CHINA’S ENGAGEMENT WITH THE SOUTH CAUCASUS: LIMITATIONS AND PROSPECTS
From Latin America to the Middle East, Africa to Europe, China’s web of economic expansion has engulfed all corners of the globe. Today, there is hardly any place in the world that does not trade with China. The South Caucasus is no exception. China’s economic and political presence in the region, while less substantial and inconspicuous compared to that of other actors, is no less visionary in its quest for expanded trade, energy resources and transportation corridors. Exploring the limits and prospects of Beijing’s growing engagement with the South Caucasus is therefore pertinent.
BACKGROUND: In 2010 Armenian President Serzh Sargsyan emphasized that the development of the bilateral cooperation with China was a priority for Yerevan. He even once called on Beijing to establish a greater presence in the South Caucasus that would “undoubtedly have a positive impact” on the region. Armenia suffers from geographic isolation imposed in the aftermath of the conflict with Azerbaijan over Nagorno-Karabakh in the early 1990s and seeks to widen its narrow export base through trade with China.
In 2009 Beijing surpassed Berlin as Yerevan’s second-largest trading partner after Russia, with the trade turnover reaching almost US$ 110 million and the share of Armenia’s imports from China hitting 9 percent. While imports from China (US$ 87 million) dominate the bilateral trade and Armenia’s primary export partners are Germany (16.9 percent) and Russia (15.9 percent), Armenia saw a more than tenfold increase in its exports to China. In 2009, however, most FDI still came from Russia (US$ 502.8 million), France (US$ 197.5 million), and the Netherlands (US$ 71 million).
Beijing and Armenia jointly operate the Shanxi-Nairit rubber factory. Beijing further considers participating in the construction of the Armenia-Iran railway system, enabling Yerevan to transport energy resources and accessing another railway system than the one passing through pro-Western Georgia. China’s concurrent engagement with Iran clearly serves as a platform for its policies in the South Caucasus and the Caspian region.
According to Chinese leader Hu Jintao, China and Armenia have “always treated each other as equals” and “supported each other” on international issues. In 2008, for instance, China did not vote for the UN resolution drafted by Azerbaijan that required an “immediate, complete, and unconditional withdrawal of Armenian forces” from occupied Azerbaijani territories. This complicates Beijing’s relations with Baku, which were damaged in 1999 when China sold eight Typhoon multiple rocket systems to Armenia.
Nevertheless, the level of trade and investment has been steadily rising, albeit still lagging behind other countries. In 2008, Baku’s major exports went to Italy (40.2 percent), the U.S. (12.6 percent), and Israel (7.6 percent). Imports came from Russia (18.8 percent), Turkey (11.2 percent), Germany (8.3 percent), Ukraine (7.9 percent), and China (6.7 percent). Bilateral trade hit US$ 300 million in 2009. China’s CNPC has a 25 percent stake in the Salyan oilfields, while Sinopec considers bidding for the Azeri-Chirag-Gunashli oil project (potentially in the range of US$ 3 billion). Baku even considered exporting gas to China amidst the energy disputes with Turkey, with Kazakhstan offering to do this via a proposed pipeline across the Caspian.
Both states have also supported the proposed Kars-Akhalkalaki-Baku railway linking Turkey, Georgia and Azerbaijan and connecting the Asian and European railway systems. With an annual transit capacity of 20 million tons, the railway project is sure to enhance Chinese presence in the region. Armenia, however, opposes the scheme, insisting on the use of Kars-Gyumri-Tbilisi link that has not functioned since the closure of the Turkish-Armenian border in 1993.
For Tbilisi, which seeks to position itself as a regional transit corridor, this project is important. So is its trade with China that reached US$ 47million in 2010 – an 86 percent increase from 2009 – making China the fifth largest trade partner for Georgia. Yet, most exports in 2008 went to Turkey (17.6 percent), Azerbaijan (13.7 percent), and Ukraine (9 percent), with imports primarily coming from Turkey (15.5 percent), Ukraine (10.9 percent), and Germany (10 percent). In terms of investment, the United Arab Emirates, not China, was the largest investor in 2009 (US$ 145 million), followed by Egypt (US$ 115 million) and Turkey (US$ 72 million). China’s investment, predominantly in the mining, hydro-energy and railways sectors, was US$ 65 million.
IMPLICATIONS: Besides the states of the South Caucasus, China engages the West, Russia, Iran and Turkey in the region to facilitate its economic expansion and ensure access to the region’s energy resources, trade routes and transportation corridors. Its “balanced” position on Nagorno-Karabakh, South Ossetia and Abkhazia serve these interests well, with the regional states returning the favor by supporting the “one China” policy and Beijing’s regional economic presence.
China’s economic expansion in the South Caucasus is indeed growing at a rapid pace, although it continues to lag behind that of other countries. Partly, this is the result of stalled regional cooperation, limited resources and transportation capacity, as well as geography. Yet China’s intensified search for resources, trade and transport corridors to fuel its booming economy will lead to enhanced cooperation between Beijing and the South Caucasian states, pointing to a number of implications for the region and its traditional actors.
First, Beijing’s growing presence will entail an economic and political reorientation of the South Caucasian states toward closer (and possibly even strategic) partnerships with China, precipitating the geopolitical decline of other regional players. To some extent, this process will mirror the related developments in Central Asia, where China’s growing investments and trade activities are gradually translating into Beijing’s enhanced political leverage and pushing other traditional regional actors, including Russia, to the sidelines.
Second, China might be forced to discard its “balanced” position in the region, especially given the important roles of Turkey and Russia in the Caucasus. In this context, China’s increasing cooperation with Armenia and Iran might serve as a break on Russian and Turkish initiatives involving Azerbaijan and other Turkic language countries. Turkey, for example, harshly denounced China’s violent crackdown on Uyghurs in Xinjiang in 2009. Third, competition and cooperation over transportation corridors and trade routes will intensify in Central Eurasia, which is already home to several initiatives involving the South Caucasus, the Caspian region, and Central Asia. Russia and Kazakhstan are currently developing railway connections, including ones that will facilitate China’s exports to Europe. Russia, India and Iran have, in turn, committed to developing “North-South” corridor. The TRACECA and CAREC regional transportation projects, supported by the West, are under implementation as well.
More recently, Beijing announced plans to develop a high-speed railway system that would promote China’s exports to Europe through what is allegedly an efficient and extremely fast transportation network, thus enhancing the position of the Caspian and South Caucasus regions as regional interconnectors. However, financial, technical, bureaucratic and political problems stand in the way of all mentioned transportation initiatives. This potentially undermines efficient operation of the regional railways and road networks, especially considering the number of actors involved in these initiatives and political issues plaguing the already complex regional relationships.
Finally, the growing cooperation between the South Caucasus and China will necessarily involve Central Asia, which is itself witnessing China’s rapid rise in its neighborhood. While the South Caucasus is a corridor for the West to energy resources in Central Asia, Central Asia is a transit point for China to the energy-rich Caspian and South Caucasus regions. This offers significant opportunities for the Central Asian region, which can effectively capitalize on its rapidly expanding role as a conduit of continental trade and platform for investments in the transportation sector. The resolution of Central Asia’s complex border, water, and security issues is nevertheless a key to reigniting the region’s potential in spurring East-West energy, trade and transportation flows to the benefit of all parties.
CONCLUSIONS: The South Caucasus is but one region that is experiencing a growing Chinese presence. While this relationship has not yet reached the maturity of those enjoyed by Beijing’s regional geopolitical contenders, it will increase in importance as China more effectively translates its interests into actions through expanded trade and investment. As part of this process, China’s future engagement with the South Caucasus will increasingly rest on its pursuit of energy resources, trade and transportation corridors, posing serious challenges to the influence of traditional actors in the region.
AUTHOR’S BIO: Roman Muzalevsky is an international affairs and security analyst on the Caucasus and Central Asia. He is also Program Manager at the Central Asia-Caucasus Institute.
