XXII Regional Milocer Development Forum Globalization and „The Belt and Road“ Initiative

1. XXII Regional Milocer Development Forum Globalization and „The Belt and Road“ Initiative Zoran Cirovic, Singidunum University, Belgrade, Serbia 12th and 13th of September 2017

2. New Economic Focus of China • Apart from continuous investments in the developed EU countries (mostly in the UK, France and Italy), since 2012 China`s economic orientation in Europe more and more inclined to CEE countries. • Sixteen CEE countries („target countries“), from Estonia in the north to Albania in the south, signed the memorandum with China („Initiative 16+1“) at the Warsaw summit in 2012. • „As long as we trust each other, help each other and strenghten our cooperation, nothing will sway us from our course“ – words of the former Chinese Prime Minister Wen Jiabao

3. Resurrection of the Old Silk Road • People often say that in any unequal partnership the stronger side tries to exploit the weaker. Many critics point out that China is guided solely by its own interests without taking into account the interests of target countries. But is it really the case? • China wishes to resurrect the old Silk Road and to transport its goods to Europe faster. Although the main economic target of China are Western European countries, CEE countries are strategically important transport and transit corridor, but also serve as a testing ground for Chinese companies that want to invest in the EU. • „Eastern Europe is to become China`s bridgehead in the EU“ – words of the former Chinese Prime Minister Wen Jiabao

4. Financing Mechanisms • In 2012 China opened a credit line for joint projects to target countries with a total volume of USD 10 billion, and two years later announced a further USD 3 billion for a new Chinese investment fund (through PPP programmes). At about the same time, the Chinese central bank closed a deal with CEE commercial banks, investing USD 2 billion in the inter-bank bond market, and thus facilitating their access to the Chinese capital market.

5. Western Balkan Countries` Financing Needs • Looking at the Western Balkan countries alone, some estimates show that roughly EUR 110 billion of investments is required in infrastructure, energy and the environment. The required amounts on the annual basis are around EUR 4 billion in the transport sector, EUR 4,5 billion in energy and EUR 2,4 billion in the environment. • It is out of any doubt that Chinese investments are far from enough to satisfy the financing needs of Western Balkan countries and target countries in general, but might be a welcome complement to EU funds.

6. Benefits of Bilateral Financing • Since money is needed practically everywhere in the Western Balkans and financing for challenging infrastructure projects with high perceived level of risk is not easy to secure from the EU and IFIs, the logical choice of target group countries is to conclude bilateral contracts with China, Russia, Azerbaijan... • This money comes without imposing serious conditions to recipient countries – no triggers, no (sometimes painful) reforms required, no public debt considerations, etc. • Funds are provided cheaper, faster and more directly.

7. Drawbacks of Bilateral Financing • There is no possibility of co-financing projects with the EU or IFIs. • Completed contracts are often poorly compatible with EU law, containing clauses and conditions that make them impossible to implement within the EU. • Due to the lack of internationally recognized tendering procedures, as well as procurement and disbursement rules, the final cost of financing is sometimes not easy to evaluate. • „Institutions such as the Chinese Exim Bank are criticised for the lack of transparency, but there is no second-best alternative“ – words of Anthony Evans, economist

8. Chinese Investments and EU Perspectives of Western Balkans • Access to large EU structural funds for candidate countries is not possible until they join the EU, but in order to make progress towards accession, countries need to improve infrastructure and transport links both within their borders and with neighbours. • As money goes to top-priority projects of national and regional importance (mostly in infrastructure, energy and environment), this makes a great help to candidate countries on their further path to the EU. • „Nothing in this relationship (between China and candidate member states) suggests that it could be directed against the EU. On the contrary, neither Southern European states nor China have any cause to weaken the EU“ – words of Richard Turcsanyi, political scientist

9. Extension of the New Silk Road / One Belt – One Road Initiative into Western Balkans • The idea is to turn Greek port of Pireaus, which is already in hands of Chinese shipping giant Cosco Pacific, into one of Europe`s top five container ports and a major penetration point for Chinese goods in Europe (transit time between Shanghai and Pireaus is 22 days, 10 days less in comparison to the transit time between Shanghai and Roterdam / Hamburg). • The goods will be transported further to Western Europe by train via Macedonia, Sebia and Hungary, using existing railroad corridor X which will be modernized with some major improvements – particularly on the section from Belgrade to Budapest.

10. Chinese Economic Links with Western Balkans • There are three broad forms of these economic links: • Direct lending to governments mostly for infrastructure (roads, railways, ports, power plants, etc.) • Trade links – export to China (mainly raw materials – copper and copper products, iron and steel, wood, mineral ores, etc.) and import from China (electronics, machinery, footwear, apparel, plastics, etc.) • Chinese direct investments

11. Lending for Transport and Energy Infrastructure • Regional integration through transport projects and development of energy resources are considered as crucially important for Western Balkan countries. • Financing is usually offered on favourable financial terms – Exim Bank of China extends loans with long maturities (cca. 20 years) and low interest rates (cca. 2%). These loans typically cover about 85% of the total project cost. • As Chinese companies bring their own workers and supplies, and rely only to a limited extent on local resources, the spillovers to the rest of the economy are rather limited.

12. Chinese Loans for Transport and Energy Infrastructure

13. Trade Links • Bilateral trade between China and Western Balkan countries has increased considerably in both directions in the last decade. • With exception of Romania, which exports to China higher value added products such as electronic equipment and machinery, other countries in the region export mainly raw materials. • Chinese export to the region, which comprises mostly of electronics, machinery and consumer goods, have been supported by Exim Bank of China. • Chinese trade centers (the largest is Chinatown Central in Bucharest opened in 2011, China Trade Centre Zmaj in Belgrade, China Trade Center in Zagreb...)

14. Direct Investments • For Western Balkan countries this is definitely the most important form of economic links with foreign investors. However, Chinese direct investments in this region are not as large as many people have expected and there is a plenty of room for improvement here. • The acquisition of the port of Pireaus by the Chinese company Cosco Pacific could be a catalist for further investments.

15. Some Examples of Chinese Direct Investments in the Region • The Chinese oil and gas exploration company Geo-Jade Petroleum has taken over the Canadian oil company Banker`s Petroleum, which was one of the biggest foreign investors in Albania, and thus secured oil exploration and production rights in Albania. • The Chinese company Everbright Limited has acquired a consortium which operates Tirana International Airport (TIA). • The Chinese company HBIS, as the world`s major steel producer, has bought Zelezara Smederevo, the only steel mill in Serbia. • The Chinese car producer Great Wall Motors entered into joint venture with Bulgarian car manufacturer Litex Motors to make a car assembly plant for low-cost vehicles for the EU market. • The Chinese IT solutions provider Huawei opened its multi-lingual Global Service Centre in Bucharest. • China`s Energy Company Limited has taken over the owner of the largest oil refinery in Romania, Petromidia. • Some other projects in IT sector, furniture, aviation and renewables are in preparation.

16. THANK YOU! e-mail: zorancirovic@yahoo.com