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The New Balkan Route – China’s Development Aid for Southeastern Europe

China's premier Li, Hungary's PM Orban and Bulgaria's PM Borissov at the 6th summit of the Cooperation of Central and Eastern European Countries and China in Budapest 2017. © / CC BY-SA 4.0 / Wikimedia Commons

The ancient Silk Road was a trade and road network that connected China and Europe across the Eurasian landmass. It reached a peak in its expansion in the 13th century and received its name through the silk trade towards the West, whereas mainly wool, gold and silver traded to the East. Beside an economic exchange, a socio-cultural exchange took place as well, which Western trading partners used to spread Christianity (Britannica, 2021). 800 years later, the ancient Silk Road is brought back to life. Trade is still its main driver, but the conditions have fundamentally changed. It seems that the East now expels its own worldview in addition to its own goods. This is especially noticeable in areas that have not yet found their supposed place in the contemporary world order, such as the Balkan states in Southeastern Europe.

Since the middle of the last decade, China's President Xi Jinping has been propagating a trade route across the Balkans through which China's export goods should reach Western Europe - the new Silk Road or “One Belt One Road” (OBOR) (Aitzhanova 2019, p.63). OBOR is the ultimate result of China’s foreign policy since the Chinese economic reform in the late 1970s. The Balkans are only a small part of the entire OBOR network divided into a land route and a sea route.

The New Silk Route stretches from Moscow in the North, across the South Pacific in the South, reaches Latin America in the East to the Netherlands in the West, thus covering almost the entire landmass of the globe (Wang 2015a, p.99). In 2016, 65 countries around the world were involved in OBOR, covering approx. 60% of the world’s population and one-third of the world’s GDP (Leverett and Wu 2016, p.127). China's status as a leading (future) global economic power is the natural foundation of the OBOR. The world's second largest economy serves a strong demand as well as a high supply capacity. Many countries need China to serve their own domestic demand and export their own goods, mostly commodities (Li and Cui 2015, p.68; Hu 2019, p.150). China's OBOR investments often flow into underdeveloped states without significant ties to the West (Kuhn 2019, p.882). Nevertheless, 18 states from Eastern and Southeastern Europe are also included, such as Serbia, Hungary and Poland, often with a socialist past (Li 2019, p.44; Zhou et al. 2020, p.3562 & 3565). Officially, the OBOR mindset is to strengthen economic cooperation, improve people’s wealth, manifest prosperity, promote regional integration in world market and build a new economic trade pattern that is contrary to the transatlantic trade axis of leading developed countries of Western Europe and the US (Li and Cui 2015, p.65 & 70).

However, in equal measure China is also pursuing financial, political and economic self-interests through OBOR. In OBOR countries, China is primarily a financier of infrastructure projects with high interests; exports own surplus capacities of its SOEs and sources its labor and capital-intensive industry out to developing and emerging countries (Li and Cui 2015, p.67). At the same time, China finds direct consumers of their products along the OBOR routes (Rasonyi 2018) and secures valuable imports of raw materials, e.g. natural gas, oil, iron ore, or soybeans. This is because the Chinese domestic industrial consumption exceeds the domestic supply of commodities by far. In 2017, China only produced 190 million tons of crude oil, but in the same year, the domestic industry's demand was 420 million tons. By investing heavily in OBOR countries, China aims to secure sources of commodities in return. This endeavor ranges from oil and natural gas-rich but poorly connected countries in Central Asia, such as Kazakhstan or Uzbekistan (Hu 2019, p.150 & 155) to EU member states, such as Lithuania, which in return exports briquettes, lignite, or peat to the People's Republic (Chen, Chen and Li 2019, p. 60). China is already the third largest importer of Albania and Serbia, ranks fourth in Hungary and is far ahead of other European states – and rising (Zhou et al. 2020, p.3566). Beside consumer goods and loans, its China’s infrastructure projects that are driving the Southeastern European countries further into China's arms and cementing the ties. For example, China is financing and building a highway route in Serbia and Montenegro and a rail link from Serbia to Hungary (Emerson 2019, pp.166-167; Chen, Chen and Li 2019, p.54). China even finances the port of Piraeus, a port without any advocates during and after the global economic crisis of 2008. In the long term, a high-speed network of roads and railways through Eastern and Southeastern Europe will speed up trade exchange between China and Western Europe (Rasonyi 2018; Wang 2015b, p.36). The question comes up: what advantages do the Balkans hope to gain from this cooperation? And do they have no other choice?

If one looks at the conditions in Eastern and Southeastern Europe, these countries certainly have economic growth potential, but cannot access it because there is a lack of foreign capital and investments to spark the domestic economy. The states are often stigmatized as parts of the former Soviet Union and past military conflicts have created a split relationship with Brussels and its transatlantic ally, the US (Zhou 2020 et al., P.3562). Corruption and unstable, uneconomic regions deter Western investors from investing their money into these regions (Kuhn 2019, p.882). The financial crisis of 2008 did the rest and taught these countries that waiting for investment from the West and an excessive dependence on a few developed markets is a ticking time bomb (Li and Cui 2015, p.69). It is therefore quite understandable that the complex community of states in Southeastern Europe is longing for a new partner with whom there are no historical points of contention and has the economic resources to give them the prosperity that other industrialized countries have so far denied to them.

The structural, institutionalized and cross-border Chinese growth model has taken shape in recent years and is also becoming attractive for other emerging and developing countries. The Chinese one-party state has managed to free its people from poverty and created the largest middle class on earth. Many former Soviet states are not as inclined to the Western European model, where democracy is the focus, as they are to the Chinese model, where prosperity is the focus (Li 2019, pp. 42-43). Authoritarian or less developed states are increasingly neglecting human rights and the promotion of democracy (Bar 2020, p. 104). China is very attractive to Southeastern Europe because it has made impressive improvements in its fight against poverty, is wealthy and has adequate financial resources. The People's Republic is running a great charm offensive with the ability of attraction instead of coercion to achieve what they desire. This is in contrast to how other states have handled it before (Grimes 2016, pp.7-8). China represents a new inclusive type of globalization and invites the former Soviet countries and Southeastern EU countries to join (Li 2019, p.44). In many OBOR countries, the infrastructure and industrial production capacities have already improved considerably and a mutual benefit has set in, which has significantly promoted the value chain along the OBOR (Chen, Chen and Li 2019, pp. 50 & 54). It is by no means just about container trains getting from A to B faster and cheaper by more efficient border controls and higher customs revenues in the respective regions. Rather, industrial and economic advancement should also be linked to it (Emerson 2019, p.164; Ramasamy and Yeung 2019, p.1686). In the long term, the infrastructure investments and newly created distribution channels should lead to lower transport costs, increase the efficiency and improve the living standard of the people along the OBOR (Hu 2019, p.152). In 2010, Kazakhstan did not transport a single container by cargo train; in 2019 it was already transporting 800,000 (Aitzhanova 2019, p.67). The economic growth in the Kazakh regions involved in OBOR has increased significantly. Their access to products and labor has improved and transportation costs have been reduced by up to 7% (Aitzhanova 2019, p.68). From 2005-2015, trade between OBOR countries and China grew by an average of 19% per year, this was 4% more than the total Chinese foreign trade, which grew by 'only' 15% p.a. during the same period (Wang 2015a, p.98).

Experts see the advantage of OBOR in the fact that it is promoting the establishment of a development-oriented community of fate with similar past and development conditions. OBOR would make Southeastern Europe China's gateway to the West, in that all involved states should experience free and inclusive trade; accordingly, most Southeast European states maintain a comprehensive, friendly and strategic partnership with China (Wang 2015a, pp.96 & 104; Zhou 2020 et al., pp.3560 & 3566). The former EU ambassador in Moscow Emerson (2019, p.165) spoke in this context of the “old” and “new” EU. The "old" EU, with the Western core and founding states, does already have a well-developed transportation infrastructure. It does not need OBOR to connect new technologies and infrastructure. The "new" EU, with the youngest member states in the East, however, is hungry for investment and wants to develop its own infrastructure, expand the manufacturing industry and the service sector. Why does the “old” EU not meet the needs of the “new”?

In addition to reasons of human rights and corruption, Southeastern Europe often has a poor creditworthiness, which is why investments and loans from Western Europe are not available. The People's Republic fills this gap without asking questions, distributes loans and fulfills long-awaited construction projects without any such restriction. Accordingly, the "new" EU states are very interested in doing business with China (Emerson 2019, pp.165-167). The states hope for participation in international trade and the possibility of a new world order against the old hegemony with the US as their leader (Kuhn 2019, p.880; Grimes 2016, p.6).

However, the promises and pledges from the Far East should be taken with a grain of salt. Borrowers run the risk of falling into a debt trap with the possible consequence of over-indebtedness. For example, Sri Lanka could no longer pay the instalments for infrastructure projects and ceded a large part of the seaport Hambantota to China, which now controls large parts of the container handling (Kuhn 2019, p.882). The aforementioned motorway project in Montenegro turned out to be completely uneconomical and caused the national debt to rise by 20%. The contract between Montenegro and China also states that if the outstanding loan is not repaid, an arbitration court can decide Montenegro has to transfer sovereign property to the People's Republic instead, such as a seaport (Fischer 2021). In this way, China is binding states in the backyard of the OBOR to itself through loans running into the billions (Rasonyi 2018).

However, China's urge and ability to intervene in the regional political and economic agenda in Southeast Europe is limited. If the People's Republic attempts to control the Balkan states, it is sufficiently likely that they will not bow to it, as history has shown. The Chinese way of state capitalism and authoritarian leadership is not necessarily applicable to these states (Grimes 2016, pp.15-16). With their brash behaviour and non-transparent approach, the Chinese also give reason for mistrust (Rasonyi 2018). Chinese loans are often linked to the mandatory use of Chinese companies and workers and in the event of non-fulfilment, China engages in "land grabbing", which takes on characteristics of a new kind of colonialism (Kuhn 2019, p.882). And the EU? Has Brussels missed a trend on its own doorstep or should it follow the motto "don't believe the hype"?

The European Union has mixed feelings about China's expansion in Southeastern Europe. On the one hand, it wants to participate in the economic growth of an internationalized world; on the other hand, it must not betray its own moral values. Li and Cui (2015, pp.66-69) argue that the EU should turn more to the OBOR initiative because it is too dependent on the US. In their view, the US is to blame for the Kosovo war, the 2008 financial crisis and the 2010 debt crisis. From China's point of view, it seems that there are only two extremes in Europe- blind adoration of the "new" EU and complete rejection of the "old" EU (Wang 2015b, p.36). China wants to change the view of the "old" EU, promotes the OBOR as a huge boost to the Sino-European economic and trade cooperation, a win-win situation with high dividends and gives the EU a leading role in the future global trade pattern. However, the EU is skeptical about China's aggressive financing policy, which could push its own member states into the debt trap (Aitzhanova 2019, p.64). Brussels must also ensure that OBOR projects do not violate EU law and the high standards of global governance, but this seems doubtful due to China's violations in terms of transparency and anti-discrimination. It is a fact that China operates in a free market on the European continent but does not allow the same on its own territory (Emerson 2019, pp.165 & 168). Brussels' fear of missing a major global trend in a new economic growth pattern, however, is just as great as the fear of heavily indebted member states, which made unequal business with China. As always, the EU is very slow in making its decisions and waits. At the same time, China implements infrastructure projects in Southeastern Europe that the EU has missed. The Balkans are currently more inclined towards Beijing than Brussels. OBOR is and shall remain a great growth opportunity for Europe with a larger Eurasian market that this time can benefit not only Western but also (South) Eastern Europe (Wang 2015a, p.103 & 107; Wang 2021 et al., p.78). Moreover, China still needs Europe as a sales market. Therefore, Western Europe must look at its own strengths and resolutely confront OBOR. On a continent where before always there was war; by community a cross-border, interregional unified and free market was created. (Li 2019, p.39). This must also be a non-negotiable requirement for OBOR. In addition, the cooperation within Europe must be strengthened. Western Europe should not wait for Southeastern Europe, but must make concrete efforts to get into the growth potential there.

China is fighting for influence in the world and directly challenging Western Europe. This is certainly legitimate, as leading industrial countries have done nothing else in the past. However, for the EU, standing back while an autocratic regime with partly questionable methods undermines the democratic and constitutional values cannot be an alternative (Rasonyi 2018). The financial and refugee crises are crises for the entire Western world. States across Europe are increasingly deviating from the previous integration path, have lost confidence in a collaborative European leadership and often have no other choice but to turn their focus to China (Li 2019, p.41). Western Europe's previous unwillingness to integrate more economically in Southeastern Europe, makes it now an exchangeable partner for the Southeastern European OBOR states (Bar 2020, p.105). Brussels must counter this resolutely.

Timo Boehm was born in 1993, in Germany. He has a B.A. in East Asian Economics and a M.A. in Regional Studies China and Business Administration. He spent nearly 1.5 years of his life in China by studying and doing internships. At the moment he is working at the University of Applied Science in Essen as a supervisor and consultant for the Sino-German School of Business & Technology. His main interests are the Chinese economic growth model and its application to other developmental states, the harmonization of International and Chinese Accounting standards and the Chinese way of doing business as seen from a Western point of view. You can find him on LinkedIn here.

The opinions expressed here are those of the writers and do not represent the views of European Guanxi.

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