Chinese companies have invested in production, infrastructure and enterprises in Serbia since 2014. So far, very little is known about the backgrounds and track records of these companies, which have similar operations in other countries.

Just Finance did a global scan, and found reports of severe environmental violations, debarments from international banks, and repeated breaches of national regulations, including accusations of land grabbing.

Zijin

Blacklisted by investors and pension funds

Multilateral company Zijin currently operates a copper and mining complex in Bor. The company is accused of severe pollution in several countries and has been found to have violated the UN Convention on Biological Diversity by dumping large amounts of waste into a river in Papua New Guinea.

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Linglong

Land grabbing and heavy pollution in China

Chinese tyre company Linglong is building a large-scale factory in Zrenjanin, about 85km from Belgrade. The company has a history of severe pollution and land grabbing, and has been sentenced by an American court for stealing blueprints from another tyre company.

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Kostolac B

Contractor on the World Bank’s debarment list

The coal power plant Kostolac B is one of Europe’s major sulphur dioxide polluters. In 2011, Serbia borrowed EUR 224 million to install a new desulfurisation unit to decrease pollutants. The construction work was carried out by the China Machinery Engineering Company (CMEC), who the World Bank placed on its debarment list due to fraudulent practices.

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Budapest-Belgrade Railway

Gross financial malpractice by contractors

The railway link between Belgrade and Budapest is being upgraded, with loans from China. The project has been criticised for its delays and lack of transparency. Two of its contractors has been debarred by the World Bank.

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Smederevo Steel Mill

Hesteel fails to implement anti-pollution measures in China

The pollution from Smederevo steel mill in Serbia has caused air pollution above national limits, leading to repeated protests from affected citizens. Its owner Hesteel has also been criticised by its local government in China for severe pollution.

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Dead fish float in a river in Fujian province in southeastern China in 2010. A copper smelter for a mine owned by Zijin Mining Group leaked acidic water into the river.
Photo: Wawa Wang Dongmin/AP/Ritzau Scanpi (2021)
Zijin

Toxic slurry killed 4 million fish in China

Formed in 1993, state-owned Zijin is a leading global mining company specialising in gold, copper, zinc and other mineral resource exploration and development. Zijin is based in Fujian, China and manages an extensive portfolio, primarily consisting of metals, through investments in China and nine countries overseas. In August 2018, Zijin Mining became the largest shareholder in the Bor copper mining and smelting complex, a controversial production facility in the city of Bor, in eastern Serbia.

Outrage in China

Zijin Mining has been found guilty of several environmental failures in its domestic operations, and has consistently neglected to take the needs of local communities into account. It has also repeatedly failed to address issues with its tailings dams, which are necessary to reduce bi-products and toxic waste from the mining operations.

In 2010, Zijin Mining was rocked by two major pollution scandals that cost it millions of yuan in fines. This happened after the company was reprimanded by the Ministry of Environmental Protection for failing to meet standards.

In Shanghang, a 9,100 cubic meter torrent of toxic slurry from the Zijin Mountain gold and copper mine burst through a tailings dam and entered the Ting river, killing 4 million fish. It took nine days for Zijin to admit that a problem had occurred, prompting accusations of a cover-up by state media. Chinese police later detained three of the company’s employees.China’s top press watchdog has confirmed that the Zijin Mining Group tried to bribe reporters to hush up a major toxic waste leak at the company’s copper mine in Fujian province. Exclusion by the Norway’s governmental pension fund

The Council on Ethics for the Norwegian Government Pension Fund Global (GPFG) recommends the exclusion of Zijin Mining Group, because of the unacceptable risk of it being responsible for severe environmental damage. The Ting river incident is one of several factors that contributed to this decision.

The Council on Ethics writes:

The company has been criticised by both the authorities and special interest organisations. In connection with the stock exchange listing of the company in 2008, the company’s activities were reviewed by the environmental authorities. In accordance with the so-called Green Security Policy, the environmental systems and practices of all listed companies must be approved. In this connection the environmental authorities pointed out a number of faults and defects in the activities at 11 subsidiaries in the Zijin Group. To a great extent this concerned tailings dams that were not designed and maintained in accordance with regulations, in addition to previous orders to make improvements that had not been followed up.

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Rio Blanco Mine, Peru

In Peru, Zijin has been fined for violating local environmental laws and clashes with community members have resulted in casualties on both sides. Adding to the company’s woes, the Rio Blanco Mine was never authorised by local communities, as required by Peruvian law, and the mine’s previous owner, UK-based Montericco Metals, which Zijin acquired in 2007, is on trial in the UK for the 2005 torture and killing of local community members.

In 2011, four NGOs raised concerns about the Zijin Rio Blanco Copper Mine in Peru, citing Zijin’s failure to report the grave environmental and social issues related to its investment in the mine to shareholders. In light of the Hong Kong Stock Exchange’s mineral company disclosure requirements, the NGOs called on the Hong Kong Stock Exchange to ensure that Zijin adequately reports any such events at the mine to its shareholders.

In 2019, several farmers protested against planned new mining operations, fearing that the projects would undermine their livelihoods by polluting the water and soil.

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Papua New Guinea

Since May 2015, Zijin has owned 47.5% of the Porgera gold mine in Papua New Guinea. Porgera is one of Papua New Guinea’s longest running goldmines, with 30 years’ operation in the highland province of Enga. The mine was expected to produce around 250,000 ounces of gold in 2019, and has around 5,000 employees.

The Porgera gold mine has attracted significant controversy, including concerns over human rights, environmental issues and conflicts over compensation. According to Papua New Guinea’s Prime Minister James Marape, the government plans to take back the mine, arguing that the people are not getting their fair share of the benefits from the formal economy and major natural resource projects.

Due to the negative impact in Papua New Guinea, the Council on Ethics for Swedish Pension Funds excluded Zijin from its portfolio in 2020, stating: the waste disposal method at the mine can be linked to severe adverse environmental impacts, in violation of the UN Convention on Biological Diversity, since it discharges large amounts of waste into a nearby river.

After a dialogue with the company, the Council further stated: Zijin Mining was the company with the worst preventive work on all points, and the company has historically suffered severe accidents … The Council deems that continued efforts to establish a dialogue with Zijin are not meaningful, since despite countless attempts by the Council and other investors to do so, the company has not responded. It therefore seems unrealistic that the company should adopt a policy agreeing not to use the controversial waste disposal method in future projects.

The Council’s statement caused several Swedish state-owned pension funds to exclude Zijin from all their investments, and the company is also on the exclusion list of several Scandinavian commercial banks, including Nordea and Swedbank.

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Colombia

Academic analysis has shown a risk of reduced water access as a result of the planned Zijin-Continental Gold Mine in Antioquia. According to researchers, the production process will generate a large volume of waste, heightening the risk that the mine’s dam will break. If this were to occur, it would cause an environmental catastrophe in the region.

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Citizens denied access to public consultation for the Linglong tire factory project in Serbia.
Photo: RERI (2020)
Linglong

Accused of deliberately polluting the environment

In 2019, Chinese tyre manufacturer Shandong Linglong started construction on a tyre factory complex in Zrenjanin. It is one of the largest foreign investments in Serbia, covering an area of 320 acres in the Zrenjanin Free Trade Zone, and is to be built over six years. Although Linglong has four production plants in China, the factory is its first investment on European soil. It is not, however, its first outside China: the company has plants in both Thailand and Uzbekistan

Violations in China

Chinese state agencies and local governments have made several reports of violations and heavy pollution from Linglong’s domestic operations. In 2018, China’s Ministry of Ecology and Environment accused the company of violating pollution control measures. According to an Environmental Impact Assessment (EIA) report, the copper-plating process used in Linglong’s 5,000-ton steel cord production created lead fumes, lead-containing ash, and slag that exceeded the legal emission limits and acceptable norms. The Shandong Provincial Environmental Protection Research and Design Institute ascertained that hazardous waste storage sites in industrial parks must be constructed and maintained in strict accordance with the requirements of the “Hazardous Waste Storage Pollution Control Standards”. The authority therefore required Linglong to strictly manage its waste in accordance with the “Management Measures for the Transfer of Hazardous Waste”.

In addition to these violations, Linglong has faced serious allegations of deliberately polluting the environment: their domestic sewage was only treated in a septic tank before being mixed with circulating cooling water from production processes and discharged into the Luoshan River. No additional waste disposal measures were found to have been put in place.

In 2012 and 2017, communities in the Zhaoyuan region, where Linglong’s tyre production is based, reported extreme air pollution as a result of chemical discharge. The Shandong Provincial Environmental Protection Research and Design Institute found numerous violations in their environmental assessment. These are outlined in the “Shandong Linglong Tyre Co., Ltd: Application for Listing Environmental Protection Technical Report”.

Further, it was reported that Linglong grabbed more than 4,000 acres of land in Wucheng County, Shandong Province, with the intention of preparing it for tyre production. There was no disclosure or statement about any agreement or compensation for the land seizure, in spite of complaints by those who used the land (smallholder farmers), and those who lived on it.

In 2010, a court in the United States found Linglong guilty of stealing copyrighted blueprints from an American tyre company. Linglong was subsequently ordered to pay that company a USD 26 million fine. The case was widely reported in the media, partly because Linglong was defended in court by American Senator Ted Cruz.

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Expansion work at Drmno mine by Chinese CMEC and Thyssenkrup.
Photo: Wawa Wang (2019)
Kostolac B

Blacklisted powerplant contractor failed to finish assignment

The coal power generation complex Kostolac B is operated by Serbia’s state-owned electricity utility, Elektroprivreda Srbije (EPS). The complex, located in the country’s northeast, emits more SO2 than the overall emission ceiling for all twelve coal power plants in Serbia. To reduce these extreme emissions, Serbia took a loan from the Export-Import Bank of China in 2011 to install a desulfurisation unit. The total amount, more than EUR 224 million, was guaranteed by the Serbian Ministry of Finance.

The contract to install the desulfurisation system for unit B2 of Kostolac went to China Machinery Engineering Cooperation (CMEC). The work was supposed to be finalised in summer 2017, but the system is not yet in operation and it is unclear why.

In addition, in 2014 the Export-Import Bank of China signed a loan of USD 608 million to the government of Serbia, for the construction of the B3 greenfield coal-fired power generation unit. The construction of the new unit was to be implemented by CMEC and preparations began in 2020, but the project has been plagued by controversy and has not yet been realised.

CMEC was also involved in a project to expand the capacity of the Drmno mine, in order to feed the new power plant. The Serbian government did not insist on an environmental impact assessment before the expansion began.

In 2018 the World Bank announced a four-year debarment of CMEC due to fraudulent practices in an energy efficiency project in Shandong Province, China. According to the World Bank, China Machinery sought to receive advance payment by misrepresenting in falsified documents that work had been completed. This constitutes fraudulent practice under the World Bank Group’s procurement guidelines.

Companies on the World Bank’s debarment list are automatically excluded from the Asian Development Bank, the European Bank for Reconstruction and Development, the Inter-American Development Bank, and the African Development Bank.

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Reconstruction of a railway line between Budapest and Belgrade, a project financed mainly by China.
Photo: Darko Vojinović/AP/Ritzau Scanpix (2021)
Budapest-Belgrade Railway

Two contractors on the World Bank’s debarment list

The railway link between Budapest and Belgrade is considered one of the most important projects in the Chinese Belt and Road Initiative. The venture is planned to open a direct trade link between China and the European Union, ensuring that the Chinese-owned harbour in Piraeus (Greece), which receives shipments of goods from China, will eventually be connected by rail all the way to the EU market.

A Memorandum of Understanding for the project was signed in 2014, and the work to refurbish 184 km of railway infrastructure on the Serbian side started in 2017. The project has since been delayed, however, for reasons that are unclear. The railway is now expected to be finished in 2025. The Chinese Export-Import Bank will finance the project through a 20-year loan of USD 1.3 billion to Serbia and USD 1.8 billion to Hungary. 

Two of the contractors on the Serbian side, China Railway Group (CRG) and China Communications Constructions Company (CCCC), have been listed on the World Bank’s debarment list since June 2019, for gross financial malpractice during the procurement process for the East-West Highway Corridor Improvement Project in Georgia. The debarment prohibits the company from participating in any project financed by the World Bank, the ADB, the AfDB Group, the EBRD, and the IDB Group, for 24 months.

In June 2011 the World Bank announced the debarment of China Communications Construction Company (CCCC) Limited, and all its subsidiaries, for fraudulent practices under Phase 1 of the Philippines National Roads Improvement and Management Project. 

Under the sanction, CCCC is ineligible to engage in any road and bridge projects financed by the World Bank Group until January 2017.

Both CCCC and CRG signed a contract with the Serbian government in November 2015 to modernise the Budapest-Belgrade railway.

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Iron ore powder from Qian’an Jiujiang Wire Steel Mill in China’s Hebei province. One of many plants exceeded the government’s pollution limit. 
Photo: Lu Guang/EPA/Ritzau Scanpix (2021)
Smederevo Steel Mill

Hesteel fails to implement anti-pollution measures in China

Hebei Iron and Steel Group (Hesteel), which operates the steel mill in Smederevo, is accused of causing heavy pollution in Hebei Province in China. In May 2019, 11 cities in Hebei had air quality that reached hazardous levels. The executive of Hesteel, with 47 other directors of heavy industry in the region, was criticised by the city government for failing to implement anti-pollution measures.

Hebei Province has some of the worst air pollution in the country, and the vast steel industry is a key focal point for the government’s efforts to improve air quality. Last summer, the local government ordered steel mills to cut sintering operations by as much as 50%.

Due to the heavy pollution in Hebei Province, for the last year steel companies have been trying to relocate their most polluting industries abroad. In addition to the steel mill in Serbia, the company has signed a Memorandum of Understanding with South Africa.

Hesteel is China’s largest steel producer, with an annual production of 190 million tons of crude steel a year, twice as much as the entire US. The company was formerly called HBIS GROUP.

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Top background image by: Petar Kudjundzic/Reuters/Ritzau Scanpix