NIN RESEARCHES How Chinese companies do business in Serbia: The high price of "steel friendship"

 

How these relations will develop further is just another unknown in the already too-secret relationship, especially with Beijing, whose companies are participants and contractors of projects of national importance. There is no precise information publicly available on how much the “steel friendship” really costs, but NIN investigated how much some of the often-mentioned Chinese companies earn in Serbia.

 

According to the latest data from the American Enterprise Institute, which monitors investments, the value of Chinese investments and construction projects abroad has exceeded 2.5 trillion dollars since 2005. America, it is said, continues to show reservations towards Chinese investments, while in the Western world, Great Britain is among the leading countries in accepting them. The China Global Investment Tracker is the only comprehensive publicly available data set covering Chinese investments and construction projects abroad, documented both separately and together. It contains over 4,600 large transactions in the areas of transport, metallurgy, real estate, agriculture and other sectors (including 400 problematic transactions). According to data tracking by the American Enterprise Institute, $20 billion of Chinese money has been invested in Serbia for investment and construction since 2013. However, Chinese investments are not really investments, because, to put it simply, the money is returned to them through loans and state-owned companies whose branches in Serbia carry out work.

 

The most frequently mentioned Chinese companies recently are CRIC and CCCC, or China Railway International Co. Ltd and China Communications Construction Company Ltd. This consortium was awarded the job of reconstructing and modernizing the Belgrade Center - Stara Pazova and Novi Sad - Subotica sections of the Belgrade - Subotica high-speed railway, which also includes the reconstruction of the Novi Sad Railway Station, where 15 people lost their lives and two were seriously injured on November 1st due to the collapse of a canopy.

 

There are seven companies under the name China Railway in Serbia. The best performing company is China Railway International Co. Ltd, which was founded in Serbia in May 2017. According to the latest data for 2023, this company generated 585,403,115 euros in Serbia, which is an increase of 111 percent compared to the previous year. Net profit is just over 39 million euros (an increase of 92 percent compared to the previous year).

Imports from China

The Chinese company is registered for the construction of railways and subways. According to the data, China Railway International Co. Ltd has a multi-million dollar profit, so in the last few years the company earned the least in 2022, when its income was just over 20 million euros. The representative of the Serbian branch is Fengran Qi (44). The company imports most often from China, but it was not possible to check what. The logical assumption is that it is material for its activities. According to the data we have obtained, China Railway International Co. Ltd imported goods from China worth almost 30 million euros in 2024, and in 2023 also from China, and with minor exceptions from Poland and Hong Kong, imports amounted to as much as 125,339,015 euros.

The allegations that they have no participation in any tender are not limited to this Chinese company. Another proverbial rule for Chinese business is that both this and other Chinese-owned companies have a handful of lawsuits. Several dozen court proceedings were initiated by private individuals and domestic companies. Specifically, China Railway International Co.Ltd has been sued 22 times since 2021, and the value claimed is almost 73 million dinars or almost 624,000 euros. According to the data, four disputes have been negatively resolved so far, and the company was supposed to pay about 39 million dinars.

The other company in the consortium is a branch of China Communications Construction Company Ltd. This company also has no publicly recorded tenders, no contracts. And there are lawsuits galore. They have been sued in 69 cases for a total of almost 154 million dinars, while CCCC has sued four times for a total value of 200,000 dinars.

CCCC is majority state-owned and one of the world's largest companies. When it comes to the Serbian branch of the company, it is considered "the most serious Chinese company". However, CCCC was blacklisted by the World Bank because they were accused of allegedly fraudulent bidding in the Philippines in connection with the construction of a highway. The World Bank's financing ban lasted until 2017, a total of eight years. A year later, Malaysia halted two railway projects due to suspicion of corruption, and they were also accused of corruption in Bangladesh. They were accused of mistreatment of workers in Kenya, and due to their participation in the construction of islands for the Chinese military, the US Bureau of Industry and Security in the Department of Commerce placed several CCCC subsidiaries on the list of those with whom business is restricted in 2020.

In Serbia, the turnover and profit of this Chinese branch are down in 2023 compared to the previous year. It is noticeable that this company has a large turnover, but its income is disproportionately lower. Thus, with a turnover of 127 million euros, they had a net profit of “only” 233,994 euros. The representative of this branch of the foreign company is Yang Dong (46). However, his management value is considerable. This Chinese citizen is currently the representative of another company that is getting jobs, China road and bridge corporation (CRBC Serbia). This company, unlike China Communications Construction Company Ltd, has a revenue growth of 137 percent and this is almost 267 million euros in money, and a net profit of almost 43 million euros.

 

Both of these companies together had a turnover in 2022 of almost 290 million euros, and a year earlier of 212 million euros.

The answer to the question of whether one company gets the job and the other is a subcontractor, and how and whether the money is transferred, is a complete mystery due to the secrecy of all contracts.

 

Secret contracts

It goes without saying that contracts with the Chinese are secret. By researching Chinese companies in Serbia, we found two for which we have basic data on the tenders they won. However, this is solely because they were in a consortium with domestic companies.

 

China Road and Bridge Corporation (CRBC Serbia) is one of the two companies for which we found basic data on the tender in which the company participated. One tender! In this case, the Chinese were in a group with nine partners who are domestic companies. The contract was concluded in the last days of last year, and the value of the construction works obtained in an open procedure is 4,246,996,472 dinars. The client is the Ministry of Construction, Transport and Infrastructure, and the job is the expansion of the capacity of the Prahovo port.

 

At the same time, this company is perhaps the champion among Chinese branches in Serbia in the number of different lawsuits. We counted a total of 186. In relation to the multi-million lawsuits against the company, of almost 118 million dinars, the Chinese sued in two cases, totaling 10,000 dinars. And China Road and Bridge Corporation imported most often from China, during 2023 worth almost ten million euros, and last year almost 17 million euros. This state-owned company also has a subsidiary in Serbia that is also engaged in projects - "Mega Infrastructure doo". The main activity is the construction of roads and highways. The turnover in 2023 was just over eight million euros.

 

Contracts with Chinese companies are concluded on the basis of an intergovernmental agreement between Serbia and China. And this means that there is no obligation to announce a tender, there is no selection of the best bidder, but everything is done by direct negotiation. Although it is not popular among state officials and directors of public companies to criticize their ironclad friends or to share any information, one of them briefly explained to NIN what it looks like to make deals with the Chinese:

“The Chinese negotiate by setting the price themselves. They have a blackmailing attitude and it is usually difficult to get their figure. If they succeed, it is not a huge amount compared to what they are asking for,” says our interlocutor.

 

In such direct business deals, the Chinese also practice choosing subcontractors or part of them. So, everything is the opposite of usual deals where the amount and subcontractors are known in advance. Among the subcontractors are often companies from Shandong province, with which friendly protocols have been signed. Several companies operate in Serbia whose names begin with Shandong, the names are usually long and often only one word is different from the other company. One of them is Shandong Luqiao Group Co Ltd. The branch in our region recorded a turnover growth of 197 percent during 2023 - 143,001,919 euros. The profit made is almost 2.9 million euros. This company has strange phenomena for the layman, so in 2021, turnover was zero, and the company operated with a deficit of seven million euros. In just one year, the following 2022, turnover jumped to 48 million, and the loss in profit to 20 million.

 

Shandong Luqiao Group Co Ltd was founded in January 2021 and was initially registered for the construction of residential and non-residential buildings, and then reoriented to a new activity - the construction of roads and highways.

 

A branch of China Shandong international economic and technical cooperation group Ltd. came to us from Shandong with the activity of building roads and highways. The company was registered in Serbia in August 2021. According to the data, this company is in charge of the Požarevac - Golubac expressway (Danube Corridor). As some media reported, it has announced a tender for the construction of 16 bridges and five box culverts on this road. According to data that NIN has had access to, ten requests have been submitted for the issuance of location conditions, which is the highest percentage among the permits requested by this company.

 

In percentage terms, the Chinese company that increased its earnings the most is this one, by 29,914 percent. Net earnings of 10 million euros were collected, and revenue of almost 89 million euros. Among the usually scanty data on Chinese companies, we also find that China Shandong international economic and Technical cooperation group Ltd. has a pledge with a bank in Serbia in the amount of 4.5 billion dinars. However, there is no publicly available tender.

 

A company with only losses

The representative of this branch, Xuxian Chang (39), is a rare Chinese citizen who is the director of two companies founded in Serbia: “Empiret”, which generated 1.9 million euros in revenue in 2023, and four million euros the year before, and “Everston”, which has no revenue and is making losses, for example, of 380,000 euros. The parent company, however, is not the company in which Xuxian Chang is the branch representative, but another one from Shandong - Shandong foreign economic and technical cooperation.

 

An interesting Chinese company is China civil engineering construction corporation Balkan, Belgrade branch, founded in January 2017. This branch operates exclusively with multi-million losses. And it survives. The turnover, however, is at an enviable level, so in 2023 it increased by 180 percent and amounted to over 216 million euros. The loss is almost ten million euros. And a year earlier, the turnover was 77 million euros, and the losses were around three million. Zero revenue in 2021 with a loss of 3.6 million euros. This company is registered for the construction of railways and subways. It is the second in a row that has the outlines of a tender with a domestic company. The contract was signed in September last year, and the value is 334,398,380 dinars excluding VAT for the renovation of track capacities in the freight section of Bor station. The company has been sued for a total of 345 million dinars in 27 different disputes. This Chinese branch also imported mainly from China, last year worth six million euros, and in 2023 almost 18 million euros.

 

The fact is that wherever the Chinese do business, they insist on secrecy, and when they need to provide answers, of course, they invoke the confidentiality of the contract. The fact is that business is done with the Chinese based on an interstate agreement that has a stronger force than domestic regulations. Likewise, when the question of who is responsible for such an agreement is raised, one government shifts the burden to the other. It is true that the first agreement was initiated when the Democratic Party was in power, but it was also amended several times during the current government, starting in 2013.

 

The current situation is that working with Chinese companies “is not subject to the obligation to announce a public tender for the performance of investment works and the delivery of goods and services, unless otherwise specified in the commercial contract”, and in order for a commercial contract to be published, the Chinese must agree, which is practically not the case anywhere. The practice when doing business with the Chinese is that the initially agreed price in the contract is later increased by annexes.

 

Economic cooperation with China also has its political background. For Serbia, support over Kosovo, for China - proximity to Europe. And that seems to be the only transparent item in this business.

 

 

The business of Chinese companies in the Western Balkans is often the subject of analysis by the media and experts. Chinese creditors and investors are present in most Western Balkan countries, but they are most present in Serbia. The text analyzes Chinese companies present in Serbia, and mainly analyzes companies working on infrastructure projects.

Again, the key problem is the lack of transparency of contracts signed by the Serbian authorities with Chinese companies. A special problem is the lack of public tenders, based on which it would be known that the most favorable bidder was selected, as well as the price of the works. In addition, the problem is the fact that the work of Chinese companies in Serbia is accompanied by a large number of lawsuits, due to violations of contracts or legal provisions.

Although the Serbian authorities publicly proclaim an “iron friendship” with China, based on media reports and warnings from non-governmental organizations, the price of that friendship is quite high. And its true extent will be known when one day the contracts signed with Chinese creditors see the light of day.

For now, there has been no adequate response from the authorities in Serbia to warnings about the lack of transparency in the work of Chinese companies, and this is also the practice in other Western Balkan countries.