Orbeli Analitical Research

Beijing-Baku Economic Ties

10 m. | 2020-02-12

C hina values the transit significance of Azerbaijan within the context of the “One Belt, One Road” strategic initiative. The South Caucasus Republic bridges Asia to Europe, as well as having an important market for Chinese economic capital. Economic ties between China and Azerbaijan are prominent in the fields of transport and logistics, agriculture, construction, machinery and light industry. Azerbaijan’s energy resources and IT communication are of economic interest to Beijing.

In 2017, the bilateral trade turnover was $1.29 billion, which accounted for 5.7% of Azerbaijan’s total trade turnover. In 2017, China exported goods worth $854 mil. to Azerbaijan, including electrical equipment, vehicles, clothing and ceramic goods. In 2017, Beijing was the 4^th major trading partner of Azerbaijan and was the 3^rd country in terms of imported goods to Azerbaijan (9.9%) after Russia (17.7%) and Turkey (14.8%)[1].

Source https://www.stat.gov.az/source/trade/?lang=en

In the first half of 2018, China ranked as the 7^thmajor trading partner of Azerbaijan, and the 3^rd in terms of the exports. According to the State Customs Committee of Azerbaijan, the bilateral trade turnover was $1.31 bil. in 2018 and $1.7 bil. in January-September, 2019 [2]. In January-September, 2019, China accounted for 9.3% of total imports of goods to Azerbaijan [3].

Source https://www.stat.gov.az/source/trade/?lang=en

Statistics show that between 2014-2018 China’s exports to Azerbaijan, except for 2015, steadily increased. As a comparison in 2018, China exported goods worth of $1.1 bil. to Azerbaijan, $833 mil. to Georgia [4] and $664 mil. to Armenia [5].

South Caucasus Oil and Gas market is a priority for foreign investments. The Azerbaijani leadership is eager to diversify the country’s economy and investment field, however, the oil and gas section continues to prevail: between 2000-2017, foreign direct investments worth of $77.8 bil. were made in Azerbaijan, of which 85.9% or $66.8 bil. went to the oil and gas sectors [6].

As we know, Western and Turkish energy companies dominate in the investment capital of Azerbaijan’s oil and gas sectors. In recent years, China also has gained a foothold in this sector.

The signing of the memorandum of understanding between the State Oil Company of Azerbaijan Republic (SOCAR) and China’s state-owned energy company Chinese National Petroleum Corporation (CNPC) in the field of oil and gas and petrochemistry in 2016, which was directed to the development of bilateral cooperation [7].

The possibility of energy cooperation, including investing Beijing’s high-technology potential in the use of Azerbaijan’s energy resources were discussed during the meeting between the heads of the two state-owned energy companies in Baku in July 2017. During the meeting, the Azerbaijani side fully supports the active participation of Chinese investors and companies in the SOCAR GPC project [8]. The primary aim of the project is to provide the end users with purified natural gas [9]. Several oil and petrochemical plants (South Baku, Garadagh) are scheduled to be commissioned in 2022.

At the end of 2018, SOCAR and CNPC companies signed a foundation agreement on the establishment of a joint venture, which carries out joint seismic exploration in the Republic of Azerbaijan and the Caspian Sea [10].

Beijing’s economic and investment participation is mostly visible in non-oil and gas sectors of Azerbaijan’s economy, though the competition with Turkish and Western investment capital is incomparable. Between 2000-2017, China’s share in the total volume of foreign direct investments of Azerbaijani non-oil and gas sector was 0.9% or $97.1 mil. [11]. Among the leading countries in this field are Turkey (with $2.5 bil. investment) and Great Britain ($1.6 bil.).

Source https://bakuresearchinstitute.org/foreign

During Aliyev’s visit to China in December 2015, he signed a “memorandum of understanding” protocol with China on the Joint Encouragement of the Establishment of the “Silk Road Economic Belt”. The memorandum aims to promote bilateral cooperation in the fields of transport-communication: cargo transportation of Chinese companies through Trans-Caspian transit corridor was of importance. According to the Azerbaijani side, the signing of the memorandum is an important investment in bilateral economic cooperation. Though it should be stated, that we couldn’t find any open source information, which will allow us to get an idea about the volumes of bilateral cargo that is transported through Baku-Tbilisi-Kars railway and the Trans-Caspian transit corridor in general.

It is also worth mentioning, that until recently, within the framework of the “One Belt, One Road” initiative, Beijing has attached great importance especially to the northern direction of telecommunication, which passes through the territory of Russia and Central Asia. In recent years, China also began to pay attention to the Southern transit route through Central Asia and the South Caucasus aiming to reduce dependence on Russia and to diversify alternative communication routes.

In July 2019, ADY Container, an Azerbaijani company which is a subsidiary of Azerbaijan Railways, [12] and the Chinese Xi'an Continental Bridge International Logistics Co., Ltd signed a transport agreement on container transportation along the Trans-Caspian International Transport Route (TITR) [13]. In mid-2019, the Minister of Economy of Azerbaijan met with the representatives of China Civil Engineering Construction Corporation (CCECC). The issues on bilateral cooperation in the field of investment on road infrastructure and the railway network in Azerbaijan were discussed during the meeting [14].

Within the “One Belt, One Road” context, Beijing attaches great importance to Azerbaijan’s land and sea transit-communication potential, both from the point of view of East-West and North-South corridors. The Chinese side is particularly interested in investing in the construction of a new seaport in Azerbaijan’s Alat. To date, China has gifted equipment worth about $2 million and has allocated grants worth around $70 million for the development of Ports [15].

T he construction of Alat new port, located 65km from Baku began in 2010 and was commissioned in May 2018 [16]. Currently, the port carries up to 11 mil. tons of cargo and it is envisaged to reach it up to 25 mil. tons in the coming years [17].

Alat new port
Source https://www.lafargeholcim.com/holcim-azerbaijan-port

Currently more than 100 Chinese companies operate in Azerbaijan [18]. During the “One Belt, One Road” 2nd forum held in Beijing, in April 2019, the sides signed 10 agreements worth $821 mil. [19],[20]. The construction of a tire factory in the Sumgayit Chemical Industrial Park, the construction of a 300-hectare greenhouse complex in the Kurdemir District, the creation of agrology industrial parks in the Guba, Goychay and Khachmaz districts, and the construction of the Asian-European telecommunications corridor as part of the Azerbaijan Digital HUB project are part of the project [21].

Documents signing ceremony
Source http://global.chinadaily.com.cn/a/201904

The construction project of the tire factory in the Sumgayit Chemical Industrial Park is carried out by the agreement signed with China National Electric Engineering Co Ltd (CNEEC). The construction of the factory will begin in 2020. 90% of the project’s shares belongs to CNEEC and the other 10% to Azerbaijan Investment Company (AIC). About $300 mil. will be invested in the construction of this factory, which will produce 3.3 mil. tires annually.

In 2018, Azerbaijani telecommunication operator AzerTelecom launched Azerbaijan Digital Hub project, aimed to transfer Azerbaijan into the Digital Hub for the Caucasus, CIS, Central and South Asia, Middle East and the neighboring regions and to create a digital telecommunication corridor (Digital Silk Road) between Europe and Asia through Azerbaijan. The project plans to develop the republic’s infrastructure, turning Baku into the Internet Exchange Point and to provide neighboring regions with Internet services.

In April 2019, AzerTelecom and China Telecom signed a strategic memorandum of understanding [22]. Within the Azerbaijan Digital Hub program, the sides will cooperate in creating Asia-Europe telecommunication corridor (Digital Silk Road). It is envisaged to make an investment of $140 mil.

In December 2019, the representatives of AzerTelecom met with the leadership of a major holding Alibaba Group in China and as a result, they reached an agreement of cooperation [23]. The representatives of Azerbaijani company also met with the leadership of Alibaba Cloud Company subordinate to Alibaba Group holding and discussed cooperation issues.

Source https://abc.az/mobile/view.php?id=38584&lng=ru

Information and telecommunication cooperation between Huawei and AZERTAC state media agency was established. The latter covered a number of projects implemented in Azerbaijan by a Chinese company. In the beginning of 2020, the heads of Huawei visited Baku to deepen the cooperation, and the sides emphasized the importance of applying new technologies in Azerbaijan and issues on the development of innovation economy [24].

Recently, one of the major Chinese companies, China CAMC Engineering Co. (CAMCE), has shown an interest in Azerbaijani agriculture. In 2019, CAMCE signed numerous agreements with Azerbaijani companies. Among them were protocols of “understanding” signed between CAMCE and Azerbaijan Investment Company (AIC), between CAMCE and Azerbaijan Export and Investment Promotion Fund (AZPROMO), as well as the agreement between the Azerbaijani AS Group Investment LLC and China CAMC Engineering for design, construction and supply [26], within the context of creation of an agro-industrial park .[25] The production plants of tractors and irrigation equipment will be created by the project.

A zerbaijani ambitions in the “New Silk Road” Chinese project are limited as a result of the economic war between Washington and Beijing. Washington is fighting against the export efforts of Chinese projects, especially ones that already have a foothold with transit-communication and oil and gas networks operating under the sponsorship of Western nations. Baku understands, that in case of a decline in oil supplies from the Persian Gulf to China as a result of Washington’s pressure, the gap will be filled at the expense of energy resources from the Caspian basin. Beijing in turn, takes steps to balance Western, Turkish economic and investment capital in Azerbaijani economy.

[1] https://www.cia.gov/library/publications/the

[2] https://verelq.am/ru/node/56138

[3] https://www.stat.gov.az/news/index.php?id=4414

[4] https://orbeli.am/hy/post/353/2020-01-20/%

[5] https://hetq.am/hy/article/103659

[6] https://bakuresearchinstitute.org/foreign-direc

[7] https://www.aa.com.tr/en/energy/energy

[8] https://report.az/en/energy/socar-and

[9] http://www.socargpc.az/en/project

[10] http://www.socar.az/socar/en/news-and

[11]https://bakuresearchinstitute.org/foreign

[12] http://adycontainer.com/int/en/home-5/