MAPPING CHINA’S RISE IN THE WESTERN BALKANS - MONTENEGRO

In recent years, Montenegro has been at the centre of numerous political and academic debates about the perils of cooperation with China. Analysts, commentators, the expanding community of China pundits,  MEPs, and other various types of politicians have sat in unanimous judgement that the country has developed an untenable relationship with China. Since its independence in 2006 Montenegro has sought to find ways to ensure its economic development and status as an independent state. The imperatives of opening up and establishing political and economic international links were obvious for the personalistic regime of Milo Djukanović. The temptation to instrumentalise this political system in bilateral relations with Beijing clearly proved too great and Montenegro found itself in a state of renewed dependence of its own making. What might be described as ‘conditionality with Chinese characteristics’ materialised as Podgorica became overburdened with obligations to Chinese lenders. There were other important political lessons to be learned in the partial overlap between the country’s accession to NATO, its ongoing EU membership negotiations, and the country’s slide into a deeply asymmetrical relationship with China.

The largest China-related infrastructure project in Montenegro is the expensive first section of the Bar-Boljare motorway. But there are many others. Chinese firms are participating in upgrading the country’s railway network and they are also involved in the energy sector. Dongfang Electric Corporation is carrying out the “ecological reconstruction” of Pljevlja coal-based thermal power plant, which it should complete by 2023. Since 2010, Montenegro has purchased numerous Chinese bulk carrier merchant ships to serve its maritime commercial and transport needs. Meanwhile, China has shown a persistent, decade-long, interest in the country’s port infrastructure, inserting clauses in its motorway loan deal which could allow it to seize parts of the port of Bar should it default on its debt repayment obligations. Furthermore, Chinese entities and individuals have slowly expanded their presence in the real estate market.

Media attitudes towards Beijing are generally positive, although outlets increasingly scrutinise the terms of Chinese engagement in infrastructure projects and cases of violation of various sets of standards during the construction of the Bar-Boljare motorway. Deepening ties are particularly notable in the sphere of education and research, with the University of Donja Gorica gradually becoming a hub of Montenegrin-Chinese cooperation with its numerous research projects, exchange visits, and joint degree programmes. The delivery of covid-19 vaccines by China has also been extensive and high-profile.

Montenegro’s problematic approach to structuring relations with China is increasingly highlighted as a textbook example of how not to engage with the superpower. The country has already had to go to Western organisations and banks to avert a default as the country’s new government indicated a more cautious and careful approach. Western politicians of all stripes have used the case of Montenegro to highlight the perils of the continued overall geopolitical impasse in the region. The EU’s new Economic and Investment Plan for the Western Balkans is a novel but clearly financially insufficient response to China’s inroads and is unlikely to incentivise countries to fully refrain from riskier partnerships with external states. Moreover, there is a certain momentum in relations with China, which means they are likely to continue to grow. But the emerging situation is posing a challenge to Beijing as well. Many of its tools of engagement have been exposed, highlighted, and severely criticised due to events in Montenegro. Its ability to work in a non-autocratic political setting with the change of Montenegro’s government in 2020 will be tested. Operating in a context of rising publicity, intense scrutiny, and growing discontent is bound to be a further test for them. Meanwhile, the West will need to prove that its policy attention span is longer than a pending debt crisis.

Investment

China is the world’s largest exporter of goods and the second largest economy in terms of GDP. In contrast, Montenegro is one of world’s smallest exporters of goods and 151^st largest economy in terms of nominal GDP. On one side, there is a country with 1.44 billion people, on the other, a small European republic with a population just shy of 630,000 people.

Amid other forms of interaction, Montenegro and China cooperate via the Belt and Road Initiative (BRI). Economic ties with China have intensified since 2014 mainly through the Bar-Boljare highway construction project, which is China’s largest current investment project in the country. Construction on the Smokovac-Matesevo section began in May 2015 and was supposed to finish in May 2019. The latest deadline for completion of this project is the end of May 2022. Funding for this project was secured through a loan from the Chinese EXIM Bank worth around €690 million at the time. Today, the value of this loan is around €800 million. The main contractor for the project is the China Road and Bridge Corporation (CRBC), which has received tax relief from Montenegro as part of its involvement. This project is part of the BRI, but it is hard to predict its future because there are still two sections to be completed for it to become fully functional. However, one thing is almost certain – the project will likely not be completed by the China Road and Bridge Corporation, neither will the funds for the remaining two sections be provided through loans from EXIM Bank or other Chinese entities. This is because Montenegro has made a hedging agreement with an unnamed French bank and two unnamed American banks to reduce the interest rate on the EXIM bank loan from 2% to 0.8%.

A company called Dongfang Electric International Corporation (DEG) was expected to implement a project to ecologically reconstruct the thermal power plant in Pljevlja. Reconstruction has been halted for now, due to the complex political situation in Montenegro during the last year and the change in the executive branch of power after three decades. DEG is part of the same consortium as a company owned by Blažo Djukanović, the son of the Montenegrin president Milo Djukanović. China Civil Engineering Construction Corporation (CCECC) Montenegro is also linked to the reconstruction of the Montenegrin railway system.

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