Georgia Can Still Be a Hub for China, But Only If the Belt and Road Survives

The problem isn’t with Georgia – it’s with China, and the BRI as a whole.

By Revaz Topuria

Credit: Pixabay

More than three years ago in a previous article for The Diplomat I made the bold assertion that Georgia could become key to China’s Belt and Road Initiative (BRI). A lot has changed in that time. Since 2015 Georgia has had six different ministers of economy and may have a fourth prime minister coming soon. Meanwhile China rebranded the “One Belt One Road” into BRI and even rebooted the program recently. With all of this in mind, I thought to provide an overview of how things between the two countries have developed since my last piece, what has changed, and where Sino-Georgian relations as well as BRI in general are going.

Even back in 2015 there was a lot of skepticism, but for a period it looked as if Georgia could indeed play a vital role in the BRI and help China pursue its ambitious goals. The Chinese side asking the Georgian government to start negotiations on a free trade agreement between two countries was the first shocking event to prove that point. In 2016 I joined the Ministry of Economy and Sustainable Development of Georgia as a chief specialist of trade negotiations and was able to witness some aspects of Georgia-China FTA negotiations firsthand. It should be noted that the Georgian side had made offers regarding a potential FTA in years before, but was met with refusal. However, this time China was more than keen to make it happen.

Indeed, after three rounds of negotiations, even though the final remarks were not made and the agreement was not finalized yet, the Chinese side asked us to sign a memorandum of understanding on concluding the free trade negotiations. This was done just a couple of days before Georgian parliamentary elections, as the Chinese side was afraid that there might be delays or problems with the agreement should a new party form the Georgian government. The final provisions of the agreement were completed a couple of months later. In the end, Georgia opened its market for 96.5 percent of Chinese goods, while China provided duty-free access for Georgian export products such as wine, mineral water, tea, fruits, and more, in total accounting for 94 percent of goods.

China showed special interest toward Georgia in other ways as well. Chinese Ambassador Yue Bin, who clearly lacked diplomatic experience (he had never previously served as ambassador but worked as a translator in the Chinese embassy in Moscow) was soon recalled and the more experienced Ji Yanchi was sent. Earlier this year, the Chinese minister of foreign affairs, Wang Yi, visited Georgia and met with his Georgian counterpart as well as the president of Georgia. Wang once again underlined Georgia’s huge role in the BRI, claiming that the country could become a transport and logistic hub between Europe and Asia.

At the same time, then-Vice Prime Minister Dmitri Kumsishvili held important meetings in China with Chinese Minister of Transport Li Xiaopeng and Minister of Commerce of China Zhong Shan. Numerous memorandums of understanding were signed and Tbilisi hosted two Belt and Road Forums with high-level guests, once again showing its willingness and readiness to play a bigger role in the BRI.

Infrastructure projects of importance for China were also getting built. In 2017, the launching of the Baku-Tbilisi-Kars (BTK) railway was attended by Chinese officials, a sign of the BTK’s strategic importance for the BRI as it cuts a 45-day journey to two weeks. At the same time, Anaklia port signed memorandums with the Kazakh port of Kuryk and Azerbaijan’s Baku port on developing the trans-Caspian corridor to create competitive conditions for transporting cargo along the maritime route of the BRI.

However, this diplomatic honeymoon did not last long, neither did it prove to have any real effects.

As stated in my previous article, the Sino-Georgian relationship was based on a win-win strategy for both countries. While Georgia was providing China help with the BRI, in return the country was waiting for more jobs and infrastructure projects, bigger foreign direct investment (FDI), and a general economic boost. The free trade agreement was seen as a first step toward meeting these goals, but FTAs alone cannot do miracles. The agreement has huge potential but without further FDI and more attention from the Chinese side, it cannot do much. The results of the first year of the agreement tend to justify this claim. In 2018 trade turnover between Georgia and China increased by only 10 percent, compared to a 29 percent increase in 2017. Exports from Georgia during the period from 2013 to 2017 increased at an average annual rate of 58 percent but decreased by 2 percent in 2018. Even wine exports, which were increasing on average by 65 percent from 2015-2017, decreased by 3 percent in 2018. Meanwhile, Chinese investment increased by 62 percent in 2018, accounting for $65 million, but remains way less than what it was – back 2014 Chinese investment in Georgia totaled $220 million.

As a result, by 2019 there is not much evidence of Chinese companies creating jobs for Georgians. The country is receiving less FDI and there is less investment in infrastructure building. In sum, China-Georgia cooperation has yet to result in a significant economic boost. However, this would not matter much if China managed to help Georgia on another front. As I argued previously, should the BRI be successfully realized, Georgia could have China as security guarantor against its northern neighbor. Of course, no one would ever think that China would create tensions with Russia over Georgia. However, since Beijing gave Georgia so much importance within the overall BRI, China could have applied diplomatic pressure on Russia to ensure a stable situation in the country. Nevertheless, judging by recent Russian actions in Georgia, Xi Jinping is not rushing to talk to his friends in the Kremlin.

After such a great start followed by a sudden slowdown, one could ask: What did Georgia do wrong? However, honestly, I do not think that Georgia is the problem here. Despite changing a number of high-profile government officials, it is still the same party in government, with the same views toward China.

It is the Middle Kingdom that has the problem. And the problem is not with Georgia per se, but with the BRI in general.

Since its inception, there have been a number of questions raised about the BRI, as experts doubted whether the project was real and/or realistic. Some thought that it was just communist propaganda to satisfy the domestic audience and boost the Chinese image in the international arena. However, even analysts who bought that project was indeed going to happen still doubted whether China could indeed manage to execute a project of this magnitude.

Both questions are still valid today. It’s been six years already since Xi unveiled his “project of the century” and more than 130 countries have already signed deals or expressed a willingness to be part of it. Nevertheless, there is still no framework to nail down exactly what the project consists of.

It is still impossible to say for sure what plans Xi really has for the BRI. Even so, I think even Chinese officials have started asking themselves recently: Can China actually give life to the BRI? Faced with this question, the BRI is already getting less attention not only in partner countries but in China itself. Even Xi seems less hyped. There are reasons to explain this. Compared to 2013 when Xi unveiled the project, China is in a tough economic spot, as its growth is at its lowest point since 1992. Coupled with rising pension costs and dwindling tax revenues, officials in Beijing are choosing to spend more on domestic infrastructure in order to stimulate the economy, rather than funding projects abroad. These domestic challenges have already triggered a capital flight and drained more than $1 trillion from China’s foreign exchange reserves.

Besides, a trade war with the United States is also making Xi go slow with his global ambitions. U.S. tariffs and uncertainty with the whole geopolitical situation will reduce Chinese exports to the United States, which will result in a current-account deficit for China. This will force the Middle Kingdom to use its foreign exchange reserves mainly to defend its currency and maintain investor confidence in the country’s macroeconomic stability. Therefore, Xi will have to think twice about external commitments, putting the BRI’s future into question.

To sum up, one could say that problem lies not in Sino-Georgian relations, but with the BRI’s foggy future instead. If Xi manages to reboot the BRI, giving it enough money and attention, Georgia can indeed play a vital role. Agreements are already signed and Georgian side seems willing to still play an active role in the project. However, there is no point in having a hub if you do not have anything to connect. If Xi wants his masterpiece to be a project of a century, China has to do way more.

Revaz Topuria is a graduate scholar in security and intelligence at the University of Glasgow. He previously worked at the Ministry of Economy and Sustainable Development of Georgia as a Chief Specialist of Trade Negotiations, where he was personally involved in the Georgia-China Free Trade Agreement Negotiations.