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International relations
Reference:

China’s Investment and Infrastructure Cooperation with Balkan Countries

Shaheti Ayibota

PhD in History

Postgraduate Student, Department of Theory and History of International Relations, Russian People’s Friendship University

117198, Russia, Moscow, Miklukho-Maklaya str., 6

1042218009@pfur.ru
Other publications by this author
 

 

DOI:

10.7256/2454-0641.2023.4.69070

EDN:

OSHAAT

Received:

20-11-2023


Published:

27-11-2023


Abstract: The author examines the cooperation of the PRC with countries in the Balkan region in the areas of investment and infrastructure. The study focuses on China’s economic relations with key actors in the Balkan region: Turkey, Bulgaria, Romania and Serbia. The subject of the study is investment and infrastructure cooperation of China with the countries of the region in the context of the project «One Belt One Road». The author examines in detail the impact of foreign direct investment (FDI) on the economies of various countries, major FDI flows, the development of the financial sector of the PRC, the cooperation of China in the field of FDI and infrastructure with the main actors of the Balkan region. The author pays special attention to the aspect of implementation of the project «OBOR» in the context of cooperation of China with the countries of the Balkan region. This study is based on the theory of political realism. The main conclusions of the study are the definition of the initiative «One Belt One Road» as a key factor of cooperation of the People’s Republic of China with the countries of the Balkan region, the identification of the main directions of investment of the People’s Republic of China in the Balkan Peninsula: The Republic of Turkey, Bulgaria and Romania, analysis of the impact of political differences between the Governments of the States of the region and the People’s Republic of China on the flow of foreign direct investment and infrastructure projects.


Keywords:

China, PRC, Investments, FDI, Balkans, OBOR, Turkey, Bulgaria, Romania, Serbia

This article is automatically translated.

Introduction

Foreign direct investment (hereinafter referred to as FDI) is currently one of the key factors in the growth of the state's economy. Moreover, their involvement contributes to the influx of foreign technologies, qualified personnel and knowledge [1].

According to the Organization for Economic Cooperation and Development (Organization for Economic Co-operation and Development – OECD) [2] the key "beneficiaries" of the global investment policy are the following states:

1.                 United States of America – 10.99 trillion US dollars;

2.                 Netherlands – 4.19 trillion US dollars;

3. China – 3.49 trillion US dollars;

4.                 Luxembourg – 2.96 trillion US dollars;

5.                 Great Britain – 2.69 trillion US dollars;

6. Canada – 1.46 trillion US dollars;

7. Ireland – 1.4 trillion US dollars;

8. Switzerland – 1.18 trillion US dollars;

9. Germany – 1.08 trillion US dollars;

10. France – 896 billion US dollars.

At the same time , the main investors are:

1.                 United States of America – 8 trillion US dollars;

2.                 Netherlands – 5.13 trillion US dollars;

3.                 Luxembourg – 3.96 trillion US dollars;

4. China – 2.79 trillion US dollars;

5.                 Great Britain – 2.2 trillion US dollars;

6. Germany – 2.17 trillion US dollars;

7. Canada – 2 trillion US dollars;

8.                 Japan – 1.94 trillion US dollars;

9. France – 1.48 trillion US dollars;

10. Switzerland – 1.47 trillion US dollars.

Based on the data provided earlier, it is clearly seen that the main flows of foreign direct investment are tied to developed countries that invest in equally developed countries. There are a number of reasons for such an investment policy, among which one can single out high payback, lack of risks and reliability of invested funds. Major players in the international financial market rarely invest in the economies of small states, with the exception of offshore zones. However, in this paradigm, an exception is clearly visible in the person of the People's Republic of China, whose investment policy is more diversified than the policy of the states of the collective West.

This study is based on the theory of political realism, which considers international relations in the context of the struggle of the main actors represented by national states for their national interests. During the research, the author actively used the following methods: systematic, analytical, comparative and logical.

The relevance of the research topic is due to the active growth of the economic and political influence of the People's Republic of China in the context of the transit of power in the modern changing conjuncture of world politics. The scientific novelty of this study lies in the in-depth study of China's cooperation with the countries of the Balkan region in the field of investment and infrastructure in the context of the implementation of the "One Belt and One Road" project, the analysis of China's infrastructure projects on the territory of the states of the region.

The formation of the financial sector of the People's Republic of China

Since the beginning of the implementation of the reform and openness policy in 1978, which consisted in combining the principles of the Communist political and economic structure of the People's Republic of China and market elements in the economy, the People's Republic of China has actively begun the process of integrating the People's Republic of China into the international market system.

Deng Xiaoping's previously mentioned policy contributed to the withdrawal of China from international financial isolation, which in turn led to the attraction of foreign investment in the economy, technology, knowledge and production capacity. According to the World Bank (Eng. The World Bank), the flow of foreign direct investment in China since the implementation of the policy of reforms and openness has grown directly with the growth of gross domestic product (GDP) indicators: FDI in the PRC economy in 1990 accounted for about 1% of the state's GDP, but already in 1993 the FDI indicator was 6.2% of GDP [3]. It is important to note that, since 1993, the percentage of FDI to China's GDP has been declining, but this percentage is associated with the growth of the economy of China, and not a reduction in investment flow: in 1993, China's GDP was 444.7 billion US dollars, but already in 2021 this figure was equal to 17.8 trillion US dollars [4].

The implementation of Deng Xiaoping's economic and political program contributed to solving many problems that were brewing in China, among which one can single out the poverty of the population, low level of education, low life expectancy, etc. However, the most significant impact of FDI in the PRC's economy was on industrial production: a significant part of the production capacity of multinational companies (hereinafter TNCs) was concentrated on the territory of the PRC due to the low costs of producing their products. This accumulation of production has allowed the PRC to significantly strengthen its economic indicators and, most importantly, to provide the state with industrial sovereignty. Chinese corporations have been able to implement import substitution in most sectors of the economy and establish the production of their products for export. At the moment, products from China occupy one of the key positions in the world market: China is a key trading partner for the United States, the EU, the Russian Federation, most countries in Africa and Southeast Asia.

Thus, Deng Xiaoping's political and economic program made it possible to bring the PRC out of the protracted crisis caused by the consequences of the civil war, the "Big Leap" policy and the "Cultural Revolution" in China; which in turn allowed the PRC to attract investments from foreign countries, which led to an increase in the economic and political influence of the PRC at the present stage.

China's cooperation with the countries of the Balkan Peninsula in the field of investment and infrastructure

The People's Republic of China, having acquired significant economic and industrial influence in the world, has begun to implement investments in foreign projects around the world. Of course, the main directions of Chinese FDI are developed countries, which can be ranked according to the volume of Chinese FDI at the time of 2010 as follows:

1.                 United States of America – 328.9 billion US dollars;

2. Germany – 104.9 billion US dollars;

3. France – 84.11 billion US dollars;

4. Hong Kong – 76.01 billion US dollars;

5.                 Japan – 56.26 billion US dollars;

6.                 Russian Federation – 51.7 billion US dollars;

7. Canada – 38.58 billion US dollars;

8.                 Netherlands – 31.9 billion US dollars;

9. Republic of Korea – 19.23 billion US dollars;

10.             India – 14.63 billion US dollars [5]

It is important to note that, since 2010, the role of the PRC in the overall global FDI flow has increased, but remains at a fairly low level:

1. 2010 – 1,7%;

2. 2015 – 4.4%;

3. 2020 – 6.4% [6].

 Based on the increased role of the People's Republic of China in the global flow of FDI, it is necessary to study the investment policy of the PRC in relation to the countries of the Balkan peninsula. The "powder keg of Europe" states include Albania, Bulgaria, Bosnia and Herzegovina, Greece, Romania, Northern Macedonia, Serbia, Slovenia, the Republic of Turkey, Croatia and Montenegro.  

The geographical position of the countries of the Balkan peninsula: being at the crossroads of trade routes connecting the states of Asia and the "Old World" allows the Balkan states to act as a "gateway to Europe".

People's Republic of China, implementing the project "One Belt and One Road" (Eng. One Belt One Road - OBOR), builds trade routes directed to Europe in order to reduce the cost of transporting goods produced in China [7]. The implementation of the previously designated project, which includes the construction of two trade corridors: the land "Silk Road Economic Belt" and the sea "Sea Route of the XXI Century", began after the visit of the Chairman of the People's Republic of China to Astana in 2013 [8].

In the context of studying the investment policy of the PRC in the Balkan region, it is necessary to focus on the land part of the Belt-Road. Based on the data of the official portal of the previously designated PRC project, the land corridor connecting Asia and Europe will pass through the territory of the Balkan Peninsula: Turkey, Bulgaria and Romania, therefore, the distribution of PRC investment projects on the territory of the Balkan Peninsula is concentrated on the three previously designated states:

The Republic of Turkey. Turkey, which connects Europe and Asia and is located on two continents at once, could not be unnoticed by the Celestial Empire in the context of the implementation of the Belt and Road project. When analyzing Chinese FDI, it is also necessary to identify the state of the Turkish economy: inefficient and short-sighted decisions of Turkish President R.T. Erdogan led to an exorbitant increase in inflation rates: in 2016, inflation in the Republic of Turkey was about 7.8%, but already in 2022 this indicator was 72.3% [9]. Following the increase in inflation, the key rate of the Turkish Central Bank also "took off": in 2021, the key rate of the Turkish Central Bank was 8.5%, in September 2023 – 30% [10]. This monetary policy of the President of the Republic, popularly sarcastically called "erdoganomics", has "exposed" areas of the economy vulnerable to foreign influence that can be occupied by foreign TNCs. It is important to understand that the size of the economies of both powers is not equivalent: China's GDP at the time of 2022 was about 17.96 trillion US dollars, while Turkey's GDP was 905 billion US dollars [11]. Moreover, it is worth noting the gap in the trade balance of the two states: at the time of 2021, China exported goods and services to Turkey in the amount of more than 31.6 billion US dollars, while at the same time imported in the amount of 3.79 billion US dollars [12].

 At the same time, Turkey ranks 23rd in the ranking of countries in terms of Chinese investment, ahead of South Africa in this indicator, but lagging behind Greece [13]. At the time of 2022, China has 1,148 registered companies in Turkey and about $1 billion of direct investments [14]. However, not only direct financing is limited to cooperation between the PRC and Turkey: infrastructure projects in Turkey play an important role in bilateral relations between the PRC and the Republic of Turkey. Among the most ambitious projects already implemented is the construction of the Baku-Tbilisi-Kars railway, which reduces the trade route between China and European countries by 7000 km [15].

Summing up all of the above, we can conclude that cooperation between the PRC and Turkey in the field of investment and infrastructure can be characterized as unidirectional: the key investor in relations between the two states is the PRC, which invests significant funds in the economy and infrastructure of Turkey in order to develop the transport, energy and extractive industries of the latter economy, pursuing the goal of reducing costs when transportation of goods produced on the territory of the Middle Kingdom to European countries, taking advantage of the favorable geographical position of the Republic of Turkey.

 Bulgaria. Bulgaria, being on the Black Sea coast, having a land border with the European part of Turkey, plays an important role as a "gateway to Europe" for the PRC in the context of the implementation of the Belt and Road project. Of course, Bulgaria's economic potential is incomparably less than that of Turkey: Bulgaria's GDP is inferior to Turkey's by more than 10 times and amounts to 89 billion US dollars [16], from which the flow of Chinese FDI into the Bulgarian economy is only 151 billion US dollars [17].

Based on the data of the investment portal of the Ministry of Commerce of the People's Republic of China, it can be seen that at the time of 2023, about 25 investment projects of the PRC in various sectors of the Bulgarian economy are being implemented in Bulgaria:

1. Real estate sector – 8 projects;

2. Manufacturing industry – 13 projects;

3. Electricity, heating, gas – 1 project;

4. Construction industry – 2 project;

5. "Other" - 2 projects (the project of combined biomass production in Berkowitz, a plant for processing construction waste) [18].

Thus, it can be concluded that Bulgaria is an important component of the Belt and Road project due to its geographical location, for this reason, the PRC invests in Bulgaria with significant funds exceeding the country's GDP, moreover, infrastructure projects in real estate, manufacturing, electric power, heating, construction and other fields are also being implemented in this state. other things.

Romania. Romania, which also has access to the Black Sea, has similar geopolitical and geo-economic characteristics to Bulgaria: a small state with a transitional economy, acting as a gateway to Europe. In 2020, the total volume of Chinese FDI to Romania amounted to 307 million euros, which in terms of dollars was approximately 320 million US dollars [19]. At the same time, China's infrastructure projects in Romania are limited only to the construction of a 400 MW power plant. In cooperation with Chinese IT giants Huawei and ZTE, significant funds have been invested in the telecommunications sector of Romania.

Based on the previously given data, it is clearly seen that the investment flow of the PRC to Romania is significantly different from the flow to Turkey or Bulgaria. Such "modesty" of bilateral investment and infrastructure cooperation is primarily due to the low prospects of the Romanian economy, the small impact on the transport corridors of the Belt and Road project and political differences.

However, China's cooperation with the countries of the Balkan Peninsula is not limited to the profitability of the implementation of the "One Belt and One Road" project, the political factor also plays an important role. The main political ally of the PRC in the region is the Republic of Serbia, with which close political contacts were initiated during the existence of the Socialist Federal Republic of Yugoslavia (SFRY): in 1955, when diplomatic relations between the two states were established [20].

Serbia, being the main political ally of the PRC in the region, accumulates the main investment flow from China: about 70% of the total investment flow to the territory of the western Balkans is directed to Serbia, in monetary terms amounting to more than 528 million euros at the time of 2022 [21]. It is also important to note that over 10 years (2010-2020), the investment flow of China to Serbia has increased more than 260 times: 2010 -2 million euros, 2020 – 528.5 million euros [22].

Conclusion

The main conclusions of the study are:

A key factor in China's cooperation with the countries of the Balkan region is the initiative of the Chinese government "One Belt and One Road" (Eng. One Belt One Road - OBOR), which includes two trade routes from Asia to Europe: the land "Silk Road Economic Belt" and the sea "Sea Route of the XXI Century", aimed at reducing the costs of transporting goods from China to Europe.

The main investment directions of the PRC on the Balkan Peninsula are Turkey, Bulgaria and Romania. All three states have an advantageous geographical position, which consists in positioning the states as a "gateway to Europe", a weak economy, unable to compete with the economy of the PRC, which allows Chinese companies to freely "capture" the markets of the Black Sea states of the region, which is clearly seen in the example of the Turkish Republic, gripped by the consequences of the so-called "Erdogan". Moreover, China's infrastructure projects are also aimed at the construction of those facilities that can be involved in the implementation of the Belt and Road project [23].

China's investment cooperation with the countries of the Balkan region does not fully depend on political relations, but Romania and Serbia are clear examples of maintaining political influence on investment and infrastructure cooperation: Serbia, being the main political partner of the PRC in the region, accumulates about 70% of the entire investment flow of the western Balkans, at the same time, the actions of the Romanian authorities and their non-pragmatic policy towards Chinese investments have led to a reduction in cooperation with the PRC in the previously designated areas.

References
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2. Foreign Direct Investment Statistics: Data, Analysis and Forecasts. Retrieved from https://www.oecd.org/investment/statistics.htm
3. Foreign direct investment, net inflows (% of GDP) – China. Retrieved from https://data.worldbank.org/indicator/BX.KLT.DINV.WD.GD.ZS?locations=CN
4. GDP (current US$) – China. Retrieved from https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=CN
5. Statistical Bulletin of China’s Outward Foreign Direct Investment. Retrieved from http://images.mofcom.gov.cn/hzs/accessory/201109/1316069658609.pdf
6. China’s outward direct investment and its impact on the domestic economy. Retrieved from https://one.oecd.org/document/ECO/WKP(2021)36/en/pdf
7. Minghao, Z. (2015). China’s New Silk Road Initiative. Istituto Affari Internazionali (IAI).
8. One Belt One Road. Retrieved from https://globalcentre.hse.ru/OBOR
9. Inflation, consumer prices (annual %) – Turkiye. Retrieved from https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?locations=TR
10. The Turkish Central Bank raised the key rate for the fourth time in a row. Retrieved from https://www.vedomosti.ru/economics/articles/2023/09/22/996512-tsb-turtsii-chetvertii-raz-povisil-klyuchevuyu-stavku
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13. Gürel, B., & Kozluca, M. (2022). Chinese Investment in Turkey: The Belt and Road Initiative, Rising Expectations and Ground Realities. European Review, 1–29.
14. China’s 2023 Trade and Investment with Turkiye: Development Trends. Retrieved from https://www.silkroadbriefing.com/news/2023/01/25/chinas-2023-trade-and-investment-with-turkiye-trends/#:~:text=As%20of%202022%20China%20had,varies%20from%20sector%20to%20sector
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Review of the article "Cooperation of the PRC with the countries of the Balkan region in the field of investment and infrastructure" The subject of the study is the cooperation of the PRC with the countries of the Balkan region in the field of investment and infrastructure. The methodology of the research, as the author of the reviewed article notes, "is based on the theory of political realism, which considers international relations in the context of the struggle of the main actors represented by national states for their national interests." The author also used the following methods in his work: systematic, analytical, comparative, logical. The relevance of the topic is due to the fact that China has been striving to assert itself in the international arena as one of the active actors in recent decades. The author writes that the relevance of his chosen topic is due to "the active growth of the economic and political influence of the People's Republic of China in the context of the transit of power in the modern changing conjuncture of world politics" and it is difficult to disagree with this. The scientific novelty lies in the formulation of the problem and the objectives of the study. The scientific novelty lies in the fact that the author makes an attempt to "in-depth study of China's cooperation with the countries of the Balkan region in the field of investment and infrastructure in the context of the implementation of the One Belt and One Road project, the analysis of China's infrastructure projects on the territory of the states" of the Balkan region. The structure of the work is aimed at achieving the goals and objectives of the study. The structure consists of an introduction, sections: The formation of the financial sector of the People's Republic of China; Cooperation of the People's Republic of China with the countries of the Balkan Peninsula in the field of investment and infrastructure; Conclusions and bibliographies. In the introduction, the author reveals the relevance of the topic, the methodology of the study and notes what the novelty of this study is. In the section "The formation of the Financial sector of the People's Republic of China", the author analyzes the policy of openness and reforms initiated in 1978, which consisted in combining the principles of the Communist political and economic structure of the People's Republic of China and market elements in the economy and at the same time began the process of integrating the country into the international market system and notes its success and emphasizes that the People's Republic of China managed to "attract investment from foreign countries, which has led to an increase in the economic and political influence of the People's Republic of China at the present stage." The section "Cooperation of the People's Republic of China with the countries of the Balkan Peninsula in the field of investment and infrastructure" provides an analysis of the investment policy of the People's Republic of China. The author writes that after the republic gained "significant economic and industrial influence in the world, it began to implement investments in foreign projects around the world." The author gives in the text of the article the level of Chinese FDI in the economies of different countries for 2010. (The largest amount of Chinese FDI was in the economies of three countries: the United States, Germany, France and Hong Kong). At the same time, the author notes that the level of China's total global FDI flow still remains at a fairly low level and if in 2010 it was 1.7%, then in 2020 it was 6.4%. China's interest in the countries of the Balkan region is due to the fact that these countries are the "gateway to Europe" and China is "implementing the One Belt and One Road project building trade routes to Europe in order to reduce the cost of transporting goods produced in China." This project includes two trade corridors: the land "Silk Road Economic Belt" and the sea "Sea Route of the XXI Century" and the land corridor runs through the countries of the Balkan region. The author of the reviewed article examines the economic and political factors of active investment policy in the Balkans, provides an analysis of building relations with the countries of the region and the level of investment. In conclusion, the author draws reasonable conclusions on the topic under study and writes that "the key factor in China's cooperation with the countries of the Balkan region is the initiative of the Chinese government "One Belt and One Road" ... The main investment directions of the PRC on the Balkan Peninsula are Turkey, Bulgaria and Romania", which have an advantageous geographical location and a weak economy, which "gives The PRC has the opportunity to "capture the markets" of the states of the Black Sea region." The bibliography of the work is diverse and shows that the author is well versed in the topic. The appeal to the opponents is presented at the level of the information collected during the work on the topic of the article, the analysis carried out and the bibliography of the work. The article is written on an interesting and relevant topic.