Dr. Michael Eric Lambert

Much of what happens today in the Caucasus resembles a zero sum game between Russia and the European Union (EU). Local states - including de facto/partially recognized countries - are currently facing economic difficulties and trying to safeguard their state sovereignty in a difficult geo-strategic position.

While competition for energy resources has always been a geopolitical issue between Russia and the EU, the rivalry over control and influence in the Caucasus has taken on identity connotations with the recognition of Abkhazia and South Ossetia by Russia in 2008.

The nations of the Caucasus today are confronted with a momentum choice: whether to accept the status quo between Russia and the EU, with harsh economic consequences, or to involve a new player to “reset" the game. In that context, the “One Belt, One Road” initiative offered by China can provide numerous economic opportunities both in recognized and de facto/partially recognized states, and change the equilibrium with a more business focused approach.

Can Russia, the EU, and China find a way to cooperate in the Caucasus, or will they fail to agree to a compromise between their respective military, rule of law, and economic ambitions? The article analyzes China’s growing ambitions in the Caucasus - including de facto/partially recognized states - and consequences on Russia’s policy in post-Soviet borderlands with a focus on Abkhazia.

Keywords: Russia; China; Eastern Partnership (EaP); Frozen conflicts; New Silk Road; One Belt, One Road (OBOR); Nash Equilibrium; Economic Power; Soft Power.

            Much has already been written on Russia’s destabilizing presence in Georgia, including in the two partially recognized de facto breakaway states, Abkhazia and South Ossetia. That has provided an important obstacle to Georgia’s membership in the EU and NATO. Yet less well known has been China’s emergence as an important player in Georgia - and more generally in the South Caucasus and other parts of what was once Russia’s exclusive “near abroad.” Indeed, China’s role in founding large-scale infrastructure projects is expected to increase substantially with the “One Belt, One Road” (OBOR) and massive investment in wine, housing, tourism, strong alcohol, and tomatoes. In 2017, Georgia even signed a free trade agreement with China that will allow them greater access to a market of more than 1.3 billion consumers, the largest in the world together with the ASEAN and the European Union (EU). China has also become the third largest source of annual direct foreign investment with more than US$ 195 million in 2014. The Hualing Group, a private group supported by the Chinese Government in Beijing, had emerged as a key stakeholder in Georgia but also Armenia and Azerbaijan. It has launched a number of different projects, such as the Tbilisi Sea Plaza – a new city next to the capital city of Tbilisi, with apartments under-construction and for sale, a trade area open with product from all around the world and typical Chinese food, an international school for children, and a casino for obscure purposes. It’s impressive to see the project and witness how fast the Chinese workers based in Georgia are working, slowly changing the landscape. According to the Hualing website and the last investigation of the Black Sea Institute, the Plaza covers a territory of 150,000 square meters and will be the largest wholesale and retail trading center in the whole Caucasus around 2025.

            From a trade perspective, China is looking for a partner close to Europe and Russia to export its “Made in China” products, transform them in Georgia, and then sell them to the EU under Georgia’s recently signed Association Agreement. Looking at the location of Georgia, China will have the opportunity to reach a market of more than 700 million inhabitants, combining both the EU and the Commonwealth of Independent States (CIS). While keen on investing in key sectors, the Georgian government recently rebuffed Beijing’s attempt to buy a bank. Tensions are rising between local inhabitants afraid to lose their identity and Chinese investors seeking Georgian properties to grow tomatoes and wine. Chinese influence is perceived as a threat in some parts of the population. Georgia is not the only one looking at Chinese influence with skepticism. Even breakaway Abkhazia, located next to Russia, refused the settlement of 3,000 Chinese workers. Abkhazia is a small territory of 8,660 square kilometers with 240,000 inhabitants, trying to preserve its identity after several decades of Soviet influence. China is a potential source of income, but also a challenge to preserving its identity. Through its OBOR China would like to modernize the roads and the harbor to connect it to Turkey and Ukraine, and invest in the Sukhumi airport, still being used by the Russian army.

China never recognized Abkhazia, however, likely due to its own sensitivity on territorial integrity. Abkhazia is looking for new partners to export wine, tomatoes, and oranges. China has emerged as an important partner, but it is also perceived as a potential competitor to Moscow’s influence in the area. Economically, the conflict between Russia and Georgia enables Abkhazia to strengthen its presence in the Black Sea area. It is difficult to open the Sukhum/i airport without the consent of the Russian army. And visa requirements to travel by boat from Turkey to Georgia, then from Abkhazia to Russia, and then from Russia to Ukraine, are complicated for obvious legal and geopolitical reasons. China makes use of Russia’s low capabilities to generate capital and actively invests in Abkhazia by providing a measure of economic stability. Chinese investors are interested in wine exports, but also tomatoes, oranges, and tobacco products from the area.

China has expressed interest in buying land in Abkhazia, and in settling 3,000 workers to renew infrastructure is the context of the new Silk Road. However, such initiatives were blocked by Abkhaz authorities afraid of Chinese influence. Even if China’s investment is considered to be an opportunity, the authorities decided to put identity before economics, waiting for a better offer from China. China also finds cooperation with the Russian Federation in Abkhazia important in the context of security and stability in the South Caucasus. The danger of a new conflict between Russia and countries in the Caucasus is intended to be counterbalanced by the capabilities of Russia to preserve a status quo and equilibrium in that part of the world.

In that context, and regarding Moscow’s increasing support for the new Silk Road initiative, Abkhazia may soon have to accept more investment coming from Chinese companies. This may change the whole landscape and can constitute an opportunity for Chinese tourists seeking a more affordable place than Europe to spend their vacations.

            Looking at the rising influence of China in the South Caucasus, does the non- recognition of Abkhazia by Beijing constitute an obstacle to future investments? In theory, the need to recognize Abkhazia is not an emergency. China still needs to invest in Georgia with its Tbilisi Sea Plaza project and does not need Abkhazia as a platform to export goods from the Caucasus to Russia at the moment. Abkhazia’s economy is recovering, and China may use a step by step policy to rent lands and renew infrastructures in major cities. The Sukhum/i airport is still under Russia’s military command and facilities are not ready to welcome a high number of tourists from China. In that context, we may expect China to remain silent regarding the recognition of Abkhazia, but this may take a political position in the next decade. For the moment, China’s ambitions are purely business oriented, but Abkhazia’s location can be seen as an opportunity to create a Chinese outpost on the Black Sea, and to secure China’s investment in other countries like Ukraine, Turkey, and Moldova. Speculations about China’s military presence remain, however, this could be seen to be the next step to secure investments in the context of the “One Road, One Belt” project. It will not be impossible, regarding the current situation in Djibouti, where China just opened military facilities to secure that part of Africa.

Moreover, Georgia may consider the Chinese influence as a way to compete with Russia's interests in the Black Sea region, but we are still far from that scenario.

Russia has a strong footprint in the South Caucasus, but China’s role as a developmental actor and investor has been growing exponentially in recent years. And not only with the funding of large infrastructure projects in Georgia. For example, it is also providing financial support to Armenia in the mineral sector. Looking at the current situation in Central Asia, the Export-Import Bank of China is also the largest creditor in countries like Kyrgyzstan, which is a direct participant in BRI and benefits from loans worth more than US$ 1.3 billion. Contrary to EU member states, which are interested in democracy and human rights, China does not care much about such norms. Also, unlike Russia, China’s activities in the region are not fixated primarily on the oil and gas sector. China is investing across all sectors - from farming to high-tech industries.

The land route of China’s BRI plan – the Silk Road Economic Belt – traverses South and Central Asia as well as the Middle East. So far, the Caucasus is not directly connected to China’s BRI. Yet, states that are located on the path of the new Silk Road are responsible for ensuring infrastructure security. And some are relying on Russia, Central Asian and Caucasian states to avoid terrorist attacks. China does not seem to have any concrete wish to implement military facilities in the South Caucasus, and the question of Chinese peacekeepers in Abkhazia to avoid any future conflict is not even on the table of negotiations. Nevertheless, the growth in Chinese investments carries the potential to change things. Indeed, given the lack of stability between countries like Armenia and Azerbaijan over their conflict on Nagorno-Karabakh, the military question does not seem to be a fantasy anymore. For Armenia, Azerbaijan and Georgia, but also the partially recognized/de facto states, China could possibly become a stabilizer in the region. Due to the economic context and geopolitical difficulties, some states might prefer to have Chinese peacekeepers in the Caucasus than another war.

            Tensions between China and Russia may arise on the long run, too. In 1999, Armenia acquired Chinese NORINCO WM-80 multiple-rocket system in what became the first Chinese military sale in the Caucasus, a market usually dominated by Russia. In 2013, reports surfaced of further Armenian purchases of missile artillery from China. Azerbaijan is also showing a growing interest for military equipment and training from China. The Russian products are of good quality, but the Chinese are similar and at a more affordable price.

China has remained politically neutral in the dispute between Armenia and Azerbaijan so far, and even refused to back Russia during the conflict with Georgia and to recognize Abkhazia and South Ossetia. Yet, given its investments in the region and possible future military sales, it remains to be seen how long such political neutrality can last.

China’s investments are impressive in its numbers. But the lack of security might be an issue in the long run. Up to this point, Beijing was relying on its partners to ensure safety in Caucasus. However, China may someday need to provide peacekeepers or build military facilities to ensure its own interests, as it has done in Africa. China’s investments in the South Caucasus have the opportunity to reach both the EU and Russian markets, but the growing importance of trade may lead to unforeseen security issues. This is not simply an issue in the South Caucasus. Many of China’s extensive infrastructure developments within its BRI umbrella are in unstable parts of the world, which could entice Beijing to play a greater security role far from its borders.

            As such, China may eventually look towards ensuring safety in the area with military facilities, transforming the Caucasus into an outpost located between the European Union, Russia, and Turkey, on the border of the Black Sea where China has already built many partnerships. In fact, what happens in the Caucasus could presage greater Chinese security commitments elsewhere in Eurasia. The implications of such a possibility needs to be more seriously assessed in the capitals of Europe and North America – lest they assume China is only interested in building an economic bridge to the European market only to find a military outpost established on Europe’s borders as well. In conclusion, in the short term one should not expect a rapid change in Abkhazia-China relations, neither China-Russia relations in the South Caucasus or the Eastern Partnership.

As long as China can rely on Russia to counterbalance the EU’s influence in the Black Sea, the policy of cooperation and investment without geopolitical incentive will continue. China also takes advantage of the disagreement between Russia and the West and has neither the military capabilities nor reasons to change the status quo between Russia and Georgia in Abkhazia. All sides benefit of the current situation. China is investing in the whole Caucasus, and Russia is able to keep an eye on Chinese investments when it comes to military issues. China’s interests in Abkhazia are compatible with Russia’s geopolitical interests and do not weaken Moscow's regional influence. Moreover, Abkhazian authorities can choose if they want more or less investments from Chinese companies. China may not recognize Abkhazia as an independent state, but will keep investing in some key sectors, and may even reconsider its political position one day. However, the new Silk Road remains a project and China does not seem to be ready to take position as long as it can benefit from the tensions between the US-EU and Russia regarding the future of de facto states in the Eastern Partnership.