Balkan corruption : the China connection.
Date: 2017-07-21
Institutions: European Union Institute for Security Studies
Subjects: EU Member State, North Macedonia, Western Balkans, corruption, foreign investment, transport infrastructure

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Balkan corruption: the China connection 
by Michal Makocki and Zoran Nechev  

The  former  Yugoslav  Republic  of  Macedonia  had  not 
yet fully recovered from the recent constitutional crisis 
when new details emerged revealing the acute govern-
ance  problems  besetting  the  country.  Following  the 
change of government, the Ministry of Transport and 
Communication  has  blocked  the  completion  of  the 
China-financed  Kicevo-Ohrid  highway  amid  allega-
tions of losses to the state budget in the region of €155 
million, a substantial sum of money in a small and un-
derdeveloped  economy  such  as  the  former  Yugoslav 
Republic  of  Macedonia.  The  scandal  implicates  not 
only four high-level politicians from the previous gov-
ernment  (including  the  former  Prime  Minister)  but 
also  refocuses  attention  on  the  role  of  Chinese  infra-
structure  projects  in  fuelling  corruption  in  the  wider 
Western Balkan region. 

In  late  2013,  the  government  in  Skopje  signed  an 
agreement  for  the  construction  of  the  57-kilometre 
Kicevo-Ohrid  highway  with  the  Chinese  Sinohydro 
Corporation LTD: the contract amounted to €373 mil-
lion, and was signed together with another one cover-
ing the 53-kilometre stretch from Skopje to Stip (€206 
million). The project was to be financed by a loan from 
the state-owned China Exim Bank for 85% of its value 
– and executed by Sinohydro.

The projects were overshadowed by allegations of cor-
ruption  from  the  outset.  In  2015  the  then  main  op-
position party ‘Social Democratic Union of Macedonia’ 
published 38 batches of recorded conversations which 
allegedly  featured  high-ranking  politicians  from  the 
ruling  parties  discussing  direct  payments  from  the 

selected Chinese company. In order to investigate these 
and other allegations related to the recordings, a Special 
Public Prosecutor was appointed. 

The  latest  details  revealed  by  the  Ministry  in  Skopje 
revealed mismanagement in the planning phase of the 
project which has inflated its costs by €120 million. It 
has also been suggested that the procurement for the 
project  favoured  politically  connected  local  subcon-
tractors. In this context, it is important to highlight that 
Sinohydro is one of a number of companies blacklisted 
by the World Bank.  

A broader trend – and pattern 

The former Yugoslav Republic of Macedonia example 
is indicative of the Chinese model of infrastructure in-
vestment  in  the  Western  Balkan  region  and  may  po-
tentially signal similar problems arising in the future in 
countries where Chinese projects are launched. For ex-
ample, according to the Serbian Infrastructure Ministry, 
companies from China have obtained contracts in the 
region of €5.5 billion for the construction of highways 
and railways. In Bosnia and Herzegovina, Beijing is fi-
nancing and building a number of lignite power plants. 
In Montenegro, a loan of €1 billion has been provided 
by the Chinese Exim Bank for a section of the highway 
linking the port in Bar with the Serbian border.

In all these cases of China-financed infrastructural pro-
jects, Chinese companies have been awarded the con-
tracts directly by the governments rather than through 
a competitive bidding process. Often countries had to 

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European Union Institute for Security Studies (EUISS)July 2017legislate  ad  hoc  for  Chinese  projects  to  meet  Beijing’s 
demands that contracts be awarded directly to Chinese 
contractors.  This  creates  loopholes  and  exceptions  in 
the  legal  system  and  delays  the  region’s  convergence 
with EU norms. As such tendering procedures do not 
involve  open  and  transparent  bidding,  they  militate 
against  efficient  public  spending  and  encourage  cor-
ruption: in short, while EU institutions try to promote 
clear rules for spending every 500 euros to make sure 
public  money  is  used  in  the  most  efficient  way,  con-
tracts for Chinese-built highways worth up to 500 mil-
lion euro are decided without any tender. 

Throughout the region, allegations abound that some 
of the contracts with Chinese companies have been ac-
companied  by  illicit  payments.  The  lack  of  transpar-
ency  in  the  entire  contract  and  procurement  process 
further  contributes  to  this  impression.  As  a  result, 
China consolidates the traditional ways of doing busi-
ness behind closed doors and undermines governance 
reforms.

The  public  accountability  and  local  oversight  of  the 
projects is also limited. Some of the Chinese projects 
may  originate  from  state  influence  rather  than  sound 
feasibility assessments and thus contribute to building 
a certain number of white elephants in the region. The 
Chinese  demand  arbitration  and  negotiation  through 
diplomatic channels rather than evaluation on the ba-
sis of local legislation. Similarly, unwillingness to reach 
out  to  environmental  or  social  organisations  when  it 
comes  to  China-led  contracts  also  excludes  any  role 
for civil society. And the limited transparency of such 
contracts further undermines the possibility of public 
scrutiny: it is only when a scandal erupts, such as in 
the  former  Yugoslav  Republic  of  Macedonia,  that  full 
details on Chinese-funded projects are revealed to the 
public.

All this ends up exacerbating the high level of corrup-
tion  existing  in  the  region.  China  is  surely  not  sole-
ly  responsible  for  this  state  of  affairs,  but  its  projects 
substantially contribute to it. The Southeast European 
Leadership for Development and Integrity’s Corruption 
Monitoring  System  shows  that,  since  the  2000s, 
the  overall  levels  of  corruption  in  the  Southeastern 
European  (SEE)  countries  have  decreased.  However, 
the  data  for  2014-2016  reveal  that  in  countries  such 
as  the  former  Yugoslav  Republic  of  Macedonia,  BiH, 
Kosovo and Albania the corruption pressure indicator 
is on the rise - primarily driven by administrative cor-
ruption that typically is a proxy for high-level political 
corruption.

Conflicting logics

China may not aim to export its ideology, but its eco-
nomic expansion is accompanied (and fostered) by its 

domestic model of business relations, based on a bal-
ance between state and market forces which is in stark 
contrast with the governance reforms promoted by the 
EU. Very often this practice is not actively pursued lo-
cally but ends up being promoted through sheer iner-
tia, as it reflects China’s own corporate behaviour and 
political governance standards. 

Chinese normative influence does not pervade the re-
gion systematically, but it creeps in - slowly but surely 
- with every project awarded to Beijing. Clearly this in-
fluence expands faster where the rules-based order is 
not yet based on firm fundamentals. The rise of popu-
list  politics  in  the  region  naturally  facilitates  Chinese 
influence  as  local  leaders  look  to  Beijing  for  alterna-
tives  to  the  EU  ‘way’  of  modernising  administration 
and public life. That chimes with new political narra-
tives in the region. At a time when the Western Balkans 
is  confronted  with  increasingly  authoritarian  political 
elites, the investments that the Chinese government is 
offering provide governments with the financial where-
withal and leverage necessary to remain in power. This, 
in turn, exacerbates and deepens the existing govern-
ance crisis. 

The  same  pattern  may  be  observed  in  other  regions 
courted by China with infrastructure investments un-
der  the  aegis  of  its  Belt  and  Road  Initiative.  And  in-
deed Chinese infrastructure projects often serve as the 
conduit for political and normative influence. Such a 
pattern has been clear in Southeast Asia where China 
rewarded Cambodia for blocking an ASEAN joint state-
ment on the South China Sea issue. In Africa, Chinese 
lines of credit provide an alternative to loans from in-
ternational donors to which reform conditionalities are 
attached.  And  in  the  EU,  there  is  an  increasing  cor-
relation  between  Chinese  investments  and  voting  by 
some member states on EU resolutions or joint EU de-
marches in the UN according to China’s foreign policy 
objectives. 

Converging efforts

Chinese investments in the Western Balkans will con-
tinue to increase in the years to come. It is in the in-
terest of the region’s governments as well as the EU to 
steer them in a direction of sustainability, environmen-
tal  compliance,  respect  for  the  rule  of  law  and  good 
governance  standards.  Creating  synergies  with  other 
external  actors  –  including  China  -  would  not  only 
bring economic growth to the region but also reinforce 
the EU reform agenda.

Michal Makocki is an Associate Analyst and Zoran 
Nechev a Senior EFB Fellow at the EUISS.

© EU Institute for Security Studies | QN-AL-17-022-2A-N | ISBN 978-92-9198-529-6 | ISSN 2315-1129 | doi:10.2815/53274

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European Union Institute for Security Studies (EUISS)July 2017