Montenegro attracts significant Chinese investment

Perks offered to China in return for investing in an ambitious highway project demonstrate the concessions Montenegro is willing to make to secure investment. The coronavirus crisis has heaped risks on the credit used to finance it, however.

In recent years the Balkans have seen a massive increase in interest from China, under the umbrella of the worldwide Belt and Road Initiative. One of the region’s biggest examples of Chinese involvement is the ongoing project to build a highway from Bar, a port on Montenegro’s Adriatic coast, to Serbia’s capital city, Belgrade. Montenegro has attracted China to the project by offering a Chinese construction company very favourable conditions, including a range of exemptions from taxes, customs duties and excise. 

In October 2014 the Export-Import Bank of China issued Montenegro a US$ 944m loan to finance the road’s first 41km stretch, from Bar to the mountain village of Mateševo. So far construction has been carried out by the state-owned China Road and Bridge Corporation (CRBC), a subsidiary of the state-owned China Communications Construction Company. CRBC is also in discussions to form a public-private partnership to build the road’s next segment, 136km to the Serbian border.

Montenegro will struggle to repay the loan, which has a 2% interest rate, a 20-year repayment schedule and a 6-year grace period. As of 2018 national debt stood at 79% of GDP, of which the Chinese loan formed a significant part. Moreover, this figure is likely to soar in 2020 as the coronavirus crisis causes GDP to shrink and necessitates a fiscal rollout from the government. If Montenegro defaults on this loan, it will be obliged to grant China access to Montenegrin land as collateral, granting China significant leverage over the country.

Nonetheless, in the medium term Chinese involvement in Montenegro is likely to expand. Montenegro’s political and business elites see China as a more appealing partner than Western institutions. Unlike Western funding, Chinese loans do not come with conditions of economic or political reform, and the non-transparent way China’s investments are made creates opportunities for self-enrichment. Meanwhile, Montenegro is an appealing market for China as it provides a place to engage surplus Chinese construction capacity, and also represents a foothold into Europe. China’s next object of interest in the country may be Bar’s port, which could serve as a major European entry point for Chinese goods. China is already investing in a wind farm in the country, and in the coming years co-operation may extend to other areas, such as hydropower and tourism.