Belgrade's China Rescue

Growing financial ties between China and Yugoslavia appear to be extending the life of the Milosevic regime by undermining western efforts to limit access to hard currency.

In December, $300 million was transferred from bank accounts in China to Serbia, enabling the Serbian government to avert a looming financial crisis.

The funds - part of which were immediately used to halt a plunge in the Yugoslav dinar's black-market value - should be enough to forestall hyper-inflation in Serbia for six months and fund pensions, the military and police for several months, economists believe.

Belgrade first described the Chinese capital as a "gift", then a commercial loan, but critics of the regime are skeptical.

"It could not be a gift, because China does not make financial gifts," says leading Belgrade economist Mladen Dinkic. "I believe that this is money belonging to Serbia's political establishment that was transferred abroad, first to Cyprus, and other countries, then to China, and repatriated in December."

Serbian companies reportedly began moving money from Cyprus and other western banks to banks in Shanghai and Hong Kong last summer, anticipating that clashes between the Yugoslav Army and the Kosovo Liberation Army (KLA) would renew international sanctions.

The transfer of capital to China has also been influenced by Cypriot attempts to move closer to the European Union, as well as increasing scrutiny of Serb-held European bank accounts by Carla Del Ponte, the chief prosecutor of the UN's International Criminal Tribunal for the former Yugoslavia (ICTY).

In addition to growing commercial activity, diplomacy has been stepped up.

Every week a Yugoslav Airlines jet touches down in Belgrade with a new Chinese delegation. These parties of Beijing officials are part of a dwindling number of diplomats and statesmen willing to meet Yugoslav President Slobodan Milosevic.

Serbia, meanwhile, opened a consulate in Shanghai last year and the Yugoslav minister for cooperation with international financial organisations, Borka Vucic, was recently in Beijing to strengthen Sino-Serbian ties.

Vucic, believed to be responsible for the Belgrade regime's hard currency reserves, presented the head of the Chinese Red Cross with a memorial pyramid containing debris from the Chinese embassy in Belgrade, which was bombed by NATO last year.

"The pyramid was a symbol of the protest against and defiance of the NATO aggression and a message that there was no forgetting and no forgiving," she told her Chinese hosts.

Belgrade and Beijing have been increasingly friendly terms since Milosevic's wife, Mira Markovic, went to Beijing during the height of Serbia's 1996-97 anti-government demonstrations.

She returned flushed with excitement, extolling China's mix of Marxist political structures and free-market economics, as a model for Serbia, and calling for Belgrade, like other European cities, to have its own Chinatown.

Indeed, so taken was Markovic with China that her political party, the Yugoslav United Left (JUL), is sometimes referred to in jest as the Serbian branch of the Chinese Communist party.

NATO's bombing of China's Belgrade embassy last May, in which three Chinese nationals were killed and 20 wounded and for which the United States paid China $24 million in compensation, brought Belgrade and Beijing even closer.

The US and NATO insist that the bombing was a tragic accident and attributed it to out-of-date CIA maps. But some reports have suggested the embassy was targeted because it was serving as a substitute communications' centre for the Yugoslav Army after NATO had destroyed other command and control points.

The Chinese government has completed its own investigation and remains adamant that the bombing was deliberate.

While the China connection provides Milosevic with a refuge for hard currency, commercial loans, investment and prestige, Serbia affords Beijing an opportunity to invest in European industries at knock-down prices and a base in Europe for both trade and intelligence.

Bratislav Grubacic, editor of the Belgrade based independent press agency VIP news, estimates that as much as two thirds of the fund transferred from Beijing to Belgrade in December was to buy the Chinese a stake in a new mobile phone network in Serbia and a stake in the Pancevo chemical plant.

In addition, Beijing is receiving covert repayments via Belgrade of a large Libyan debt. Tripoli sends oil to Serbia which, in turn, compensates Beijing. In lieu of cash, China may be being paid for the oil with a stake in a Pancevo oil company.

Laura Rozen is a regular IWPR contributor who has been reporting from the Balkans since 1996.