The US Presidency will finally shift in Joe Biden’s hand come January 2021. Yet, there is a fil rouge that connects Barack Obama’s tenure to the current and future foreign-policy orientation of the US, especially vis-à-vis China. The struggle against China is not set to fade in the foreseeable future. Banning Huawei from servicing Western countries’ 5G infrastructure has been a key part of this antagonism. A group of Balkan capitals have just sided with Washnington in its feud with Beijing. However, should the US be concerned about these countries’ economic ties with Beijing undermining their commitment to the common cause?
The Balkans are often quagmired in intergovernmental arguments over identity politics or internal crisis. Yet, Bulgaria, North Macedonia and Kosovo found themselves in unexpected unity when in October, all three joined the US’s Clean Network initiative. This is the name the Trump administration gave to its multi-year, intergovernmental strategy to build a number of private-public partnerships able to fend off Chinese high-tech manufacturers’ competition on the global markets. Such ratification was universally praised by the US and Balkan states alike. The U.S. Under Secretary of State defined Bulgaria’s adhesion “historic” and added that Sofia had finally joined “a growing coalition of countries and companies committed to protecting their 5G networks from untrusted vendors.” Completing the singing choir was an enthusiastic Zoran Zaev, Prime Minister of Northern Macedonia who tweeted that the initiative was “vital for the future prosperity [and … ] national security” of the country.
Yet, behind these celebrations lies a more complex reality. In fact, the Balkans are much more open to Chinese trade and investments than most of the memorandum’s signatories. Thus, their ability – and actual willingness – to pursue a tough-on-China policy could be in doubt. After all, sheer GDP figures suggest that severing ties would harm Sofia and Skopje more than Beijing.
U.S. Under Secretary of State for Economic Growth, Energy, and the Environment Keith Krach at the ceremony for Bulgaria’s adhesion to the Clean Network initiative. Source: U.S. Embassy in Sofia via Twitter
When the US started cleaning other countries’ networks
The Clean Network programme which these Balkans countries have just signed up for was announced on August 5, 2020 by State Secretary Mike Pompeo.
Official infographic for the Prague 5G Security Conference
The first important breakthrough for the program was the so-called Prague proposal, agreed by 32 countries in May 2019. The core pillars of this early plan have been developed upon in subsequent policies. Amongst them is the focus on a nation-wide approach. Thus, discussions around 5G networks’ and supply chains’ safety ought to not to be limited at producers and operators (ISPs). On the contrary, they need to reflect all stakeholders’ interests, including educators, diplomats, researchers and the intelligence community. In other words, “[s]afeguarding cyber security of communication infrastructure is not solely an economic or commercial issue.” This approach has lived on in the Clean Network Initiative, allowing it to bring together a diverse coalition of States and corporations. Stakeholders sharing the same cybersecurity concerns can thus find a way to cooperate preserving their sometimes-divergent economic interests.
However, other key points of the Prague proposal have subsided somewhat over the months, such as the “no universal solutions” principle, allowing them to create measures that “reflect unique social and legal frameworks […] and other relevant factors important for each nation” while still achieving the expected common goals. However, since the summer of 2020, Washington is requesting not only States, but also corporations to take a decisive stance. This new stance determined the essence of the Clean Network Initiative, which resolves in a commitment to pass unequivocally anti-Chinese legislation (and, for corporations, to apply policies informed by the same objective). The six areas in which the Initiative wants stakeholders to act encompass: service providers (Clean Carrier), software makers (Clean Apps) and distributors (Clean Store), hosting services (Clean Cloud), high-speed undersea cables (Clean Cable), other components from untrusted IT vendors (Clean Path).
Chinese footprints in Balkan economies — A trojan horse…
Some experts have argued that many European countries have long shied away from a full-fledged confrontation with China because of economic concerns. On such grounds many thought that “Europe will not follow the US ‘China-free’ 5G strategy.” Such a preoccupation is anchored in the strict interdependence between the Old content and China: together with Hong Kong, Beijing has accounted for 21% of the EU’s imports since 2015. Moreover, the European Union had bound itself to China in the field of cybersecurity signing “a milestone agreement” on 5G development in September 2018. It could be supposed that the Balkans may go in the same direction as the EU proper due to the intense economic ties with China.
In effect, the volume of goods exchanged between the Balkans and China has risen significantly since 2012. In particular, UN statistics put the increase at anywhere between 50–60% for Bulgaria and about 40% for North Macedonia. However, the Balkans did not welcome substantial foreign direct investment (FDIs) from China so far. Yet, Chinese FDIs’ impact is maximised by their concentration: 80% of the stock is host in four countries, including Bulgaria. Some of the Chinese companies that invested in Bulgaria are Huawei and ZTE in the electronics and telecommunications sectors, Great Wall Motors in the automotive industry (estimated at 5% of GDP) and China Today in the media market. Chinese FDIs also reached Bulgarian agriculture via the Tianjin State Farms Agribusiness Group. Moreover, between 2018 and 2019 Greece, Romania and Serbia adhered to the Asian Infrastructure Investment Bank (AIIB). This could pave the way for more accessions from the region. Finally, there was an understanding between the Chinese tour operator HiSeas International and the Bulgarian Ministry of Tourism in 2019. This has led to an immediate uptick in arrivals.
Yet, as the following paragraph highlights, an in-depth analysis seems to show that the Balkans are actually less economically dependent on China than the rest of the continent. Thus, their lesser development may make it easier for the countries of the region to stand by the US on issues like cybersecurity than it is for more-developed EU member States.
… or more of an empty shell?
The first conclusion one may draw from China-Balkans economic relations on their capability of standing up to Beijing are rather misleading. First of all, China’s economic leverage on these country’s foreign policy would be much greater if there was any favoritism on display. Yet, Chinese footprints in the region do not suggest the intent of ‘capturing’ it in the Chinese orbit. As a matter of fact, authorities did not grant the Balkans’s privileged access to sell their goods on the Chinese market. The rather unfavourable structure of Chinese-Balkan trade is manifest in the prevalence of raw metals in Chinese imports, which account for more than 60% of North Macedonia’s exports to China; a figure that rises up to 70% for Bulgaria, despite its economy being more advanced.
The evolution of Chinese FDIs in Bulgaria (2014-2019) and the author’s statistical forecasts for 2020-2022. © F. A. Telarico Data source: Bulgarian National Bank
As regards Chinese FDIs in the Balkans, the figures can only be understood in context. They equal about just a fourth of the FDI stock in Central Eastern Europe: They are so risible that, for example, in North Macedonia, Chinese FDI amounts to no more than 8‰ of GDP.
At the same time, China did not find much leeway for its financial expansion. This is probably due to the presence of solid European bank conglomerates. There are timid signs of Chinese banks putting more efforts into this endeavour. Amongst others, the China Construction Bank started to be establish a subsidiary in Bulgaria in July 2019. Nonetheless, neither Bulgaria nor North Macedonia joined the AIIB — which would be far more important.
When it comes to tourism, one has to remember that Bulgaria and North Macedonia lack an easy-visa policy for Chinese tourists. Actually, the figures for Chinese tourism are still stagnating at less than 20,000 arrivals. Obviously, the current pandemic can only worsen the situation.
Forecast
As hinted above, the idea that Balkan countries may not be able to uphold their anti-Chinese commitments could only stem from an approximate knowledge of the region would. On the contrary, actual data suggest that Bulgaria’s, North Macedonia’s and Kosovo’s economic dependence on China is quite limited. Thus, they are among the US’s most reliable European allies in this strife. Their small economies and uninteresting position (from a Chinese perspective) worked as a buffer that delayed Beijing’s penetration in the region. The adhesion to the Clear Network programme, means that China has lost the opportunity to consolidate its presence via high-tech FDIs in the foreseeable future. This is good news for Western investors who plan to acquire positions in the Eastern Balkans. This is the moment to get the best of both worlds. Their assets are definitely safe from a snowballing of the US-China tech war. Meanwhile, and most likely, buyers will still enjoy the positive ripple effects of past Chinese FDIs in the midterm.
