Issue 5, 2015. October-November



Trade and investment ties between China and Georgia are growing, based on Georgia's strategic location and its attractive trade deal with Europe.

Monica Ellena

The barren road connecting decaying Soviet-era apartment blocks to the vast reservoir of the Tbilisi Sea is shimmering in the late summer heat. The Olympic Village no longer hosts the 3,800 athletes that competed in the European Youth Olympic Festival (EYOF) in late July, but while the village's nine apartment blocks are now completed, hundreds of Chinese and Georgian workers are still at work, hammering atop metres of scaffoldings.

The soon-to-be Tbilisi Plaza is, along with the former Olympic village, part of a gargantuan project that a private Chinese company, Hualing, is developing: Tbilisi Sea New City, an integrated residential and commercial space spanning over 2 million square meters of land. The almost-completed first phase features 27 residential buildings, a five-star hotel, and a retail area for a total investment worth $181 million (€161 million).

Based in the northwestern Chinese city of Urumqi, Hualing started investing in Georgia in 2007 and is to date the country's largest single investor. By the end of 2014, it poured in $500 million, creating about 3,000 new jobs and expanding its interests from wood harvesting and mining to high-end hospitality. In 2012, it bought a controlling stake in BasisBank and is negotiating to acquire another Georgian bank. It is also developing a $40 million Free Industrial Zone (FIZ) in Kutaisi.

The scale of Hualing's investment is unparalleled, but the world's largest economy has clearly set eyes on Georgia - the boon being Georgia's strategic location and privileged relations with the EU.

Made in Georgia

For hundreds of years, Georgia played a key role in the old Silk Road as a gateway between Europe and Asia.Today, the Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU is unlocking new potentialfor Chinese companies. As Liu Bo, Trade and Commercial Attaché at the Chinese Embassy, explains, "If a Chinese company [...] sets up a production line in the FIZ, it can put the label 'Produced in Georgia' onto its goods and can export to EU without customs [tariffs]. That's a great advantage for investors."

Indeed, construction and manufacturing (including food processing), as well as distribution, are the sectors that Simon Appleby, an Australian citizen and permanent resident of Hong Kong who heads the Georgian agribusiness company YFN, sees as the most attractive for Chinese investors.

Dignitaries' visits have intensifiedover the last year. In September, Prime Minister Irakli Gharibashvili led a high-profile delegation to Beijing confirming his July statement that "Georgia is not just looking West."

In 2014, China was Georgia's fourth-largest trading partner.

The total of $823 million in Georgian-Chinese trade accounted for 7.2% of Georgia's total trade turnover of $11.4 billion. Imports still outpace exports, but exports are increasing: last year, exports to China grew by 2% to $90.3 million, accounting for 3.2% of Georgia's total $2.8 billion in exports.

China was Georgia's third-largest provider of FDI, investing $195 million. China was also the fifth-largest export market for Georgian wine in the first half of 2015: eyeing the potential for growth, the Georgian Wine Agency employs a permanent representative stationed in Beijing.

Low taxes, easy business registration, and low levels of corruption are listed as the main reasons for Georgia's attractiveness to the 22 medium and large Chinese companies registered in Georgia, which do business along with scores of small family-run enterprises crowding the Lilo wholesale market on the outskirts of the capital.

Chinese investment looks set to grow further. In March, the two countries signed a Memorandum of Understanding regarding cooperation in the framework of the $40 billion Silk Road Economic Belt project that China initiated in 2013 and also agreed to start examining the feasibility of a bilateral free-trade agreement.

According to a study by Tbilisi-based Policy and Management Consulting Group (PMCG) and China's University of International Business and Economics, a FTA would boost Georgia's annual exports to China by 9% and China's by 1.7%. Potentially, the key Chinese investment lies on the Black Sea coast, in Anaklia, where plans to build a large, deep-water harbor are underway. One of the seven bidders, Power China, aims to invest up to $5 billion - a huge amount given the size of Georgia's economy. Anaklia could help to diversify land routes for Chinese goods to Europe, most of which currently run through Russia.

In addition, Georgia is also among the founding members of the China-led Asian Infrastructure Investment Bank (AIIB), a newly established financial institution with an initial authorized capitalizationof $50 billion. In August, Tbilisi hosted the first high-profile meeting of the AIIB that resulted in appointment of the AIIB's first president.

Visa Worries

Not all is going smoothly, though. Changes to the visa regime in September 2014 made life more difficult for Chinese entrepreneurs. Jinlong Gao, a 40-year-old from Guangdong province, owns three stone quarries and employs 50 people - 80% of whom are Georgians.

"Visas are problematic. We routinely had specialized engineers coming to train our staff on how to use gravel-processing machinery; now it has become difficult," adds Gao, whose wife and 3-year-old twins are now in China due to visa problems.

In September, the Chinese Ambassador to Georgia, Yue Bin, said in an interview with the daily Rezonansi that "China is ready for a visa-free travel regime with Georgia."