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Georgia: The Key to China’s ‘Belt and Road’

Georgia has become a major hub for China’s Silk Road plans, despite being left out entirely in the early stages.

thediplomat_2015-05-06_11-58-28-386x256Better later than never? For Georgia, the answer is a resounding yes. Back in 2013 when Chinese President Xi Jinping announced his ambitious Silk Road Economic Belt and Maritime Silk Road projects (also called One Belt, One Road or OBOR), Georgia was not even mentioned. That wasn’t surprising; Georgia was not a part of main route on the ancient Silk Road, so neither was it included in Xi’s new route. But things have changed rapidly. Right now Sino-Georgian relations are at their peak. The two countries are negotiating a free trade agreement and both sides admit Georgia has a key role to play in the New Silk Road project as a hub between Asia and Europe. “There is no country in the region that is more open to Chinese business and investment, Chinese people and culture or Chinese innovation and ideas than Georgia,” then Prime Minister Irakli Garibashvili said in a speech at Peking University in September 2015. In an op-ed for China Daily, he added that “Georgia is Europe’s natural gateway to Asia, as it is Europe’s eastern most point both by land and sea.” Right now, Georgia is attracting China and plans to transform itself into a logistics and transportation hub to connect Asia and Europe. But there are still many questions to be asked. How, when, and why did the Georgian government attract Chinese interest? What interest do both parties have in the project? And how realistic is it? China always had some interest in the Caucasus region — there are some major Chinese investors in Georgia — but the Middle Kingdom never considered Georgia as a strategic partner. Even Georgian media was quiet about OBOR at the beginning.

I first heard about Georgia’s potential involvement in this project last September, when Garibashvili visited China, but it was not from Georgian media. By that time I was studying in Lanzhou (one of the key cities of OBOR) and while riding the bus I happened to hear on the radio that the Georgian prime minister was visiting China to discuss an FTA and OBOR.
“We are definitely ready to become the part of the New Silk Road route. Our aim is to use Georgia’s strategic location as best we can,” said Garibashvili while visiting China.
In addition to talking with his counterpart, China’s Li Keqiang, Garibashvili also met with the president of the Asian Infrastructure Investment Bank, Jin Liqun. At the meeting, it was noted that Georgia will be one of the first countries where the bank will start implementing projects. One month later, Georgia hosted the Tbilisi Silk Road Forum, the first forum about the OBOR project organized outside of China. Clearly, Georgia is getting more involved in OBOR, but how did it all start?

China and Georgia established relations in 1992. China was one of the first countries to recognize Georgia’s independence, but Beijing didn’t have many interests in region at that time. Trade between two countries was only $3.7 million at the end of the 20th century. But in recent years, it’s become clear that China sees Georgia’s potential. Driven by Georgia’s privileged access to the European Union, investment-friendly tax policy, and strategic location on the Black Sea, Chinese investment interests in Georgia now run the gamut, and look set to expand. Trade between countries was worth over $700 million in 2015, FDI from China was more than $200 million by 2014, and exports from Georgia to China have increased by around 2000 percent compared to 2009.

thediplomat_2015-10-26_13-24-15-386x257Before Garibashvili’s visit to China in September 2015, China and Georgia held numerous exchanges. The Georgian delegations tried their best to get China’s attention and China tried to understand whether Georgia could be the gateway between Asia and Europe it needed so much to realize OBOR. After numerous visits by Georgian officials, several memorandums were signed and China began to pay more attention to Georgia. On December 13, the first transit train from China arrived to a station in Georgia, thus marking the opening of the “Silk Railroad.”Why Georgia? Why now? As I noted earlier, Georgia was not even mentioned when the OBOR plan was first announced. China never considered Georgia as a key player in Europe, but things have changed. It’s believed in Georgia that the country has a unique geostrategic location, but it apparently wasn’t so attractive for China before. Geography alone can’t explain why Georgia gained so much importance for OBOR in the past year. Some assume that China was interested because of the Georgia-EU Deep and Comprehensive Free Trade Area (DCFTA) and the country’s investment-friendly tax policy. Georgia does have a welcoming investment policy (it’s 24th in the World Bank’s Doing Business 2016 rankings) but the DCFTA argument falls apart on closer examination. Before Georgia, Hungary and Belarus were believed to be China’s strategic European partners in OBOR. Hungary is officially a member state of the EU; in comparison, it’s unlikely that Georgia’s Free Trade Agreement with the EU attracted China.
Then why? The answer is simple, and it’s hidden in China’s economic downturn. China’s economy has slowed to its lowest level of growth in 25 years. Quarterly growth it at its lowest rate since the depths of the financial crisis six years ago. Depreciation of China’s currency, less domestic spending and less FDI mean nothing good for the future of country’s economy. China is in need of money to finance the many OBOR projects in different countries, but the overwhelming majority of those investments are long-term projects; China would not gain any material profits for some years at least. So, China has to cut on spending but Xi can’t simply abandon OBOR — it’s an important plan for domestic propaganda while China’s economy is going down, and on the international level it marks China’s global ambitions. Saying no to OBOR at this point would be political suicide.
To connect with Europe, China would have to spend a lot of money on infrastructure in Belarus and Hungary. Taking into consideration the economic situation, they began to look for some less expensive alternatives. Here comes Georgia and the nearly completed Kars-Tbilisi-Baku railway, which is intended to complete a transport corridor linking Azerbaijan to Turkey, which could be used to connect Central Asia and China to Europe by rail. High returns on a light financial burden provide the main reason for China’s interest in Georgia at this point.
What does this mean for Georgia? To be clear, it does not mean that Georgia is changing its Euro-Atlantic path. Georgia is still struggling toward membership in the EU and NATO. Instead, OBOR is seen as a potential solution to some domestic issues: creating more jobs, building infrastructure, getting more FDI, and providing a much-needed economic boost.
Besides the economic gains, there is even bigger reason why Georgia wants to be part of this project: Russia. The neighbor from the north is believed to be Georgia’s number one threat and enemy, and Moscow is strongly opposed to Georgia’s western choice. But if Georgia were to be a main hub between Europe and Asia in the OBOR project, China would be the guarantor of Georgia’s stability. Given the sanctions imposed on Russia and its isolation, Beijing is the only strong partner Russia has for now; in this situation Putin wouldn’t dare to mess with China’s new protege. It’s a “win-win game” as the Chinese like to say: China gets its OBOR plan realized with less expenses, while Georgia gets economic prosperity and a guarantee of stability, which makes it easier for the country to rush toward NATO and EU.
However, there are plenty of obstacles for China while realizing the OBOR plan: skeptical attitudes toward China of people living in OBOR countries; the potential for the partnership with Russia to sour; international terrorism on the OBOR route; and the downturn of the Chinese economy. Despite all of this, OBOR is already being realized; the first steps have been made.
Meanwhile, though Georgia is not ruled by Garibashvili anymore, new Prime Minister Giorgi Kvirikashvilihas also acknowledged the importance of OBOR. “The ‘One Belt, One Road’ initiative is a very important initiative for us. It offers a lot of new opportunities to countries along the Silk Road,” Kvirikashvili said in his interview with China Central Television.
The Georgian government announced in February that the Anaklia Development Consortium (“ADC”), a joint venture between Georgian Group TBC Holding and U.S.-based Conti International, has been awarded the contract to build a new deep-water Black Sea port at Anaklia, on the western coast of Georgia. The new port will have the capacity to accommodate the Black Sea’s largest vessels and will provide a new maritime corridor connecting China with Europe. The Georgian government will contribute $100 million towards the $2.5 billion project; ADC will fund the remainder of the cost through a mixture of equity and debt from private and institutional investors. Upon completion, the port will have the capacity to process 100 million tonnes of cargo per year, which could boost Georgia’s GDP by 0.5 percent.
Located on the eastern edge of the Black Sea, Anaklia strategically sits on the shortest route from China to Europe. Though a joint Chinese bid to build the port was unsuccessful, Georgia still envisions a linkage between the Anaklia port and OBOR. Mamuka Khazaradze, founder and president of TBC Holding, said: “The Anaklia project represents a one-of-a-kind investment in the restoration of the Silk Road that will pay dividends for generations of workers in Asia and Europe.” The Anaklia Development Consortium was also awarded the right to develop a free industrial zone on about 600 hectares of land adjacent to the port.
On December 13, the first transit train from China arrived to a station in Georgia, marking the opening of the “Silk Railroad.” The train’s arrival was met with a celebratory ceremony attended by then-Georgian Prime Minister Garibashvili, the director of Georgian Railways, and the acting Chinese ambassador to Georgia. Garibashvili once again emphasized that the Silk Road project is an historical commitment that will significantly increase the amount of foreign investment and jobs in Georgia.
The cargo sent from China reached Georgia in 15 days. It is noteworthy that on its way to Georgia, the train went through Kazakhstan and Azerbaijan and would then pass by sea from Georgia to Turkey. In the future, this railway transit route is expected to provide a fast, accessible connection between Europe and Asia. Cargo sent from Lianyungang, China’s easternmost port city, will take a little over two weeks to reach Istanbul, 25 days short than if shipped by the sea route. The Kars-Tbilisi-Baku railway is expected to be finished this year and cargo from China will likely increase significantly. This trans-Caspian route satisfies several checkboxes: it avoids Russia and it can potentially capitalize on the opening of Iran.
Meanwhile, on January 15, a shipment was sent from Ukraine, reaching China on February 2. The shipment launched via ferry from the Ukrainian port in Chornomorsk and crossed the Black Sea to Batumi, Georgia (future cargo will likely head to Anaklia after construction on the new port is finished). From there, it continued on rail through Georgia and into Azerbaijan. At the new Azeri port at Alyat, the cargo was loaded onto a second ferry and sailed for the Kazakh port at Aktau, where it once again took to the rails headed for the Chinese border. Taken together, these two routes help us draw a new map of OBOR, where Georgia plays one of the main roles as a hub in two directions — from China to Turkey and Ukraine to China, and vice-versa. Most importantly, it provides a way to avoid Russia for Turkey and Ukraine, both of whom have tense relations with Moscow at the moment.
Besides railways and ports, the FTA negotiations are also a major boon for Georgia. Georgia will potentially be the first country in the South Caucasus to strike up free-trade relations with the world’s second largest economy, while already having a free-trade deal concluded with the EU. Genadi Arveladze, Georgia’s deputy minister of economy , said that parties have already held several rounds of negotiations on the FTA, with the next round scheduled for May 9. He added that by the end of this year negotiations should be over and Georgia and China would have their FTA.
In early April, Liu Xianzong, chairman of the Silk Road International Chamber of Commerce, visited Georgia, where he met with the president, prime minster, and minister of foreign affairs. At every meeting, both parties highlighted Georgia’s future role in OBOR. At the same time, the executive director of the Partnership Fund (an organization created by the Georgian government to attract investment), David Saganelidze, visited China, met with Chinese officials and even made a speech about Georgia’s involvement in OBOR at the Boao Forum for Asia.
How things have changed. Georgia is now a main solution for China to realize its ambitious OBOR project. Let’s see how things develop from here.

Source: http://bit.ly/1IN2qcl

New Silk Roads in the Southern Caucasus: Chinese Geopolitics in a Strategic Region

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Introduction

The South Caucasus has historically been, and continues to be, an important region that has been the subject of both competition and cooperation between many regional and global powers. Currently, the region looms large in European, Russian, American, Turkish, and Iranian geopolitical considerations. As such, the policy, strategy, and tactics of these global and regional powers toward the South Caucasus have become a major focus in the literature today with a particular emphasis on bilateral relations with these powers as well as relations within the region. Surprisingly, little analysis has been done on the policy of the People’s Republic of China (PRC) in the Southern Caucasus. While the Southern Caucasus appears distant from China both politically and geographically, Beijing has had a significant presence in the region and continues working hard to strengthen its position there. If the current trend continues, China could become one of the most influential players in Caucasian geopolitics.
Consistent with its geopolitical strategy in other regions, the PRC has employed a unique “cluster approach” to the Southern Caucasus, which involves developing relationships with multiple countries within the region, some of which have a history of rivalry and competition. Compared to other regional powers with an interest in the region, China has had relatively little geopolitical contact with the region and is thus free of the baggage associated with the various regional conflicts. This creates favorable conditions for developing and deepening its relations in the region. Essentially, China can sidestep with relative ease the political, historical, psychological, and other types of antagonisms that exist between the countries and nationalities of the region.
Beijing’s strategy in the Southern Caucasus consists of two distinct but interrelated elements. The first is deepening and expanding its economic activity in the region, and the second is engaging in public diplomacy and educational exchanges.
Developing ties in these two directions allows China to achieve two main goals. The first is economic interest. The Southern Caucasus has great economic potential, and business penetration into the region is very lucrative. The second imperative is of geopolitical nature. Strengthening its positions in the Southern Caucasus helps decrease the impact of Islamic fundamentalism and pan-Turkism on its Turkic-speaking Uighur population in Xinjiang. The Caucasus are closely intertwined with Central Asia, both culturally and politically, and China fears that the South Caucasus may become a corridor through which these ideologies could spread from the Middle East to Central Asia and from there, further exacerbate tensions in Xinjiang. This could pose a serious threat to the PRC’s security; therefore, for Beijing, it is much more expedient to erect additional barriers against these threats far beyond its own borders.
From a geopolitical standpoint, Chinese interests coincide with those of Russia and some regional countries, including the Islamic Republic of Iran. For Moscow, an active Chinese presence in the Caucasus enhances the Sino-Russian relationship and allows the two countries to jointly resist the West. Additionally, China’s economic contribution to the region could potentially help curb extremism in the North Caucasian republics.
China’s relationships with key Southern Caucasus states as well as with other non-recognized states will help give us unique insight into China’s two-pronged strategy in the region.

Georgia

Diplomatic relations between China and Georgia were established on June 9, 1992. Besides interactions on the national level, Chinese-Georgian relations have also developed at the municipal and regional levels. In 2007, a memorandum on mutual cooperation was signed between the cities of Rustavi and Harbin. This was followed by a November 2008 agreement on cooperation signed between the Georgian region of Kakheti and the Xinjiang-Uighur Autonomous Region. And yet another similar document was also signed in November 2009 between the Georgian city of Poti and China’s Qingdao.

potiThe transportation industry holds special promise as a point of cooperation between the two countries. Some sources indicate that the PRC is showing an interest in the Baku-Tbilisi-Kars railway project, although no specific steps have been taken thus far. In 2010, the China Sino-Hydro Corporation and China Railway 23rd Bureau Group won an international tender organized by the Georgian side for reconstructing the Rikoti Tunnel, a strategically vital transportation junction connecting East and West Georgia, as well as for building a railway that bypasses Tbilisi, which is also an important project for Georgia’s transportation development and security. The cost of this railway alone amounts to $353.5 million and envisages building a 30-kilometer stretch, as well as bridges, tunnels, and other structures.
Hydropower infrastructure has been another avenue for cooperation between the two countries. The Khadori Hydropower Plant, with a capacity of 24 MW on the Pankisi River, is one such example. China’s Sichuan Electric Power Import and Export Company built this hydropower plant. Construction began in 2001 and was finished in November 2004. The Khadori Hydropower Plant is the largest hydropower plant built in Georgia since it declared its independence.
China and Georgia are also developing areas of educational and cultural cooperation. At the end of November 2010, the Confucius Institute opened in Georgia. The Georgian-Chinese Silk Road Cultural Center, founded in 1992, also plays an important role in developing bilateral cultural relations. Intellectuals from different fields who are interested in Chinese culture gather at the center. The center’s main purpose is to develop and intensify cultural and economic relations between the two countries.
The development of Chinese-Georgian relations is very much reflected in the foreign trade turnover between the two countries. In 2000, the trade volume between the PRC (including Hong Kong) and Georgia amounted to $4.1 million, growing exponentially by 2009 to almost $213.2 million. In 2013, the volume of bilateral trade between Georgia and China surpassed $597 million, thus exceeding the 2000 figure more than 145 times. None of Georgia’s other foreign trading partners demonstrated such growth dynamics.
In the future, such positive trade growth is likely to increase even further. The November 2010 visit of former Georgian Prime Minister, Nika Gilauri, to China was particularly important in this context. At their meetings with the Chinese leadership, members of the Georgian delegation made several economic proposals. For example, Tbilisi proposed expanding and modernizing the sea port of Poti, implementing several large hydropower projects, and opening a branch of the China Development Bank in Georgia. There have also been active steps to facilitate additional flows of capital and resources between the two countries. During his visit, the Georgian Prime Minister said that China’s interest in Georgia is much greater than was presumed and emphasized that his country expected potential investments amounting to $500 million from China and India in the next few years. During his tenure, former Georgian President Saakashvili was even more optimistic, expecting such investment to reach about $600 million. Georgia also proposed establishing direct air communication between the two countries by transforming the Tbilisi International Airport into a transit hub for the air communication system connecting China and Europe. It will soon become clear whether these efforts will translate into closer economic relations.

As in Azerbaijan, there is also a Chinese demographic presence in Georgia. For example, there are many Chinese workers, shops, and restaurants in the cities of Batumi and Kobuleti, located in the Autonomous Republic of Ajaria. Conversations with ordinary Georgians in different places in Ajaria generate an overall view that they see Chinese workers to be unpretentious, hardworking, and inexpensive to employ, receiving around $90 per month as salary, which makes them serious competitors on the local labor market. As for the number of Chinese migrants in Georgia, data is variable and sometimes contradictory, with the number reported between 1,000 and 5,000 people. The Chinese are engaged in various fields, especially in trade. There are 600 Chinese shops all over Georgia, both in the capital and in other towns.
Concerns about the Chinese demographic presence in Georgia also exist. A real estate project carried out by the Chinese Hualing Group on the outskirts of Tbilisi has generated significant controversy in the Georgia. It was reported that the Chinese side planned to bring more than 127,000 Chinese workers to stay in Tbilisi while carrying out planned activities. For its part, the Hualing Group denied such plans, stating that out of 659 employees engaged in the project, 531 are ethnic Georgians. Interestingly, Georgian poll data show that around 60 percent of Georgians opt for doing business with China, while 80 percent are against mixed marriages with the Chinese.

Conclusion: China’s Cluster Approach in the Caucasus and its Strategic Implications

Given the interest in China’s global strategy, this case study raises the question: Is this economic cooperation part of a larger state strategy to establish influence in the region, or just an initiative of Chinese private or state companies purely pursuing economic benefits?
Faced with a relatively opaque political system and foreign policy strategy, we are forced to question whether the Chinese economy can be entirely separated from politics, and more particularly, from geopolitics. The fact that the Chinese economy is a quasi-market economy where economic entities pursue economic benefits makes establishing economic relationships abroad—and their political consequences—inevitable. Rather than hindering this reality, China creates favorable conditions to develop economic cooperation abroad, which suit its economic and political imperatives. From an economic perspective, this boosts its national economy, strengthens its export capacity, and increases China’s image as a market economy. And these economic factors influence the political realm as well; the strengthening of political positions is a corollary to the strengthening of economic ones.
Part of China’s “cluster approach” is a strategy that seeks to establish regional political influence through economic influence. In line with its philosophy of enhancing cooperation and avoiding regional conflict, China has been adept at striking a fine balance between different sets of rivals while establishing economic relationships. Given the complex geopolitical context, we would expect that Armenia, Georgia, and Azerbaijan would object to Chinese collaboration with disputed territories. Yet, there has been little opposition from these states.

There are two main reasons for this phenomenon. First, the officially recognized states consider economic cooperation with China to be much more beneficial than terminating economic ties with the PRC because of its cooperation with the region’s non-recognized states. The second reason is the factor of Taiwan. The Taiwanese factor is very important because Beijing uses it shrewdly to establish and develop relations with all of the regional entities—recognized or not—while adroitly circumventing the rivalries and problems between them. The crux of the matter is that Georgia and Azerbaijan cannot complain about Chinese economic cooperation with the non-recognized states that have seceded from them, because they themselves have very active economic interactions with Taiwan.
For example, between 2000 and 2010, trade turnover between Georgia and Taiwan increased twentyfold. By this indicator, Taiwan was second only to China. From 2005 to 2013, the volume of bilateral trade between Georgia and Taiwan increased more than 5 times. As regards to Azerbaijan, between 1995 and 2010, the volume of bilateral trade between Baku and Taipei increased over 3,000 times. Between 2005 and 2013, it increased more than 234 times. When it comes to trade with Taiwan, this is a growth record that has not been surpassed by any other country so far.
Against this background, it is clear that neither Azerbaijan nor Georgia could express dissatisfaction about cooperation between Chinese businesses and the non-recognized states. Likewise, Beijing is not worried about Georgia and Azerbaijan’s economic cooperation with Taiwan. They are not great powers and therefore their cooperation with Taiwan does not pose a threat to China. Regardless, these states’ cooperation with Taiwan surely gives Beijing a certain political indulgence when it cooperates with the non-recognized states.
The Southern Caucasus is a region where China’s “cluster approach” has proven successful. Through a nearly exclusive focus on economic relations and a delicate balance of private and public actions, China has been able to navigate the complex geopolitical conflicts in the region. Moreover, China seems to have been able to leverage on its own issues with Taiwan to force regional actors to compromise. All these developments point toward an increasingly nuanced and sophisticated Chinese foreign policy within the region.
The Chinese presence in the South Caucasus is not only of interest to those within the South Caucasus, but also to those outside it. Moscow’s acquiescence of China’s growing presence in a region where Russia has long been the dominant great power is indicative of the importance Russia places on having a positive relationship with China. This dynamic could be noted in Russian President Vladimir Putin’s remarks connected with events in Crimea, in which Putin thanked China for its comprehensive understanding of history and politics in relation to Russian policy. His comment was a conspicuous reflection of China’s importance not only in world politics, but also in the Greater Caucasian and Black Sea-Azov region.
China is working hard to deepen and expand its relations with the South Caucasus region. Recent events involving Ukraine and Crimea, which are adjacent regions to the Caucasus, mark intensifying competition between the West and Russia. These developments may further boost China’s interest in the South Caucasus and give new impetus to its activities.

Source: http://bit.ly/2dQKoNf

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