Southern discomfort: The West’s competition with China in the Balkans

In 2021 Montenegro’s economic infatuation with China left it on the brink of financial collapse. The first repayment of the country’s $944m road-building loan from the Export-Import Bank of China was due in July. And defaulting on that loan could have had disastrous economic consequences. For example, a default could have triggered contractual clauses that led to infrastructure asset seizures by the Chinese state bank. Therefore, a reckoning of sorts seemed to be in the offing. But, after much political drama, two US banks and a French one came to the rescue.

Suddenly, Western observers were forced to acknowledge China’s attempted economic takeover of this NATO member state: politicians promptly organised hearings in the European Parliament, and convened workshops, on the issue; the European Commission and key member states rushed to hold expert briefings; and, in due course, research bodies penned weighty ‘big picture’ analyses, attempting to reshape Western policy on the crisis. In the end, the creeping Chinese appropriation of the European Union candidate country was prevented. And this should spur a more structured and convincing Western approach.

China’s strategy

The signs of Beijing’s push into south-eastern Europe have long been clear. Perhaps the most obvious among them are Serbia’s transformation into a regional hub for China’s activities and the development of various energy and infrastructure projects across the Western Balkans. But there are some less prominent dynamics at play, such as Beijing’s persistent interest in maritime infrastructure along the Adriatic coast and the gradual expansion of its diplomacy beyond economic affairs.

Political factors have also propelled the implementation of China’s strategy in south-eastern Europe. These include the continued geopolitical impasse in the region, the lack of a clearly defined EU response to third countries’ activities there, and the recent suspension of Montenegro’s EU accession process. At the same time, Western Balkans countries continue to need effective policies and tools to bridge their development gap with the rest of the continent, further inviting Chinese overtures. For most in the region, the resurgence of geopolitical competition is the new normal. And, for many, this shift is to be welcomed.

The signs of Beijing’s push into south-eastern Europe have long been clear

Yet Beijing is beginning to encounter major difficulties. It has lost the advantage of inconspicuousness, now that China’s activities in the region – including the conditions attached to various forms of engagement with the country – have drawn the attention of politicians, protesters, and researchers. The NATO membership of countries such as Albania and North Macedonia has cordoned off several areas of cooperation with China – such as critical infrastructure, 5G technology, and data and e-governance. Arguably, the European Union’s investment plan for the Western Balkans is a belated and insufficient policy response. But it was formulated as a direct reaction to Chinese involvement and will go some way to address the shortage of high-quality infrastructure in the region.

Meanwhile, there is growing popular discontent with China-related projects. For example, civil society organisations organised in February 2022 a blockade to protest against the construction of a tyre factory in Serbia; Bosnian coal miners staged in December 2021 a strike in objection to labour and environmental standards at a Tuzla-based facility; and non-governmental organisations have long raised concerns about the environmental impact of a highway construction project in Montenegro.

Furthermore, Beijing has traditionally felt most at ease when dealing with de facto autocratic regimes (such as Serbia’s under President Aleksandar Vucic and Montenegro’s during the rule of President Milo Djukanovic) and entrenched governments (North Macedonia’s under the VMRO). But, over the last few years, China has had to deal with power transitions in both North Macedonia and Montenegro. New governments in the former country have tilted their foreign policy more firmly towards the West, while – as mentioned above – Podgorica has relied on Western banks to contain the potentially dramatic consequences of defaulting on its huge Chinese debt.

The western response

Elements of a more coherent Western response are emerging. The aforementioned EU economic and investment plan for the Western Balkans has the potential to mature into a new, targeted developmental framework. And the adoption of the strategically-minded EU Global Gateway initiative is a notable sign of the shift in political thinking about infrastructure and its importance in the new geopolitical normal.

At the national level, the new German government has affirmed its commitment to the region, adopting a wider geopolitical perspective. France, meanwhile – as holder of the presidency of the Council of the European Union – is taking a similar approach. Moreover, there is an emerging constituency of members of the European Parliament who are committed to greater action to counter China’s and Russia’s actions in the Western Balkans.

Further afield, the Biden administration has increased US engagement with the region, both by building on previous policies (the ‘Clean Network’ initiative in critical infrastructure) and by expanding into new territory with the adoption of sanctions aimed at individuals destabilising the region. The G7’s creation of the ‘Build Back Better World Partnership’, with decisive US input, indicates a deeper shift in strategic thinking about regional influence.

But China is unlikely to be deterred by changing Western approaches. Geopolitically, Beijing abhors irrelevance – and it will perceive a decline in influence and its partial displacement as a slight. Therefore, China has begun various efforts to respond to the shifting context in the Western Balkans and beyond. One is a tilt to a ‘greening’ agenda in the Belt and Road Initiative and in the ‘16+1’ cooperation format with central and eastern European countries. Another is a greater focus on small- and medium-sized enterprises, as China recognises the limits of solely engaging with large firms. Following Lithuania’s departure from what was ‘17+1’, Beijing is visibly shifting its attention to the Western Balkans. China has also been learning how to operate in more complex political environments, as shown by its expanding diplomatic activities in Bosnia.

Meanwhile, Russia’s war on Ukraine could lead to deeper China-Russia cooperation in the Western Balkans and could accelerate EU and NATO efforts to integrate countries in the region. Neutral foreign policy postures such as Serbia’s are now more likely to become untenable.

All in all, while China is facing headwinds after years of operating in a largely permissive environment, it is also readjusting its approach to heightened geopolitical competition. In the contest between the West and China in the region, it is now game on.

Mapping China’s rise in the Western Balkans