China in the Balkans: Montenegro and Bosnia Herzegovina open new frontiers

By Altay Atli on July 1, 2016 in Asia Times News & Features, China

Second of three parts

Two decades after the Yugoslav wars of the 1990s, the Balkan region is still going through a rigorous process of reconstruction and reconciliation. Time has not healed all the wounds in this part of the world yet, but efforts are made, with considerable success, to sustain a culture of cohabitation, and to ensure economic development, as well as political and social stability. China’s increasing activism in this part of the world, while being part of Beijing’s ‘going out’ strategy, is also welcomed by the governments of the countries in question as it brings much needed investment into efforts for economic development. Following Chinese president Xi Jinping’s visit to Serbia earlier this month, Asia Times columnist Dr. Altay Atlı went on a tour of five Balkan countries, observing China’s engagement with the region and the reflections it spurs among the local population.

BUDVA and SARAJEVO–In the 2006 spy thriller Casino Royale, an enigmatic James Bond and his female ally are seen traveling on a luxury bullet train in Montenegro toward the famous casino where they will face their nemesis. After a ride through beautiful forest scenery, the duo arrives in a picturesque Central European town in pursuit of their mission. The only problem here is, unbeknownst to many Bond fans, no single scene in the movie was shot in Montenegro. All the places that are shown in the movie as being in Montenegro are actually in the Czech Republic.

Budva Riviera, with its sandy beaches, medieval castles, and vibrant nightlife scene, draws Russian, Serbian and other Eastern European tourists in summer months. China is interested to receive a larger share from Montenegro’s fast growing tourism pie but competition is stiff

Budva Riviera, with its sandy beaches, medieval castles, and vibrant nightlife, draws Russian, Serbian and other Eastern European tourists in summer months. China is interested to receive a larger share from Montenegro’s fast growing tourism pie but competition is stiff

In the ten years after the movie was released, and with the same amount of time having passed since Montenegro has gained its independence from Serbia, this small country on the Adriatic coast has reached a stage of development and glamour that can attract Hollywood producers; and if a remake of the Bond movie is made, the protagonists’ train will probably be riding through railways constructed by Chinese companies.

Serbia wants business but its future lies in Europe

Montenegro’s economy has grown consistently over the past decade mainly thanks to rapid growth in tourism industry capitalizing on the country’s natural beauty and rich history. The Budva Riviera, with its sandy beaches, medieval castles, and variety of alternatives for club-goers, has become a magnet for foreign tourists.

The Montenegrins are not much interested in backpackers; they want to attract the jet set of Europe (and Russia), with their high propensity to spend money, to their shores; and just by looking at the yachts anchored in the new luxurious marina Porto Montenegro, one can conclude that they are making serious progress toward this goal.

China is, for the time being, only partially included in this picture. Becoming a high-end travel destination requires investment in facilities and transportation infrastructure. The skyrocketing of the Montenegrin tourism industry owes substantially to foreign greenfield investment, which is made possible through a favorable business climate, and especially the low tax rates.

While most of the property developers and hotel operators actively penetrating into Montenegrin market are from the Western countries (also from Russia and Qatar, and one should add to these the Taiwanese company which is running a luxury hotel near the above mentioned marina as well), corporations from China are yet to enter this field. The Chinese, however, are willing to start by doing what they know best.

Over the past one year, there has been great interest by Chinese companies in transportation infrastructure projects in Montenegro. To name a few, China Civil Engineering Construction Corporation is upgrading a 10-km segment of the railway connecting Bar on the Montenegrin coast with Serbia’s capital Belgrade, whereas China Pacific Construction Group signed a deal to construct a highway between Montenegro and Albania. These projects are deemed by both the Montenegrins and the Chinese as the beginning of a larger-scale and longer-term partnership.

China is interested to receive a larger share from Montenegro’s fast growing tourism pie, but competition is stiff. A competitive disadvantage for China when it comes to tourism investments is that Montenegro has not become a popular destination for Chinese tourists yet. The French Riviera is the world’s top destination for Chinese shoppers, the Italian Riviera has even employed Chinese policemen so that its thousands of Chinese visitors can feel safe and at home. However for the Montenegrin Riviera, the Chinese tourists are simply absent.

Chinese authorities claim that strict visa regulations are the main reason, whereas the Montenegrin tourism sector wants to host more Chinese. Around two thirds of all tourists coming to Montenegro are from Russia, Serbia and Ukraine (add to this the increasing number of Turks who are enjoying visa-free travel to Montenegro as well). As all these countries have economic difficulties of some sort, and the number of tourists can and does decline rapidly when things go wrong at home, alternative sources of tourist inflows are needed. China with its 120 million outbound tourists spending more than $100 billion in 2015 is the best alternative.

When tourists leave Montenegro and enter Bosnia and Herzegovina through the Klobuk Border Crossing, they are usually confused to see a sign saying “Welcome to Republic of Srpska.” The Republic of Bosnia and Herzegovina comprises of two autonomous entities, named the Republic of Srpska and the Federation of Bosnia and Herzegovina (also informally referred to as the Bosniak-Croat Federation). So, welcome to the complexities of Balkan politics and nationhood!

As one leaves Montenegro and travels into the Bosnian territory, one thing that does not change is the beauty of the landscape with all the forests, mountains, ravines and lakes. There are, however, no traces of a Montenegro-like tourism gold rush here. According to International Monetary Fund data, Bosnia is the second poorest country in the Balkans (in terms of GDP per capita measured through purchasing power parity), after the newly independent and partially recognized Republic of Kosovo. Bosnia is facing serious economic and social problems, and its capital, Sarajevo, is still scarred by the Bosnian War of the 1990s.

China’s involvement in Bosnian economy is limited to a small number of projects. Chinese companies are currently developing two coal-fired thermal power plants, one in Stanari in the Republic of Srpska, the other in Tuzla in the Federation of Bosnia and Herzegovina. Bosnia has natural advantages in terms of energy generation, and already being an exporter of electricity, Bosnians are hoping to turn this sector into a larger source of income for their country. These projects, undertaken with Chinese equipment and Chinese funding, can profoundly contribute to this purpose.

Although their economic relationship with China has so far remained limited, people of Bosnia and Herzegovina realize that doing business with China and expanding the scope to non-energy areas can bring benefits. That is why this year’s Sarajevo Business Forum, a platform for local entrepreneurs and foreign investors, was held with China as the guest of honor, and the Chinese themselves, bureaucrats and company representatives, were present with a 150-strong delegation. The enthusiasm runs both ways, but the two sides are still at the early stages of exploring how they can collaborate.

In Montenegro, the Chinese are facing international competition; in Bosnia and Herzegovina, their problem lies elsewhere. The war in Bosnia is long over, but the current stability is fragile at best, and the fragmented structure of governance in the country, with two separate autonomous entities, and a presidency rotating between each of the three communities (Bosniak, Croat and Serb) every eight months, does not help to improve things either. Under such a structure, having to negotiate with different authorities and being subject to different regulations every time is a major obstacle for the Chinese when pursuing deals in Bosnia and Herzegovina.

Both Montenegro and Bosnia and Herzegovina are included in China’s “16+1” platform, which brings together China with sixteen Central and Eastern European Countries. In Serbia, China has already a well-established business presence, which is likely to develop further in the near future. But at the same time, Macedonia and Bosnia and Herzegovina can be among the new frontiers towards which China will want to expand its influence in the Balkans. Both countries welcome Chinese investment, and Chinese are willing to invest more too. However, given limitations such as small market sizes, international competition, and ongoing lack of stability, it makes sense for all parties to keep their expectations rational.

Next: China in the Balkans: Albania and Macedonia

Dr. Altay Atlı is a scholar and freelance writer based in Istanbul, Turkey.