The Dragon Lands in Belgrade: The Drivers of Sino-Serbian Partnership

The Dragon Lands in Belgrade: The Drivers of Sino-Serbian Partnership

Now as Europeans are being more aware of the China challenge and with Sino-American rivalry heating up, great power politics will knock on Serbia’s doors.

 

CHINA HAS emerged as Serbia’s primary partner outside the Western world, and the political ties between the two governments are intense. As U.S.-China relations are becoming adversarial, and as China’s relations with the EU are shaken, it will become increasingly difficult and risky for Belgrade to continue attempting to navigate the middle and maintain its ties with Beijing.

LIKE MUCH of Serbia’s foreign policy, Belgrade’s partnership with Beijing was shaped by two events that occurred in 2008: the unilateral declaration of Kosovo’s independence and the global financial crisis. When Kosovo declared its independence from Serbia, counter-secession became the dominant strain of Serbian foreign policy. For Belgrade, the fact that China—a rising global power, the world’s most populated country, and a permanent member of the UN Security Council—did not recognize Kosovan independence was a welcoming development.

 

There was also a broader systemic logic at play. The 2008 global financial crisis diverted the EU and the United States’ attention from the Balkan region, creating a power vacuum filled by the non-Western players, with China among them. However, the global financial crisis also produced incentives for Belgrade to actively engage with Beijing. Serbian policymakers were impressed that the Chinese economy persevered despite the shock of the crisis. Serbia saw China as a potential source of financial aid for its hard-hit economy, as well as a potential geopolitical partner at a time when Serbia was diversifying its relationships in an uncertain world. Even further, the notion that the world is moving towards multipolarity, thanks primarily to the rise of China and the idea that Serbia should keep its options open, is shared by the entire Serbian political class irrespective of the partisan and ideological distinctions. The incumbent Serbian president, Aleksandar Vučić—who, unlike the center-left former President Boris Tadić, is taking Serbia in an illiberal direction—shares this same understanding.

Belgrade has since acted on these perceptions. In 2009, Serbia and China issued a joint statement on a strategic partnership and signed an agreement on economic and technological cooperation in infrastructure development. As a result, China agreed to provide a credit line for constructing a bridge across the Danube River connecting two Belgrade municipalities (Zemun and Borča), thus beginning the first major Chinese project in Serbia. The Chinese state-owned enterprise China Road and Bridge Corporation (CRBC) was in charge of the project, while the Export-Import Bank of China, or Exim Bank, provided the financing. With this agreement, the political foundation for future partnership was set.

WHILE SERBIA was enthusiastic about its new strategic partnership with China, this was not reciprocated by Beijing—at least not at first. President Tadić famously called China “the fourth pillar of Serbian foreign policy” alongside the EU, the United States, and Russia. To avoid endangering its partnership with Beijing, Belgrade tried boycotting the Nobel Peace Prize ceremony in 2010—honoring the late Chinese human rights activist, Liu Xiaobo—only to abandon this boycott due to EU pressure.

However, Beijing did not demonstrate the same level of interest. China did not want to be engaged in provincial disputes in the Balkans, such as the Kosovo issue, as none of these disputes directly affect China’s own national interests. When Serbia asked for an advisory opinion from the International Court of Justice on the legality of Kosovo’s declaration of independence in 2010, China backed the Serbian initiative but did not delegate its judge in this proceeding. By late 2012, most Serbian diplomats perceived China as a country with whom Serbia had friendly bilateral relations but not a major player in the region’s geopolitics.

The situation started to change in 2012. In that year, China inaugurated the “16+1 initiative,” a platform aimed to facilitate cooperation between China and countries of Central and Eastern Europe, with Serbia among them. Then, in 2013, Chinese president Xi Jinping announced the Belt and Road Initiative (BRI)—a macro-project dedicated to constructing a global network of infrastructural connectivity, aimed primarily to tie China economically and politically with the span of Eurasia. Through the BRI, China would also promote itself internationally, boosting its political influence and soft power capital even in distant countries like Serbia. As a result, the Balkans, and Serbia in particular, being the geographically central country in the region, found themselves on the Chinese radar, as Beijing perceived the region as a bridgehead between Europe and the rest of Eurasia. Moreover, Serbia is an EU membership candidate, which further raised Chinese interest. Serbia, from China’s perspective, could become the conduit through which the EU’s markets could be penetrated.

In 2014, Chinese prime minister Li Keqiang visited Belgrade to attend the 16+1 Summit. He also attended the opening of the aforementioned bridge across the Danube, the Pupin Bridge, named after Serbian scientist Mihajlo Pupin. Furthermore, during the summit, Prime Minister Li promised Central and Eastern Europe that China would create a region-focused targeted investment fund capitalized with $3 billion and $10 billion in credit lines.

It was in 2016, however, that the partnership truly began to take off, with Xi’s visit to Serbia.

IN THE beginning, Chinese interactions with Serbia mostly revolved around economic statecraft and Chinese infrastructural lending performed under the BRI umbrella. But as the EU’s enlargement efforts ground to a halt, its funds became inaccessible for Serbia, making Chinese financing even more attractive. This has resulted in China acquiring significant interests within key sectors of Serbia’s economy, enabling Beijing to use the country as a springboard to access EU markets.

Consider the case of steel. In April 2016, a Chinese conglomerate called Hesteel Group acquired a local major steel manufacturer in Smederevo, renamed HBIS Serbia after acquisition, indicating it would invest $300 million over the next few years to modernize the company’s existing plants and increase production. Ironically, HBIS had originally been owned by U.S. Steel, which invested the capital and resources that made the steel mill into one of Serbia’s largest exporters from 2003 to 2012. Taking advantage of dropping steel prices at the time, China acquired the steel mill and, by the end of 2018, the company once again became Serbia’s biggest gross exporter. (The company, however, is currently in trouble due to the introduction of EU steel import quotas.)

Other notable instances of Chinese financing abound. In 2018, Zijin Mining took control over debt-burdened Serbia Zijin Bor Copper (better known as RTB Bor), the only copper mining complex in Serbia. With both RTB Bor and HBIS’ Smederevo steel mill, China has taken hold of two of Serbia’s major industrial infrastructure assets. In September of that same year, during a World Economic Forum event in Beijing, Vučić and Xi agreed on a plan to welcome a Chinese firm, Shandong Linglong, to Serbia, with a plan to build a tire factory in Zrenjanin—an investment estimated at $1 billion.

China has also been active in Serbia’s energy sector. The modernization of the Kostolac coal power plant was completed by China Machinery Engineering Corporation with China’s Exim Bank providing the financing.

Then there is infrastructure. The CRBC is currently involved in the construction of the E-763 highway, which will increase connectivity between Belgrade and western Serbia, while also providing quicker travel from Serbia to Montenegro. Meanwhile, the construction of the Belgrade-Budapest railway remains the most famous Chinese project in Serbia, and is often touted as a signature BRI project. Though the ultimate fate of this project remains unknown due to many delays on the Hungarian side, thereby showcasing some of the failures of the BRI, engaging in these sorts of projects allows Chinese state-owned enterprises to acquire references to compete in EU-based tenders.

Given the enormous quantitative and qualitative disparity between the two economies, a question mark remains on how functional this economic partnership can really be. Serbian exports to China by mid-2021 have increased fifteen times in the past five years, amounting to $377 million. However, China accounted for less than 2 percent of Serbian export revenues while accounting for 43 percent of the entire Serbian national deficit. The problem for Serbia is not just the deficit, but the fact that the cost of logistics and transport to the Chinese market is expensive for the state and its exporters. While more than 70 percent of Serbian exports to China was copper, the copper in question originates from the RTB Bor, owned by Chinese Zijin Mining.

TECHNOLOGICAL PARTNERSHIP is another striking domain of cooperation between Beijing and Belgrade. In 2019, Serbia signed an agreement with Chinese e-commerce company Alibaba to promote Serbia as a tourist destination through its online travel agency platform, Fliggy. Similar arrangements exist with WeChat and Weibo. Another Chinese firm, NetDragon, helped the Serbian Ministry of Education establish an artificial intelligence training center so that remote learning platforms can be developed to compensate for the closure of schools during the COVID-19 pandemic. The CRBC is also involved in constructing an industrial park intended to contain facilities for innovation and development.

But of all of China’s companies and state entities, it is the tech giant Huawei that is at the heart of this partnership.