Orbeli Analitical Research

Chinese Economic Capital in Georgia

17 m. | 2020-01-24

The South Caucasus is of great importance to Chinese “One Belt, One Road” strategic initiative. Since the launch of the initiative in 2013, Beijing views transit routes linking Europe to Asia, including in the Georgian direction. Beijing places particular importance on transit opportunities of the Georgian ports.

Trade relations

I n 2018, Georgia exported goods worth of $3.3 bil., 5.9% of which to China. In 2017, it was 7.3%. China accounted for 9.1% [1] of total imports of goods to Georgia in 2018, and 9.2% in 2017.

Georgia’s trade turnover $ thous.

Trade turnover	2014	2015	2016	2017	2018
Exports, total	2 861 045	2 204 199	2 113 044	2 735 778	3 355 712
Imports, total	8 601 828	7 300 150	7 293 959	7 943 334	9 135 959
Exports to China	90 393	125 803	174 330	201 702	198 035
Imports from China	733 468	587 299	547 510	732 946	833 894

Source https://www.geostat.ge/media/28902/Yearbook_2019.pdf

In 2017, the bilateral trade amounted to $934.6 mil., more than $1 bil. in 2018, $318 mil. within the first 4 months of 2019 [2].

In 2018, China ranked the 4^th largest Georgian partner with 8.3% of the Georgian trade turnover [3]. According to the data of 2018, Turkey was the major trading partner of Georgia, with 13.7% of the country’s total trade turnover.

Georgia’s major trading partners in 2018

Country	Exports		Imports		Trade turnover, total
Country	$ thous.	% in total	$ thous.	% in total	$ thous.	% in total
*Total*	*3 355 712*	*100*	*9 135 959*	*100*	*12 491 672*	*100*
Turkey	233 497	7.0	1 473 173	16.1	1 706 670	13.7
Russia	436 647	13.0	934 007	10.2	1 370 654	11.0
Azerbaijan	502 042	15.0	592 760	6.5	1 094 802	8.8
China	198 035	5.9	833 894	9.1	1 031 929	8.3
Ukraine	175 045	5.2	514 767	5.6	689 811	5.5
Armenia	278 690	8.3	335 272	3.7	613 961	4.9
USA	159 971	4.8	359 544	3.9	519 516	4.2
Germany	51 540	1.5	431 404	4.7	482 944	3.9
Bulgaria	258 867	7.7	181 595	2.0	440 462	3.5
France	44 747	1.3	262 579	2.9	307 326	2.5

Source https://www.geostat.ge/media/28902/Yearbook_2019.pdf

In 2018, over $1.2 bil. direct investments were made in Georgia, with Chinese shares of 5.9%. Between 2016 and 2017, it was amounted respectively 1.5% and 0.9% [4]. Between 2014-2018, the best result of direct investments in Georgia made by Chinese companies was recorded in 2014 amounting to $220 mil., which accounted for 11.9% of total investment.

In 2018, Azerbaijan had the highest result amounting to $246.4 mil, which accounted for 19.4% of direct investment made in Georgia.

Foreign direct investments in Georgia, thous. $

Country	2014	2015	2016	2017	2018
*Total*	*1 836 980*	*1 729 088*	*1 650 328*	*1 962 613*	*1 265 236*
Azerbaijan	340 550	581 739	555 137	461 977	246 442
Netherlands	420 491	164 899	77 338	354 524	208 385
Great Britain	108 851	398 813	85 210	247 480	178 836
USA	184 443	18 898	59 262	79 308	102 571
China	220 099	66 948	25 481	19 364	75 738
Czech	51 962	16 673	87 529	129 097	74 999
Panama	70 664	9 524	75 850	23 842	74 615
Russia	87 909	52 370	28 376	51 316	69 654
Luxemburg	109 633	127 265	115 746	100 715	50 136
Turkey	72 306	74 894	220 698	256 119	49 590

Source https://www.geostat.ge/media/28902/Yearbook_2019.pdf

Statistics shows, that between 2014-2017, investments made in Georgia by Chinese companies recorded a steady decline. A positive dynamics was noticed only in 2018, which is due to the bilateral free trade agreement which entered into force since January 1, 2018.

Source https://www.geostat.ge/media/28902/Yearbook_2019.pdf

Chinese companies make investment in various fields of economy in Georgia: the largest investment are made in construction, financial and real estate markets [5]. The main Chinese commodity groups include vehicles and machinery (20.87%) and metals (17.24%). This dynamics hasn’t changed significantly during the following years.

Chinese exports to Georgia, according to commodity groups, 2017, %

Vehicles, Machinery	20.87
Metals	17.24
Textile	15.18
Electronics	13.72
Chemicals	10.73
Agricultural products	9.86

Source http://atlas.cid.harvard.edu/explore?country

According to the Georgian Government, currently up to 25 Chinese companies work in the fields of construction, energy, infrastructure and roads in Georgia [6]. Till now, Chinese companies have built 82 km. of roads and 40 km of railway in Georgia [7]. Currently a number of projects are being implemented in Georgia supported by China, including the construction of an electric car factory in Kutaisi [8].

Among the foreign investment organizations entering the Georgian market is the Chinese Hualing Group private corporation [9], which is engaged in trade, stores’ and hotel networks’ construction, in the field of energy resources’ design and development. Hualing Group has appeared in Georgia’s investment field since 2007 and has implemented 8 investment projects till now.

Hualing Tbilisi Sea New City

The largest investment project of Hualing Group in Georgia is Hualing Tbilisi Sea New City (Tbilisi). Its construction began in 2013 [10]. The total volume of investment amounted to $150 mil for the first 3 years. It was planned to build a residential district, hotels, international trade and logistic centers, health centers, hospitals, schools and so on.

Hualing Tbilisi Sea New City
Source http://hualing.ge/language/ru/tbilisi-sea-new-city-3/

Free Industrial Zone of Kutaisi

I n 2009, a Memorandum on the Creation of a Free Industrial Zone in Kutaisi (FIZ) was signed between the Government of Georgia and Chinese corporation [11]. According to the authors of the project, the selection of this location was resulted by the investment and business attractiveness of Kutaisi and by its geographical location. It is located 19 km from Kutaisi International Airport, 95 km. from Poti seaport and 210 km. from the Tbilisi highway, being a transit node between the Black Sea and the Caspian Sea [12]. The free industrial zone covers an area of 36 hectares.

Kutaisis FIZ
Source https://hualingfiz.ge/ru/o-%d0%bd%d0%b0%d1%81/hualing-kutaisi-fiz/

Currently there are specialized enterprises for wood processing, furniture, stone, metal construction processing in the Free Industrial Zone.

Kutaisi FIZ, Stone processing line
Source https://hualingfiz.ge/ru/investors-corner/photo-gallery/

In the end of 2004, the hydroelectric power plant of Khadori in the Pankisi Gorge was exploited, funded by the Chinese Government ($33 mil.). HPP’s construction began in 2002. According to the project, the HPP should generate 24 MW of electricity per hour [13], [14].

Khadori HPP
Source http://www.xinhuanet.com//english/2017-02/05/c_136031911.htm

In the end of 2015, the Government of Georgia and China’s major Dongfang Electric Holding reached an agreement on financing the construction Tkibuli Thermal Power Plant in Imereti, Georgia [15]. The project worth of $180-200 mil. was implemented by the “Georgian Industrial Group” holding. The installed capacity of the TPP is 150 MW [16].

In September 2016, the memorandum of cooperation in trade and investment field was signed between the Georgian Government and China Energy Company Ltd. (CEFC) [17].

One of the biggest Chinese companies #CEFC is interested in investing in #Georgia #InvestInGeorgia #GeogiaChina pic.twitter.com/0DnoKLpHnd
— Giorgi Kvirikashvili (@KvirikashviliGi) 14 июня 2016 г.

In January 2017, the Government of Georgia sold 75% shares of Poti Free Industrial Zone (FIZ) [18] to China Energy Company Ltd. Corporation [19],[20],[21]. When signing the memorandum of cooperation, Chinese side was obliged to make an investment of $150 mil. in the Poti FIZ for 3 years [22]. According to the press release from the Georgian Prime Minister’s Office: “The goal of the memorandum is to encourage the realization of the potential of the New Silk Road through the implementation of joint initiatives” [23].

Poti Free Industrial Zone
Source https://potifreezone.ge/ru/%d1%81%d0

In May 2017, Georgia and China signed a Free Trade Agreement in Beijing [24], with which almost 94% of the Georgian production [25] (wine, mineral water, honey, tea, fruits, vegetables, agricultural products) was exempt from customs duties in the Chinese market [26],[27]. The agreement entered into force since January 1, 2018 [28].

Georgia is the only country of the South Caucasus to have such an agreement with China.

Moving towards a higher level of Cooperation: Free #Trade Agreement between #Georgia and #China has been signed. #SilkRoad pic.twitter.com/f3Mxo2Yexb
— Giorgi Kvirikashvili (@KvirikashviliGi) 13 мая 2017 г.

In November 2017, Memorandum of Understanding on developing economic zones and entrepreneurial capacity between the two countries was signed [29], with which Beijing was ready to support creating innovative zones in Georgia and developing joint industrial technologies.

Ceremony of signing the Memorandum of Understanding
Source https://agenda.ge/en/news/2017/2615

It was already mentioned about the transit and communication importance of South Caucasus region within the context of “One Belt, One Road” initiative. Chinese side agreed on helping Georgia to develop a Trans-Caspian international transport corridor [30]. In 2015, the first transportation of railway cargo from Chinese province of Xinjian to Georgia’s Poti seaport (through the territory of Kazakhstan and Azerbaijan) was carried out [31],[32], during which, though some administrative obstacles arose [33]. The project envisaged to transport cargo to Turkey. There is hardly any information about the future work in this direction.

Beijing was once interested in the construction of Georgia’s Anaklia Deep-Water Port [34]. Particularly, in March 2015, Georgian firm Anaklia Industrial Eco Park and Port Ltd. and Power China companies signed an agreement, according to which, if Power China wins the bid to build the deep-water port at Anaklia, it would invest about $5 billion in the port construction project [35]. However, the Chinese-Georgian consortium failed to win the tender [36].

In the end of 2017, Chinese Shanghai Zhenhua Heavy Industries (ZPMC) signed a deal with the Anaklia Development Consortium, with which ZPMC agreed to provide the latest modern standard container cranes and other equipment needed to control the container terminal [37]. The investment amounted to $50 million.

In early 2018, China Railway International Group-CRIG was also interested in the construction project of deep-water port of Anaklia [38],[39]. There is no information on further possible arrangements between the sides.

In April 2019, the two countries signed an Agreement on International Passenger and Freight Transportation, mutually emphasizing the importance of the so-called “intermediate corridor” within the context of “One Belt, One Road” initiative.

The signing ceremony

Source https://sputnik-georgia.ru/economy/20190427

In the end of 2019, Georgia and China signed a memorandum aiming to popularizing Georgian tobacco and tea, supporting business in Georgia’s Black Sea region of Adjaria [40].

Further economic activity of China in Georgia depends on what the South Caucasus country may offer Beijing in “One Belt, One Road” initiative’s framework. For China, Georgia’s activity also implies a political context, trying to provide a competitive environment for Tbilisi-Washington close cooperation. Beijing highlights Georgia’s European integration prospects by viewing it in the “New Silk Road” through the prism of Asia-Europe communication.

[1] https://www.geostat.ge/media/28902/Yearbook_2019.pdf

[2] https://eadaily.com/ru/news/2019/05/24/gruziya

[3] https://www.geostat.ge/media/28902/Yearbook_2019.pdf

[4] https://www.geostat.ge/media/28902/Yearbook_2019.pdf

[5] https://www.researchgate.net/publication/324248804

[6] https://eadaily.com/ru/news/2019/05/24/gruziya-i-kitay

[7] http://georgiatoday.ge/news/6781/China-Georgia

[8] https://eadaily.com/ru/news/2019/05/24/gruziya

[9] http://hualing.ge/language/en/hualing-georgia/

[10] https://inosmi.ru/economic/20191007/245971148.html

[11] http://hualing.ge/language/ru/%d1%81%d0%b

[12] http://hualing.ge/language/ru/%d1%81%d0%b2%