Chinese defence companies banned in the US are finding new markets in the Western Balkans. While Serbia is the only European country to have actually bought missiles and armed drones from China, other countries have opened themselves to these companies in their infrastructure sectors.

Just Finance has been mapping the activity of state controlled Chinese defence companies in the region, including donations of military gear and Covid-19 equipment. 

Serbia

Serbia’s purchase of missiles and armed drones made it the first European country to enter a defence cooperation with China. Serbia also allowed Chinese security forces to train on European soil.

Read more

Bosnia and Herzegovina

Bosnia and Herzegovina has received three Chinese donations of military equipment for its army’s Engineering Corps. The last, with trucks and bulldozers worth EUR 1.3 million, was received in March 2021.

Read more

North Macedonia

The country’s recent NATO membership has decreased its military cooperation with China. Despite several approaches, no Chinese defence companies have been contracted for civilian infrastructure projects.

Read more

Mapping

At least nine large Chinese defence companies are active in the Western Balkans, either on the civilian market or in the military sector. Most have been banned by the US for violations of nonproliferation acts, and sales to conflict zones.

Read more

Serbia

The first European country to buy Chinese missiles

With its procurement of armed drones and missiles in 2019, Serbia became the first European country to have an entrenched military cooperation with China. In addition, Serbian and Chinese security forces held joint anti-terrorism drills in the country, and China has donated military equipment to the Serbian army worth nearly EUR 10 million. 

According to official Serbian documents, the country bought the Chinese medium-range air missile system FK-3, comprising of three batteries, in 2019. The purchase makes Serbia the first European buyer of this Chinese air defence system, which has a horizontal range of up to 100 kilometres and a vertical range of 27 kilometres. It can simultaneously hit six targets with 12 missiles.

In the same year, Serbia also bought six CH-92A combat drones, also known as Rainbow drones, armed with laser-guided missiles. The drones have an operating radius of 250 kilometres and a maximum altitude of 5,000 metres. They can be used for surveillance, attack, target location and tracking, and can direct artillery fire, including laser-guided rounds.

Serbian officials describe this acquisition of Chinese drones as a transfer of technology. 

In 2010, Serbia’s Military-Technical Institute began work on its Pegasus surveillance drone, but the project was stalled for years before the Serbian/Chinese defence cooperation crystallised.

In 2019, a team from the Serbian Military-Technical Institute went to China to work on the redesign of Pegasus, which included adding combat capabilities. Serbian experts say that Pegasus operates on the same technology as the Chinese CH-92A drone, and the lighter Serbian drone will use Chinese laser-guided missiles. Beijing-controlled defence companies have made attempts to commence military-related production in Serbia, but it is unclear what has come of them. 

In 2016, Serbia’s MoD signed an agreement on cooperation in defence with The State Council’s State Administration for Science, Technology, and Industry for National Defence (SASTIND). SASTIND is responsible for overseeing China’s state-owned defence-industrial   corporations   and   enterprises.

The military cooperation between two countries goes back a long way.  The countries signed their first defence cooperation agreement in 2008, and China made its first military donation to Serbia in the same year. Since then, the Chinese Ministry of National Defence has donated military equipment such as self-propelled machines; motor vehicles; integrated transport vehicles; special vehicles for the engineering battalion; rubber dinghies with outboard motors; and snowmobiles.

According to the Serbian Ministry of Defence, the country received defence equipment and resources worth around EUR 10 million from China between 2008 and 2018. Only donations from the US exceed this amount. 

In November 2019, Chinese security forces implemented a joint anti-terrorist and hostage rescue exercise in Serbia. It is believed to be the first such drill for Chinese forces to be held in a European country. The exercises took place at Chinese-owned steel production plant HBIS in Smederevo, and was attended by 180 members of the two countries’ elite police forces.

One year later, two Chinese defence companies, the Aerospace Long-March International Trade Company (ALIT) and the China Precision Machinery Import-Export Corporation (CPMIEC), made large donations to Serbia to help combat the COVID-19 pandemic. The Serbian Minister of Defence claimed that the donation consisted of various medical devices and supplies, including mobile ventilators; monitors; infusion pumps; protective suits and masks; and contactless thermometers. The Ministry has declared that it received EUR 755,000 in donations of medical equipment in 2020. 

Chinese state-controlled defence companies have also been active in the civilian market, especially in the infrastructure sector, with projects in wastewater and sewerage treatment. 

In 2016, one of these companies was the Poly Group Corporation, a large defence company sanctioned by the US for violations of the Iran, North Korea and Syria Non-proliferation Act, and accused of severe violations by Amnesty International.

In 2016, a group from Poly Technologies met with the mayors of Serbia’s two largest cities to discuss a waste-to-energy plant (TE-TO Pančevo) and sewerage treatment facility (Veliko Selo). These projects were supposed to be financed through public-private partnerships, and the Chinese delegation included representatives from the China-Africa Investment and Development Corporation, a professional investment platform jointly established by Poly Technologies and the China-Africa Development Fund. 

The development of TE-TO Pančevo began in March 2019, financed by Russian energy company Gazprom. China’s Shanghai Electric Group was given the contract for a turnkey construction on the site.

The China Machinery Engineering Corporation (CMEC) has been contracted for the construction of the Veliko Selo sewerage treatment facility, but work has been delayed because funding has not yet been organised. 

Both the US and the European Parliament have expressed concerns about Serbia’s increased military cooperation with China. The former has warned Serbia about buying Chinese arms systems, and the latter has stated in a resolution that it has “concerns over Serbia’s increasing dependence on defence and security equipment and technologies from China, including a mass surveillance system in Belgrade and mass personal data collection without appropriate safeguards”. 

Bosnia and Herzegovina

Received several donations of military equipment

B&H and Chinese defence ministries have met frequently, but are yet to sign a formal agreement. China has donated equipment to the Engineering Corps of the B&H Army on three occasions, and Chinese defence companies are active on the civilian market. 

According to the B&H Ministry of Defence, the army has received three donations of equipment from China. The first was delivered in 2011 to the Engineering Corps, and comprised 8 machines worth EUR 472,331. The second (9 machines worth EUR 1.02 million) was received in 2015, and the third (15 trucks, excavators and other machines worth EUR 1.27 million) followed in 2021.

Although several high-level meetings have taken place between the two countries, they do not yet have a formal agreement on military cooperation.

As is the case in Serbia, Chinese defence company Poly Group is beginning to use its subsidiary the China-Africa Investment and Development Corporation (CAIDC) to look for projects. CAIDC also seems to be working closely with the China Machinery Engineering Company (CMEC). 

In 2016 both companies entered the renewables market in the Herzegovina region, when they signed a Memorandum of Understanding with a local investor to build a wind farm worth EUR 150 million. The B&H government issued an energy license for the project in 2020.

In 2017, CMEC and the Emerging Markets Power Fund (co-owned by the Poly Group through CAIDC) agreed to form a joint venture to build 350-megawatt (MW) coal-fired power plant Gacko II in the Republika Srpska (RS) administrative region. 

So far, however, there has been no visible advancement in this project, and its predecessor Gacko I has made losses for the past few years. 

North Macedonia

Downgrading military cooperation with China

North Macedonia has decreased its military cooperation with China in recent years, and has not contracted any defence companies for projects on the civilian market.

North Macedonia signed a defence cooperation with China in military science and technology in 2004, and until 2015 its government was “determined to continue to work intensively on the further strengthening and improving of the cooperation in the defence sector” with China.

The two countries have an extensive trade cooperation, and North Macedonia supports China’s Belt and Road Initiative. It has also allowed Chinese-financed infrastructure projects to take place within its borders.

In 2015, the North Macedonian government discussed large infrastructure projects with Chinese defence company Poly Group, but nothing seems to have come of these meetings. 

Overall, military cooperation between the two countries has decreased since North Macedonia started negotiations to become a full member of NATO. 

Mapping

Major Chinese defence companies with activities in the Western Balkans

Company nameBackgroundArms sectorActivities in Western Balkan countries
The Poly GroupCorporation (the Poly Group) and Poly Technologies.
An important subsidiary is the China-Africa Investment and Development Corporation		Founded in 1984, the state-controlled Poly Group has 600 subsidiaries and 60,000 employees. It is one of China’s major arms trading companies, but works simultaneously in energy, real estate and culture. It is suspected of shipping arms to several conflict zones, and has been sanctioned by the US for violations of the Iran, North Korea, and Syria Non-proliferation Act.
The trade and promotion of armsIn 2014 the Poly Group signed a Memorandum of Understanding with Serbian state-run arms dealer Jugoimport SDPR. In 2017, the Poly Group showed interest in setting up a joint venture with Jugoimport SDPR to develop and produce anti-terrorist equipment, night vision devices and missile systems. The corporation also signed an MoU to build a thermal power plant in Bosnia and Herzegovina, and in Montenegro it sold 2 cargo vessels to a local shipping operator, paid for with a loan from China Exim Bank. 
North Industries Corporation (Norinco)Established in 1980 with the approval of the State Council of China, Norinco is among the country’s 500 largest state-owned enterprises and is directly supervised by the People’s Liberation Army.  Norinco is on the United States sanction list for violations of the Iran, North Korea, and Syria Nonproliferation Act.
The manufacture of weapons for ground forces, including armed vehicles, air defence systems, artillery, small arms and ammunition, as well as a diverse range of civilian products and services.In 2015, Montenegro signed an MoU with Norinco for a hydropower development on the Moraca River, but the Montenegrin government put the project on hold in 2019. In 2017 Norinco bought a 76 percent share of Energija Projekt d.d. at a cost of EUR 32 million, to obtain the rights to build a wind farm in Croatia.
China Precision Machinery Import-Export Corporation (CPMIEC)
CPMIEC is one of a number of state-owned Chinese defence companies that are authorised to trade with arms. It is on the United States sanction list for violations of the Iran, North Korea and Syria Non-proliferation Act.
The export of arms and technology in missile and air defence systemsMade donations to Serbia in the fight against Covid-19.
China National Aero-Technology Import and Export Corporation (CATIC)
Established in 1979, CATIC is a large, state-owned conglomerate focused on the import and export of aviation products and technology. In 2005 it was put on the US sanction list for violating the Iran Non-proliferation Act.
The export of fighters; trainers; bombers; helicopters; UAVs; transport aircraft; general aviation aircraft; missiles; associated airborne equipment; ground support equipment; and the components required to support and maintain these products.In 2018, the Serbian Minister of Defence visited Beijing and met with CATIC and AVIC representatives to discuss cooperation in the development and production of planes, helicopters, unmanned aircraft and anti-aircraft systems. In 2019, Radovan Višković, prime minister of the Republika Srpska entity of Bosnia and Herzegovina, announced that AVIC and CATIC representatives were interested in investing in Republika Srpska’s defence facilities Orao and Kosmos. 
China National Aero-Technology International Engineering Corporation (AVIC)Founded in 2008 with a focus on aviation, AVIC has more than 100 subsidiaries, 23 listed companies and more than 450,000 employees. In December 2020, the US Commerce Department added seven of its subsidiaries to a list of Chinese companies with alleged military ties.
The state-owned military aerospace contractor is also on the US Department of Defence’s list of civil entities with ties to the Chinese military, which subjects it to a US investment ban.
The design and production of military aircraft. Its projects include the J-20 fifth-generation fighter, the Y-20 large transport aircraft, and the projected H-20 stealth bomber.
In 2018, Serbia expressed interest in acquiring large Wing Loong II drones, produced by a subsidiary of AVIC, but the deal was never realised. In 2019, the Republika Srpska government signed a contract with AVIC for three small hydropower plants on the Bistrica River. 

China Electronic Technology Group Corporation (CETC)
State-owned CETC, established in 2002, is China’s most powerful defence and security electronics company. Four research institutes under CETC have been in the U.S. Commerce Department’s entity list since 2018, for acting against America’s national security and foreign policy interests.

Defence electronics, security electronics and informationIn 2016, the Serbian government agreed to a defence industry cooperation with CETC.
China Aerospace Science and Technology Corporation (CASC)CASC is a large state-owned enterprise group, originating from the No. 5 Research Academy of China’s Ministry for National Defence. CASC was formally founded in 1999, and is responsible for developing launch vehicles and satellites for the BeiDou Navigation Program. CASC is on the US Department of Defence’s list of civil entities with ties to the Chinese military, which subjects it to a US investment ban.
Missiles, space systems and unmanned aerial vehicles.In 2020,Serbia bought six CH-92A combat drones armed with laser-guided missiles from CASC. 
Aerospace Long-March International Trade Company (ALIT)
ALIT is a state-owned enterprise that manufactures defence systems. It is a subsidiary of CASC.The wholesale and retail trade of defence systems
ALIT made donations to Serbia for the fight against Covid-19.
China Aerospace Science & Industry Corporation (CASIC)CASIC is a large state-owned enterprise under direct administration of central government.Designs, develops and manufactures a range of spacecraft, launch vehicles, strategic and tactical missile systems
Cooperating with Serbia in the field of complex combat systems and systems for monitoring and control of boarders and critical infrastructure.
Sources

Chinese defence companies in the Western Balkans:

The Poly Group

Norinco

CATIC 

AVIC

CPMIEC

CETC

US government list of sanctioned companies

Cooperation in Montenegro