China Seeks Massive Investments in Georgia

Until now, Georgia’s economic situation has been most clearly defined by its movement closer to Europe thanks to last year’s signing of the Deep and Comprehensive Free Trade Area agreement with the European Union (Slon.ru, July 21, 2014) as well as episodic disputes with its long-time trade partner, Russia (Svoboda.org, January 26, 2015). However, growing outside power China is increasingly becoming more active in Georgia and the wider South Caucasus region.

Since the early 1990s, small Chinese shops have mushroomed in the Georgian capital of Tbilisi. They have continued to sell cheap household items such as hangers, toothbrushes, umbrellas, kitchen utensils and so on. But these goods generated little demand among the reasonably prosperous part of the population. As business has stagnated, many of these shops look primed to close in the near future (Author’s interview, March 15).

However, Maia Kherkheulidze, a financial expert with the Ministry of Economic Development of Georgia, told Jamestown: “Closing these shops does not mean that Chinese investors have lost interest [in the Georgian market]. Chinese sellers of small household goods could not compete with the producers of such items from Turkey.” Nevertheless, “Chinese investments grow fast in other areas, where the primary consumers are people with average incomes,” she noted (Author’s interview, March 17).

According to Georgia’s national statistical service, the overall volume of Foreign Direct Investment in the country reached $1.273 billion in 2014. Chinese investment that year equaled only $195 million, but these figures do not fully reflect the current evolving economic dynamics. Indeed, in the third quarter of 2014, China became Georgia’s biggest single investor, at $149 million (Tabula.ge, December 9, 2014). Chinese investors appeared most interested in the Georgian construction industry and agricultural sector. Georgia’s Agriculture Minister Otar Danelia reached an agreement with the China National Electronics Import & Export Corporation (CEIEC) about developing infrastructure in Georgia. He also called for increased Chinese investments in areas such as tea production and aquacultures, as well as the construction of greenhouses (For.ge, December 25, 2014; Medianews.ge, December 26, 2014).

The Hualin Group is the largest Chinese investor in Georgia. Hualin owns 90 percent of the Georgian bank Basisbank, which has been operational since 1993. According to Basisbank’s general director David Tsaava, “Chinese investors intend to invest in the development of small- and medium-sized businesses, and implement crediting projects” (Fortuna.ge, July 3, 2012).

In addition to its financial holdings in Georgia, the Hualin Group has invested $150 million into the construction of a 65,000-square-meter International Economic Zone in Tbilisi’s Basisubani district (Bpi.ge, December 1, 2011). Chinese companies are also constructing an enormous residential complex that even plans to host the Youth Olympic Festival, which will be held this year in the Georgian capital. Part of the newly built buildings will be sold directly after the festival, while the rest have been acquired by the Ministry of Internally Displaced Persons from the Occupied Territories, Accommodation and Refugees of Georgia; these dwellings will be provided for Georgian refugees and displaced persons from Abkhazia and South Ossetia (Ici.ge, August 6, 2014).

However, all these development projects pale in comparison to the grandiose Chinese plans to develop the Georgian Black Sea coast near the resort town of Anaklia. In particular, plans for building a large, deep-water harbor are in the works. The port would have a throughput of 100 million tons per year. For comparison, the largest existing port on the Black Sea, Novorossiysk (Russian Federation), handles 70 million tons per year; and the largest port in Georgia, in Poti, handles only 4 million tons.

On March 11, Georgian media declared that the Chinese company Power China and the Georgian firm Anaklia Industrial Eco Park and Port Ltd. reached an agreement, in Beijing. According to the provisions of the agreement, if Power China wins the bid to develop the deep-water port at Anaklia, construction work will begin within six months and the overall investment package will reach $5 billion (Bpn.ge, March 12). This is far larger than Georgia’s entire state budget for 2015, which is only $3.64 billion (Civil Georgia, October 1, 2014).

In a parliamentary hearing, Georgia’s minister for economic development, Giorgi Kvirikashvili, hinted that the government favored Power China from among seven other financial groups also vying to be involved in the deep-water Black Sea harbor project. The Anaklia port may become an important part of the New Silk Road that will carry goods from Asia to Europe across the vast Eurasian landmass (Netgazeti.ge, March 12).

Georgian experts argue that the construction of the port in Anaklia will have a significant impact on the geopolitical situation in the Caucasus. “China is the most interested party in constructing the deep-water port on the Black Sea,” the columnist for the weekly newspaper Premier, Zurab Gogoberidze, told Jamestown. According to Gogoberidze, the proposed harbor project “diversifies [China’s] transportation routes for cargo delivery to Europe. This is not in the interest of Russia, since […] a large part of the cargo that [currently] travels to Europe through Russia will [after the port in Anaklia is complete] be transported via the China-Caucasus-Europe corridor.” Moreover, as the Georgian expert noted, “Russia’s military, which occupies Abkhazia, is within 2 kilometers from Anaklia, and this is the main risk to the project. If a final decision [on building the deep-water port] is taken [soon], only a power as strong as China will be able to protect it.” As he concluded, “Moscow still takes China’s position into consideration, when it attempts foreign policy gambles” (Author’s interview, March 20).