China and Serbia Sign Free Trade Agreement: Bilateral Trade and Investment Outlook

China and Serbia signed a Free Trade Agreement on October 17, 2023, making it the first of its kind between China and a nation from Central and Eastern Europe. We look at recent data on bilateral trade and investment between the two countries, highlighting the possible broader impact of the agreement.

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On October 17, 2023, China and Serbia signed a historic Free Trade Agreement (FTA), solidifying their economic ties. The agreement is expected to enhance trade and collaboration in sectors like automotive, technology, agriculture, and commodities. The China-Serbia FTA is the first of its kind between China and a nation from Central and Eastern Europe, making Serbia China’s 29th FTA partner. Thus, while it aims to eliminate tariffs on a significant portion of goods, the agreement is also expected to have a broader impact on European and Eurasian trade dynamics, emphasizing the commitment to fostering mutually beneficial trade relations.

China-Serbia relations

China and Serbia have enjoyed a longstanding diplomatic relationship, dating back to 1955 when China established diplomatic ties with Yugoslavia, Serbia’s predecessor. Following the dissolution of Yugoslavia, the Chinese Embassy in former Yugoslavia was renamed the Chinese Embassy in Serbia and Montenegro in 2003, and then the Chinese Embassy in the Republic of Serbia in 2006. The partnership between the two nations deepened over the years, culminating in the establishment of a strategic partnership in 2009. In the following years, the bilateral relationship continued to strengthen, as evidenced by the signing of the  Joint Statement on Deepening Strategic Partnership between the People’s Republic of China and the Republic of Serbia in 2013, and of the Joint Statement on the Establishment of Comprehensive Strategic Partnership between the People’s Republic of China and the Republic of Serbia in 2016. Chinese President Xi Jinping emphasized the enduring “iron-clad friendship” between the two nations during a meeting in February 2022, highlighting the robust mutual political trust that has withstood the test of time, particularly through the challenges posed by the COVID-19 pandemic.

The signing of the Free Trade Agreement

On October 17, 2023, Chinese President Xi Jinping and Serbian President Aleksandar Vučić convened in Beijing for the third Belt and Road Forum for International Cooperation, during which they celebrated the signing of several pivotal bilateral cooperation documents. Among these, the signing of the FTA took center stage, symbolizing the culmination of their efforts to strengthen economic ties between the two nations. Notably, the negotiations for the FTA took only five months, reflecting the high level of political trust between the two countries. President Xi highlighted the significance of the FTA in injecting new energy into the development of China-Serbia relations in the new era. He emphasized the mutual support on core interests and the need for enhanced collaboration in key infrastructure projects. President Vučić, in turn, lauded the FTA as a pivotal step that opens up new prospects for bilateral cooperation and fosters enduring ties between the two countries. This significant milestone highlights the deepening partnership between China and Serbia and promises increased bilateral cooperation and a conducive business environment.

Bilateral trade between China and Serbia

Serbia stands as China’s foremost trading partner in Central and Eastern Europe, while China holds the position of being Serbia’s key trading partner in Asia. In 2022, bilateral trade volume amounted to US$3.55 billion, reflecting a 10.1 percent increase compared to the previous year. According to the United Nations COMTRADE database, Serbia exports to China reached US$1.17 billion in 2022, with top exported goods being ores slag and ash (US$913.47 million), copper (US$132.88 million), wood and related articles (US$41.31 million), electronic equipment (US$28.45 million), and machinery, nuclear reactors and boilers (US$20.1 million).

Top 5 Products Exported from Serbia to China in 2022
Product category	Amount (million US$)
Ores slag and ash	913.47
Copper	132.88
Wood and articles of wood, wood charcoal	41.31
Electrical, electronic equipment	28.45
Machinery, nuclear reactors, boilers	20.01
Source: United Nations COMTRADE, 2022

Meanwhile, China’s export to Serbia in 2022 was US$2.18 billion, with machinery, nuclear reactors and boilers (US$754.50 million), electronic equipment (US$488.46 million), articles of iron or steel (US$146.27 million), vehicles other than railway and tramway (US$101.63 million), and aluminum (US$64.94 million) being the top exported goods.

Top 5 Products Exported from China to Serbia in 2022
Product category	Amount (million US$)
Machinery, nuclear reactors, boilers	754.50
Electronic equipment	488.46
Articles of iron or steel	146.27
Vehicles (other than railway, tramway)	101.63
Aluminum	64.94
Source: United Nations COMTRADE, 2022

China’s investments in Serbia and the Belt and Road Initiative

Serbia, as an active participant in the Belt and Road Initiative (BRI), has seen substantial engagement from China, fostering an environment of strategic cooperation and infrastructure development. The Memorandum of Understanding on Jointly Advancing the Belt and Road Initiative (2019) and the Plan for Bilateral Cooperation under the Framework of the Belt and Road Initiative (2018) solidify the foundations of this collaborative effort.

Notably, Serbia is also a key participant in the “16+1” initiative, also known as the Cooperation between China and Central and Eastern European Countries (China-CECC Cooperation). Within this framework, Serbia has emerged as the largest beneficiary of approximately 70 percent of Chinese investment in the region, totaling US$10.3 billion between 2009 and 2021. A large majority of Chinese investment in Serbia has been channeled into essential infrastructure projects. Since the signing of the Economic and Technical Cooperation Agreement in the Field of Infrastructure in 2009, China has actively participated in various key projects within the transport and energy sectors. Notable initiatives include the construction of the iconic “Pupin Bridge” in Belgrade, financed primarily by the Export–Import Bank of China (Exim Bank of China).  Additionally, the modernization of the Kostolac thermal energy power plant, funded by the Exim Bank of China and implemented by China Machinery Engineering Corporation (CMEC), stands as a significant project in the energy sector. China has also been involved in the construction of essential segments of the Corridor XI motorway, partially financed by Exim Bank of China and executed by China Road and Bridge Corporation (CRBC).  Another significant contribution is the modernization and development of the high-speed railway connecting Belgrade and Budapest, partially financed by Exim Bank of China and reconstructed by China Communications Construction Company (CCCC) and China Railway International Group (CRI). The Chinese Ministry of Commerce’s 2022 document, Country Guidelines for Foreign Investment and Cooperation, highlights the significant Chinese investment in Serbia’s mining and metal manufacturing sectors. Investments in these sectors have taken various forms, including brownfield acquisitions and greenfield projects. The Smederevo Steel Mill and Bor mines are prominent examples of brownfield acquisitions by Chinese investors. Simultaneously, the Čukaru Peki project represents a notable greenfield investment. Additionally, in September 2023 China’s Zijin Mining confirmed its intention to invest US$3.8bn in the Lower Zone of Serbia’s Cukaru Peki Mine – an investment which is expected to place Serbia among the largest European producers of copper and gold. Serbia’s automotive sector has become another focal point for Chinese ODI. Prominent investments in this sector include the Linglong vehicle tire factory, the Minth Automotive Europe project in Western Serbia, and Mei Ta Europe’s investment in the Obrenovac Municipality. Additionally, Yanfeng Automotive Interiors and Xingyu Automotive Systems have made substantial contributions, with initiatives in Kragujevac and investments estimated between €50 million (US$52.88 million) and €60 million (US$63.46 million), respectively.

Broader implications of the China-Serbia FTA

The China-Serbia FTA comes at a pivotal moment, providing China with a unique opportunity to strengthen trade relationships with European countries, notably including potential access to EU members such as Bulgaria, Croatia, Hungary, Romania, and Slovenia. In particular, as the EU attempts to lessen its reliance on mainland China, the FTA opens up new avenues for collaboration and trade diversification. Indeed, the absence of an FTA between the EU and mainland China, combined with the EU’s recent trade defense measures, underscores the significance of the China-Serbia FTA in facilitating a more dynamic and robust trade environment.

Furthermore, Serbia’s existing FTA with the Eurasian Economic Union, comprising nations like Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan, further enhances the strategic advantage for China. This agreement not only solidifies China’s trade foothold in Serbia but also paves the way for increased access to other European markets through the Eurasian Economic Union. All in all, the China-Serbia FTA signals a promising step toward strengthened economic partnerships and greater trade integration, and it could promote mutual growth and collaboration between China, Serbia, and their respective regional partners.

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