Chinese presence is increasing in Montenegro and the region: Roads lead to the "heart of Europe"

The war in Ukraine destroyed the arm of the Belt and Road Initiative, so Southeast Europe is emerging as a potential alternative corridor to European markets, says Vuk Vuksanović.

Despite the significant economic presence in the entire Balkans, Chinese influence is limited due to the lack of strong political support, with the exception of Serbia, according to Marko Banović.

China's engagement in the Balkans is motivated by the desire to penetrate the European Union market, and a significant number of infrastructure projects in which Chinese companies participate testify to the strengthening of its presence in Montenegro, according to the interlocutors of "Vijesti".

They recall the Chinese initiative Belt and Road Initiative (BRI), which is a policy and investment program aimed at developing infrastructure and accelerating the economic integration of countries along the route of the historical Silk Road, with a focus on the countries of Asia, East Africa, Eastern Europe and the Middle East. The goal of the Maritime Silk Road is to connect China with Southeast Asia, Indonesia, India, the Arabian Peninsula, Somalia, Egypt and Europe via the sea.

Senior researcher at the Belgrade Center for Security Policy, Vuk Vuksanović, says that after the war in Ukraine destroyed the arm of the Belt and Road Initiative, which was supposed to connect China with Europe via Russia, Ukraine and Belarus, Southeast Europe is emerging as a potential alternative corridor to European markets.

“China sees the Balkans as a link between Europe, which is a large market for China, and wider Eurasia, due to the proximity of the Balkan Peninsula to the Middle East, Turkey and Africa,” Vuksanović told “Vijesti”.

Digital Forensic Center (DFC) analyst Marko Banović assessed that Montenegro and the wider Balkan region represent an important geopolitical point for China, as they enable the economic and potentially political expansion of its influence towards the heart of Europe.

“Despite its significant economic presence throughout the Balkans, Chinese influence is currently limited due to the lack of strong political support. The exception is Serbia, where the ruling structures and media close to them represent an important lever in expanding Beijing’s influence,” Banović told “Vijesti”.

He recalls that Chinese infrastructure projects offer favorable credit arrangements and relatively fast construction, which is why Chinese companies often manage to stay ahead of the competition.

In Montenegro, Chinese companies have won significant state contracts, such as the ecological reconstruction of the Pljevlja Thermal Power Plant worth 60 million euros. The contract was awarded to a consortium led by China's DEC International.

China's Shandong won the contract to build the Tivat-Jaz boulevard, worth 54 million. A tender for a new section of the Bar-Boljare highway is also underway, for which several Chinese companies have applied.

The start of construction of the highway, namely its priority section Smokovac-Mateševo, has brought a stronger Chinese presence in Montenegro, which is why warnings are still coming from several international addresses today.

Not only did the Chinese company CRBC (China Road and Bridge Corporation) get the job, but at the end of 2014, a loan of $943.99 million was taken from the Chinese Exim Bank with a grace period of six years and a repayment period of 14 years. Repayment of the principal began in 2021, which is why the Government sought help from the EU to refinance the Chinese loan

At the beginning of the year, the Ministry of Finance concluded a hedging arrangement with four banks for a loan from the Exim Bank. The hedging was concluded until the end of the loan repayment, until 2035, with a review of the conditions after two years. After the hedging, Montenegro pays the loan in euros at an interest rate of 0.98 percent, while previously it paid it in dollars at an interest rate of two percent. This is the second time that hedging has been done and so far only one of the seven installments paid has been paid in dollars, the Ministry of Finance said earlier.

The Chinese loan has increased the national debt to more than 70 percent of gross domestic product (GDP), which has led to warnings from domestic and foreign experts that Montenegro is entering “debt slavery.”

In addition, the contract with Exim Bank states that Montenegro “waives immunity based on sovereignty or otherwise for itself or its property, except for property related to diplomatic and consular missions and military property, in connection with any arbitration proceedings pursuant to the contract.” The arbitration is in Beijing.

It is also defined that the Chinese can stop paying the loan or immediately demand payment of the principal and interest “without further requests, notices or other legal formalities,” if, among other things, Montenegro does not pay the principal, interest to Exim Bank or “to its creditors in general,” who have no connection with the Chinese.

Experts have warned that such a clause in a loan agreement creates the possibility of a dependency relationship and that a similar scenario occurred in Sri Lanka, which failed to repay its debt and gave 85 percent of the Hambantota port to Chinese companies for 99 years without management fees.

In its 2020 report “Nations in Transit,” Freedom House states that China uses weak and corrupt systems to expand its influence in foreign countries through a strategy of debt diplomacy, in which an economically more powerful country provides huge loans to developing countries, which makes these countries credit-burdened and exposed to its influence.

The first major business arrangement between China and Montenegro was the procurement of ships for the Montenegrin and Bar Shipping Companies. Between 2010 and 2013, the government issued state guarantees of $93.7 million to Chinese companies for the procurement of four ships. The ships were built by the Chinese company Poly Technologies, and the loan was provided by the Chinese Exim Bank.

According to the Ministry of Finance, Montenegro’s total external debt at the end of September amounted to more than 4.4 billion euros, or 55 percent of GDP.

Of this, the debt to the Chinese Exim Bank is $633.58 million, or 8.5 percent of the total.

They support EU integration of the region

Banović emphasizes that China, unlike Russia, does not oppose the membership of Montenegro and other Western Balkan countries in the EU, but Chinese officials even emphasize their support for the European integration of the region.

“It is important for China to gain a stronger foothold in the region, which is strategically important as a link to the EU market. However, it should be borne in mind that Chinese investments and loans often follow non-transparent procedures, which in countries with weak and politicized institutions opens up space for corruption. Such a course of action can slow down the fulfillment of EU standards and jeopardize European integration,” said Banović.

He points out that China's presence in the Balkans has been rapidly strengthening over the past decade, mostly through infrastructure projects (roads, railways, energy plants) that create a strategic connection between the region and China's Belt and Road Initiative, as well as favorable credit arrangements and media, educational and cultural initiatives.

He explains that favorable credit arrangements imply that Chinese banks offer loans with terms that are often competitive with Western sources of financing, which makes it easier for developing countries to accept such offers.

"Chinese cultural centers, scholarships for students from the region, support for media content and information exchange are tools of 'soft power' that further strengthen China's image and influence," said Banović.

As he reminds us, a number of infrastructure and industrial projects are being implemented in Serbia, and political cooperation with China is intensive and at the highest level.

“Also, Serbia is one of the few countries that has signed a trade agreement with China. It is important to emphasize that China is expanding its influence in other countries of the region through Serbia,” Banović said.

Vuk Vuksanović says that Serbia is at the very center of Chinese interest in the Balkans due to its strategic geography and status as a candidate for EU membership, as Beijing believes that if a practice succeeds in Serbia, it can be reproduced first among Serbia’s neighbors, and then among EU countries.

“This logic is present in infrastructure, defense industry, high technology, defense and pharmaceutical sectors. Green technologies will potentially be added to that list,” he said.

This only shows that China, as he says, unlike, for example, Russia, would be in favor of a country like Montenegro joining the EU.

“If the countries of the region do not join the EU, China is not harmed, but if they do, it benefits, since their engagement in the Balkans is motivated by the desire to penetrate the EU market,” said Vuksanović.

Not a significant investor, but a trading partner

China is not a significant investor in Montenegro, and a significant inflow from that country was recorded in 2020.

According to data from the Central Bank of Montenegro, from 2006 to the end of 2019, investments from China amounted to around ten million euros, and in 2020 they jumped to 71.2 million euros

After that, investments from China fell again, so in 2021 they were 6,438,000 euros, and in 2022 they were 882 thousand. No significant investment inflow from China was recorded last year.

China, on the other hand, is one of Montenegro's largest foreign trade partners, right after Serbia.

According to Monstat data, the largest foreign trade partners in imports last year were Serbia (trade of 661.7 million euros), China (424.7 million euros) and Germany (368.2 million euros)

According to data obtained by “Vijesti” from the Central Register of Business Entities (CRPS), the number of active companies in which legal or natural persons from China are shareholders/founders is 235

According to the last census from 2023, 59 Chinese citizens were recorded as having their usual place of residence in Montenegro, Monstat told “Vijesti”.

The usual place of residence is, as they explained, the place where a person usually spends the day, regardless of temporary absence for reasons of recreation, vacation, due to medical treatment... as well as the place where a person resides continuously, for at least a year before the reference point of the census or has arrived at the usual place of residence during the 12 months before the reference point of the census with the intention of staying there for at least a year

66 percent of Montenegrin citizens see China in a positive context, while 88 percent in Serbia

A regional public opinion poll conducted by the International Republican Institute (IRI) showed that 66 percent of Montenegrin citizens see China in a positive context, while in Serbia the percentage is 88 percent, Nova ekonomija published

30 percent of Montenegrin citizens said that they were aware of Chinese investments in the country, but within that percentage, 66 percent of them mentioned the Bar-Boljare highway construction project.

Almost a third of Montenegrin citizens think that economic benefit is the goal of economic cooperation, only a few percent more believe that it comes with political demands, and almost a fifth believe that the goal of investment is to expand influence and gain control over certain elements of the state.

When it comes to the role of the media in creating perceptions about China, the country is not an everyday topic in the Montenegrin media and is not on the agenda as often as in Serbia.

“The country has also clearly defined its Euro-Atlantic orientation, and is a member of the NATO alliance. Finally, it is obvious that a certain percentage of citizens have not forgotten the problems the country got into due to a loan that came due in a very complex period of time, and put Montenegro in a situation where it had to seek help and ways to resolve the debt crisis on the international stage,” the research states.

According to the research, from September to October 2024, only two reports on China were broadcast on the Montenegrin public service RTCG, compared to a larger number of reports on private channels, such as Nova M and Prva.

“However, the topic of China remains peripheral in the Montenegrin media, with only nine out of 24 reports fully dedicated to this topic,” the research states.

Coverage of topics mentioning China in the Montenegrin media was broader, encompassing international topics such as China’s relations with North Korea, Taiwan, and the European Union. Reports on China’s role at the BRICS summit and its role in proposing a solution to the war in Ukraine were significant parts of the coverage.

“Compared to Serbia, media coverage in Montenegro remained neutral, with 70.1 percent of reports being moderate in tone, and China’s leadership, including President Xi Jinping, being portrayed favorably, but only briefly,” the report says.

CONCLUSION

The text analyzes China's presence primarily in Montenegro, but also in Serbia. China is present in Montenegro, as in most other countries of the Western Balkans, primarily through the economy, that is, lending to infrastructure projects, and to a lesser extent through investments. When it comes to infrastructure projects, parts of the contract that are very unfavorable for the Montenegrin state are also mentioned here - for example, arbitration maintains in China, and not before international arbitration courts, the possibility of taking over the property of the state of Montenegro in the event of inability to

repay the loan (such a danger already threatened when Montenegro was unable to pay the installment of the loan for the Bar Boljare highway).

In addition to the economy, China continues to expand its influence in Montenegro, and especially in Serbia, through "soft power", that is, through cultural, media, and educational cooperation. However, China's ultimate goal is to get closer to the countries of the European Union and expand its geopolitical influence in the world.

China is also an increasingly important trading partner of Montenegro and Serbia, with trade being very unfavorable for both countries, both in terms of total value and content (high value-added products are usually imported from China, while raw materials are mainly exported from Montenegro and, especially, Serbia).

The content of this analysis should serve as an alarm for governments in the Western Balkans to be extra cautious and to further review Chinese loans and investments, and especially the conditions under which loans are granted, or investments are made, in the Western Balkans.