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

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.