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Will Montenegro’s New Government Bring a New China Strategy?

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Will Montenegro’s New Government Bring a New China Strategy?

Montenegro saw a peaceful regime change for the first time in its history. What does that mean for China? 

Will Montenegro’s New Government Bring a New China Strategy?

In this photo taken early Monday, Aug. 31, 2020, supporters of opposition groups celebrate after declaring victory in Montenegro’s parliamentary elections in Podgorica, Montenegro.

Credit: AP Photo/Risto Bozovic

On August 31, Montenegro experienced the first regime change brought about by an election in its history. A colorful opposition coalition made up of right, left, and center parties, with the strong support of the Serbian Orthodox Church and NGO sector, claimed victory in a tight vote. What opposition activists hoped to bring about in Belarus, happened in Montenegro — but Montenegro could have seen the same sort of political crisis as Belarus if not for its proximity to and political dependency on the EU, and an integration process that has gone too far to allow for major political turmoil.

The defeat of the Montenegrin “hybrid” regime, as defined by Freedom House, is important for China as well. The Chinese hold 25 percent of Montenegrin public debt, and their loans for an unfeasible infrastructural project are often cited as the main trigger for Montenegro’s unsustainable debt. Indeed, the former Montenegrin regime embraced Russian, Middle Eastern, and offshore investments, as well as politically cheap Chinese loans. The new leaders are already announcing their intention to publish the controversial contracts with Chinese companies and renegotiate the loans.

Montenegro’s first business with Export-Import Bank (Exim Bank) of China was the purchase of two vessels for a dying Montenegrin national shipping company. The government tried to regenerate the national shipping giant, which had been devastated by a long-lasting transition, by purchasing two ships from China, along with strong state guarantees. But the idea came in the middle of another crisis for the shipping industry. No one would ever finance such a short-sighted policy — no one except China, that is. Now, the Montenegrin government is covering the loan, while the shipping company is in the same terrible financial situation.

The next big project was the famous (or infamous) Bar-Boljare highway project, part of a longer inter-country road connecting the Serbian and Montenegrin capitals. The 41 kilometer section of road financed by Exim Bank, and build by China Road and Bridge Corporation (CRBD), is mired in lengthy delays, while the initial cost of 800 million euros might end up at 1.3 billion euros, thanks to unexpected additional work, interest rates, and currency risks. (For comparison, the GDP in Montenegro was estimated at 4.9 billion euros in 2019.) As if that wasn’t bad enough, it seems that the remaining sections of the planned longer road will remain a dream. No one is ready to finance further work without state guarantees, which, at this level of public debt (from independence in 2006 to 2020, the country’s debt went from 38 percent of GDP to more than 80 percent), will be impossible. The highway project is one of the main subjects within Montenegrin newspapers, and the newly elected majority government had to address the question in their first press conference, promising to investigate the controversies surrounding the project.

A Chinese company is involved in a controversial affair involving a wind power plant, with reports being ping-ponged between the Maltese and Montenegrin press. The alleged corruption scandal involves offshore companies and Chinese and Maltese state giants, and is being investigated by prosecutors in Montenegro and Malta. However, in this case the focus is not on the Chinese role as much as it is on Maltese and Montenegrin officials.

All these Chinese funded projects were supposed to be used by the government as proof of economic growth and historic infrastructural achievements — if not for the inconvenient facts the highway was delayed and overpriced, the ship purchases were a failure, and the power plant is being investigated by prosecutors of at least two countries. At the end of the day, the projects proved a powerful fuel for the opposition in exposing the misdoings of the government.

With that backdrop, what should China expect from the regime change and new (hopefully) democratic rule in Montenegro? The concerns about pro-Serbian, pro-Russian (and thus by default pro-Chinese) forces taking over the government are exaggerated. A peaceful regime change in such a small country as Montenegro does not become world news without anti-liberal and anti-European forces threatening the peace and stability of a troubled Balkan region. The presence of these voices, however, has been exaggerated, and they do not reflect the reality of Montenegro’s dynamic political arena.

The new government (supposedly to be made up of experts) will be supported by a colorful coalition that has obvious ideological differences. Those differences will make sure the country stays on the same foreign policy course (with EU integration being a priority), while no controversial points should be opened. An abrupt change in foreign policy could jeopardize the coalition, which has its hands full with its goals to fight against (rampant) corruption, disrupt organized crime, and shepherd the economic recovery of the country amid what seems likely to be the most serious economic and financial crisis since its independence.

The new government’s willingness to attract much-needed sympathies in the EU, and finally restart the integration process, might mean a slowdown of intense economic relations with China. Chinese loans – politically cheap, but financially expensive – have negative consequences for the integration process. They undermine public procurement procedures and have a negative impact on the sustainability of public debt. Publishing the loan agreements, as the new government has promised, might damage the Chinese image abroad, and could portray China as an opportunist power taking advantage of hybrid regimes thirsty for money without strings attached.

However, the fact is that China holds an important chunk of Montenegrin public debt, for which Montenegro conceded strong state guarantees (prohibited in the EU). The country is facing serious financial challenges in the months to come, with limited space to maneuver. Thus, the new government of Montenegro should approach China more carefully and avoid further debt traps for projects that bring no sustainable growth. Montenegro needs friends and international support to use the momentum of its historic election and make sure the democratic enthusiasm of its people remains alive in the years of transition.

Mladen Grgic is an associate of European Institute for Asian Studies, a Ph.D. Candidate at University of Pompeu Fabra, Barcelona, and a member of board of governors of the American Chamber of Commerce in Montenegro.