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The Belgrade-Budapest railway: Logistic endeavour of the century or an investment flop?

The Belgrade-Budapest railway link is nearing its completion, with the Serbian part opening at the end of 2024 and the Hungarian part in 2025. However, even though both governments praise the positive qualities of the project, many have criticised it since the beginning, mainly due to its cost, non-transparency, and strong reliance on Chinese investments.

The renovation project of the Belgrade-Budapest link was first announced in 2014 on the 16+1 (now 14+1) forum, which is a framework used by Beijing to cooperate with countries in the CEE. Both countries signed a contract with China, acquiring the necessary investments for the construction. The Hungarian government secured a loan of over 2 billion dollars from the Import-Export Bank of China, and the Serbian government secured almost 300 million dollars. However, we do not know the exact cost of the whole project, as people have only been able to speculate that the Serbian part will cost approximately 2 billion dollars, and the Hungarian government classified the contract for 10 years and thus the cost of the Hungarian part of the project remains a mystery.

Since the beginning, the Belgrade-Budapest link has been covered by a shadow of a doubt. The work on the Hungarian part of the railroad was supposed to start in 2015; however, the European Commission stepped in and expressed its concerns over the tender rules that the Hungarian government issued on the grounds of them possibly violating the EU law. This situation lasted until 2019 when Budapest issued a new tender, which was won by Hungarian Opus Global, owned by Prime Minister Orban´s friend Lorinc Meszaros, China Tiejiuju Engineering & Construction, and the China Railway Electrification Engineering Group. The work on the railway itself was commissioned in 2021.

Both governments promise that the project will strengthen economic ties between both countries and China. The Belgrade-Budapest railway is supposed to be part of the bigger logistic network, which is supposed to connect the Chinese-controlled Greek port of Piraeus with the rest of Europe. This is stressed especially by the Hungarian officials, who see the project as a great opportunity to make Hungary a trading hub and strengthen the country's economy. However, there are many doubts regarding this claim.

First, the cost of the whole project and its return in the future is uncertain. Conservative estimates are that Hungary will gain returns from this investment in 2400 years, but there is much doubt if it will ever happen. Also, given the fact that the connection from Piraeus so far exists only on paper and the contracts with other countries through which the railway link is supposed to lead haven’t been signed yet, the economic return of the project is in question.

Second, the Hungarian part of the railway runs through the southern part of the country; however, it is missing every larger city with some industrial capacity. Thus, they were excluded from direct participation in the trade link, which would have lead to further development of the area. This is in direct opposition to the claims of Hungarian officials, who justify the commission of the railway due to its importance for the Hungarian industry and its development.

Third, the whole project is heavily financed by Chinese investments, and the Chinese companies and workers also mainly participate in constructing the railway. This reality lowers the impact of the eminent positive economic influence of the project on local communities both in Serbia and Hungary, as the local workers are predominantly excluded from the construction.

For Serbia and Hungary, this could mean even further leaning towards the Eastern Giant as both countries are the highest receivers of Chinese FDI from the CEE countries. This poses risk, especially in the Hungarian case, as it could fall under Beijing’s political and economic pressure. Chinese investment activities have already borne their fruit. For example, the 2016 EU vote on a joint resolution about the South China Sea, which Hungary, Croatia, and Greece blocked. All three countries belong to one of the highest receivers of Chinese FDI in the EU. Of course, we cannot claim with certainty that they voted on the instruction of China or if they have some interest in the South China Sea in violation of the EU proposed resolution; however, the connection between their decision and economic ties with China is present. Hungary could thus act as a Trojan horse in the EU as its economic involvement with Beijing is one of the highest.

Furthermore, as examples of Sri Lanka and Ecuador show, Chinese infrastructure projects carry many economic risks. In the Sri Lanka case, the country could not repay its loan and had to give up control of Hambantota Port, giving it to China. On the other hand, Ecuador's hydro plant, which was built by Chinese companies, started falling apart shortly after its opening. This poses great issues not only to Ecuador’s economy, which is already heavily burdened by the project cost but also to local communities, which are in real danger of the hydro plant's rupture.

All these factors add to question why Serbia and Hungary decided to go with the Chinese investments and construction companies in the first place. In the Serbian case, the explanation could be that the country doesn’t have that broad selection of investment partners as it isn’t a member of the EU and showcases distrust towards Western countries due to historical events. However, this is not true in the case of Hungary, which has access to a broad palette of EU-supported funds and subsidies.

Only time will tell if the Belgrade-Budapest railway link was the work of visionaries forecasting incoming economic profits or a stepping stone for Chinese influence into the heart of Europe.

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