China & its Dealings in the South Caucasus

The South Caucasus has a strategic location as a hub between Asia and Europe as well as Russia and the Middle East. This naturally encourages regional powers to vie for political and economic influence here.

One of the newcomers is China, which, through its Belt and Road initiative, sees South Caucasus ports and vital railway and road infrastructure as an important part of the grand design to reshape Eurasia’s connectivity.

In the South Caucasus, Georgia attracts most of China’s economic and political attention. Chinese trade and investment in the country has dramatically increased in recent years: China is among the top four largest trade partners of and is the largest investor in Georgia. As to the import, China is now one of the biggest importers of Georgian wines. Chinese companies are active in construction throughout Georgia (real estate primarily in Tbilisi and Kutaisi). In May, China and Georgia signed the China-Georgia Free Trade Agreement (FTA), China’s first such agreement in Eurasia. Beyond the trade and investment statistics, Beijing is primarily interested in railway, road and other infrastructure here.

In neighboring Azerbaijan, too, China is increasing its influence. Economic contacts are fewer than in Georgia, but nevertheless, by 2016, China settled on Azerbaijan’s list of top ten trade partners. In the past two years, there have been a number of high-level visits involving the Azerbaijani president and two Chinese politburo members. Such frequency is rarely observed between China and any other Eastern European country. Moreover, the State Oil Company of Azerbaijan Republic (SOCAR), and China National Petroleum Corporation signed an agreement to cooperate in the realms of oil, gas, and petrochemicals. In late 2016, the Asian Infrastructure Investment Bank (AIIB) approved a $600 million loan to finance the Trans-Anatolian gas pipeline (TANAP) which runs from Azerbaijan through the Georgian territory to Turkey. As mentioned above in the case of Georgia, Chinese interests in Azerbaijan also involve cooperation regarding existing railway and road infrastructure, among which is the upcoming Baku-Tbilisi-Akhalkalaki-Kars railway aimed at enhancing connectivity from the Central Asian region to the Caucasus and Turkey.

Armenia has perhaps been the least influenced by Chinese investments or overall geopolitical interests since the end of the Soviet Union. However, recently there have been some interesting developments indicating the growth of Chinese ambitions with the construction of a new embassy in Yerevan. Once completed, it will be Beijing’s second largest in the former Soviet Union space.

China has also invested heavily in iron mining in Armenia, while trade between the two countries is growing. Although not big in numbers, China in 2015 ranked behind only Russia on the list of Armenia’s top import/export partners.

There are even nascent military contacts between the two countries. Several days ago, it was announced that the Armenian defense minister would visit China. Similar moves from the Armenian side are important to watch as Yerevan aims to diversify its military contacts and lessen dependence on Russia.

Moreover, in 2016, Armenia was accepted as a dialogue partner in the Shanghai Cooperation Organization (SCO). At the same time, although there are hopes that Armenia will start playing a major role in the Road and Belt initiative, the country still remains pretty much isolated. Closed borders limit connectivity possibilities. Even the $3.2 mln project of the Armenian section of the long-planned Tehran-Yerevan railroad is undecided at present.

Thus, it can be said that China only recently set its eye on the South Caucasus and its valuable infrastructure, primarily as a result of China’s Belt and Road initiative, according to which the country’s east will be reconnected (as in ancient times) to Europe through the shortest distance through Central Asia, the South Caucasus and the Black Sea (although that is not the only road which the Chinese are working on). Georgia can boast of its Black Sea ports, east-west highway, which essentially connects Azerbaijan and the Black Sea coast, and existing and upcoming railway projects (Baku-Tbilisi-Kars). Azerbaijan, due to its location, will play no less a pivotal role. As to Armenia, despite some positive developments in relations between it and China , it is still largely unclear how the country will be involved in China’s grander strategic plans.

Emil Avdaliani