CONTROVERSIAL CHINESE INFRASTRUCTURE INVESTMENTS
Doing business with Chinese companies on the basis of an interstate agreement, which has greater legal force than any national law, literally means that Chinese companies have a privileged position on the Serbian market and that every business deal takes place behind the scenes, without conducting a tender procedure, public procurement process, no market competition of interested parties and healthy competition, and all under the conditions dictated by Chinese companies.
Today, Chinese companies are on the list of seven of the ten largest construction companies in the world. They are globally present everywhere, especially in developing countries, such as the Republic of Serbia. The obvious reason for this is that countries need developed infrastructure. However, states often do not realistically assess their financial capabilities to conclude such projects. Although the country is getting the infrastructure it wanted, it is necessary to emphasize the negative dimension of Chinese infrastructure investment. Inadequate assessment for the financing of such infrastructure projects, ie exceeding the solvency of the state to credit such projects, can lead to over-indebtedness of the state and serious debt slavery.
Projects financed by the People's Republic of China are usually in the form of loans, and large borrowing can lead small countries to a serious debt crisis. Instead of influencing economic growth with large infrastructural projects, in the long term small countries can threaten financial stability and future development potential. As an example, we single out Montenegro, which, due to the construction of the first part of the highway from Bar to the border with Serbia, had to borrow 800,000,000 US dollars from the Chinese Exim Bank (Exim Bank of China), which increased its external debt to 80% of GDP. , while the People's Republic of China became the largest Montenegrin creditor with the right to 39% of Montenegrin debt. Borrowing from Chinese banks can create a relationship of dependence in relation to the creditor's country.
However, Montenegro is not an isolated case. According to the assessment of the Center for Global Development (Center for Global Development London), a total of ten countries have been listed that have a serious risk of repaying Chinese loans (Malaysia, Maldives, Mongolia, Djibouti, Sri Lanka, Laos, Kyrgyzstan, Pakistan, Tajikistan). There is a certain apprehension that the People's Republic of China, in the event of the inability of indebted countries to service their debt, will convert its claims against them into capital, that is, it may become a (co)owner of important strategic facilities of indebted countries. This scenario was recorded in the Horn of Africa, when, due to the inability to service loans, the People's Republic of China opened its first overseas military base in Djibouti.
What implications can arise from Serbia's cooperation with the People's Republic of China in the domain of Chinese infrastructure investments in Serbia?
Today, relations between the People's Republic of China and Serbia are at the highest international level. The agreement on comprehensive strategic partnership was signed in 2016, which only strengthened the signed agreement on economic and technical cooperation in the field of infrastructure from 2009. The signed Agreement on economic and technical cooperation in the field of infrastructure is treated as an international agreement that has greater legal force than any national law. This literally means that Chinese companies have a privileged position on the Serbian market and that every deal is concluded behind the scenes, without the implementation of a tender procedure, public procurement process, any market competition of interested parties and healthy competition, and all under the conditions dictated by Chinese companies. The European Commission strongly condemned this business practice of Chinese companies and, according to the Report of the European Commission for Serbia for the previous year, noted the systematic avoidance of the application of the Law on Public Procurement for large infrastructure projects that are implemented on the basis of agreements. There is no doubt that the European Commission directly condemned Chinese infrastructure projects in Serbia with these statements.
In order to justify this kind of business practice, in 2020, Serbia adopted the Law on Special Procedures for the Implementation of Construction and Reconstruction Projects of Linear Infrastructure Facilities of Special Importance (roads, railways, airports, metro), where it defined that it is allowed that infrastructure projects of "special importance for the Republic of Serbia" will be exempted from the rules of public procurement. The same law defines that: "especially in the case of urgency and threat to the implementation of projects (...) for which a previous justification study was done with the general project, the Government can make a decision that the regulations regulating the procedure are not applied to the project or certain phases and activities of the projects public procurements, but a special procedure for the selection of a strategic partner is applied to them in order to realize projects of special importance for the Republic of Serbia".
International agreements and special laws are modus operandi that serve to avoid the application of the Law on Public Procurement. The absence of tender procedures, transparency, competition and market competition lead to direct deals between interested parties and government representatives. Damage from non-market practices leads to corruption, which is often overshadowed by such direct deals, because without market competition, the market value of a certain project cannot be accurately determined. The absence of competition and domestic offers appear as the main problem when concluding significant and expensive infrastructure projects with the People's Republic of China. A pre-selected contractor, instead of a realized public call and competition of interested parties with a potentially more favorable offer, dictates the pace, conditions and way of doing business.
Most of the Chinese infrastructure projects are actually loans, but unlike the mentioned countries (Montenegro), Serbia properly services its loans. However, the increasing presence of Chinese companies and loans from the People's Republic of China is changing the overall trend of attracting investments to Serbia. Serbia, although it has defined accession to the European Union as a strategic goal of its foreign policy, is turning to its traditional partner, the People's Republic of China. is a new direct line Belgrade - Tjenđin, which will only further strengthen and promote cooperation between the two countries. The national airline Air Serbia (Air Serbia) is once again establishing a direct connection with the People's Republic of China, after a long 22 years, in the fourth largest city and the largest port in the northern part of the People's Republic of China. It is particularly important to highlight the fact that Air Serbia will be the only European airline flying from Tianjin and only one of several European companies that have established direct flights to the People's Republic of China.
Can the Republic of Serbia play a double game and remain strategically oriented towards European integration, while literally strengthening political and economic ties with the People's Republic of China? Compliance with European regulations, including the Law on Public Procurement, will have a negative impact on doing business with Chinese companies, while doing business with Chinese companies on the basis of an interstate agreement will result in harsh condemnation from the European Union.