Thursday April 29, 2021
Power politics at the EU border
How China is driving other countries into debt
By Marcel Grzanna
The construction of a motorway could cost Montenegro dearly. China gave false hopes and now wants its money back. And the EU has a problem.
Milo Djukanovic has been the most influential personality in his native Montenegro for decades. He was Prime Minister several times and is currently President for the second time. His big dream is apparently to leave his small country in the Western Balkans a motorway that runs from the Adriatic coast across the country to the Serbian border, around 170 kilometers long.
The plan may backfire. Instead of a free journey towards prosperity, Montenegro threatens to lose part of its economic sovereignty. The People’s Republic of China, which finances part of the controversial construction and now wants to collect its debts, could benefit. The problem: the construction is going to be more expensive than planned, and it’s far from finished. From July, Montenegro will still have to repay.
Djukanovic has long been voted out of office as prime minister. The new government of the poorly populated country, something as big as Schleswig-Holstein with only 622,000 inhabitants, has to spoon out the soup. Hoped-for toll revenues and higher economic performance through accelerated logistics are a long way off. Not even the tourism industry on the coast benefits in Corona times. Montenegro therefore fears that it will not be able to meet its payment obligations and that it will have to make painful concessions to the Chinese as a contractual penalty. For example Sri Lanka, which has to leave large parts of its port Hambantota to the People’s Republic for at least 99 years for a leasing fee because it was unable to service its debts sufficiently.
Many lending details have remained hidden. Not entirely by chance. When China lends money abroad to finance infrastructure projects there, details are mostly kept secret. Otherwise no money will flow. Chinese state-owned companies carry out the projects, often with construction workers from China. Scientists from the US Research Center for Development Finance, Aiddata, in Washington, examined 100 such Chinese contracts with 24 states and compared them with loan agreements of other creditor states. The projects are always financed with not so cheap loans from Chinese state banks. The secrecy clauses that China demands from money recipients are not common.
“Please help us”
Most of the projects examined are financings under the Belt and Road Initiative known as the “New Silk Road”, a global investment program with which Beijing is creating new trade routes for its exports, reducing its overcapacity in its domestic industry and ensuring its own raw material supply would like to. Critics accuse the Chinese that countries like Sri Lanka or now Montenegro get into a quandary is calculated.
As a result, even the Chinese embassy in Montenegro’s capital, Podgorica, felt compelled to reject all guilt of the People’s Republic. The geological nature of the route would run counter to a quick and inexpensive construction of the motorway. In addition, only two percent interest is estimated. Nevertheless, a bad aftertaste remains. After all, it was a state-owned Chinese company that first set up a schedule and is now unable to keep to it. Montenegro bears the consequences.
The government, which has been in office since December last year, therefore turned to the EU Commission. “Please, help us,” asked the candidate for membership. But Brussels refused. Viola von Cramon, the Greens’ Balkans expert in the European Parliament’s Foreign Affairs Committee, fears the EU Commission will play the Chinese in the cards. In an interview with ntv.de, von Cramon said: “The request was brought to Brussels from the pro-European parliamentary group within the new Montenegrin government. It would be important to find a way to help these pro-European forces, especially this help Conditions could be attached that are in the interest of the EU. “
For China, political influence in Montenegro is of great interest not only because of the Mediterranean coast there. With a possible admission of the country into the EU, Beijing would bind another member state much more closely than Brussels can. The Greek port of Piraeus has been under Chinese control since the financial crisis more than ten years ago. “At that time, the EU completely overslept to support Greece and is paying a high price for it, as it is now primarily pursuing Chinese rather than European trade interests. The EU could now commit a similar mistake again,” warned von Cramon.
EU in a bind
A new project is also planned in Hungary, which China is building and financing. Around 1.5 billion euros are to be used as a loan for the construction of a university campus in Budapest. The university should bear the name Fudan – just like the university in Shanghai. The Hungarian investigative magazine Direkt36 was leaked documents showing that China not only provides the capital, but also a large part of the building materials and workers. The Hungarian state bears the burden of debt. Direkt36 writes that the cost of construction is more expensive than Hungary’s public spending on the country’s entire education system in 2019.
In Montenegro, the EU once refused to support the controversial motorway construction. Two feasibility studies had come to the conclusion that the construction was not only too expensive, but also economically unprofitable. Former Prime Minister Djukanovic remained stubborn and turned to the People’s Republic in 2014. There he found open ears. The state export-import bank provided 944 million euros as a loan, about a quarter of the Montenegrin national debt. The China Road and Bridge Corporation took over the construction. The opposition complained about the confidentiality clause in the contract and suspected corruption.
“At first glance, the EU has a choice between two bad decisions,” says Matej Šimalčík, Director of the Central European Institute of Asian Studies in Bratislava. “If it intervenes in Montenegro, other states in the region could get the idea of having part of their debts financed by Europe. If they don’t, they may soon have a bankrupt state on their external border.” But Šimalčík also considers a positive scenario to be possible. “If the EU plays it right on the other hand, it can build an image as a savior in need in a region where it is met with a lot of skepticism. And it now has a concrete example to point to that Chinese financial aid is not necessarily has to be a good solution. So far this has been more of an abstract scenario. “
As early as September last year, researchers from North Macedonia, another candidate for EU accession in the Western Balkans, came to a critical judgment in a study for the Institute for Democracy “Societas Civilis” in Skopje regarding the financing of Chinese capital in the country. The “corrosive capital” from China threatens democratically established institutions and the market economy, they say. “It seems that China’s way of working is contrary to the political and economic model and liberal values that North Macedonia seeks to achieve through its alliances (NATO) and prospective membership of the EU.”
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