Chinese Influence in the Western Balkans and Its Impact on the Region’s European Union Integration Process
This regional platform brings together a very diverse group of countries, 11 European Union (EU) countries and 5 non-EU, from the Baltics to the Balkans. Concentrated on trade, investment, and transportation networks, 16+1 supports Beijing’s diversified strategy in Europe by allowing it to focus capital investments for strategic assets and new technologies in the core EU countries, complemented by large infrastructure projects on its periphery.
The geo-strategic position of the Western Balkans is perfect as a bridgehead to EU markets, and a key transit corridor for the Chinese BRI. Chinese interests in the region are strongly related to infrastructure projects and privatization opportunities, where demand for preferential lending is high and acquisition prices are low. Beijing is also searching for new markets to expand its exports and strategic assets in the front yard of the EU, and Chinese companies are securing access to natural resources and focusing on strategic sectors such as energy, mining, and mineral processing. Beijing wants to increase its influence and deepen its economic, cultural and diplomatic presence in a region that is geo-strategically important because of its proximity with the EU, but also as a counterbalance to the region’s transatlantic relationship.[1]
A short historical background
China is not a newcomer in the Western Balkans. While diplomatic, economic and cultural ties with Beijing have existed for decades for Albania and the countries of the former Yugoslavia, activities in recent years have shown that China is laying the groundwork for a long-term, multi-faceted, and ever-deeper presence in the Western Balkans. In its narrative, Beijing aims at highlighting the shared socialist past towards the Western Balkans, using the existence of some degree of post-communist nostalgia in the Balkans, focusing on “traditional friendship” and a “shared past”.
Diplomatic relations between China and Albania officially began in 1949, and grew stronger based on the shared communist ideology. The split of Enver Hoxha’s led communist Albania with the Soviet Union in the early 1960s, opened the way for a stronger and exclusive relationship with Mao Zedong’s China. Those years were characterized by a multi-domain cooperation between the two countries, as Beijing became the key supporter of an isolated Albania, providing large loans for the heavy industry and the military industry, with big arsenals of arms and ammunitions. An important agreement was signed in 1961, where China pledged technical support to Albania for building of industrial plants and factories (chemical, food, clothing, construction materials, and steel mills). Trade volume between the two countries increased as Albania would export raw materials (oil, chrome, and copper) and mainly import industrial products and pharmaceuticals. Strong cultural links were developed during the two decades of intensive friendship, until the relationship fell apart in 1978 due to ideological disputes. Albania isolated itself further from the rest of the world until 1991, and the relationship with China never have reached that past high level.
The Sino-Yugoslav diplomatic relationship, although at good levels during the 1960s and the 1970s, became closer after the breakup between Beijing and Tirana. In 1977, Yugoslavia’s President Josip Broz Tito visited China for the first time, followed by a return visit of Chinese Prime Minister Hua Guofeng to Belgrade in 1978. Ties were strengthened in the mid-1990s, when the isolated former President, Slobodan Milosevic, found an ally in faraway China, and opened the door for the first Chinese migrants in Serbia. The alliance was further forged politically during the NATO bombing of Serbia in 1999, when a bomb part destroyed the Chinese embassy in Belgrade, killing three Chinese citizens inside it. Today, China is considered a strategic partner for Serbia, and the latter has become the biggest beneficiary of Chinese investments in South-Eastern Europe.
Trade between China and the Western Balkans: Higher deficits for the region
China looks at the region primarily as a market for its own exports and as a large window into Western European markets. The Western Balkans market is a small one, where all six countries represent less than 18 million consumers, with a total Gross Domestic Product of $132 billion in 2021, where Serbia makes up almost 50% of the regional market. The entire regional market represents less than 1% of the European market of $17 trillion.[2] In the last 30 years, the economies of the region have experienced high growth rates allowing some sort of convergence with the EU countries, but incomes per capita are very low compared to European standards, with only $7,200 as a regional average, representing less than 15% of the average EU incomes, in current prices (EU GDP per capita $48,750 in 2021).
As countries are falling into the “middle income trap”, the regional convergence with Europe has stalled (regional economic expansion will be 3,7% in 2022-2023), implying that it would take at least 20 years for the Western Balkans on average to double its income, and more than 50 years to catch up with the European average. The dire economic situation is a result of un-friendly business environment characterized by weak institutions and the rule of law, high levels of corruption, and the very limited role of innovation – all factors contributing significantly to the low competitiveness of the region (lowest rankings in institutions and innovation capabilities), shown by the Global Competitiveness Report.[3] Unfortunately, small and fragmented markets, coupled with a harsh business environment, cannot repay costly innovation investments, stymying any significant modernization.[4]
Economic convergence with the West has stalled as a result of non-sustainable economic growth rates, and a triple dip economic recession since the 2008-2009 global financial crisis (Figure 1 and 2). The economies of the Western Balkans were not functioning well before the pandemic. At first sight, most countries have shown moderate growth trends in the past two decades but these are not normal balanced economies. Much of the positivity has been buoyed by a blend of remittances from its expatriate workers, citizens working within well-entrenched informal economies, and more recently, an added dimension of a growing amount of money laundering that is propping up real estate prices and artificially inflating property prices.