This piece is part of a series by Dante Schulz and CPC’s Senior Fellows that researches the bilateral relationship between China and the 8 Caspian countries. CPC will release one article on each of the countries and publish a volume encompassing all the research after the last article is released.

Georgia’s geographic position – located on the Black Sea and, with Azerbaijan, forming the land bridge across the Caucasus for any trans-Eurasian traffic seeking to avoid transiting Russia or Iran – makes Georgia key to China’s Belt and Road Initiative (BRI). China established diplomatic relations with Georgia after it gained independence from the Soviet Union. Soon thereafter, Beijing began pursuing a special accord with Georgia by offering exclusive investment, trade, and educational exchanges.[i] In 2010, the two countries signed the Agreement on Economic and Technical Cooperation, allocating 20 million Chinese renminbi ($3 million) for projects in Georgia, jumpstarting an investment relationship.[ii] Since the outset of this first agreement in 2010, Georgia and China have engaged on numerous fronts, including mental health reform,[iii] law enforcement cooperation,[iv] and bolstering energy infrastructure.[v] Although Georgia is geographically far from China, it is a critical bridge between Europe and Asia via the Black Sea. Without its participation, Chinese goods transiting along BRI routes would have to cross Russia or Iran, both of which have poor relations with the rest of the world.

The number of Georgian students enrolled in Chinese universities have increased in the last decade. (Eurasianet)

Economic Relations

China is a significant source of foreign investment in the country and Georgia has acted to make itself attractive to Chinese financing and companies as a means to help its own economic growth. In 2015, Georgia became one of the 57 states initially signing on with Beijing’s Asian International Investment Bank.[vi] Furthermore, in 2016, Georgia officially joined the BRI, opening an additional avenue to secure Chinese investment. Xinjiang-based Hualing Group is Georgia’s largest foreign investor, building an investment portfolio of $600 million in the country since 2007.[vii] The company has financed two hotels, an industrial zone in Kutaisi, a residential development outside of Tbilisi, and the budget air carrier My Way.[viii]

Georgian ambitions to create a web of transportation routes spanning the country and creating multiple connections with its neighbors are highly compatible with China’s BRI ambitions. The Baku-Tbilisi-Kars Railway, opened in 2017, is an important rail link providing connections with its neighbors.[ix] Georgia hopes to inaugurate deep-sea-water ports on its Black Sea coast to facilitate trade with the European Union and others in Europe, and to integrate the country more closely with the West. These initiatives coinciding with Chinese BRI projects make Georgia highly attractive to Chinese investors.

In May 2017, China and Georgia solidified their economic partnership with a free trade agreement to remove customs barriers. Tbilisi is the only government in the Caspian region to secure an FTA with Beijing[x] and the only country in the world to have both a Deep and Comprehensive Free Trade Area (DCFTA) with the European Union and an FTA with China.[xi] With both agreements under its belt, Georgia is poised to become a logistics hub for goods transiting between China and the EU.[xii] Bilateral trade between Georgia and China has increased extensively over the past two decades. Georgian exports to China amounted to $269 million, making Beijing Tbilisi’s fifth-largest trading partner in 2019. That same year, Chinese imports to Georgia totaled $1.08 billion earning Georgia 113th place among China’s trading partners.[xiii] With the economic slowdown resulting from the COVID-19 pandemic, China was able to surpass Russia and Turkey and become Georgia’s largest trading partner in 2020.[xiv]

Georgia and China sign a historic free trade agreement in 2016. (People’s Daily Online)

At the same time, however, skeptics argue Chinese investments in Georgia are merely a public relations stunt for China. Despite the growing economic links between China and Georgia, several Georgian ministers have expressed the need for caution when engaging with China. Former Defense Minister Tinatin Khidasheli published a report detailing the risk that Georgia is in of falling economically dependent on China.[xv] Likewise, Gvantsa Chachanidze, a scholar at the Georgian Foundation for Strategic and International Studies, noted the economic dependence on China that many Central Asian states have become susceptible to and warned of a similar occurrence in Georgia. Furthermore, IFact reports that what was envisioned in 20 agreements and 10 memoranda inked between Georgia and China over the past decade has not materialized.[xvi] For example, in November 2018, Chinese investors agreed to construct a jacket factory in Tkibuli, which was slated to generate 300 domestic jobs. The investors have not been heard from since. While some projects have proven to be successful, it is important to note that many have fallen through and thus Georgia should interact more cautiously with Chinese investors.

Security Relations 

Georgia’s hope that China would provide a reliable partner to help counter Russian interference has proven illusory. China continues to adhere to its non-interference policy and has failed to support Georgian calls to denounce the Russian-supported de facto governments in Georgia’s occupied territories.[xvii] While China does not officially recognize Abkhazia and South Ossetia as independent states, Chinese authorities averted offering any comments supporting Tbilisi.[xviii] Still, Russian recognition of Abkhazia and South Ossetia as sovereign states after the 2008 Russo-Georgian War did raise warning flags for China and its foreign policy strategy. In the past, China evaded making any incendiary remarks about Russia, but the Chinese foreign ministry responded to Russian actions in Georgia as one of “concern.” Beijing is concerned that international recognition of the territories could question its position regarding Taiwan.[xix]

While China has by and large stuck to its policies of not interfering in what it regards as domestic affairs when it comes to Georgia, Russian military activities in the Black Sea and its other actions could undercut Georgia’s ability to be a needed window to the west for BRI trade routes. Complications in the Black Sea resulting from Russian actions could also stain Georgia’s attractiveness to Chinese investors overall, diminishing Chinese business interest in the country.[xx]

Conclusion

Georgia has beneficially positioned itself between Central and Western Europe and China. Its brokered agreements with both the European Union and China have bolstered its geopolitical standing and made it an attractive partner for China. Further steps Tbilisi might take include creating mechanisms to oversee enforcement of memoranda and agreements with China. China and Georgia have finalized over two dozen agreements and memoranda since 2010, covering activities on numerous fronts. However, reports revealed that many of the terms stipulated in the agreements have yet to be realized. In future negotiations, Tbilisi should push for measures to ensure provisions are implemented. Including clauses in agreements that hold Chinese companies accountable for unfinished projects would set a precedent for other companies investing in Georgia to follow. In addition, creating an oversight committee to report on projects that have been initiated but not completed could spotlight the issue in Tbilisi and provide a basis for beneficial action.

In addition, Tbilisi should diversify trade and investment relations. Georgia has avoided letting itself become susceptible to the negative aspects of Chinese investment, such as predatory lending. However, some current trajectories suggest Tbilisi could find itself in a perilous position, similar to its Central Asian neighbors, if it continues to borrow heavily from Chinese lenders. In addition, Georgia’s trade deficit with China and China’s rise to become Georgia’s largest trading partner highlight the need for Tbilisi to diversify its trade patterns. Georgia should utilize its DCFTA with the EU to broaden trade with European states. Georgia should also talk with Washington about steps it can take, including pushing for funding from EXIM and the new Development Financing Corporation. A lack of western financing options will only increase countries’ willingness to accept Chinese funds.