CHINESE INVESTMENTS IN BIH: Lucrative deals characterized by questionable loans, non-transparency and suspicion of corruption
While Chinese investments in the countries of the European Union are decreasing year by year, in BiH investments and loans from China are growing significantly since 2019. While the EU introduces stricter investment verification rules for Chinese companies, there are almost no controls in BiH, and the Chinese are becoming one of the favorite business partners. China's interest is primarily economic, but there are claims that Chinese economic investments are closely intertwined with politics. Controversies, suspicions of corruption and favoritism, non-transparency, delays, protests by activists, failed projects... - all this characterizes Chinese projects in both entities of Bosnia and Herzegovina.
Chinese investments in the countries of the European Union and the United Kingdom have been in significant decline in recent years. According to a report by Rhodium and MERICS, in 2022 Chinese direct investment in Europe reached its lowest level in the last ten years, amounting to 7.9 billion euros, which is 83 percent less than the peak in 2016.
On the other hand, when it comes to Bosnia and Herzegovina, it is noticeable that investments and loans from China increased dramatically after 2019. According to data from the China Global Investment Tracker research, conducted by the American Enterprise Institute and the Heritage Foundation, about three billion dollars have been invested in Bosnia and Herzegovina - investments worth 610 million dollars from 2019 to 2021, and 2.44 billion Chinese loans since 2010. until 2022.
For the sake of comparison, while here Chinese investments and loans have been on a strong rise since 2019, precisely since that year the European Union has been introducing stricter investment verification rules for Chinese companies.
Chinese investments in the infrastructure of the Western Balkans are problematic in an analysis by the European Union Institute for Security Studies (EUISS). In this analysis, which is several years old, it was pointed out that Chinese investments encourage the already widespread corruption in the region, including Bosnia and Herzegovina.
Chinese investments and loans in BiH are primarily intended for the transport, energy and metal sectors. They are often accompanied by controversies, suspicions of corruption and favoritism, non-transparency, delays, activists' displeasure... and according to certain interpretations, it is more often about classic taking of loans that will be paid by taxpayers, less often classic investments. Let us also point out that certain announced Chinese projects failed.
It is important to emphasize that the Chinese do business in both entities of Bosnia and Herzegovina, and the majority of BiH. experts share the opinion that Chinese interest in our country is primarily economic. However, some also claim that Chinese economic investments are closely intertwined with politics, that is, that in this way China creates political pressure or a basis for it.
For economists, Chinese loans are particularly controversial. Why? Previous practice has shown that the Chinese require the lending countries not to disclose the terms of the loan, so in the cases of Greece and Montenegro, the public only learned later that in case of inability to repay the loan, China has the right to claim ownership or the right to use state property from these countries. .
Therefore, the biggest problem is the lack of transparency, and the public remains deprived of very important information regarding the conditions and guarantees for Chinese loans, which, according to certain opinions, even benefits domestic, mostly corrupt politicians.
NON-TRANSPARENT DEALINGS WITH SUSPICIOUS COMPANIES
When Chinese affairs in BiH are mentioned. entity Republika Srpska, the first thing that is linked to them is Vuk Hamović, Serbian electricity trader and owner of the international company EFT, and his cooperation with Chinese partners.
His investment in the Stanari Thermal Power Plant stands out, where a large part of the money is secured by a loan from the China Development Bank. Everything was followed by controversial decisions of the authorities in the RS, and according to media reports, because of this, the entity's budget was damaged by at least 100 million marks.
The project was realized by the Chinese company Dongfang Electric International Corporation (DEC), and this company appears as Hamović's partner in the Bileća solar power plant construction project, with a total value of 43.5 million euros. This project is also problematic because, as reported by journalists, Hamović was granted a concession for a solar power plant.
The media have already written about the increasingly close ties between this company and the authorities in the RS, and what is even more important is that, according to media reports, in 2015 DEC, together with five other state-owned companies, was the subject of an investigation by the main Chinese anti-corruption agency, which found that the leaders of the company received bribes, and accusations about the political connections of this company also came from other companies in connection with allegedly rigged tenders in the Republic of South Africa.
How secretive and non-transparent Chinese affairs can be is the construction project of the Dabar Hydroelectric Plant, which the Journal has already written about.
Let us briefly repeat that this is an idea that is several decades old, and it was decided that the project will be financed with Chinese loans, and that Chinese companies will work on the construction. In 2016, the Chinese company China Gezhouba Group Corporation (CGGC) won a tender worth 131 million marks.
The entire project was plagued by delays and lack of transparency from the beginning. Since 2019, the authorities in Republika Srpska have been announcing the arrival of Chinese workers and the start of work, but this did not happen until the end of April 2023, when Žurnal journalists visited the construction sites. Even the prime minister of this entity, Radovan Višković, was on an official visit to China at the beginning of April, where, among other things, he negotiated ways to finance the construction of the Dabar HPP.
Another example of absolute non-transparency is the construction of the Banja Luka - Prijedor highway. The highway, which is about forty kilometers long and worth about 297 million euros, is being built by the Chinese company Shandong Hi-Speed International (SDHS).
However, despite a series of requests, and the fact that it is a matter of public interest, the details of the concluded contract between the RS Government and this company were never presented to the public. What is known, and what Prime Minister Višković has already said, is that the concession contract was signed in mid-December 2018, and that the RS will pay an annual fee for highway availability of 30 million marks.
In addition to the fact that the contract was drawn up in favor of Chinese investors, journalists warned of other dubious details, one of which is that the Government of the RS bought and then sold land to a Chinese company through which a new highway will be built. The public, again, was not informed of the details of the land transactions.
Here is another example - in 2014, Autoputevi RS signed a preliminary agreement with the Chinese state company Sinohydro Corporation Limited on the construction of the Banja Luka-Mlinište highway. A commercial contract was also signed, everything was supposed to be financed by the Chinese Exim Bank, but to date there has been no serious progress in the realization of that project. Of course, the public was again denied the details of the project.
The work worth 102 million euros for the construction of three small hydroelectric power plants on the Bistrica river has been entrusted to the Chinese National Aero-Technological Corporation for International Engineering (AVIC-ENG), and the investor is the company Hidroelektrane na Bistrica, or Elektroprivreda RS.
According to media reports, this company is on the list of those in which American citizens and companies are prohibited from investing, and the project itself to build hydroelectric power plants in Bistrica is also controversial from an environmental point of view. Namely, activists and locals claim that, for example, the zero state of the environment has not been adequately determined, which means that even the environmental impact studies, approved by the ministry, are not adequate and in accordance with the law.
Due to the construction of hydropower plants, as stated, a total of six lawsuits were filed in the administrative dispute - three against environmental impact studies, and three against construction permits for these projects. According to the latest information, one lawsuit against building permits has been approved.
Cooperation with the Chinese should rise to an even higher level in the coming period, because the Government of the RS recently made a decision to establish a representative office of this entity in China. "The Representation of the Republic of Srpska in the People's Republic of China, with headquarters in Shanghai, is being established," stated the decision signed by Prime Minister Radovan Višković.
Clearly, it is noticeable that the authorities of this BiH entities are increasingly turning to China, and according to economist Svetlana Cenić, the reason is simple - lack of money:
"They turn to anyone from whom they could get money, and on the other hand, China is an excellent blackmail for them to the West to say "here we behave the way we behave, we hurt everyone's ears, we insult, we block, but give us money". It's a great currency to say "if you don't give", it's the West, "here we go to the Chinese".
FAILED ENERGY PROJECTS
Chinese loans and investments are also acceptable to the authorities of the other BiH. entities, as well as cantonal authorities.
An example from the capital shows that lack of transparency when it comes to projects in which Chinese companies participate is not a coincidence. Namely, the Ministry of Transport of the Sarajevo Canton marked secret a contract worth more than 40 million marks for the reconstruction of the tram line in Sarajevo, it was announced in the middle of 2022.
Let us remind you that in June 2021, the Sarajevo Canton Government awarded a contract worth EUR 20.4 million to a consortium of Chinese companies - China Shandong International Economic & Technical Cooperation Group (Shandong) and China Railway No.10 Engineering Group Co. (CREC 10). To make matters worse, CREC was involved in a series of accidents that resulted in the injury or death of workers!
They also have experience in doing business with the Chinese in Elektroprivreda BiH. Let's just recall the construction project of Block 7 in the Tuzla Thermal Power Plant, which has been practically on hold for 17 years and which many claim has failed a long time ago. The construction work was to be realized with a consortium of Chinese companies China Gezhouba Group (CGGC) and China Energy Engineering Group, Guangdong Electric Power Design Institute (GEDI).
From the very beginning, it was hinted that the project would not be completed. The Government of FBiH and Elektroprivreda BiH did not want to give up even when they were warned by the European Union that the construction of Block 7 in Tuzla is not an economically and ecologically sustainable project. It did not give up even when key subcontractor General Electric pulled out in October 2020, and no alternative solution was found. Moreover, Elektroprivreda BiH based its business plan for the period 2023-2025 on this investment.
How big this project is is best shown by the figures. The total estimated value was about 786.3 million euros, and the main source of financing was supposed to be a loan of 614 million euros from the Export-Import (EXIM) Bank of China, whose guarantor is the Government of FBiH.
This guarantee was interpreted by some, such as the Energy Community, as illegal state aid because, as it was stated, the FBiH Government put Elektroprivreda BiH in a more favorable position compared to other participants who would be engaged in the same business.
The biggest problem is that Elektroprivreda has already spent approx. 300 million marks, of which 214 million were paid in advance to the Chinese consortium. In spite of everything, neither Elektroprivreda BiH nor the Chinese side formally gave up on the project, probably due to fear of lawsuits, so Block 7 became a "trapped project".
If there is no Block 7, there is the revitalization of Block 6, and there are also Chinese companies that are obviously very interested in energy projects in Bosnia and Herzegovina. Namely, not so long ago, the EP BiH awarded the job of revitalizing the boiler of block 6 worth 29.7 million marks to the Bosnian-Chinese consortium consisting of ITC from Zenica, the previously mentioned disputed company DEC, and Dongfang Boiler.
DEC, which faced accusations of corruption and rigged tenders, was also chosen as a strategic partner in the construction of a thermal power plant in Banovići with a capacity of 350 MW. However, this investment worth 405 million euros, which was supposed to be financed with Chinese loans, was stopped due to political turmoil within the SDA.
The famous project for the construction of the Zenica Thermal Power Plant, worth 500 million KM, which was supposed to bring in Chinese investors in a 2013 contract, and which was supposed to be one of the first Chinese investments in BiH, also failed.
Recently, the Chinese have become interested in other projects as well. Thus, it was announced that the Chinese massively process and export timber from BiH, and that at least three sawmills in the area of Brčko and Pelagićevo have been leased by Chinese citizens and they cut the timber and pack it in containers for further export, i.e. sending it to the home country. The ban on the export of logs is circumvented by slotting and export of timber.
Information from the beginning of the year indicates that the Service for Affairs with Foreigners of Bosnia and Herzegovina has granted 377 permanent residence permits and 1,498 temporary residence permits to Chinese citizens in the last five years, of which as many as 413 were approved last year alone.
And while, let's repeat, in the European Union since 2019 stricter rules for checking investments for Chinese companies apply, in Bosnia and Herzegovina some other rules obviously apply. Data from January show that in the last five years, inspectors from the RS controlled only one Chinese company in the entity, and the only drawback was the lack of an Act on risk assessment for workplaces.