China’s ambition, U.S. retreat on show in Serbian factory town
SMEDEREVO, Serbia – A giant Chinese red flag flutters on a pole where an American flag used to fly at a steel mill in this dusty industrial Serbian town. The company logos of U.S. Steel are faded on the huge chimneys stacks, replaced by those of a Chinese company.
When U.S. Steel sold its loss-making smelter in Serbia to the government for the symbolic sum of $1 in 2012, few here thought the ailing communist-era factory would ever be revived. Then came along a state-owned Chinese company.
Hebei Iron & Steel’s $52 million purchase of the Steelworks Smederevo last year is part of China’s broader effort to project influence and gain an access point to the European market as other traditional powers, particularly the U.S. under President Donald Trump, retreat from the world stage.
The dynamic was laid bare at a world summit over the weekend, where Trump showed little interest in promoting free trade and was at odds with other countries on issues like climate change. China, meanwhile, was keen to promote itself as a champion of commerce and openness – even though in practice it falls far short of being one.
The Serbian plant is economically irrelevant in the short term to China, which abounds with steel production at home. But the deal saved 5,200 local jobs and gained Serbia’s political favor.
“It seems to me that everything China has been doing in the past several years in the field of its investments abroad also has a political background and connotation,” said Mijat Lakicevic, a Serbian political and economy analyst.
“China doesn’t really need the Serbian plant that produces practically nothing compared to the steel production in China,” he said. “So, I would describe this as placing a foot in the doorway in order to enter the market and the area where Russia and America are already present.”
The longer-term strategy for China is to open markets for its businesses as its home economy slows. The most high-profile effort in this direction is the ambitious $900 billion Belt and Road project, often referred to as the New Silk Road – a transport and trade corridor running from China to Germany, via Greek ports, the Balkans and Central Europe.
Annual investment by Chinese companies in Europe reached an all-time high of $18 billion in 2014, with annual inflows averaging $10 billion over the past four years, according to the Rhodium Group, a China investment monitor.
Beijing is encouraging its industries to diversify abroad in hopes of reducing China’s reliance on exports and its domestic market. That has also led to a string of acquisitions in chemicals, tourism, insurance, banking and other industries.
Chinese companies are also starting to make inroads into Eastern European construction and engineering markets, including plans to build a $2 billion high-speed rail line from the Serbian capital, Belgrade, to Budapest in neighboring Hungary.
Serbian Construction Minister Zorana Mihajlovic said China has so far loaned some $6.3 billion in Serbia for the construction of bridges, highways and railroads that it plans to use as transport routes for its goods into the heart of Europe.
Hungarian Prime Minister Viktor Orban has often expressed his admiration for the economic achievements of countries like China. He wants to make Hungary the main hub for Chinese business and investments in Central and Eastern Europe.
“The old model for globalization has become obsolete,” Orban said in May. “The engine room of the global economy is no longer in the West, but in the East.”
In Smederevo, the town of some 100,000 people where thousands make a living from the steel plant, there was praise for China.
“It’s been one year since the Chinese came to our town and a calmer atmosphere is visible,” Mayor Jasna Avramovic said. “There is no more uncertainty over what will happen with the plant. The salaries come on time.”