The privileged position of Chinese companies could lead Serbia into a debt crisis

 

The agreement on comprehensive strategic partnership between Serbia and China, signed in 2016, only strengthened the signed agreement on economic and technical cooperation in the field of infrastructure from 2009, which is treated as an international agreement with greater legal force than any national law, she stated. Stanković in a column for the Belgrade Media Center.

 

Jobs behind the scenes

 

"This literally means that Chinese companies have a privileged position on the Serbian market and that all business deals take place behind the scenes, without conducting tender procedures, public procurement processes, any market competition of interested parties and healthy competition, and all under the conditions dictated by Chinese companies" , Stanković points out.

 

The author of the text states that today Chinese companies are on the list of seven of the ten largest construction companies in the world, that they are globally present everywhere, especially in developing countries, such as Serbia.

 

"The obvious reason for this is that countries need developed infrastructure. However, states often do not realistically assess their financial capabilities for concluding such projects. Although the country is getting the infrastructure it wanted, it is necessary to emphasize the negative dimension of Chinese infrastructure investment," the text reads.

 

Inadequate assessment of the financing of such infrastructure projects, that is, exceeding the solvency of the state to credit such projects, can lead to overindebtedness of the state and serious debt slavery, warns the researcher of the Institute of Social Sciences.

 

Projects financed by 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 run small states can threaten their own financial stability and future development potential, the text adds.

 

Montenegro stands out as an example, which had to borrow 800 million US dollars from the Chinese Exim Bank of China due to the construction of the first section of the highway from Bar to the border with Serbia. Montenegro thereby increased its foreign debt to 80% of the gross domestic product, while China, with the right to 39 percent of Montenegrin debt, became the largest Montenegrin creditor, Stanković states, adding that borrowing from Chinese banks can create a relationship of dependence in relation to the creditor's country.

 

Montenegro is not an isolated case. The London Center for Global Development lists a total of ten countries that have a serious risk of repaying Chinese loans (Malaysia, Maldives, Mongolia, Djibouti, Sri Lanka, Laos, Kyrgyzstan, Pakistan, Tajikistan).

 

There is a certain fear that China, in the event of the indebted countries' inability to service their debt, will convert its claims against them into capital, that is, that it may become the (co)owner of important strategic facilities of the indebted countries. Such a scenario was recorded in the Horn of Africa, when due to the inability to service loans, China opened its first overseas military base in Djibouti, the author of the text points out.

 

The European Commission strongly condemned the business practices of Chinese companies and, according to the Report for Serbia for the previous year, it was established that there was a 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, Stanković states.

 

"In order to justify the described business practice, in 2020, Serbia adopted the Law on Special Procedures for the Implementation of Projects for the Construction and Reconstruction of Line Infrastructure Facilities of Special Importance (Roads, Railways, Airports, Metro), in which it defined that infrastructure projects are allowed of 'special importance for Serbia' will be exempted from the rules of public procurement", the text reads.

 

The absence of tender procedures, transparency, competition and market competition lead to direct negotiations between interested parties and government representatives. Damage from non-market practices leads to corruption, which is often in the shadow of such direct deals, because without market competition, the market value of a certain project cannot be accurately determined, the author points out.

 

Condemnation of the European Commission

 

"Lack of competition and domestic offers appear as the main problem when concluding significant and expensive infrastructure projects with 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," adds Stanković.

 

She states that almost all Chinese infrastructure projects are actually loans, but adds that Serbia, unlike countries like Montenegro, regularly services its loans.

 

"However, the growing presence of Chinese companies and loans from China is changing the overall trend of attracting investments to Serbia. In 2022, Chinese investments in Serbia come out on top,

 

The text therefore raises the question of whether Serbia can play a "double game" and remain strategically oriented towards European integration, while strengthening political and economic ties with 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 EU," adds the researcher of the Institute of Social Sciences in Belgrade. .