China In Eurasia

PODGORICA -- A European financial institution is prepared to help refinance Montenegro's $1 billion debt to China, which the Balkan country incurred over a controversial highway project.

Montenegrin Finance Minister Milojko Spajic said the low-interest credit from the financial institution will allow the cash-strapped government make savings and cut interest rates. He also told a session of the parliamentary Finance and Budget Committee on June 17 that a nondisclosure agreement prevented him from revealing the lender, but that talks were "in the final phase."

A European Union source told RFE/RL that an agreement on providing credit is in the process of being finalized and, once finished, will be signed by European Commission President Ursula von der Leyen.

A refinancing agreement could bring an end to the ongoing uncertainty over Montenegro's debt with China and its relations with the EU.

The long-delayed and still-incomplete highway -- for which the loan was given -- and the small Balkan nation's debt to the Export-Import Bank of China are at the heart of a heated debate on Chinese influence in Europe.

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No Clear Option For Montenegro As It Tries To Repay $1 Billion Highway Debt To China

China's presence in the Balkans looms large and has increased in recent years, with the country investing billions into the region and raising concerns about financial dependence on Beijing that could complicate the EU's eastward expansion and Montenegro's hopes of joining the bloc.

Stefan Vladisavljev, an analyst at the Belgrade Fund for Political Excellence, told RFE/RL that refinancing Montenegro's debt will help counter China's growing influence in the Balkans.

"Montenegro is more important to the EU than it is to Beijing," Vladisavljev said. "This [credit] is a common-sense step for Brussels."

But he said the EU "missed an opportunity" by stepping up to help Podgorica stabilize its finances only after Montenegrin officials repeatedly asked for assistance to manage the country's debt.

"The response should be more decisive," Vladisavljev said. "Still, it is a good thing that the EU is looking for a potential mechanism to assist Montenegro, and it should help improve the bloc's image [in the Balkans]."

The Highway Debt

Montenegro borrowed $1 billion from China in 2014 to fund the first portion of a 163-kilometer motorway to neighboring Serbia. The project itself is divided into three sections, with the Chinese loan only covering the first 41 kilometers.

The first section of the highway was originally due for completion in 2019, but construction delays and the COVID-19 pandemic have pushed the deadline back to November 30.

Despite failing several feasibility studies, the project received the green light from then-Prime Minister Milo Djukanovic's government, who took out the massive Chinese loan to fund the highway.

Djukanovic is now Montenegro's president and the current government -- which was narrowly voted into power in December -- is made up of opposition parties that mostly opposed the highway project and have since searched for a financial solution to the mounting debt.

Deputy Prime Minister Dritan Abazovic first publicly raised concerns about the country's debt obligations in March, when he told Montenegrin lawmakers that the EU should help pay off the loan to protect the country from becoming dependent on China.

The EU, however, declined to directly help with the loan, but Reuters reported on June 11 that Brussels was looking to rely on some combination of Germany's Reconstruction Credit Bank, the French Development Agency, and Italy's CDP investment bank to provide financial aid and help Montenegro with refinancing.

Montenegro's government -- a fractious coalition that holds a thin margin in parliament -- is currently juggling a host of political and economic issues while attempting to stabilize its finances.

The tourism-dependent country's economy contracted by 15.2 percent in 2020, according to the International Monetary Fund, due to restrictions on travel caused by the coronavirus pandemic. But current forecasts show Montenegro's economy could grow by 9 percent in 2021.

China holds approximately one-quarter of Montenegro's total debt, which reached 103 percent of GDP last year.

Beijing agreed to defer repayment of Montenegro's first tranche of the loan, which was originally due in July, but has now been pushed back to late 2022.

China And The EU

Finding a solution to Montenegro's economic problems is a test for Brussels's standing in the Balkans and the EU's willingness to counter China's deepening footprint on its periphery, analysts say.

"There is no doubt that China is the main factor guiding the EU's decision making," Vuk Vuksanovic, a researcher at the Belgrade Center for Security Policy, told RFE/RL. "Montenegro can be an easy but very big geopolitical [win] for China in the region. The damage to the EU's interests in the region will be irreparable if it does not step up."

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Montenegro, which became an independent country again when it broke away from Serbia in 2006, joined NATO in 2017 and is working to get the green light to join the EU.

Like many countries in the region, it also has strong ties to Russia and has increasingly looked to China -- under the guise of Beijing's Belt and Road Initiative -- for investment and to build infrastructure in the last decade.

Vuksanovic says EU credibility in the region will hinge on how Brussels continues to assist its small neighbor in the Balkans.

"It gives the Montenegrin government more breathing space and better maneuverability in dealing with debt towards China," he said.

"Although, China is not entirely the loser here. Let's not forget that it will be paid in the end."

Welcome back to the China In Eurasia briefing, an RFE/RL newsletter tracking China's resurgent influence from Eastern Europe to Central Asia.

The China In Eurasia briefing is nearly six months old and I want your feedback. Send me an e-mail and let me know what you like so far, what you want to see more of, and what you think can be improved. Send your feedback to StandishR@rferl.org

I'm RFE/RL correspondent Reid Standish and here's what I'm following right now.

The Fight In Budapest Over A Chinese University

The showdown in Hungary over government plans to take out a $1.5 billion loan from a Chinese lender to build a satellite campus for Shanghai's Fudan University has intensified.

In the last two weeks, the temperature around the issue has risen, with protests in the streets of Budapest and political maneuvering ahead of parliamentary elections in 2022 as the country's disparate opposition targets Prime Minister Viktor Orban's China ties.

Finding Perspective: The escalation began with Budapest Mayor Gergely Karacsony announcing that the streets surrounding the proposed project site would be renamed Free Hong Kong Road, Dalai Lama Road, and Uyghur Martyrs Road to highlight sensitive issues around China's human rights record.

That was followed by protests in Budapest on June 5, where thousands took to the streets to demonstrate against the university project, which is slated to be built at a site where affordable housing for Hungarian students was previously planned.

This sparked action within the Hungarian government. Orban's chief of staff, Gergely Gulyas, floated the idea of a referendum on the issue -- something the opposition has been calling for -- but not until at least 2023. This was followed by Orban announcing that a vote would be held on the issue.

As my colleague Balint Szalai and I reported, this sets up a prolonged and tense political showdown in Hungary as the country prepares for 2022 elections, with the Chinese university taking center stage.

Why It Matters: Hungary's opposition candidates have united against Orban's Fidesz party as the prime minister faces what appears to be the first competitive elections after three successive landslides since 2010.

Surveys show a united opposition and Fidesz polling neck and neck, with Karacsony an early front-runner to be the opposition's candidate.

While China itself isn't much of a wedge issue, Karacsony has chosen the Fudan campus and other China-backed projects as a way to frame larger political topics and draw attention to the government's poor track record on transparency, deteriorating rule of law, and democratic backsliding.

Read More

• "This has become a political issue and we should decide this in a way that is the most acceptable to all," Orban said on June 10 as he announced that a referendum would be held on the issue. Although few other specifics have been given.
• Many observers see the government trying to push any vote on the campus until after next year's election in an attempt to defuse any momentum around the issue that the opposition has generated.
• The Hungarian parliament voted on the issue on June 15, RFE/RL's Hungarian Service reported. Lawmakers voted to transfer assets to Fudan University for the project, despite the government's talk of a referendum. Critics of the project say that this vote now makes preventing the campus from being built extremely difficult.

Expert's Corner: The Budapest Mayor Talks About Fudan University

I received many questions about the situation in Hungary lately, so here's more from what Budapest Mayor Gergely Karacsony had to say to RFE/RL for our article.

"The Student City will provide affordable housing to young Hungarians from the countryside, so the demonstration on [June 5] in Budapest was primarily about the well-being and opportunities for youth in rural areas. Therefore, the referendum should be nationwide, it should be about China's debt and the chances for rural youth. We stand against the Chinese debt and for housing for rural youth."

"It's understandable that China acts in order to increase its political and economic influence, but it is unacceptable for the Hungarian government to serve this Chinese influence-boosting effort instead of Hungary's own interests."

Do you have a question about China's growing footprint in Eurasia? Send it to me at StandishR@rferl.org or reply directly to this e-mail and I'll get it answered by leading experts and policymakers.

Three More Stories From Eurasia

1. Extraordinary Rendition

Lawyers for Uyghur groups have submitted new evidence to the International Criminal Court's (ICC) Office of the Prosecutor showing the government in Tajikistan has been cooperating with Beijing to send Uyghurs back to China, my colleague Bruce Pannier reports.

The Details: The lawyers are trying to get the ICC to target China for its treatment of Uyghurs and other Muslim minorities in Xinjiang, but given that Beijing is not a member, the court cannot open an investigation.

Instead, the complaint submitted by the legal team is targeting countries that have extradited Uyghurs back to China, where Beijing is alleged to be operating an internment camp system against Muslim minorities and accused by several Western governments and human rights watchdogs of committing crimes against humanity and genocide.

Tajikistan, one of China's western neighbors, is a target of the complaint, as is Cambodia. Both countries are ICC members and under The Hague court's jurisdiction.

The complaint alleges that "members of the Chinese Public Security Bureau who are present in Tajikistan direct local Tajik police to carry out raids on the areas where Uyghurs live and work," and that those Uyghurs who did not have "correct paperwork" were "then deported back into China by Chinese authorities in small groups of up to 10 to avoid international attention."

It also accuses Tajik authorities of helping to facilitate the extraordinary rendition of Uyghurs from Turkey back to China.

2. Debt Drama

Montenegro is negotiating how to access hundreds of millions in affordable credit from the European Union in order to help pay down its soaring debt, a large chunk of which is owed to China, Reuters reported.

Searching For A Solution: In addition to searching for cheap credit from Brussels, the Reuters report also said that Podgorica was looking into selling off state assets in order to pay down its debt and ease its financial dependence on China.

However, the government has since denied any plans to sell off state property to pay down its debts, my colleagues at RFE/RL's Balkan Service tell me.

"It is not true that any sale of state property is being prepared, nor is there a need for that. This government has ensured that Montenegro has the money to finance all obligations, which include those towards Chinese creditors," said a government spokesperson.

Background: Montenegro's debt to China is at the heart of a hot debate about Chinese influence in Europe.

The country borrowed $1 billion from the Export-Import Bank of China in 2014 to fund a 41-kilometer stretch of highway that was to be the first leg of a 163-kilometer link to neighboring Serbia. Although that initial segment is behind schedule and still incomplete.

China agreed to defer repayment of Montenegro's first tranche of the loan, which is now due in late 2022.

3. How Beijing And Islamabad Negotiate

A recent study of China's Belt and Road Initiative (BRI) in Pakistan suggests Beijing has less control over its massive development projects as was first thought and often has to alter its plans to accommodate Pakistani officials.

The Flagship Project: I interviewed Filippo Boni, one of the report's authors, about the research, which was done for the Carnegie Endowment for International Peace.

Beijing's growing footprint in Pakistan through the China-Pakistan Economic Corridor (CPEC) has made it one of the most visible case studies of China's growing presence abroad and has led to accusations by critics that the grouping of projects is a tool for Chinese expansion and a way to impose its will on Islamabad.

But Boni and co-author Katharine Adeney dug into the internal machinery of how CPEC is unfolding on the ground, looking at negotiations between Beijing and Islamabad and how China has adapted its plans to suit the domestic situation within Pakistan.

"China can't just get its way through the local context as easily as some might suggest," Boni said. "It's about negotiations and mutual interest. China's power has its limits, and it needs to adapt."

Across The Supercontinent

Reinforcements: Sinovac, a Chinese vaccine, has arrived for use in Kazakhstan and received approval from the World Health Organization, RFE/RL's Kazakh Service reported. Sinopharm, another Chinese vaccine, is already available in the country.

View On The Ground: Local environmentalists in Montenegro say China wants to repair only a fraction of the damage incurred during construction for the country's $1 billion highway in a gorge declared a UNESCO site, RFE/RL's Balkan Service reported.

A Watching Eye: The Russian state company Rostelecom told my colleague, Zoya Simbirskaya, from RFE/RL's Tatar-Bashkir Service, that China's Hikvision will be providing video surveillance cameras for the upcoming September elections in Russia.

Banned: Romanian President Klaus Iohannis signed a bill on June 11 that banned China and Huawei from taking part in the development of its 5G telecommunication networks.

A 20-Year Footprint: The Shanghai Cooperation Organization (SCO) turned 20 on June 15. Raffaello Pantucci takes a look at the lasting imprint of the China-backed bloc for the Oxus Society.

Chinese Cash: The Kyrgyz government is looking for investors to build a logistics center in the At-Bashinsky district of the Naryn region, RFE/RL's Kyrgyz Service reports.

Chinese investors had previously expressed interest in the project, but the plans were put on hold last year amid protests by residents against the center being financed by Chinese money.

One Thing To Watch

The Tokyo Olympics are set to kick off at the end of July, but in political circles, attention is already shifting to the 2022 Winter Olympics in Beijing.

A group of politicians spanning 11 countries across Europe and North America launched coordinated efforts earlier this month to call for a diplomatic boycott of the 2022 games.

Their aim is to pressure governments to decline invitations to the Beijing Olympics, due to human rights abuses by the Chinese government, particularly over the treatment of Uyghurs and Muslim minorities in Xinjiang.

The initiative appears to be gathering steam. U.S. lawmakers pledged a diplomatic boycott of the 2022 Olympics as part of a wide-ranging, China-focused bill passed by the Senate and, this week, the Czech Senate called on politicians not to attend next year's Winter Olympics.

That's all from me for now. Don't forget to send me any questions, comments, or tips that you might have.