(Bloomberg) — It’s 10 a.m. and the high-speed train is leaving Belgrade’s new glass-and-steel station on time. Thirty-six minutes later it reaches the city of Novi Sad in northern Serbia, the first completed section of a 350-kilometer-long upgrade leading to Budapest in Hungary.
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The route is the kind of European modernity that Serbia has been craving for years. But the line China is building also represents something more political: how Beijing is helping to transform a part of Europe at a time when much of the continent now sees it as a strategic rival.
The Belgrade-Budapest rail link will unite the capitals of two countries that are embracing China more closely and offering it a back door to a continent torn over its ties with the world’s second-largest economy.
From car battery factories in Hungary to copper mining in Serbia, Chinese direct investment in the two countries exceeds $15 billion, with more to come. The new high-speed railway is highlighted by the President Xi Jinping during a trip to Europe this week, where after Paris he will stop in Belgrade and Budapest.
The relationship is based on money – credit, investments, trade – politics and even health. Serbian President Aleksandar Vucic says he wants his country to join the European Union but has maintained his country’s East-West balancing act with China and Russia. Both countries support Belgrade’s stance of not recognizing Kosovo’s independence. Refraining from resistance to Kosovo’s statehood is a prerequisite for Serbia’s EU membership.
In Hungary, an EU member for two decades, Prime Minister Viktor Orban has charted his own nationalist path, clashing with the bloc over the rule of law and funding and threatening to veto aid to Ukraine.
For Xi and his government, this results in the political advantage of having closer relations with two European states that, alongside Brussels and Berlin, are willing to listen to Beijing. Vucic and Orban, for example, met Vladimir Putin last October at an international forum hosted by China.
The message to other countries in Eastern Europe, according to Daniel Hegedus, senior fellow with a focus on Central Europe at the German Marshall Fund, is: Look at “what opportunity you missed.”
“What we are seeing is actually the Chinese showing that we reward our friends, those who stay with us, those who work with us ultimately benefit,” he said. “The Chinese are building a prodigy of Chinese investment to demonstrate the benefits of cooperation with China.”
The growing economic footprint fills a void left by the EU, which is still the region’s largest investor. The bloc is increasingly seen as a distant dream in Serbia and is viewed negatively in Hungary, where Orban speaks of the decline of Western civilization.
“Xi’s visit is definitely a gesture, a sign of gratitude to Hungary and Serbia,” said Gergely Salat, a researcher at the Hungarian Institute of International Affairs, a government think tank. “In view of the numerous new investments, especially coupled with the prospect of cheap Chinese loans, the government in Budapest can see this as a complete success.”
In Novi Sad, Veselin Simovic definitely sees it that way. The railway manager proudly presented the soon-to-be-inaugurated, renovated hall of the city’s main train station. Workers welded stair railings and laid tiles.
The train connection costs 2.9 billion US dollars and the number is rising. For Simovic, it is evidence of how Chinese loans and know-how are giving the volatile Balkans a taste of 21st century technology, precision and efficiency. He hit back at critics who say Vucic has deepened ties with China and one day jeopardized EU membership.
“Those who say that, why didn’t they help us like that?” said Simovic, 63, who saw infrastructure in the city destroyed during NATO airstrikes against the country in 1999 due to the Kosovo war. “This is a quantum leap. I didn’t expect to see something like this in my professional life.”
Xi’s trip to Europe is his first since 2019, apart from a visit to Russia, and the itinerary reflects China’s view. He will be in Belgrade on the 25th anniversary of the deadly US bombing of the Chinese embassy in the city. The site has since been transformed into a massive cultural center, and workers have been repairing the streets around it in preparation for Xi’s arrival.
The president’s schedule caused unrest in Paris. Paris would have preferred to visit France only because Belgrade and Budapest had different plans, said a person familiar with the travel arrangements who did not want to be named.
In fact, this agenda is on full display in Hungary, where Chinese companies are investing more than $10 billion.
Contemporary Amperex Technology Co. Ltd. is building a massive 7.3 billion euro ($7.8 billion) battery plant near the eastern city of Debrecen to supply German automakers. Electric car maker BYD chose the southern city of Szeged, near the border with Serbia, for its first factory in Europe.
Orban has consistently vetoed the EU’s critical statements towards Beijing. For him, ties with China are part of his “East opening” strategy to strengthen ties, often taking advantage of Hungary’s membership of the EU, which gives the country veto power over some of the most important decisions. Hungary also gives Chinese investors access to the world’s largest trading bloc.
“Nowadays, many talk about decoupling and de-risking, which means isolating the European economy from the Chinese one,” Orban said in October at the Belt and Road Forum in Beijing, where he was the only EU leader present . “Those who support connectivity, like Hungary, reject this policy.”
The country wants to add projects in the areas of logistics, infrastructure development and expansion of charging stations for electric vehicles to the Belt and Road cooperation, Economy Minister Marton Nagy said last week.
The danger is that China will have too much influence over the Hungarian government, which, according to Hegedus of the German Marshall Fund, is already “totally submissive.”
The ties to China also go beyond money. Hungary is home to the region’s largest Chinese minority, with around 20,000 people. The Jegenye Street area in Budapest’s 10th district is full of discreet Chinese-owned shops, stores and restaurants in former industrial buildings, an improvement on the old Chinese market that closed just over a decade ago.
The first and largest wave of Chinese came after the Tiananmen Square raid, just as Hungary was transitioning from communism to democracy. Thousands more arrived through a golden visa program that Hungary opened in 2013 and which the government plans to restart this year.
Other moves were more controversial. Three years ago, thousands of Hungarians protested against the plan to finance the private campus of Fudan University in Budapest with taxpayers’ money. Hungary has also allowed Chinese police officers to patrol its streets, ostensibly to help its Hungarian counterparts engage with the community.
In Serbia, the relationship also goes beyond money. China received public praise for its support during the coronavirus pandemic after supplying Sinopharm vaccines, as it did to Hungary. China has invested $5.5 billion, mostly in copper mining and a steel processing plant, and the impact is clearly visible.
A case in point is Bor, Serbia’s main mining center, which was a deserted place in a pariah state under international sanctions after the Balkan wars of the 1990s. Even after Yugoslavia’s isolation ended in 2000, the state-owned mining and smelting complex RTB Bor struggled with debt and was unable to repair its dilapidated, polluting facilities that were causing acid rain.
The asset’s fortunes changed in 2018 when Chinese company Zijin Mining bought a majority stake in RTB Bor with a commitment to invest at least $1.5 billion. Six years later, the city’s dirty facades are being cleaned and repainted. The mining complex recovered and employed more than 6,000 people. The average take-home pay was $1,300 per month, more than 50% higher than the national average.
Local property prices have almost tripled since the takeover, while dust and sulfur oxide levels are below legal limits for the first time in decades. Banners around the facility remind workers that their safety is a top priority. Zijin plans to make the Serbian plant Europe’s largest copper producer by 2030, Chen Jinghe, the company’s chief executive, said in late April.
“Every part of our production has been modernized and modernized,” said Nemanja Anicic, a 42-year-old manager of the Krivelj open-pit mine, the largest in Serbia, as he watched the screens in the control room that monitor every truck and bulldozer roaming the huge pit . “It’s a rebirth for the industry.”
Serbia’s turn to China reflects the need for investment as EU membership remains a distant prospect. China is Serbia’s largest trading partner after Germany. Exports and imports totaled $6.2 billion last year.
Bilateral trade deals would end once the country joins the EU, Vucic promised last year, but in the meantime “we have to live until EU accession.”
The rail connection north of Belgrade shows how the country does it: On the way to Novi Sad, the high-speed train runs over a bridge that was rebuilt with EU funds and replaces the bridge destroyed by NATO in 1999.
“You can work with China,” said Bojan Stanic, deputy director of strategic analysis and data at the Serbian Chamber of Commerce, “and still keep your independence and your European values.”
– With support from Zoltan Simon, Ania Nussbaum and Tom Fevrier.
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