China Power | Diplomacy

China and the Budapest-Belgrade Railway Saga

The railway became the BRI’s most important project in Europe — but nearly seven years later, the story still isn’t over.

By Andreea Brînză for
China and the Budapest-Belgrade Railway Saga

A worker walks on the site of the reconstruction of a railway line between Budapest and Belgrade, in Belgrade, Serbia, Nov. 28, 2017.

Credit: AP Photo/Darko Vojinovic

In November 2013, at the Bucharest Summit of the 16+1 initiative, China, Hungary, and Serbia talked about building a high-speed railway that would connect Belgrade to Budapest (respectively the capitals of Serbia and Hungary). The announcement happened just one month after Chinese President Xi Jinping put forward the Belt and Road Initiative (BRI) and one year after China inaugurated the 16+1 mechanism with 16 Central and Eastern European states (it was later expanded to the 17+1, with the addition of Greece). The Budapest-Belgrade railway quickly became the 16+1’s flagship project and the BRI’s most important European project. Nonetheless, almost seven years later, the saga still isn’t over and the railway has attracted a number of misconceptions over the years.

While the railway was proposed in 2013, the three countries signed a memorandum of understanding (MoU) one year later, during the Belgrade summit of the 16+1 initiative. The the design details were settled in 2015. Construction itself would prove to be more tricky.

The route is not only a Belt and Road bridgehead in Europe, but its final destination, the Port of Piraeus in Greece, aims to enhance China-Europe commerce. As part of the Land-Sea Express Route, the Budapest-Belgrade railway became the flagship of the BRI in Europe and it is seen by Beijing as the aorta of the China-Europe land-sea fast intermodal transport route — which functions today thanks to the old railways that link Piraeus port with Budapest. In 2009, COSCO (China Ocean Shipping Company), a Chinese shipping company, acquired the license to operate Piraeus’ Pier II for a period of 35 years, together with the permission to build a third pier. In 2016, COSCO bought a 67 percent stake in Pier I from Piraeus Port Authority S.A., the Greek company that operated the pier. COSCO has extremely successful in operating the port over the past decade, and since 2009 Piraeus port has been the commercial anchor of many Asian companies in Europe, functioning as a hub for importing their products to Europe. The Budapest-Belgrade railway, which should later be extended to Piraeus, aimed to build on that success.

Thus, building 350 kilometers of railway that could allow a speed of 200 km/h became the most important Chinese project in Europe. Among those 350 km, Serbia will refurbish 184 km and Hungary 166 km, while also doubling the tracks. While in Serbia the maximum speed will be around 200 km/h, Hungary’s railway will only have a maximum speed of 160 km/h. This addresses the first misconception, created by the initial announcement of the project: that it would be a high-speed railway, similar to the ones built in China, where maximum speeds reach 350 km/h. Regardless, an 8 hour trip will be reduced to just 3 hours upon completion of the project.

The Budapest-Belgrade railway will be mainly used for cargo transportation. This is one of the reasons why the Budapest-Belgrade railway is not a high-speed railway, but a normal speed one. The high costs of the final project, coupled with concerns about profitability, convinced Serbia to renegotiate the project to be a normal speed railway. The project’s price tag has been announced as around $2.89 billion, but will probably end up at more than $3 billion, which is still far less than a high-speed railway. The Export-Import Bank of China will finance the project through a 20-year loan of $1.8 billion to Hungary and $1.3 billion to Serbia. These loans will support 85 percent of the project’s cost and the rest will be covered by the Serbian and Hungarian governments. According to a Hungarian projection, the country would need 2,500 years to pay back the loans, while Serbia, probably, would take even longer.

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Now, almost seven years since its proposal, the project is still at a standstill, not only because the European Union’s norms weren’t respected, but also because of numerous stakeholders’ vacillations.

EU regulations and standards require that big infrastructure projects be awarded through a public tender. That is why, in 2016, the EU opened an infringement procedure against Hungary and asked it to be more transparent and to organize a public tender for the railway contract, thus minimizing the risk of corruption. Moreover, the Hungarian press identified another legislative problem: a law from 2012, which required the country’s debt to be lowered from 75 percent of its GDP to 50 percent. With so much criticism of the Budapest-Belgrade railway, Viktor Orban’s government recently announced its plan to classify the details of the project. And just a few days later, Hungary announced it will sign a loan agreement for building the Budapest-Belgrade railway. But instead of being muffled, the criticism became even louder. Accusations of abuse, corruption, a looming debt trap, and futility all started to hover over the Budapest-Belgrade railway project.

On the other side of the border, in Serbia, the project’s construction started only in 2017, five years after its proposal, even though Belgrade didn’t have any EU regulations to worry about. But the Chinese company China Railway International (CRI) isn’t the only one building the railway; the Russian company RDZ International is also involved. That leads us to the other misconception surrounding the Budapest-Belgrade railway: it is not just a Chinese project.

In Serbia, the Budapest-Belgrade railway is divided into three sections: Belgrade to Stara Prazova, Stara Prazova to Novi Sad and Novi Sad to Subotica on the Hungarian border. China started building the Belgrade-Stara Prazova section in 2017. This section spans over 34.5 km and its value is around $297.6 million. The Stara Prazova-Novi Sad section is being built by the Russian company RDZ International, which won the right to build the railway in 2013, the year that Xi inaugurated the Belt and Road Initiative and the Belgrade-Budapest project was proposed. Because Serbia wanted to please both China and Russia, it decided to split the project and award it to multiple contractors. This Russian-built section is about 44 km long and costs around $338 million; building started in 2017. RDZ is also involved in building other infrastructure projects in Serbia, such as 112 km for Corridor X (the Pancevo-Belgrad, Belgrad-Bar, and Valjevo-Vrbnica sections). All these combined mean $800 million of Russian loans. This means that the Budapest-Belgrade railway isn’t a Chinese project per se, as Russia is involved as well.

While in the past, the European Union was interested in developing the Novi Sad-Subotica section, Serbia decided in 2018 to award it to CRI and China Communications Construction Company (CCCC). Serbia signed a $1.1 billion deal with these two companies for building the last 108 km of the Serbian railway.

Long before the BRI came to be seen in a negative light, or as a debt trap, China had the chance to have a happy success story in Europe, but as has been the case for many other projects, it got stuck in red tape, negotiations, and corruption. The Budapest-Belgrade railway’s history of setbacks now spans almost a decade and the project is now projected to be ready only in 2025.

In the eyes of many experts, the Budapest-Belgrade railway is just an unprofitable project pushed forward by China, Hungary, and Serbia’s individual interests. While China wants to transform the railway into a showcase model that will inspire other European countries to sign agreements with Chinese railway companies, exporting Chinese technology, Serbia wants to improve its infrastructure and please the Chinese, while Hungary’s actions are driven by the desire to become a transportation hub, as well as by politics and corruption. Apart from using such Chinese projects to slap the EU, Viktor Orban also wants to enrich his friends, as he has done with Lorinc Meszaros (whose company won the contract to built the Hungarian section together with the Chinese company), while amassing more power. The European Union, after lots of money pumped into feasibility studies, decided that only the Serbian section of Budapest-Belgrade railway could justify the investment. But Hungary won’t lose the opportunity to score a successful project with China, while transforming it into a point of leverage in Orban’s arguments with the EU.

No matter when the first train will speed across the new railway between Belgrade and Budapest, for China, the project won’t be the success story it hoped for. Because of the long delay in implementing the project, combined with the setbacks encountered and the negative publicity gathered along the way, the mood in Europe has changed too much for the Budapest-Belgrade railway to help the BRI. European countries might have been interested in Chinese high-speed technology in 2013, but now, in the middle of the U.S.-China conflict and the EU’s own hardening of positions regarding China, the interest has diminished. In the meantime, the EU’s economic powers, Germany and France, even tried to create a giant European railway company that could better compete with China’s national champions.

While China will be pleased to inaugurate the Budapest-Belgrade railway, that moment will have come a little too late. And nobody knows how many more years it will take until it will be extended to Piraeus, as was the original intention. Of course, in the Budapest-Belgrade railway saga, nothing can be taken for granted. First of all, we have to wait to see if the project will really come to life.

Andreea Brînză is vice president of The Romanian Institute for the Study of the Asia-Pacific (RISAP). Her research focuses on the geopolitics and geoeconomics of China and especially on the Belt and Road Initiative. You can follow her on Twitter @Andreebrin.