Balkan railway part of Chinese 'express lane' to Europe

Serbia said on Wednesday it expected Chinese construction of a new rail link between Belgrade and Budapest to begin by mid-2015, part of Beijing's strategy to accelerate the flow of goods into Europe through the Balkans.

China, Serbia and Hungary signed a memorandum of understanding on the 370 km rail route on the second day of a summit in Belgrade between China and 16 central and eastern European states.

Serbia also sealed a US$600 million (S$787 million) loan deal with China Exim Bank for the construction of a new power plant.

"This will put in place a corridor between China and Europe," Chinese Premier Li Keqiang said of the Belgrade-Budapest rail link. "With more such express lanes, the scale of our trade will be greater. We are confident we will complete this within two years."

The rail upgrade fits with a Chinese plan to turn Greece's main port of Piraeus - where Chinese shipping giant Cosco Pacific holds a 35-year concession to upgrade and run two container cargo piers - into a regional trade hub.

The rail programme was first agreed last year, but it remains unclear how it will be financed.

Serbian Prime Minister Aleksandar Vucic said a feasibility study and other paperwork would be finalised by June 2015, "so that the railway could be built by June 2017".

"We are dedicated to this project," he said following talks with his Hungarian counterpart, Viktor Orban, adding the upgrade would cut train travel times between Belgrade and Budapest from eight hours to under three.

China sees central and eastern Europe, comprising the EU's newest members and others in the Western Balkans that aim to join the bloc, as a potentially lucrative market and bridgehead to the wider EU, drawn by relatively low wages, an educated workforce and scope for further development.

Also on Wednesday, Serbia and China inked a loan deal from China Exim Bank for the construction of a US$715 million, 350-megawatt coal-fired power plant, the first to be built in the former Yugoslav republic in 25 years.

The project, which includes expansion of a coal mine supplying the plant, will be financed with a US$608 million, 20-year loan at an interest rate of 2.5 per cent and grace period of seven years, an energy ministry official told Reuters.

Serbia's state power utility EPS will pay for the rest.

The new plant, within Serbia's second largest coal-fired complex of Kostolac, is slated to come online in 2019.