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Mihajlo, good afternoon.
Welcome to New Magazine podcast.

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Good afternoon,
thank you for inviting me.

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I am glad that you set some
time aside to be with us today.

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I have to say, for a start,
as I have been treated the issue

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of Serbian Chinese cooperation
for many years, not too long,

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but long enough to say, without any
doubt, that the number of experts

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in Serbia on this subject
is really small.

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Right from the start of dealing
with this issue, given the high

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intensity of economic cooperation
in the early stage of research,

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the way in which you treat certain
elements of Serbian-Chinese relations

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in the field of economy were really
very useful for understanding this

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particuar subject, and I want to thank
you for being here with us today.

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Currently, you are acting in the
capacity of a President of

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Libertarian Club, a.k.a. Libek.
You are also editor in chief of

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portal Talas. You are rather
busy, so every minute of your

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time is greatly appreciated.
I would like to reiterate that

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we are honored to have you here.
Prior to launching the main theme

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of our podcast, that is economic
cooperation of China and Serbia,

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this deep ocean of our relations,
and given that our podcast is named

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Understanding the Steel Friendship,
how do you perceive this syntagma?

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We know more or less its origin,
but when you hear it in the media,

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or read about it somewhere,
how does it sound to you?

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First of all, thank you
for your kind words.

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Still, one should never consider
oneself too serious, otherwise

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we could end up facing
all sort of problems...

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I believe that this syntagma was
actually translated from Chinese.

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Chinese language is rich
with such expressions,

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having in mind their history,
state propaganda,

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that we often find their
phrases or propaganda messages,

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when we interpret them directly
from Chinese into Serbian,

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rather awkward and obscure,
but they are fully sensible

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when we regard it in the spirit
of the Chinese language.

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So, I don't react emotionally on
those phrases, I regard them

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as rather excessive, especially
as I am cynic by nature,

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and on the other hand,
considering diverse interests

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in the international arena,
I am sure that there is no

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friendship among the states,
but only interests that might be

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common in some domains,
meaning that people can

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establish friendship,
unlike the states.

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I'm glad that you mentioned
the phrase interests, as when

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we consider the relationship
between Belgrade and Beijing,

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we have to have in mind
the starting point, that those

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relations are quite complex.
When you reach the level of

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comprehensive strategic partnership
with some country, it means that

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those relations are developed
in many aspects and levels

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than it has been done partially
with some other countries,

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but the most dominant relations
are linked to economic cooperation.

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There is very thin difference when it
comes to the cooperation in the field

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of infrastructure, based on loan
agreements, the so called

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preferential credit arrangements,
foreign direct investments (FDIs),

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and what is currently most popular,
this is the domain of foreign trade.

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Of course, this is not the only thing
to focus in economic aspect,

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but three topics that I would like
to focus on in our conversation

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will get us back some fifteen
years ago, to 2008, 2009...

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It is perhaps the first agreement
that was signed in the contemporary

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period of relations between
Serbia and China.

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That is the Agreement on the
construction of brigde on Dunav,

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linking Zemun and Borca.
Certain cooperation mode

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has been established, so I would
like to hear from you whether

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this is something specific only
for Serbia or to put it this way,

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I would like to know whether
China is main partner of Serbia

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in the process of modernization and
construction of new infrastructure.

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We are witnessing new highways,
new bridges, including the field of

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energetics, we had thermal
power plant in Kostolac that

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we worked on in cooperation with
China, how it came to that,

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and how things developed in the
course of the past fifteen years?

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I believe that in order to understand
today's cooperation, we need to go

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back to the past,
to see how it all started.

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Actually, Chinese presence here
in the economic aspect, through

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insfrastructure projects had started
with the construction of Pupin bridge,

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this was the initial project that
emerged from the signing of

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that strategic document, which
was part of Serbian foreign policy

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referred to as four pillars: Brussels,
Washington, Moscow and Beijing.

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This was launched by the then
leadership, meaning the regime

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of Democratic Party
and its coalition partners.

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So, nowadays, we just witness
the continuation of this policy,

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where Serbia wants to be close
to European Union, establish

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good relations with the United
States, but also to be still brother

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country to Russia, including to
establish good relations with

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the People's Republic of China.
So, on a structural level,

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there were no major changes,
in the past fifteen years.

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In the meantime, Chinese
impact is slightly stronger,

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having in mind the number of
different levels of cooperation

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that China launched in Serbia.
We could analyse it on several

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levels, the first one being
economic aspect, meaning

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foreign direct investments of
some Chinese company here

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in Serbia, a privately owned company,
that came here to make profit.

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They benefited of the comparative
advantages of Serbia, such as

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Serbia's geographical position,
as it is close to EU market,

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Serbia borders with Hungary,
which is part of Schengen treaty,

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so they find it cheaper to produce
something here rather than

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to deliver goods from China
in order to sell it in EU.

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It can be the same labor price
compared to neighboring countries.

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The second level, linked to this one,
are investments of Chinese state

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companies, as for the private ones,
there is some kind of state influence,

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in the sense that they support
the investment or simply are there

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to assist if some problems appear.
This is a standard procedure known

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as the unwritten policy in any state,
so if a German company faces

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certain regulatory problem, it can
always ask for help of the German

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Embassy, that will, in turn, try
to solve through diplomatic channels,

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in communication with Serbian
administration, but when some

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Chinese state company invests
in Serbia, it means that it is

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directly backed by a Chinese state,
that is, then, not only economic

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but also a political decision where
state company will invest and how.

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Chinese infrastructure projects
make the next level of analysis,

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those are construction of roads,
bridges, there are negotiations

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underway on some other big projects,
such as the construction of sewage

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system and accompanying
sewage equipment in smaller

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towns throughout Serbia, as well
as subway station in Belgrade, etc.

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The largest number of those projects
is here presented on the part of the

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government as Chinese investment,
which is obviously all wrong,

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given that investment's when someone
opens up a factory for production,

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and then pay tax on the profit,
and so on, but it is altogether

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different when you borrow money
from someone, then construct

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infrastructure, only to get
the money back with interest.

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We find it useful as we need
the infrastructure, as Serbia

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hadn't invested for the last,
let's say, three decades,

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in its infrastructural development,
but this simply isn't an investment.

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Why is it presented as such probably
depends on political reasons.

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Current state government wants to
present as comparative advantage

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to its voters and the electoral
body its ability to establish good

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relations with other stakeholders
on the international level.

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This is their way to gain
trust of their voters,

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and when we live in such media
environment, major media outlets,

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being influenced by executive power,
won't dare point to finance minister

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prime minister or president...
-That it's not an investment but loan.

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Exactly. Then it gets into public
discourse and public opinion...

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I have two additional questions
that arise from this.

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Let's return again
to 2008 or 2009...

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Perhaps, I know the answer to this
particular question, but I would like

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to hear it from you,
as I've learnt it from you.

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Back in 2008, 2009 and later,
Chinese loans were so popular,

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not only in Serbia, but it was
definitely the case in Serbia,

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and whether the reason for which
we opt for Chinese loans changed

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now or two years ago compared to
the main reasons in 2008, 2009?

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I would like to make two or three
time divisions how it looked like.

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First, we realized the first loan,
the construction of Pupin bridge,

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at that moment, the financial
consequences of the global crisis

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were just spilling over to Serbia,
companies were closing down,

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foreign investments were decreasing,
people lost their jobs,

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unemployment rate was getting
higher, wages were stagnating,

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dinar devalued by 20 percent,
so that we could somehow

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manage to sustain export industry,
so the state has to get loans,

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we had quite high deficits, in order
to pay off high expenditure on

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salaries in the public sector, and
pensions, which were just raised

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for 30 percent a quarter prior
to the start of global crisis,

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so this left the state without funds
to invest into the infrustructure.

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All the funds that were assigned to
be invested into construction of

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the roads and accompanying objects
were diverted to current expenditure.

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On the one hand, that happened
because of the promise of raising

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the pensions, and on the other,
as public revenues decreased

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due to the recession in the economy.
Chinese factor, then, proved capable

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of patching up the hole created in
the state's capital expenditures.

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Therefore, we were able to borrow
under relatively good conditions,

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with a low interest rate and
a long repayment period,

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placing those funds into
building the infrastructure.

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This continued on a smaller scale,
than it is the case with the current

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levels of Chinese presence here,
all the way until 2012, 2013...

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Then, we are faced with a new
momentum as meanwhile

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Serbian public debt faced
a considerable growth, namely,

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from the level of eight billion
euros prior to the crisis,

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we reached fifteen billion
euros debt level, while

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the participation in GDP of our
public debt was about 70 percent,

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which was rather high, interest on
Serbian public debt was very high.

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To whom Serbia owed
the most at that moment?

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Do you have that information?
-To the private banks...

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We financed most of our deficits
on the international market.

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In 2012, we have for the first time
appeared in London to borrow

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large sums of money from foreign
banks, and this costs us dearly.

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As far as I remember, interest
rate back then was 7.5 percent

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in US dollars in accordance to
which we borrowed money in 2012,

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that was still Mirko
Cvetkovic's government.

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What were the interest rates of
Chinese loans for infrastructure?

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Those were around three percent.
So, it was much cheaper to get

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loans from China, through Chinese
state export banks, and to invest

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it into infrastructure, than to get
loans on world financial market.

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That was the case until 2016, when
we were on the verge of bankrupcy,

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so we had to turn to fiscal
consolidation that meant

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reduction of pensions and salaries
in the public sector, and so on...

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Then, it became obvious why it was
easier for us to get loans from our

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Chinese partners, to implement
infrastructural projects with them.

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Simply, it was cheaper to get the
loans under preferential interest rate

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than the one we could get
on the international market.

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However, then we are getting
into a second time division,

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where interest rates decreased.
On one hand, internal factors

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had an impact on this, and on
the other, this reduced Serbia's

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public debt from 70 percent
of GDP participation to some

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level of 55 or 50 percent,
so Serbia was not perceived

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as a state with fiscal difficulties.
We even started recording relatively

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decent growth rates starting in 2016,
we didn't have prolonged recession

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00:13:03,120 --> 00:13:06,320
that was the case up to that
time, and on the other hand,

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European Central Bank launched
its quantitative easing programs,

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which led to an inundation of
liquidity in the financial market,

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00:13:15,040 --> 00:13:16,920
followed by a major decrease
in interest rates' level.

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That launched a new investment
cycle, both in European Union,

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and beyond it, cash has become
cheap, Serbia was in a position

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to get loans on international market
under the same terms as with

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Chinese preferential loans.
At that point, there is no

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00:13:32,240 --> 00:13:34,440
economic logic to get loans
from the Chinese as we can

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00:13:35,360 --> 00:13:40,440
get loans under the same conditions
on the international financial market.

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00:13:41,440 --> 00:13:45,800
When COVID reached us in 2020,
we faced with new easing of monetary

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policy, so it was actually more
expensive to get loans on

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Chinese market than on
the international market.

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Just to recall, Serbia back then
had long-term interest bonds,

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with an interest rate amounting to
1.89 percent, including even 1%

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for the green interest bonds.
It was obvious that it was more

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expensive to get loans from the
Chinese, but we continued to do so.

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00:14:08,280 --> 00:14:10,600
Why?
-The answer lies completely

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00:14:12,000 --> 00:14:14,960
in a political, rather than in
economic sphere, and I would

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00:14:15,400 --> 00:14:17,800
say that it was partly foreign
and partly internal politics.

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00:14:18,400 --> 00:14:22,880
Foreign policy as certain agreement
have already been made,

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00:14:24,360 --> 00:14:26,840
obviously, behind the scenes,
and it was not clear what were

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00:14:27,240 --> 00:14:28,840
the promises given to China,
to what extent their impact

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00:14:29,360 --> 00:14:32,440
would be allowed here, in other
words, there was series of

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00:14:33,000 --> 00:14:35,800
infrastructural projects that were
already being agreed upon,

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00:14:36,240 --> 00:14:38,520
or their finalization was
expected to happen soon.

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00:14:39,000 --> 00:14:41,920
Therefore, it was not easy,
from a political aspect,

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00:14:42,320 --> 00:14:44,360
to say that we are no longer
going to implement those projects,

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but they continued with negotiations
and next stages of the projects.

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00:14:49,080 --> 00:14:51,640
The second step taken was
probably internal in nature.

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00:14:52,280 --> 00:14:56,840
Namely, when you get loans from
international financial institutions,

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00:14:57,920 --> 00:15:03,800
just to reiterate that in Serbia
EBRD and EIB are very active,

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00:15:04,480 --> 00:15:09,680
along with World Bank as international
development institutions, offering

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00:15:10,400 --> 00:15:14,240
loans under preferential interest
rates, cheaper than commercial

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00:15:15,160 --> 00:15:20,880
banks, but they demand different
types of control in spending.

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00:15:21,760 --> 00:15:24,800
In other words, bid for construction
of infrastructure is necessary, and

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00:15:25,160 --> 00:15:29,440
the bidder who presents the lowest
offer with guaranteed quality wins.

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00:15:30,000 --> 00:15:32,240
Technically, it could be some
of the Chinese companies as well.

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00:15:32,600 --> 00:15:35,880
Yes, it could, as it was the case
with building the bridge in Peljesac.

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00:15:36,360 --> 00:15:39,960
There were problems, both
political and administrative.

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00:15:40,440 --> 00:15:43,560
Finally, the Chinese got the bid,
and build that infrastructure.

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00:15:44,040 --> 00:15:48,520
If I get it right, at this moment
section of the expressway of

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00:15:49,240 --> 00:15:55,320
the loop near Pozarevac to Golubac
is being constructed by the Chinese

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00:15:56,400 --> 00:15:59,840
company, from EBRD funds,
is that right?

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00:16:00,960 --> 00:16:03,720
So, we also have such a case
in Serbia as in Croatia.

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00:16:04,360 --> 00:16:06,600
When we have this
negotiation process

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00:16:07,240 --> 00:16:09,920
on the part of the states
of China and Serbia, respectivelly,

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00:16:10,400 --> 00:16:13,520
the deals were such that
if Chinese finance some project,

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00:16:13,960 --> 00:16:19,400
then their construction companies
execute the works without bid.

240
00:16:20,040 --> 00:16:22,360
It is agreed in advance which
companies will be engaged,

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00:16:23,560 --> 00:16:27,840
our negotiators then asked that
part of the works should be

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00:16:28,320 --> 00:16:32,240
implemented by Serbian companies
as subcontractors, it was usually

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00:16:32,760 --> 00:16:36,240
some minor package, some
30 to 40 percent of overall works,

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00:16:36,680 --> 00:16:39,480
so that something is left for
our local construction industry,

245
00:16:40,280 --> 00:16:44,800
and for the trade in political
influence in the same time.

246
00:16:46,040 --> 00:16:51,520
This was among the aspects
that was favorable for our country,

247
00:16:52,520 --> 00:16:54,760
it was profitable to cooperate
with Chinese partners,

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00:16:55,520 --> 00:16:58,800
as slow tender procedures
were avoided, the works

249
00:16:59,520 --> 00:17:01,760
could be launched earlier,
on the other hand,

250
00:17:02,600 --> 00:17:06,240
if someone had taken advantage
of the whole project as all was

251
00:17:06,760 --> 00:17:09,040
done without a bid so the price
offered is higher than necessary,

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00:17:09,480 --> 00:17:13,520
still it is all fine as the deal was
struck in friendly discussions.

253
00:17:14,520 --> 00:17:20,920
The third moment is that you can
give part of the stake in the project

254
00:17:21,560 --> 00:17:26,840
to a certain privileged domestic
company as a subcontractor.

255
00:17:27,320 --> 00:17:30,120
So, it is fine from
a political aspect.

256
00:17:30,760 --> 00:17:33,320
What I find fascinating is the fact
that all this is absolutely legal...

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00:17:33,840 --> 00:17:37,080
So, everything is in line with
certain Serbian legislation

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00:17:37,520 --> 00:17:39,440
which is currently in effect,
in accordance with our

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00:17:40,040 --> 00:17:42,920
constitutional order, if you have
an international agreement signed

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00:17:43,440 --> 00:17:45,960
with some state, for example,
on the infrastructure development,

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00:17:46,680 --> 00:17:51,480
as Serbia and China has at
the moment, every infrastructure

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00:17:51,960 --> 00:17:54,800
project that is being implemented
based on preferential laon is

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00:17:55,280 --> 00:17:57,920
being signed in accordance with
that international agreement.

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00:17:59,000 --> 00:18:02,840
It's worth noting that those loans
and projects are always being

265
00:18:03,320 --> 00:18:05,360
implemented through a separate
special law, this is the Law on

266
00:18:05,960 --> 00:18:09,600
taking loans and construction
of infrastructure, in other words,

267
00:18:10,040 --> 00:18:12,960
as you nicely put it, international
agreement has greater importance

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00:18:13,840 --> 00:18:16,760
in our legal system than our
local legislation, so this is the

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00:18:17,480 --> 00:18:20,320
way that makes it possible
to break the law,

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00:18:21,000 --> 00:18:23,280
so we don't need to carry out
standard procedures such as

271
00:18:23,800 --> 00:18:26,520
calling for bids, that are linked to
the Law on Public Procurement,

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00:18:28,240 --> 00:18:31,280
and so on. Problem solved!
That s the bush where hare squats.

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00:18:31,680 --> 00:18:35,880
Catch 22. And now the question
of a couple of billion of dollars.

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00:18:36,880 --> 00:18:40,040
Is there in case of Serbia
now a time to mention the

275
00:18:40,480 --> 00:18:45,960
issue of debt bondage, i.e.
there are different data on

276
00:18:46,360 --> 00:18:49,280
what might be total worth of the
projects that China and Serbia

277
00:18:49,720 --> 00:18:52,800
had signed based on preferential
loan arrangements.

278
00:18:53,480 --> 00:18:56,360
One digit that circulates nowadays,
especially with this announcement

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00:18:56,880 --> 00:19:00,680
of four billion sum, even more
than ten billions of total worth.

280
00:19:01,120 --> 00:19:04,160
What we have to point out is
the fact that this sum includes

281
00:19:04,960 --> 00:19:09,600
all the projects that are partially,
if not fully, repaid, some are

282
00:19:10,280 --> 00:19:13,560
being repaid right now, some
are going to be repaid in future.

283
00:19:14,480 --> 00:19:18,160
We also have in mind the projects
that we don't know how they will be

284
00:19:18,600 --> 00:19:22,200
financed, we have the project that
you've mentioned, a sewage system,

285
00:19:22,960 --> 00:19:26,360
the famous project of Clean Serbia,
that from the start was announced

286
00:19:26,800 --> 00:19:31,120
to be worth EUR 3.2 billion,
but we still don't have a clearly

287
00:19:31,680 --> 00:19:34,560
defined system and way of financing
of this particular project,

288
00:19:35,040 --> 00:19:38,240
apart from the fact that strategic
partner for this project has been

289
00:19:39,200 --> 00:19:42,720
chosen, this is Chinese company
that will convey implementation of

290
00:19:43,200 --> 00:19:46,280
this project and the whole process
from the first day till the end.

291
00:19:47,600 --> 00:19:51,440
Having in mind all these criteria
that you've mention, do we have

292
00:19:51,800 --> 00:19:55,800
to worry that we're going to end up
facing fiscal problems that wouldn't

293
00:19:56,360 --> 00:19:59,120
allow us to repay
Chinese loans in future?

294
00:19:59,640 --> 00:20:02,160
I don't think that we should worry,
not at this point, of course,

295
00:20:02,680 --> 00:20:04,840
I don't know what might happen in a
decade, I don't have a crystal ball,

296
00:20:05,320 --> 00:20:07,520
so I cannot make a wild guess,
but I am economist by profession,

297
00:20:08,000 --> 00:20:09,800
so I am rather skeptycal when
we make some assessments

298
00:20:11,040 --> 00:20:13,360
that involve the period longer
than two to three years, as to

299
00:20:13,840 --> 00:20:16,240
in what way some economic
variables can change.

300
00:20:17,840 --> 00:20:20,600
Just to reiterate, that no one
predicted global crisis in 2008,

301
00:20:21,320 --> 00:20:24,240
not to mention the pandemic
which cannot be considered

302
00:20:24,960 --> 00:20:27,440
an economic event but it
involved economic consequences, etc.

303
00:20:28,040 --> 00:20:30,200
Therefore, whenever economists say
something will happen in two to three

304
00:20:30,880 --> 00:20:34,760
years, you can regard it
as highly uncertain data.

305
00:20:36,800 --> 00:20:39,400
Current amount of public debt
in Serbia amounts to 55 percent

306
00:20:40,040 --> 00:20:42,160
of GDP, and it is around
EUR 30 millions reach.

307
00:20:44,440 --> 00:20:47,960
When we consider it from this
point of view, then current debt

308
00:20:48,480 --> 00:20:50,720
amounting to six billions euros,
this is around 20% of total

309
00:20:51,400 --> 00:20:53,280
Serbian public debt, so it is not
such a high sum, neither in total

310
00:20:53,960 --> 00:20:58,320
public debt nor by how much Serbia
can allocate for that debt repayment.

311
00:21:00,840 --> 00:21:04,240
We can take a look at our public
deficit, this year it will amount to

312
00:21:04,960 --> 00:21:08,800
EUR 1.5 billion, this is not
such a large sum whatsoever.

313
00:21:09,200 --> 00:21:11,200
For those who are not
experts in economy,

314
00:21:11,640 --> 00:21:13,280
public deficit stands for...
-It is the difference between

315
00:21:13,920 --> 00:21:15,640
how much money from the budget
we decided to spend and how much

316
00:21:16,240 --> 00:21:18,040
we managed to collect, and
that minus in the cash register

317
00:21:18,440 --> 00:21:20,600
is actually a public deficit.
So, this sum is not so high,

318
00:21:21,080 --> 00:21:23,440
we'll see what will happen with
this 4 billion, whether those

319
00:21:24,200 --> 00:21:27,880
projects will be realized or not.
I can imagine the scenario in which

320
00:21:28,480 --> 00:21:31,760
some of the projects were not
finalized, or are being dropped,

321
00:21:32,200 --> 00:21:35,000
because we don't have
money in our system.

322
00:21:35,880 --> 00:21:37,960
I find highly questionable the
construction of underground

323
00:21:38,520 --> 00:21:41,280
here in Belgrade, as Belgrade
cannot finance it for sure,

324
00:21:41,880 --> 00:21:45,520
whether the state can finance,
apart from EXPO, this project

325
00:21:46,160 --> 00:21:49,880
of subway station, I'm not
so optimistic about this...

326
00:21:50,520 --> 00:21:53,000
Especially if we have in mind
low rates of economic growth,

327
00:21:53,360 --> 00:21:55,360
which are projected for Serbia
for the next couple of years...

328
00:21:55,920 --> 00:21:58,440
Maybe, we'll have less than 4
billon and, of course, if Serbia

329
00:21:58,960 --> 00:22:07,560
would have decent economic rates,
between three, four, four and a half

330
00:22:07,920 --> 00:22:10,480
percent, that was usual for
the past couple of years,

331
00:22:11,000 --> 00:22:15,920
until 2018, it is not a problem
to finance public debts, as

332
00:22:16,400 --> 00:22:20,240
we will have enough fiscal room,
through the inclusion of new taxes,

333
00:22:20,760 --> 00:22:23,600
as tax basis has been expended,
so the unemployment rate has been

334
00:22:24,000 --> 00:22:26,120
decreasing, the salaries grow,
as well as economic activities,

335
00:22:26,440 --> 00:22:29,920
so public expenditures
are hereby financed.

336
00:22:30,320 --> 00:22:35,400
Not only growth in pensions and
salaries but also other state bodies,

337
00:22:36,080 --> 00:22:39,680
including the construction of new
infrastructure, in the same time

338
00:22:39,880 --> 00:22:42,000
repaying earlier debts.
-So, it is not expected

339
00:22:42,560 --> 00:22:48,840
that Chinese companies would
take state property or land...

340
00:22:49,960 --> 00:22:52,520
No, I don't see that
for the next five years.

341
00:22:52,960 --> 00:22:55,480
Afterwards, it all depends on
our politics, if we have bad

342
00:22:55,920 --> 00:22:59,440
fiscal policy, everything's possible,
but I believe that such scenario is

343
00:22:59,880 --> 00:23:01,600
not realistic for Serbia
for the time being.

344
00:23:02,320 --> 00:23:04,240
Let's go back to the title of
our podcast ''Understanding

345
00:23:04,600 --> 00:23:08,640
the Steel Friendship'', often this
phrase Steel Friendship is used

346
00:23:09,160 --> 00:23:15,040
since 2016, the visit of Xi Jinping
not only to Belgrade but to the

347
00:23:15,760 --> 00:23:19,880
whole of Serbia, and actually
the first bigger direct foreign

348
00:23:20,600 --> 00:23:24,400
investment in this modern period
since China entered Serbia.

349
00:23:24,840 --> 00:23:27,560
Prior to that, there were some
minor small-scale investments.

350
00:23:28,080 --> 00:23:30,200
Let's say that the first large
investment, in the modern age

351
00:23:31,240 --> 00:23:31,240
of establishing relations between
Serbia and China, back in 2016,

352
00:23:31,320 --> 00:23:36,920
was acquisition of the property
of the ironworks Smederevo.

353
00:23:38,760 --> 00:23:42,240
What seems evident is that starting
from 2016, we've upward trajectory

354
00:23:43,120 --> 00:23:47,040
of Chinese investments, with
minor declines, due to pandemic,

355
00:23:47,640 --> 00:23:52,640
or in general due to slowing down
of economic cycle in Serbia,

356
00:23:53,360 --> 00:23:57,960
but in 2021, China has become for
the first time the biggest individual

357
00:23:58,440 --> 00:24:02,560
investor in Serbia. When I say
China, I mean Chinese companies.

358
00:24:03,280 --> 00:24:06,920
That means that no other country
had invested in Serbia in the volume

359
00:24:07,440 --> 00:24:11,560
that China had done.
However, in 2022,

360
00:24:12,280 --> 00:24:15,760
we have a rather specific situation,
it's certain that EU member countries

361
00:24:16,240 --> 00:24:18,280
are the biggest investors in
the Republic of Serbia.

362
00:24:19,080 --> 00:24:21,400
We regard it on a cumulative level,
out of 27 EU member states...

363
00:24:21,880 --> 00:24:26,320
In 2022, we had an even sum of
investments, amounting to slightly

364
00:24:26,920 --> 00:24:30,200
more than 1.4 billion worth
investments from the EU,

365
00:24:31,000 --> 00:24:33,840
and slightly less than 1.4 billion
worth investments from China.

366
00:24:35,640 --> 00:24:41,320
Why are Chinese investments
in Serbia so important, and

367
00:24:42,040 --> 00:24:46,520
what I find most interesting,
do you see any pattern in

368
00:24:47,080 --> 00:24:51,320
the sectors that China choses to
invest in, with the largest presence

369
00:24:51,720 --> 00:24:57,560
of Chinese companies?
-Well, this is such complex issue.

370
00:24:59,960 --> 00:25:04,400
We have to unravel so many things
in order to get to the core of Chinese

371
00:25:05,040 --> 00:25:09,240
economic presence here in Serbia.
So, on one hand, Serbia had

372
00:25:09,760 --> 00:25:14,000
performed rather badly in attracting
foreign direct investments (FDI),

373
00:25:15,120 --> 00:25:18,440
until monetary policy of European
Central Bank after 2014,

374
00:25:18,920 --> 00:25:23,560
when the level of FDIs
starts to grow in Serbia.

375
00:25:23,960 --> 00:25:27,680
But we still have something that
can be called 'Balkan's effect' of

376
00:25:28,320 --> 00:25:31,440
attracting foreign investments.
When we compare the countries

377
00:25:31,840 --> 00:25:35,640
of West Balkans, Serbia among
others, with the CEE countries

378
00:25:36,160 --> 00:25:38,600
which are slightly more successful,
being already EU members,

379
00:25:39,160 --> 00:25:43,200
when we have in mind all other
variables that we use to describe

380
00:25:43,760 --> 00:25:46,560
attracting of foreign direct
investments, when we make

381
00:25:47,080 --> 00:25:49,480
so-called gravity models, such as
the quality of the institutions,

382
00:25:50,080 --> 00:25:55,960
geographical proximity, core market
of Eurozone, human capital quality,

383
00:25:56,760 --> 00:26:00,200
the quality of infrastructure,
regulatory framework, and so on,

384
00:26:00,920 --> 00:26:05,000
we still have doubts as to why
the Balkan countries hadn't

385
00:26:05,920 --> 00:26:09,160
attracted larger number
of direct investments.

386
00:26:10,000 --> 00:26:14,560
Only in 2016, Serbia starts
to solve this puzzle, to attract

387
00:26:14,960 --> 00:26:19,320
larger investments with participation
in the gross domestic product than

388
00:26:19,720 --> 00:26:23,000
it was the case prior to this.
When we regard cumulative

389
00:26:23,440 --> 00:26:26,880
status, that's when an investment
enters during one year time,

390
00:26:27,320 --> 00:26:31,680
we refer to it as the flow,
but when it's already there,

391
00:26:31,880 --> 00:26:34,960
and we accumulate it, we call
it direct investments stock.

392
00:26:36,160 --> 00:26:38,520
When we look into that stock
of FDIs, measured in euros,

393
00:26:38,920 --> 00:26:42,760
per capita, Serbia is still at the
bottom of the countries in transition.

394
00:26:43,320 --> 00:26:48,000
In other words, there's still much
room for the entry of FDIs into

395
00:26:48,480 --> 00:26:51,960
Serbian market.
We have to be aware of this.

396
00:26:52,760 --> 00:26:56,720
It is true that China appeared
to be a minor investor till 2016,

397
00:26:57,440 --> 00:27:00,600
we talk about the amount of less
than EUR fifty million of FDIs per

398
00:27:01,160 --> 00:27:06,680
year from China, for instance.
Then, we have a spike with HBIS.

399
00:27:07,640 --> 00:27:11,520
When we look into world statistics
of FDIs, we have to know that it is

400
00:27:11,960 --> 00:27:14,040
not so direct or clear.
For example, Chinese company

401
00:27:14,560 --> 00:27:17,000
operates in Germany,
its German branch invests

402
00:27:17,560 --> 00:27:20,760
certain funds here in Serbia,
i.e. creating new factory section,

403
00:27:21,360 --> 00:27:24,320
displacing part of production here,
it will be registered as German

404
00:27:24,960 --> 00:27:29,920
investment, making Netherlands one
of the biggest investors in Serbia.

405
00:27:30,280 --> 00:27:32,520
Although, we don't have many
Dutch companies here,

406
00:27:33,240 --> 00:27:36,320
Luxembourg is also among
top investors, and when

407
00:27:36,840 --> 00:27:41,240
we look at 2011, we experienced
a large growth of investments from

408
00:27:41,600 --> 00:27:45,360
Luxembourg, how come?
Well, Fiat came to Kragujevac,

409
00:27:45,960 --> 00:27:48,640
it paid its participation fee and
started building its production,

410
00:27:49,080 --> 00:27:51,160
and they were registered in
Luxembourg back then,

411
00:27:51,720 --> 00:27:54,680
to be later merged with Chrysler,
then with Peugeot Citroen group...

412
00:27:55,480 --> 00:27:58,480
In that way, international statistics
of the origin of certain investment

413
00:27:59,760 --> 00:28:05,680
is not so easy to trace, it is more
of a directive than a rule.

414
00:28:07,040 --> 00:28:13,760
We have to bear that in mind.
With 2016, growth of Chinese

415
00:28:14,160 --> 00:28:17,040
investments is evident, but what
seems to be interesting is the fact

416
00:28:17,680 --> 00:28:20,080
that all those investments
pertain to three projects.

417
00:28:20,360 --> 00:28:23,160
The first one is HBIS Group
Serbia Iron & Steel Smederevo,

418
00:28:23,840 --> 00:28:26,640
the second, Zijin Bor Copper,
taking over RTB Bor,

419
00:28:27,120 --> 00:28:29,840
as it's not only paying
the purchase price,

420
00:28:30,440 --> 00:28:34,520
it was relatively low, given overall
level of the Chinese investments

421
00:28:35,120 --> 00:28:37,560
in that particular year, but they
also made heavy investments

422
00:28:38,480 --> 00:28:41,800
into the production itself,
expansion of new mines,

423
00:28:42,960 --> 00:28:47,600
new machinery, there was
a story about blast furnaces...

424
00:28:48,960 --> 00:28:52,640
I have to interrupt you here...
Apart from taking over RTB Bor,

425
00:28:53,160 --> 00:28:56,240
in 2018, Chinese took over on a
global level, a Canadian company,

426
00:28:56,760 --> 00:29:00,080
Freeport-McMoRan, and this is
why we nowadays actually have

427
00:29:00,720 --> 00:29:03,920
two Zijin plants in Serbia,
Zijin Copper and Zijin Mining.

428
00:29:05,200 --> 00:29:07,320
This purchase of a Canadian
company on the global level

429
00:29:07,760 --> 00:29:11,120
hadn't been registered
in our statistical system.

430
00:29:12,240 --> 00:29:15,120
However, everything that China
invested afterwards in the capacity

431
00:29:15,680 --> 00:29:20,440
building of the  ukaru Peki Cooper
and Gold Mine, is registered.

432
00:29:21,400 --> 00:29:23,520
If I got right what
you've been saying.

433
00:29:24,040 --> 00:29:26,360
That's right. There is the third
major project, the construction

434
00:29:26,960 --> 00:29:29,440
of a Linglong Tire
Factory in Zrenjanin.

435
00:29:30,480 --> 00:29:32,920
Given that Serbia is a rather small
market, not only in view of the

436
00:29:33,440 --> 00:29:35,680
number of people, but also
of the level of wealthiness.

437
00:29:37,040 --> 00:29:39,160
In the financial sense, our GDP
amounts to EUR 62 billion,

438
00:29:39,800 --> 00:29:43,000
so the construction of one or two
huge greenfield investments will

439
00:29:43,520 --> 00:29:48,120
be rather evident in our ecomonic
data, so we are witnessing the

440
00:29:48,800 --> 00:29:52,680
blooming of Chinese investments
for the last couple of years.

441
00:29:53,240 --> 00:29:56,960
We have really reached that level
last year, in 2022, of Chinese

442
00:29:57,640 --> 00:30:01,720
investments being equal with
the European Union's investments.

443
00:30:02,600 --> 00:30:05,680
This is only when we consider flow,
but when we are talking about stock,

444
00:30:06,240 --> 00:30:08,320
meaning how many accumulated
Chinese investments are there in

445
00:30:08,600 --> 00:30:11,160
Serbia, we see that EU states
are much more present here.

446
00:30:12,880 --> 00:30:18,080
Employment rate in foreign companies
is also a very good indicator.

447
00:30:18,960 --> 00:30:21,400
Those are records of
the last quarter of 2021,

448
00:30:21,720 --> 00:30:24,720
led by our Institute of Statistics.
They register employees in

449
00:30:25,840 --> 00:30:31,920
the foreign-owned companies,
where the ultimate company owner

450
00:30:32,480 --> 00:30:36,960
is registered abroad, not only
companies but entrepreneurs

451
00:30:37,440 --> 00:30:40,000
that submit financial reports,
and back then, there were

452
00:30:40,280 --> 00:30:44,800
330.000 individuals employed
in the foreign-owned companies.

453
00:30:45,760 --> 00:30:48,480
Out of that number, some 20.000
are employed in Chinese companies.

454
00:30:49,240 --> 00:30:51,320
Around 5.000 employees in
the Steel factory in Smederevo,

455
00:30:51,760 --> 00:30:55,600
around 5.000 employees in Bor,
half of the people employed in

456
00:30:56,000 --> 00:30:59,600
Chinese companies belongs
to these two companies.

457
00:31:00,120 --> 00:31:03,200
There is a series of smaller
companies in Serbia,

458
00:31:04,040 --> 00:31:07,320
several car parts manufacturers,
there are some Chinese companies

459
00:31:07,720 --> 00:31:11,800
that actually are not Chinese,
such as Mei Ta from Baric,

460
00:31:12,240 --> 00:31:14,320
a company from Taiwan, but as
Serbia doesn't recognize Taiwan

461
00:31:14,680 --> 00:31:18,640
as an independent state, we register
it as part of China statistically.

462
00:31:19,760 --> 00:31:22,960
There are also Huawei or some
other companies, from that sector,

463
00:31:23,400 --> 00:31:25,880
and let's not forget of small
Chinese shops throughout Serbia.

464
00:31:28,920 --> 00:31:30,800
The story of Bor is rather
interesting when we look

465
00:31:31,520 --> 00:31:33,160
from the perspective of
foreign trade exchange,

466
00:31:34,320 --> 00:31:36,760
but prior to posing a question
pertaining to what happened

467
00:31:37,120 --> 00:31:39,560
in October, i.e. signing
a free trade agreement,

468
00:31:41,880 --> 00:31:44,760
we can't help but look back,
apart from economic benefits

469
00:31:45,400 --> 00:31:50,320
achieved through modernization
of infrastructure and raising the

470
00:31:51,200 --> 00:31:55,880
level of FDIs, opening up some
new factories and new job

471
00:31:57,240 --> 00:32:01,160
opportunities, along with certain
challanges that came along with

472
00:32:01,600 --> 00:32:05,680
FDIs, the most common criticism
includes the impact on environment,

473
00:32:06,560 --> 00:32:10,240
this is something local activists
mentioned as major problem...

474
00:32:12,120 --> 00:32:16,040
The issue of the use of manpower
also remains open, as large number

475
00:32:16,680 --> 00:32:23,240
of employees comes from China,
so there's little room for jobs

476
00:32:23,880 --> 00:32:29,280
being given to local workers.
Is there something else that

477
00:32:29,720 --> 00:32:34,160
you perceive as challenging
arising from growing level of FDIs

478
00:32:34,680 --> 00:32:38,560
from China, what seems important,
although it falls into the scope of

479
00:32:38,960 --> 00:32:41,720
foreign trade exchange, this is
the fact where the product made

480
00:32:43,400 --> 00:32:46,920
here ends up, when we
talk about Mine in Bor.

481
00:32:47,600 --> 00:32:50,520
I think that this issue should be
regarded as important component

482
00:32:51,040 --> 00:32:55,480
of our conversation, maybe we could
demystify some aspects of it...

483
00:32:57,040 --> 00:32:59,440
Anyway, it is important
to have an insight into it.

484
00:33:00,240 --> 00:33:02,800
I would like to finish the previous
topic, as I regard it important

485
00:33:03,280 --> 00:33:06,280
when it comes to the current issue.
Namely, when we regard the level

486
00:33:07,080 --> 00:33:10,760
of investments of other countries
that came to do business in Serbia,

487
00:33:11,240 --> 00:33:14,440
there is a kind of unused
space for China.

488
00:33:15,200 --> 00:33:19,280
We made certain EVI gravity model
(Economic Vulnerability Index)

489
00:33:21,520 --> 00:33:23,440
for Serbia, and I used
data from 2010 till today.

490
00:33:23,840 --> 00:33:27,560
I used variables such as GDP
level of the host countries,

491
00:33:27,960 --> 00:33:31,440
the level of development measured
by the per capita income,

492
00:33:32,120 --> 00:33:36,560
geographical distance from Serbia,
and this model explains two-thirds

493
00:33:36,960 --> 00:33:40,440
of the discrepancy in investments
among diverse states in Serbia.

494
00:33:41,240 --> 00:33:44,200
As a country is wealthier and closer
to Serbia geographically,

495
00:33:44,520 --> 00:33:46,160
it is more likely that it will
invest on our market.

496
00:33:46,600 --> 00:33:49,920
There is lots of unused potential
when it comes to China, as well.

497
00:33:50,360 --> 00:33:52,240
In other words, they invested
significantly less than such a

498
00:33:52,800 --> 00:33:56,240
model envisages. That is to say,
there is room for Chinese investments

499
00:33:56,680 --> 00:33:59,400
to continue entering here,
both private and state-owned.

500
00:33:59,760 --> 00:34:01,840
We should bear this in mind.

501
00:34:03,880 --> 00:34:08,920
I think that all those problems that
are being recognized in public are

502
00:34:10,080 --> 00:34:15,640
evident thanks to the experts who
tried their best to make them work.

503
00:34:19,040 --> 00:34:21,080
However, the problems stem from
our local problems and issues.

504
00:34:21,800 --> 00:34:24,360
In other words, Chinese investors
here, both private and state,

505
00:34:24,920 --> 00:34:29,960
mainly state-owned, are recognized
as some kind of significant political

506
00:34:30,280 --> 00:34:32,640
factor, mainly due to the fact that
Serbia wants to establish good

507
00:34:33,080 --> 00:34:35,880
relations with China. Thus, it will
not interfere much in their business,

508
00:34:36,480 --> 00:34:38,720
it will avoid getting on their
nerves with respecting laws

509
00:34:39,320 --> 00:34:40,760
and regulations...
-God forbid!

510
00:34:41,520 --> 00:34:44,640
This is generally a problem and
a flaw when we talk about major

511
00:34:45,320 --> 00:34:50,040
FDIs here in Serbia. So, Chinese
companies hadn't prescribed dipers

512
00:34:50,600 --> 00:34:52,880
to the workers, as they denied
them right to a toilet break,

513
00:34:53,280 --> 00:34:55,280
but it happened in the companies
that were given state subsidies

514
00:34:55,880 --> 00:34:59,280
from South Korea to open
their factories here in Serbia.

515
00:35:00,040 --> 00:35:03,200
So, I wouldn't say that only Chinese
companies are having preferential

516
00:35:03,920 --> 00:35:07,480
treatment when it comes to respecting
some rules within labor legislation,

517
00:35:08,720 --> 00:35:12,840
up to the regular framework linked
to pollution, ecological issues,

518
00:35:13,320 --> 00:35:16,920
the air quality is here an issue,
when it comes to Smederevo and Bor.

519
00:35:17,720 --> 00:35:20,640
Other companies are treated
the same way, perhaps in a slightly

520
00:35:21,160 --> 00:35:24,480
smaller domain than the Chinese.
Our regulations are the same

521
00:35:25,760 --> 00:35:30,160
when it comes to Chinese companies
and any other company in the world.

522
00:35:30,840 --> 00:35:33,800
This is an aspect that makes
foreign investors thrilled to place

523
00:35:34,560 --> 00:35:36,240
their investment here, as they are
allowed to do some things here

524
00:35:36,720 --> 00:35:38,360
that they wouldn't be able
to do in their own countries.

525
00:35:39,080 --> 00:35:41,880
As for the question pertaining
solely to Bor, when we consider

526
00:35:42,640 --> 00:35:45,560
foreign trade between Serbia
and China, we have something

527
00:35:46,120 --> 00:35:47,960
that is below the level
of statistical error,

528
00:35:48,960 --> 00:35:52,040
and then Zijin based in Bor starts
exporting ore from Bor to China,

529
00:35:53,240 --> 00:35:54,720
and then we see its bloom.

530
00:35:55,480 --> 00:35:57,880
It started to grow slowly,
but gradually in 2018...

531
00:35:58,840 --> 00:36:02,880
Not only that they started to export
ore from Bor to China, but they also

532
00:36:03,400 --> 00:36:06,080
increase the amount of exports
along with the increase of the

533
00:36:06,480 --> 00:36:09,160
production, then the price of copper
on the international market rises,

534
00:36:11,040 --> 00:36:14,200
so the worth of their export
is also significantly higher.

535
00:36:15,080 --> 00:36:17,920
What seems most interesting
is the fact that they export

536
00:36:18,720 --> 00:36:22,640
raw ore, the concentrate,
rather than materials such as

537
00:36:23,000 --> 00:36:28,640
wire, copper sheets, etc.
This means that added value

538
00:36:29,120 --> 00:36:33,600
that could be performed in Serbia
is not of the volume it should be.

539
00:36:34,800 --> 00:36:37,400
To put it briefly, it would be much
better for our economy if they

540
00:36:37,880 --> 00:36:40,920
could understand that they
would have economic benefit

541
00:36:42,560 --> 00:36:48,480
if those new functions in product
creation were performed here...

542
00:36:49,520 --> 00:36:52,240
The question is why isn't that so.
Maybe they have lots of empty

543
00:36:52,680 --> 00:36:55,280
capacities in China, which is
highly possible, as China is

544
00:36:55,720 --> 00:36:57,400
known for its poor
investment decisions.

545
00:36:57,960 --> 00:36:59,840
In other words, when they start
investing in certain sector,

546
00:37:00,280 --> 00:37:04,040
they pumped it up that they
can produce it for the whole

547
00:37:04,480 --> 00:37:07,440
world, still having empty
capacities, those are mainly

548
00:37:08,120 --> 00:37:11,840
state-owned investments,
not driven by economic profit.

549
00:37:12,560 --> 00:37:15,640
So, it happens that in one decade
China produces small amounts of

550
00:37:16,040 --> 00:37:18,200
cement and steel, but still is
the biggest manufacturer of

551
00:37:18,760 --> 00:37:20,640
the same cement and steel...
Then, EU is forced, due to

552
00:37:21,200 --> 00:37:23,680
dumping, to introduce tariffs
on those products from China,

553
00:37:24,200 --> 00:37:25,720
as well as United States
of America, and so on...

554
00:37:26,200 --> 00:37:29,200
Maybe that's their main reason
why they export ore to China,

555
00:37:29,640 --> 00:37:31,400
as they have empty
processing capacities there,

556
00:37:32,080 --> 00:37:35,600
and maybe we have certain
limiting factors in Serbia

557
00:37:36,240 --> 00:37:39,200
due to which they hesitate
to conduct such production

558
00:37:39,720 --> 00:37:42,200
processes here in Serbia,
as it would be too expensive.

559
00:37:44,960 --> 00:37:48,560
This is good introduction to
a final part of our conversation.

560
00:37:49,160 --> 00:37:50,600
This is the issue of
free trade agreement,

561
00:37:51,160 --> 00:37:54,320
signed in October, during the Third
Summit of Belt and Road in Beijing.

562
00:37:55,720 --> 00:37:58,440
Lots of things were discussed after
the signing of this agreement,

563
00:38:00,120 --> 00:38:04,040
starting with that People's Republic
of China will be the only one

564
00:38:04,920 --> 00:38:07,400
to benefit from this agreement,
i.e. Chinese companies that

565
00:38:07,960 --> 00:38:10,480
do business in Serbia, to the fact
that Serbia doesn't have the capacity

566
00:38:11,040 --> 00:38:12,920
to actually meet the needs
of the Chinese market in

567
00:38:13,360 --> 00:38:16,240
any field, let alone in those
that we've already established

568
00:38:16,840 --> 00:38:19,920
certain level of cooperation with.
What struck me rather interesting

569
00:38:20,320 --> 00:38:23,240
as an argument was the fact that
Serbia can actually benefit not

570
00:38:23,960 --> 00:38:27,400
from cooperating with China
but from attracting investments

571
00:38:27,840 --> 00:38:30,960
from the third countries which
would regard positioning in Serbia

572
00:38:31,720 --> 00:38:36,080
as an opportunity to export their
products to the Chinese market,

573
00:38:36,480 --> 00:38:38,200
if they open their own
production capacities here.

574
00:38:38,840 --> 00:38:41,800
Those are rather broadly defined
statements, so I would like to hear

575
00:38:42,640 --> 00:38:45,960
your impressions on that signing
of the free trade agreement

576
00:38:46,800 --> 00:38:50,200
between Serbia and China,
and whether you think that

577
00:38:50,760 --> 00:38:53,520
Serbia could benefit from it,
or would it be challenging

578
00:38:54,840 --> 00:38:58,440
to make something positive
from signing this agreement.

579
00:38:59,560 --> 00:39:01,080
I would like to welcome
the signing of this agreement.

580
00:39:01,560 --> 00:39:03,800
Free trade is always good for
the parties taking part in it...

581
00:39:04,240 --> 00:39:06,000
When it comes from the President
of Libertarian club Libek...

582
00:39:06,440 --> 00:39:09,360
It's so surprising that I advocate
free trade being a liberal...

583
00:39:10,240 --> 00:39:13,280
Those are standard excuses agains
free trade that you've mentioned...

584
00:39:13,800 --> 00:39:17,200
Maybe we couldn't do the export
for China, or they will now start

585
00:39:17,720 --> 00:39:19,840
exporting their cheap products
to Serbia, and so on...

586
00:39:20,320 --> 00:39:22,600
It could be, but we are not
mere manufacturers.

587
00:39:23,040 --> 00:39:25,720
Rather small number of people
in Serbia are the manufacturers,

588
00:39:26,800 --> 00:39:28,440
larger number of them
are consumers.

589
00:39:29,120 --> 00:39:31,920
No FDI had done more good
to an average Serbian citizen

590
00:39:32,480 --> 00:39:35,720
in improving our life quality,
than a small local Chinese store.

591
00:39:36,520 --> 00:39:40,560
Namely, their arrival to Serbia
allowed us to buy loads of goods

592
00:39:41,280 --> 00:39:43,960
for a rather cheap price, thus
increasing our own production.

593
00:39:44,680 --> 00:39:47,640
So, yes, it might happen that
some of the companies that

594
00:39:48,280 --> 00:39:50,720
operate here in Serbia lose
their part of the market,

595
00:39:51,120 --> 00:39:52,760
as they would face with tougher
competition on the part of the

596
00:39:53,280 --> 00:39:54,960
Chinese companies that
export their goods here.

597
00:39:55,400 --> 00:39:57,680
However, Serbian market is
rather small, so it is not rational

598
00:39:58,320 --> 00:40:02,000
to find a company that employs
200 to 300 employees, that

599
00:40:02,440 --> 00:40:05,280
produces goods only
for some local market.

600
00:40:05,680 --> 00:40:07,440
For example, just for Novi
Sad, or just for Serbia.

601
00:40:08,080 --> 00:40:11,000
If they want to grow and develop
further, large companies have to

602
00:40:13,240 --> 00:40:16,440
produce goods for the foreign market,
as our market is too narrow to be able

603
00:40:17,840 --> 00:40:22,360
to organize any efficient production,
quantity wise, when we consider

604
00:40:23,000 --> 00:40:27,000
industrial products, I mean
standard ones, such as

605
00:40:27,800 --> 00:40:31,360
plastic toys for children, and so on,
to produce it only for local market,

606
00:40:33,440 --> 00:40:34,920
which is relatively poor
market such as Serbia's.

607
00:40:35,560 --> 00:40:38,160
So, I don't think that this would
contribute to reducing production

608
00:40:38,800 --> 00:40:40,920
level in Serbia significantly,
as we would buy Chinese

609
00:40:41,360 --> 00:40:45,560
products, as was the case so far.
China has an opportunity to produce

610
00:40:46,200 --> 00:40:50,680
goods in large amounts, thus
minimizing costs per unit of product.

611
00:40:51,280 --> 00:40:53,360
So, they have already been
competitive on our market

612
00:40:53,960 --> 00:40:56,040
due to low prices, having in mind
that customs amount to 10-15%

613
00:40:56,640 --> 00:40:59,200
on various products, so this is not
something that could be considered

614
00:40:59,720 --> 00:41:04,560
as game changer in positioning
their goods on the Serbian market.

615
00:41:06,600 --> 00:41:12,360
As for the hope arising from the fact
that signing free trade agreement

616
00:41:13,040 --> 00:41:16,600
would contribute to attracting
foreign investors to Serbia,

617
00:41:16,960 --> 00:41:21,560
so that they could start exporting
goods to the Chinese market,

618
00:41:23,840 --> 00:41:27,880
this is an argument that makes
sense, this is something that

619
00:41:28,400 --> 00:41:30,960
Vucic used to mention in his
public addresses,

620
00:41:31,480 --> 00:41:33,320
in the foreing media,
not only locally...

621
00:41:33,880 --> 00:41:36,120
I am not so optimistic
with that regard.

622
00:41:36,480 --> 00:41:39,920
On one hand, there's a problem
of high transportation costs

623
00:41:40,480 --> 00:41:43,520
between Serbia and China,
as we are no longer in the

624
00:41:44,120 --> 00:41:48,720
globalisation era as prior
to pandemic, so transport

625
00:41:49,240 --> 00:41:54,320
expenses have grown, they are
reduced to the costs from 2019,

626
00:41:55,320 --> 00:41:57,600
we are not in the peak that
we've reached in 2020,

627
00:41:58,040 --> 00:42:00,280
when the whole international
global trade was congested,

628
00:42:00,720 --> 00:42:03,960
but those prices are not reduced,
so I think that it is still cheaper

629
00:42:04,720 --> 00:42:06,680
for them, if they want to place
products in Chinese market,

630
00:42:07,360 --> 00:42:11,520
to target geographically closer
locations, such as Cambodia

631
00:42:12,040 --> 00:42:14,520
and Vietnam which had lately
become rather popular places,

632
00:42:15,040 --> 00:42:18,600
as manpower in China is also
being in decline since 2021.

633
00:42:19,320 --> 00:42:23,240
It is due to demographic changes, as
in Serbia, elderly generations prevail,

634
00:42:23,760 --> 00:42:27,240
the level of labor is decreasing
and price of labor in China rises,

635
00:42:27,920 --> 00:42:30,560
and if you do not have growth in
the productivity of the economy,

636
00:42:31,120 --> 00:42:33,360
that means it's getting expensive
to produce anything in China,

637
00:42:34,240 --> 00:42:37,360
so that labor intensive productions
started to move to Vietnam,

638
00:42:37,960 --> 00:42:40,800
which is close geographically
to China, with a relatively good

639
00:42:41,720 --> 00:42:47,840
level of infrastructure and political
stability, although we are talking

640
00:42:48,280 --> 00:42:50,920
about one-party system there.
They have relatively good human

641
00:42:51,560 --> 00:42:56,160
capital, with a manpower that
wants to work for lower wages

642
00:42:56,800 --> 00:42:59,520
compared to the ones in China.
Having all this in mind,

643
00:43:00,000 --> 00:43:01,880
I don't think that this would lead
to any major export activities

644
00:43:02,520 --> 00:43:05,200
from Serbia to China, for diverse
reasons, but the consumers here

645
00:43:05,680 --> 00:43:08,640
would benefit as we would be able
to purchase some of the products

646
00:43:09,320 --> 00:43:11,400
made in China at a lower price
in the stores in Serbia.

647
00:43:12,000 --> 00:43:14,480
We should start with its
implementation in 2024,

648
00:43:15,000 --> 00:43:18,280
and we can probably see initial
results at the end of 2025.

649
00:43:19,240 --> 00:43:21,920
That's right, because the reduction
of those tariffs on the Chinese side

650
00:43:22,680 --> 00:43:26,400
is kind of gradual, as it was
the case with Stabilization

651
00:43:27,240 --> 00:43:30,000
and Association Agreement,
customs weren't abolished

652
00:43:30,840 --> 00:43:33,640
over night, but they were gradually
reduced over the years,

653
00:43:34,200 --> 00:43:38,800
to reach the agreed level in five
year time, as with China now...

654
00:43:39,240 --> 00:43:43,000
So, it will be done gradually,
so we'll see the effects of it.

655
00:43:44,040 --> 00:43:47,200
What's interesting for us is
the fact that China was the one

656
00:43:47,760 --> 00:43:51,640
who initiated the negotiations,
as their big company was major

657
00:43:52,080 --> 00:43:56,520
investor and exporter from Serbia
to China, so they would find it

658
00:43:57,200 --> 00:44:00,840
agreeable to straighten out and
accelerate certain procedures,

659
00:44:01,360 --> 00:44:03,720
than it was important
to our exporters.

660
00:44:04,200 --> 00:44:06,720
What needs to take place is
for Serbia to join European Union,

661
00:44:07,280 --> 00:44:11,280
so that this agreement would then
be obsolete, as Serbia will have to

662
00:44:11,680 --> 00:44:15,680
align with the EU policies,
which for the time being,

663
00:44:15,760 --> 00:44:17,240
has no agreement with China.

664
00:44:17,880 --> 00:44:19,960
That's right. When we gain
membership in some regional block,

665
00:44:20,280 --> 00:44:21,920
we have to act in accordance
with common economic policy.

666
00:44:22,360 --> 00:44:24,920
Of course, Serbia's EU accession
is not in sight right now,

667
00:44:25,120 --> 00:44:28,080
if it happens at all, and I find it
interesting that noone considers

668
00:44:29,040 --> 00:44:32,080
strategic aspect, given that we had
taken up obligation to make regional

669
00:44:32,560 --> 00:44:35,520
market, with the neighbouring
countries, we'll see which

670
00:44:36,640 --> 00:44:40,120
countries will that be, but we are
talking about Berlin Process,

671
00:44:40,760 --> 00:44:43,960
or Open Balkan Initiative,
which implies establishing

672
00:44:44,760 --> 00:44:48,880
joint regional market, and common
trade policy in the same time.

673
00:44:49,400 --> 00:44:51,520
In other words, this is a kind of
prerequisite for Serbia to become

674
00:44:51,960 --> 00:44:54,920
EU member, Urusla von der Layen
repeated that claim recently,

675
00:44:55,480 --> 00:45:00,160
in her address when she presented
investment agenda for Western Balkan.

676
00:45:01,840 --> 00:45:06,160
But nobody mentions trade policy.
So, we sign foreign trade agreement

677
00:45:06,520 --> 00:45:10,800
with China, but if everything goes
as expected, we should place that

678
00:45:11,240 --> 00:45:14,480
agreemet ad acta, as we would
create certain regional trade policy

679
00:45:15,040 --> 00:45:18,720
in the Western Balkans prior to
this agreement taking an effect.

680
00:45:19,280 --> 00:45:22,640
I don't see any strategic logic
here, unless we show huge

681
00:45:23,200 --> 00:45:26,320
skepticism that something like
that would be possible to achieve.

682
00:45:28,040 --> 00:45:30,160
It would certainly be interesting
to see whether Serbia reached

683
00:45:30,800 --> 00:45:34,600
decision that Albania, for instance,
sign foreign trade agreement with

684
00:45:35,520 --> 00:45:43,160
China, but anyway, those issues
can be reviewed with deep insight,

685
00:45:44,160 --> 00:45:46,880
and I believe that in this short
period of time we managed to

686
00:45:47,520 --> 00:45:51,440
make an overview and made
people familiar with those topics.

687
00:45:52,360 --> 00:45:54,560
I would like to call people who
are interested in these studies

688
00:45:55,160 --> 00:46:01,960
to visit portal Talas, where they
can read some great articles,

689
00:46:02,840 --> 00:46:05,200
including those related to the
cooperation of Serbia and China.

690
00:46:06,400 --> 00:46:08,840
We will certainly in the following
episodes cover the question of

691
00:46:09,440 --> 00:46:13,200
trade cooperation as it is inseparable
from other aspects of cooperation

692
00:46:13,720 --> 00:46:16,320
between Serbia and China,
but this is brilliant introduction

693
00:46:16,720 --> 00:46:18,800
for understanding something
we are going to discuss in

694
00:46:19,280 --> 00:46:20,600
the forthcoming period.

695
00:46:21,280 --> 00:46:23,720
I would like to take this opportunity
to thank you once again for being

696
00:46:24,160 --> 00:46:27,520
my guest and I am certain that
we will cover future development

697
00:46:28,400 --> 00:46:32,000
in the field of economic cooperation
between Serbia and China in future.

698
00:46:32,640 --> 00:46:34,480
Thank you for inviting me,
it was a pleasure to be your guest.

699
00:46:36,080 --> 00:46:37,640
Produced by:
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00:46:38,120 --> 00:46:40,040
Implemented with the support
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