasises (or exaggerates) the economic benefits of Chinese investment, disregarding any irregularities and risks.
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Cover Photo: Belgrade, Serbia. Credit (CC): Luca Sartoni, on Flickr.com.