10.08.2021.

How China is enabling an environmental crisis in the Balkans

Chinese investments are inflaming a health and environmental emergency in the western Balkans. Why are politicians turning a blind eye?

Touching down at Belgrade Nikola Tesla Airport around Christmas 2019 felt like flying into a smoky, shaken-up snow globe. Cosy in my window seat, I could barely see the plane’s wing. This charm, however, was quickly broken after a very forthcoming taxi driver explained to me that the “festive whiteout” was actually a toxic smog engulfing the Serbian capital.

The pollution cloud hung over the city for days, possibly weeks, and to my shock I saw many locals donning face masks (and gas masks) to fight the invisible enemy – in pre-Covid-19 times a rare sight in Europe. Conditions were particularly bad that winter, with other Balkan capitals – Sarajevo, Skopje and Pristina – joining Belgrade among the world’s top ten most polluted major cities for a while.

Pollution blights the western Balkans

Unfortunately, this was no one-off. Across the western Balkans – made up of Albania, Bosnia-Herzegovina, Croatia, Kosovo, Montenegro, North Macedonia and Serbia – annual concentrations of dangerous particulate matter are often multiple times the maximum levels allowed under EU air quality guidelines. The consequences are deadly.

Serbia is the country with the highest rate of pollution-related deaths in Europe (making it the ninth worst globally), according to the Global Alliance on Health and Pollution, while a recent UN environment report found that airborne pollutants are causing nearly 20% of premature deaths in western Balkan cities.

The Chinese started building without conducting a proper environmental impact assessment.Miljan Radunović, Serbia’s National Convention on the EU

This is nothing short of an “air pollution crisis”, says Ioana Ciută, energy coordinator at CEE Bankwatch Network, a leading environmental watchdog in central and eastern Europe.

The financial fallout is shocking too. In 2016, emissions from coal plants alone caused about 8,000 cases of bronchitis in children and 2,000 cases in adults, costing the western Balkans €3.6bn, according to a recent EU report. This is without taking into consideration other respiratory diseases and cancers caused by air pollution.

It may be no coincidence, therefore, that as of January 2021, North Macedonia and Bosnia-Herzegovina were among the world’s top six countries with the highest Covid-19 deaths per capita, while Serbia, Kosovo and Albania ranked in the top 50, according to data compiled by Statista. New research does indeed suggest a link between air pollution and a vulnerability to coronavirus.

Where coal is still king

A winter’s stroll around Belgrade is an exercise in fumigating oneself in the smoke of what is essentially an enormous open bonfire. The smell saturates your body, hair and clothes.

Like many other western Balkan cities, most homes in Belgrade still use wood-burning heaters, not least due to high levels of energy poverty. Outdated systems such as these are driving the region’s excessive air pollution, alongside ‘dirty’ industry (coal plants, mines, steel mills), much of which is located very close to large cities such as Belgrade (see map below).

Coal has been king in the western Balkans for many decades, especially in resource-rich Serbia and Bosnia-Herzegovina. In the second half of the 20th century, the two countries were the energy hubs of what was then Yugoslavia. Today, they still rely heavily on coal for the lion’s share of their electricity production.

It may come as no surprise, therefore, that the majority of the Balkan’s most polluting coal-fired power plants are located in Serbia and Bosnia-Herzegovina, and that the region’s Communist-era facilities pollute as much as the rest of Europe combined.

How does China fit into this?

Enter China. While most EU members have begun the process of phasing out coal, many parts of the western Balkans have made significant efforts to prop up the industry over the past decade, thanks largely to swathes of Chinese finance and construction. To make matters worse, the majority of projects involving China have fallen desperately short of EU environmental standards.

Chinese state-owned construction companies have been involved in five coal projects in Europe, all of which can be found in Serbia, Bosnia-Herzegovina and Montenegro. Probably the most notorious of these relates to Kostolac, Serbia’s oldest state-owned coal plant. Its new ‘B’ unit is currently being built by China Machinery Engineering Corporation (CMEC), paid for by a huge loan from Exim Bank of China. Exim also provided $608m for the expansion of Kostolac’s opencast lignite mine, once again with a sub-contract for CMEC.

[Keep up with Investment Monitor: Subscribe to our weekly newsletter]

“Kostolac is outdated, inefficient and polluting,” says Miljan Radunović, a consultant and member of Serbia’s National Convention on the EU. “The Chinese started building without conducting a proper environmental impact assessment,” he adds, all of which led Bankwatch to submit a formal complaint to the EU Energy Community.

Worse still, the construction of Kostolac’s desulphurisation mechanism – which filters pollution – was delayed by CMEC in recent years, thereby making the plant’s (highly toxic) sulphur dioxide emissions the highest of any facility in the western Balkans, and 14 times higher than global standards, according to a Bankwatch report.

Chinese funding (and in most cases construction too) has also been entrusted to the expansion of Bosnia-Herzegovina’s Stanari and Tuzla coal plants, while memorandums of understanding have been signed for three other state-owned facilities across Serbia andBosnia-Herzegovina.

Problems with air pollution were pre-existent [in Smederevo]. However, China’s takeover has exacerbated these issues to alarming levels.Tena Prelec, University of Oxford

The feasibility study for the Tuzla project, like Kostolac’s, “massively downplays” the costs of emissions and ignores many air and water pollution impacts, according to a recent reportfrom Greenpeace’s Unearthed. Is it any wonder then, that Serbia’s official data on national air pollution is accused of being unprofessional, and unreliabletoo.

“If these governments go through with the proposed expansions, it is a huge problem environmentally and politically speaking,” says Simon IIse, director of the Heinrich Böll Foundation, an agency for green visions and projects. “It takes them one step closer to being locked into a high-carbon future and, most likely, unsustainable debt, and one massive step away from EU integration.” Coal plants are designed to last for an average of 50 years.

Outside the energy sector, Chinese companies have financed and constructed other projects of environmental disrepute. As the above map shows, most of these have been in Serbia, Beijing’s staunchest European ally, a regional hub for China’s Belt and Road Initiative activity and a back door into the EU market.

Take the money, forget the environment

Chinese investors have been involved in other ‘dirty’ projects that EU companies and banks would not, or at least could not, touch.

The primary example of this is Smederevo, Serbia’s largest steelworks. Saving it from financial ruin, the mill was acquired in 2016 by China’s HBIS, which promised to transform the plant into one of Europe’s most environmentally friendly steel facilities.

“Zero improvements have been made,” says Radunović. “Alongside killer particles in the air [and red rain], you can see pictures of how vegetables and cars in the city of Smederevo are layered in toxic dust.”

Toxic-sediment-cars-Smederevo — Toxic sediment on cars near Smederevo. (Photo by Centre for Investigative Journalism of Serbia)

A recent report found that an unusually high proportion of Smederevo’s citizens have chronic obstructive pulmonary disease. Nonetheless, protests against the plant’s environmental impact,alongside deteriorating safety standards and labour rights under HBIS, have been consistently ignored by the Serbian government.

“Problems with air pollution were pre-existent [in Smederevo]. However, China’s takeover has exacerbated these issues to alarming levels,” says Tena Prelec, a research fellow at the University of Oxford’s Department of Politics and International Relations. “The Chinese have increased production capacity to levels that exceed the ability of the plants to keep pollution under control. Pledges to make plants more eco-friendly have not borne fruit yet.”

The exact same can be said of Serbia’s Bor copper mine, a decades-old state-owned facility that, after falling into major financial trouble, was bought by China’s Zijin in 2019.

The company says it will invest a total of $1.26bn into the mine to modernise it. However, an expansion proposal in late 2020 failed to conduct a proper environmental impact assessment, according to Belgrade’s Renewables and Environmental Regulatory Institute (RERI). Only a few months earlier, the City of Bor filed a criminal complaint against Zijin due to excessive air pollution.

Many governments in the western Balkans have no sense of responsibility to the future.Senada Šabić, IRMO

“Many governments in the western Balkans have no sense of responsibility to the future,” says Senada Šabić, a senior research associate at Zagreb’s Institute for Development and International Relations (IRMO). “They are ready to sign any kind of Chinese loans, or sell whatever, in order to keep some people employed. It is short-term thinking and the human and environmental cost is devastating.”

Further evidence of this is on display at Linglong tyre factory and Mei Ta automotive component facility – two Chinese investments in Serbia. Linglong’s environmental assessment study was shambolic, according to RERI, and in mid-2020 police barred activists from public discussions on the planned factory that, incidentally, will be built on land that was gifted to Linglong by Serbian authorities. Meanwhile, the already operational Mei Ta plant stands accused of dumping wastewater into the local river. In both cases, the national government stands accused of turning a blind eye.

Last but not least is the Boljare to Bar highway in Montenegro, funded and built by China. “The project made zero economic sense,” says IIse. “It is overpriced and far too large for the country’s size.” Worse still, ongoing construction has caused severe ecological damage along the Tara river, according to Unesco. For a region that remains highly agricultural and littered with open mine pits, ecological disturbances are a genuine cause for concern. Indeed, the western Balkan ecosystem is highly vulnerable to climate change, especially from droughts or floods, as seen in the 2014 cyclone that cost dozens of lives and approximately $3.8bn in damage.

The environmental impact of Chinese investment in the western Balkans is, however, gaining recognition in the EU. For example, in January 2021, a group of 26 MEPs (from 15 countries) wrote a strongly worded joint letter to the European Commission, warning of the “impending environmental damage” caused by Chinese industrial projects in Serbia.

Why China’s draw is stronger than the EU’s

Chinese investment in the western Balkans was largely non-existent before 2010. Over the past decade, however, it has run rampant along with accusations of this investment showing a remarkable disregard for public health and the environment. Who and what is to blame?

“The Chinese can play by the rules, but only if you make them do it,” argues Radunović. “Their default setting is to replicate in the non-EU parts of the Balkans what they have been doing in China, Africa, Latin America and other parts of the world where they are used to much less environmental regulation.”

This would therefore mean the responsibility falls upon the western Balkan governments to keep Chinese companies in check. In most cases, however, they have not. Rather, governments across the region, especially Serbia’s, have only reinforced their commitment to coal and hold a carte blanche attitude towards the Chinese.

The most generous explanation for this negligence might be a lack of environmental awareness. Bankwatch’s Ciută contends that many of the region’s governments, utilities and mainstream energy experts are simply ignorant of EU standards, and think that renewable energy cannot cover traditional energy supplies.

This is reflected at a grassroots level too, since climate change activism is not strong or widespread in the western Balkans – meaning there is less pressure on governments to reform. “You don’t win elections here by talking about the planet,” says Radunović. “You still win them by dividing people over who is Muslim and Christian.”

However, a bigger part of the story points to endemic corruption, not a lack of awareness. “In this region, doing business with China involves very politicised, state-to-state deals that are not made public,” says IIse. “We are talking about mafia-like public procurement and bidding structures in which party loyalists get the best cut and subcontracting opportunities.” Environmental considerations, therefore, are very much secondary at best, he adds. Clientelism and patronage networks are a particularly pervasive issue in some of Serbia’s dealings with China, as highlighted by arecent report from the Centre for Strategic Studies & International Studies (CSSIS).

Government apologists, on the other hand, argue that environmental concerns are a financial and moral luxury that only the most developed countries can afford, while for poorer authorities the priority is to meet soaring energy demands and save jobs, such as the thousands that would have been lost at Smederevo and Bor had China not stepped in (where, indeed, few others would).

“Contrary to IMF or EU loans and investment, Chinese money comes quickly and with less strict requirements or strings,” says Agnes Szunomár, assistant professor at Corvinus University of Budapest. “And for some western Balkan countries, especially Serbia, there is a feeling that the EU has turned its back on them, so why play by its rules? This is why Serbia’s economic dealings with China are also political moves, and vice versa,” she adds.

Although political barriers to the EU accession do exist – a waiting room and geopolitical balancing act that Serbia plays with aplomb – the aforementioned economic arguments are unsound. For one, the New Green Deal means that EU money for major renewable energy projects is now even more accessible for non-EU Balkan countries, says IIse. It is, therefore, hardly a ‘financial luxury’ to phase out coal plants and attract EU loans for green infrastructure. Ending high coal subsidies across the western Balkans, a policy that disincentivises decarbonisation, would help shift distorted perceptions and calculations surrounding coal’s viability.

Although the Serbian government extols Chinese investors as economic messiahs, it is worth remembering that loans from China almost always require the involvement of Chinese construction companies, labour and materials, thereby undercutting the positive spillover effects for the local economy – as highlighted by CSSIS’s report. So much for ‘saving jobs’. There is also the fact that Chinese infrastructure loans in the western Balkans (and many parts of the world) run a high risk of becoming debt traps.

It is not too late for non-EU western Balkan countries to make the strategic shift towards green infrastructure, a move that would create thousands of future-facing jobs. The medium to long-term benefits are unquestionable, both in terms of finances, public health and the environment, not to mention the path to EU integration. China is by no means an inevitable barrier to this; in fact, there is an opportunity for Beijing to help the western Balkans build much-needed EU-grade infrastructure.