In a rapidly evolving geopolitical landscape, the Western Balkans have emerged as a focal point of strategic interest for both the European Union and China. A recent policy report by the Vienna Institute for International Economic Studies (wiiw), co-authored by Branimir Jovanović and Blue Europe’s Sonja Stojadinović, provides a comprehensive analysis of the financial engagements of these two powers in the region. You can find the report HERE
The report reveals that while the EU maintains a dominant position in grant funding—allocating annual Instrument for Pre-accession Assistance (IPA) grants averaging 0.8% of the region’s GDP—China has nearly matched the EU in terms of loan provisions. On an annual basis, the EU has committed loans equal to approximately 1.5% of the region’s GDP, whereas China has provided loans amounting to 1.2%. Notably, in Serbia, China’s loan portfolio now exceeds that of the EU.
EU loans are characterized by lower interest rates and greater transparency but come with stringent conditions aimed at promoting institutional reforms. Conversely, Chinese loans offer more flexibility and quicker implementation, making them attractive to Western Balkan politicians. However, this flexibility often comes at a cost, as Chinese loans have been linked to higher susceptibility to corruption, questionable project quality, and concerns over workers’ rights and environmental standards.
Brian Fabregue interviewed for Blue Europe Sonja Stojadinović to delve deeper into the findings of the report and explore the implications of these financial dynamics for the future of the Western Balkans.
Blue Europe
The first question I had reading the report was related to the sheer amount of the loans. Why and how the Chinese investments and also the Chinese laws and grants are becoming more and more interesting for the authorities of Western Balkan countries?
Sonja Stojadinović:
This latest research that we did with my friend Branimir Jovanović from the European Economic Institute in Vienna on his invitation is maybe the first research that compares both the Chinese and the European Union financial and political conditions for granting loans and grants for investments in Western Balkan countries that especially are not European Union members.
Blue Europe:
Outside of China, what are, in your opinion, the problematics that are linked to the foreign influence of any country in the Western Balkans in general?
Sonja Stojadinović:
The problematic moments are that the countries that are influencing – also in some way are very much interfering – into the internal and bilateral problems of the Western Balkan countries. Generally the foreign countries, mostly the West or from the West, are coming in with already established opinion and already established knowledge, which in many cases has shown it’s not directly linked to the reality about Western Balkan countries, their past and their relationships between each other.
So they’re coming with already established political solutions, economic solutions, and general solutions and conditions that they try to impose to the Western Balkan countries in order to, not only to put them into the European Union family, but also to, first, to establish cooperation and two, to impose their, and to becoming the relative political interest of those Western countries into the Balkans.
Those imposed systems and imposed beliefs and political solutions very much, in many cases, clashed with the reality on the field and also with the political conditions that were not very much known from the Western countries that are happening in the Balkans.
Blue Europe:
There is, there’s been a larger debate on the question of whether there should be, I would say, a partnership between states when it comes to large-scale investment, or should it be left to international organization? What’s your opinion on the matter? Do you think that’s actually something that is doable, or it’s something that should be done, etc.?
Sonja Stojadinović:
Yeah, it should be done. Like, any partnership can be, can be done, but, and can be functional, but if the foundations are created into the mutual interest, and it’s every corporation that is based on a win-win solution where both parties that are collaborating, not only bilateral but also multilateral, protected, their interests are protected, and their needs are met. Or if we have a win-lose solution, any kind of partnership and cooperation is doomed to failure.
Blue Europe:
Now, for the report itself, the first thing that has stricken me when I read it was about the evolution of the GDP of the committed loans between Europe and China.
First, you said in the abstract itself, the US committed on an annual basis loans equal to approximately 1.5% of the regional GDP, while China has provided loans in the amount of 1.2%. In both cases, those are actually considerable amounts. We are not talking about minor amounts, because it’s on an annual level. And the second element is that those are mostly related to infrastructure investment, and on average, in high development countries, the amount invested on the maintenance and transformation infrastructure is around 2% to 4%.
So already by itself, it’s quite a high. What are the causes that has led to this level of partnership between both the EU and China and the Western Balkans?
Sonja Stojadinović:
Well, the idea when we started was to locate the gap. And first, where the gap was coming from, and also why the infrastructure investments in the Balkans, and why the reasons in the background, why I said, like I said in the intro, why the Western Balkan countries are more turning towards China. The gap showed, actually, that the gap was a lower presence of the European Union, which was filled by China.
But why that gap was created, and we focused on both side-to-side European Union and China and the Balkans, like it was empty for me, and also from the aspect of a political scientist and the aspect of my colleague, my friend, the economist, Branimir Jovanović, was to see why this empty field, empty playing field, I’m saying empty playing field intentionally because these countries are not European Union members. That is a very huge difference and very important notice because the playground rules are different if the countries are European Union members towards China and towards Chinese capital and Chinese investments.
So the political, the main problem were mostly political reasons, political conditions that were European Union were not only sharing but also imposing to the European, sorry, to the Western Balkan countries as conditions to apply and to be granted laws and grants from the European Union banks. We also, we focused on the IPA funds that were accessible, still accessible for, that are still accessible for Western Balkan countries as candidate countries. But also we have to take into mind that there are a lot of banks and funds and a lot of money that are not accessible for the Western Balkan countries that were going to be very, very useful for increasing the quality of infrastructure in our countries.
We have to also take into consideration that the Chinese were not investing only into infrastructure, which again is mostly visible in Serbia, but also they’re investing into energy sectors, like in Eastern Serbia and into mining, into mining in Eastern Serbia and also in energy sectors in Serbia and Bosnia-Herzegovina, Montenegro and Albania. In Albania, they are very, very lower presence, but they also, their Chinese investments are present into the oil refinery Patos Marintza and also in fuel mines. This is, this was interesting to see why, to compare why they’re spreading so much and what was very, very drawing, what were the drawing conditions that Chinese offered to the Western Balkan countries.
Although their credits were, with their interest rate and the conditions were not so different and not so favorable on the long run in comparison with the European Union banks, they were not burdened with the political conditions like they were burdened from the European Union banks. China was imposing only one to two political conditions, not accepting the one China policy and not interfering into the internal matter of China, but also China was not interfering, openly not interfering into the internal matter of Western Balkan countries, something that is not visible for the European Union countries. So we’ve seen a lot of interfering, not putting a point, I’m saying strictly not putting a point on the political conditions that are required for European Union membership.
I’m emphasising the political conditions and the political interference of the European Union in the internal affairs of the Western Balkan countries. I’m also putting a lot of emphasis on bilateral problems which are not internal problems and which do not serve the higher interests and conditions for granting loans and grants from European Union banks.
So this is the playground, and this is the gap that was filled by Chinese banks, who avoided any kind of burdensome, contradictory — and, at times, humiliating — political conditions in order to gain Chinese money and capital. This is one of the shortcomings of the European Union’s policy towards the Western Balkans. However, the Chinese, who created this problem, are not following even the most basic environmental standards, and are also conditioning countries that accept their capital to use Chinese labour.
So, for example, we have large colonies of Chinese workers in eastern Serbia, and many cases of environmental pollution in almost 100 Western Balkan countries that have filed law suits against Chinese investments for breaching environmental protection laws. So, no matter how attractive and politically acceptable Chinese capital is, it also has its darker side.
Blue Europe:
I have two questions that are linked to what you just said. You said that the integration of Chinese workers into the projects is one of the key features of the Chinese loan support. And you write in the point 3.2 of your report, when it comes to a background of China’s loan to the Western Balkans is that those loans are an integral part of the Belt and Road initiatives. Would you be able to develop on that when it comes specifically to the Western Balkans?
Sonja Stojadinović:
Yes, the Belt and Road Initiative, especially the Pan-Mediterranean connection that the Chinese are building to the railway from Athens to Budapest goes through Western Balkan countries, goes through Macedonia and Greece, Macedonia and Serbia. So these investments are crucial not only for Chinese, but primarily crucial for us as the residents of this peninsula. If we take into consideration that, again, like I said, your Western Balkan countries who are still candidate countries, but in the negotiation process to becoming a full member of the European Union have a very high need for infrastructural investments, but a very low access to the European funds.
Also need a lot of investments into the infrastructure in order to reach the levels of the European Union standards. So somebody had to fill the gap. So Chinese used this gap to fill it mostly for their interest, but also we are saying, okay, if you don’t want to give us the money, somebody else is going to give us.
And this is something that the European Union was losing out of their focus.
Blue Europe:
Now regarding the environmental impact, you said previously that the Chinese projects do not really care about the environmental impact of their projects. Could you make a few examples that maybe even are not in the report?
Sonja Stojadinović:
From my own eyes that I have seen when I was working for a Dutch NGO, Just Finance International, when we were in the eastern part of Serbia into the mining basin of Bor, where they have both almost whole mining basin of one of the richest, maybe the most rich copper mine in Europe, the Bor mine. They both, they spread it to both cities, if you see the surface, because they are digging the mining copper on like a service system, not going down to the both. Actually, they are mining underground pits and also the surface.
If you ever have a chance to go to see Bor and Majdanpek, especially Majdanpek city in the eastern part of Serbia, it looks like worse than the moon surface. They are digging without control and they are almost Chinese acting like an ex-territorial country, like they have this part of Serbia as their ex-territorial control. It’s not in the same level of devastation, but it also can be visible in their investments into hydro power plants in Bosnia and Herzegovina, and also into the investments in the oil field in Albania.
This is not only the Chinese fault. We have to be clear and open and objective in this situation. This is also the fault of the local authorities and central authorities, because if you don’t impose your own environmental standards to everybody, you will get what you’re going to allow.
So, this is not only every investor has its own interest. Every investor has a capital in the first place and profit in the first place. So, it is normal for every investor to focus on it, to have less expenses for the higher profit.
So, this is not only the guilt of the Chinese, but this is also the guilt of local and central authorities.
Blue Europe:
On page 35 in figure 7, we’ll see that the country that has gathered from a percentage of GDP, the highest investment from both China and EU, is Montenegro. Do you have an idea where in particular this rather small country has brought such interest when it comes to its infrastructure?
Sonja Stojadinović:
You’re thinking about the debt trap case?
Blue Europe:
Yes, I was implicitly thinking also about that, yes.
Sonja Stojadinović:
When I was also doing my master and also reading about this phrase of debt trap diplomacy, I realized that I have to emphasize that Professor Bautigam from the United States debunked this myth. Because if you compare the conditions for the Chinese loans that are written in this research and also you remember that in your book of your institute, you published a chapter from my thesis where I explained that the debt trap diplomacy is not reality. It was taken, for example, from the Hambantota port in Malaysia, I think it was in South Asia.
Actually, a big part of the debt from Montenegro was paid from a debt that was from the credit that the Montenegro government took from three European Union banks, from a French bank, from Société Générale, and from two other banks. So actually the conditions of Chinese loan was allowing a restructuring of the debt and taking another credit to cover this debt. So actually there is no registered cases in the Western Balkan countries where Chinese sees a state property as a cover for the debt of the country.
So debt trap theory is more than, I would say it wasn’t placed very good and it is not supported by real cases. The only case of Montenegro was given for Western Balkan countries as a debt trap case, which again didn’t fill the standards of the debt trap diplomacy.
Blue Europe:
People know I’m not a Chinese foreign policy fanboy, but the only real example of the debt trap diplomacy that we can find worldwide is related to a port in Congo and it’s mostly related to the fact that nobody is willingly financing anything in Congo. So that’s why I don’t know if it’s a debt trap diplomacy, it’s more about the best case scenario where they can actually get funding for any form of infrastructure.
Sonja Stojadinović:
Yes, but if you go deep into this study, because this study is even more structured and more dry and more with facts, is to see that all world creditors, there are international standards where the countries offer state property as a guarantee. It’s not only for the Chinese creditors, also American and European Union creditors and French and German, also they have in their bilateral agreements standards of public property of certain countries if they are not compelling to the debt and they’re not paying the debt rates. So this is not only for China, it’s also in the general standards.
Global standards that cannot be taken as something that is bad. I want to say it’s credit, it’s a normal rule.
Blue Europe:
Yeah and even if you check like in jurisprudence when it comes to the ICSI treaty, yes it’s standard, it’s not something special. Well, we are around 20 minutes, would you like to have some concluding words? Mine will just be go read the report, you’ll find very interesting data, very interesting insights on what’s the future of both the EU and China when it comes to their relation with the Western Balkans.
Sonja Stojadinović:
Yes, I would like to conclude that I am happy with the outcome of my work and that of my friend, but I am also very interested in conducting and reading a lot of research on the development of the relationship between the European Union and China. With everything that is currently happening in the world, especially after the decisions made by US President Trump, there is going to be a major shift in the world market, particularly with regard to tariffs, investments and development. The European Union is searching for new markets, especially given that France is considering major collaboration with India and Spain and Belgium are already opening their arms to China. This is where our research focus should be.
