Georgia and China: Advantages and risks of friendship

Georgia and China relations

Five and a half years after the implementation of the free trade agreement, Georgia and China decided to establish a strategic partnership.

The joint statement of the two states is of a general nature.

The transition to a new level of cooperation with the world’s second economy elicited a mixed assessment in Georgia.

One part of society took this decision as distance from the West, the other as an additional opportunity for economic development. Still others believe that deepening economic cooperation is quite acceptable, while the political part of the agreement contains risks.

China on its way to becoming superpower

As of 2022 China’s economy is $18 trillion, that is, 18% of the entire world economy, and exceeds all individual states and even the entire EU, second only to the United States.

Even in the recent past, in 1991,when Georgia gained independence, China was in 11th place in the world in terms of economic level. And since 2010, it has been consistently ranked 2nd.

While 20 years ago China lagged behind the UK, France, Germany and Japan, now it is ahead of all these four countries combined. At this pace, by the end of the decade China will overtake the United States and become the world’s largest economy.

In theory, along with the growth of the economy, per capita income should automatically increase as well. But in this regard, China is still far from the top twenty: today, in terms of per capita income – both in nominal terms and in monetary terms, in terms of purchasing power parity (PPP) – China lags far behind even Bulgaria, the poorest member of the EU.

Despite a low standard of living compared to other developed countries, China’s ambitions are growing in almost all directions. In the area of technology, Beijing has long gone from being a mere copyist to being a manufacturer.

China has significantly weakened Hong Kong’s autonomy in 2020, and only the US factor is keeping it from invading de facto independent Taiwan. And it is not known how long this forced self-containment will last, since China considers Taiwan its territory and does not seek compromises.

In terms of military power, China is considered the third country in the world in terms of defense budget and the first in terms of the number of military personnel. China also ranks third in the arsenal of nuclear weapons, actually second only to Russia in this – in addition to the United States, it is China, and not Russia, that has fifth-generation military aviation.

In 2003, China became the third country in the world to carry out a manned space flight. And if the country’s space program develops according to plan, it will become the second country to send a man to the moon.

The largest radio telescope with a diameter of 500 meters is also located in China. In the development of 6G Internet, fusion and quantum computing, China is on par with, and in some cases even ahead of, the United States.

China is both the largest polluter and at the same time the largest investor in green energy. China has the most electric vehicles and China produces the most wind and solar electricity.

China is also active in the field of sports – at the 2008 Olympics, it took first place in the unofficial team standings, and in 2021 lost to the United States only on the last day of the competition.

Given the military and economic potential, the United States has long considered China to be its main adversary, and not Russia, whose economy is almost 10 times smaller than that of China. However, due to Russia’s open aggression against neighboring states, sanctions are mainly imposed against it.

A deepening relationship with the United States’ main adversary will naturally not evoke enthusiasm in Washington. Yet China is not Russia, not Iran, and not North Korea. Economic or even political rapprochement with it cannot be a reason for imposing sanctions.

China and Georgia

Diplomatic relations between Georgia and China were established in 1992. The share of China in tourism and remittances to Georgia is minimal, in investments it is also small, but in foreign trade it has recently occupied one of the leading positions. In 2020-2022, China was Georgia’s main export partner.

The activation of the Chinese direction began in the 2010s. In 1995-2009, products worth $50 million were exported to China from Georgia – only 0.56% of total exports.

But by the time the free trade agreement was implemented in 2018, exports had already reached $200 million annually.

In 2020, against the backdrop of an economic downturn and a reduction in foreign trade with most countries, exports to China increased 2.3 times – from $207 million to $477 million, after which it took first place among Georgia’s export partners with an indicator 14.3%.

China managed to maintain the top spot in 2021 and 2022.

In January-June 2023, it was in 6th place, which was mainly due to a decrease in price and demand for the main export product – copper ores.

Before the implementation of the free trade agreement, imports from China to Georgia exceeded exports by 3.6 times, and in 2022 – only 1.5 times.

The first Chinese investments in Georgia were recorded in 2002. In 2014 (the year before the Youth Olympic Games), they peaked and then declined again. Several times, including in 2020 and 2021, Chinese capital left the country altogether.

The first thing that comes to mind when it comes to Chinese investment in Georgia is the Hualing Plaza shopping center on the outskirts of Tbilisi. But things could have turned out differently. After the announcement of the tender for the deep-water port of Anaklia, the Chinese company was considered one of the main contenders for victory. The conversation was about investments in the amount of 2.5 billion dollars. But then the Georgian authorities made a different choice, and the Georgian-American company was declared the winner. US Secretary of State Mike Pompeo, who visited Tbilisi in 2019, openly stated that the project would protect Georgia from the influence of Russia and China.

Once again, the Chinese side wanted to invest in the Georgian banking sector. In 2016, the French Societe Generale, which owns the Georgian Bank Republic, decided to leave the country. The Chinese base bank was interested in buying Bank Republic, but it ended up being taken over by another Georgian bank, TBC.

These two examples show that the potential of Chinese investment in Georgia is much greater than has been realized.

In the context of potential opportunities, one can also mention the role of Georgia as a corridor. In 2020, trade between the EU and China amounted to 587 billion euros, in 2021 698 billion euros, and in 2022 856 billion euros. Transporting even a small part of these goods through the Georgian corridor would greatly increase the country’s income.

In addition to the European Union, in 2022 the United States increased exports to China by 1.6%, bringing it to $154 billion, and imports by 6.3% (to $537 billion), after which the total trade turnover between these two countries reached $671 billion. dollars.

Despite a number of political disagreements, China traded with the US and the EU for about $1.6 trillion in 2022.

Forecasts

So what are the opportunities and threats associated with the rapprochement between Georgia and China? Will this affect Georgia’s relations with the West?

JAMnews addressed this question to economists and transport specialists, whose opinions are divided.

On the one hand, the confrontation between the US and China is quite obvious, and on the other hand, it is also true that the West is also expanding its economic ties with China. The restrictions concern mainly the military and technological areas, but it can hardly be assumed that China expects any benefits from Georgia in this regard.

According to Akaki Tsomai, associate professor of business and management at the University of Georgia, the government’s statement made no specific mention of anything other than a trade partnership, and it is unclear whether the agreements conflict with strategic partnerships with the US and the EU.

According to Paata Sheshelidze, President of the New Economic School, since Georgia already has a free trade agreement with China and a simplified visa regime, the countries are connected by railways, trade and investment are carried out, the possibility of building up economic relations is real. And although China is interested in increasing its political influence, strategic partnership should not mean creating special conditions for China:

“Natural conditions make it possible to expand trade transportation, especially by rail. It could also be a way to increase the load on Georgian ports. And if we also take into account the opportunities in the direction of Central Asia, to which gas and oil pipelines are added, then it is clear that not only existing ports will be overloaded, but there will also be a need for new ones. For example, in Anaklia and Kulevi, with different specializations. The Russian-Ukrainian war at this stage increases the role of this trade corridor. And the possible Armenia-Azerbaijan-Türkiye reconciliation is accelerating.

It is indicative that this corridor will work if there is a demand for it from the European Union, one of China’s main trading partners, which also expects an increase in gas supplies from Azerbaijan and Central Asia. Ukraine will also be interested in this corridor, because, even in the event of peace, it will not want to trade through Russian territory.

In short, this trade and transport corridor should be useful, but China’s policy and money is largely aimed at building political influence in one country or another. The political content of this strategic partnership is still unknown, and one can only say that it should not mean the creation of extraordinary conditions for China, especially when NATO and the EU are priority targets,” Sheshelidze says.

David Gochava, founder of the Professional Railroad Club and member of Hub Georgia, a transportation platform, doesn’t think much will change; the main thing is that China does not stop subsidizing freight trains to Europe. And an increase in transit, according to Gochava’s forecasts, is not yet expected, since “The middle corridor is a complex and expensive route.”