Serbia to sign $1bn infrastructure loan with China

China is about to sign off on a $1bn loan to the government of Serbia for the development of the country’s railway network, particularly the local stretch of the long-awaited Belgrade-Budapest rail connection.

“This agreement is going to be signed during the Belt and Road forum in Beijing [between April 25 and 28],” said Serbian finance minister Sinisa Mali.

Belgrade is making efforts to revamp the country’s road and railway network, including the modernisation of the Belgrade to Budapest railway connection. Today, it takes about eight to nine hours to cover the 350km dividing the two capitals. The railroad upgrade, which has a total price tag of €3.2bn, was announced in December 2014 in the context of the Chinese 16+1 initiative in Central and Eastern Europe, but has made little progress so far. In its original concept, it is expected to become a hallmark of the European chapter of the Chinese Belt and Road Initiative by connecting Budapest and Belgrade to Skopje and on to the Chinese-operated port of Piraeus in Greece.

This new financing line, which follows another $297.6m credit line by China’s Export-Import Bank signed in May 2018, comes as a further sign of the growing political and commercial ties between Serbia and China.

Chinese premier Li Keqiang voiced publicly his support for Chinese companies investing in Serbia during a meeting with the country’s prime minister Ana Brnabic on the sidelines of a meeting of China and Central and Eastern European Countries on April 11, as reported by Chinese news state agency Xinhua.

Chinese companies have already been actively pursuing opportunities in Serbia. Chinese tire producer Linglong broke ground on its $990m manufacturing site in the Serbian city of Zrenjanin, in a ceremony that featured, among others, the country’s president Aleksandar Vucic. Zijin Mining won a bid for the country’s largest copper mine. HBIS Group acquired and restructured a major steel factory in Smederevo. The China Road and Bridge Corporation is developing a major industrial park in Belgrade that Mr Mali expects to attract more than 1000 Chinese companies once completed. Work is due to begin in mid-2019.

“We expect a lot of new Chinese companies coming in this year,”said Mr Mali, without disclosing any names.

Chinese investment contributed to shore up the country’s total attracted FDI, which in 2018 reached $3.2bn, from 2.4bn in 2017, according to central bank figures. However, the country has to tread carefully as this is happening at a time when the EU is adopting an increasingly suspicious attitude towards Chinese investment, and Serbia itself is still working on EU membership.

“It’s in the best interest of the EU to have a stable and developed Serbian economy. In EU member countries, EU funds would finance infrastructure development,” said Mr Mali. “We don’t have that, we have to rely on other sources of financing. I don’t think there is any problem with that. At the same time, the closer we become with the EU, the more access to EIU funds we gain and of course we are going to use them.”

Serbia submitted an official EU membership bid in February 2016, alongside Albania, Macedonia, and Bosnia and Herzegovina.