As Russia’s influence weakens in the South Caucasus, China is becoming an increasingly important player in the region. China’s growing need for hydrocarbon and other resources has sparked its interest in Azerbaijan, one of the global leaders in oil and gas production. However, the relationship between China and Azerbaijan stretches beyond resource-tapping and affects other aspects of Azerbaijan’s economy, society, and environment.
This is the first in a series of blog posts examining Azerbaijan-China relations. In a five-part series of posts, journalist Mehriban Mammadova will report on various aspects of this cooperation to examine if and how it benefits Azerbaijani society.
In this post, the author looks at the history and breadth of Azerbaijan-China relations, identifying trends and highlighting the most important features of their engagement.
Mehriban Mammadova, journalist
A Brief History
In April 2022, the governments of Azerbaijan and China celebrated 30 years of diplomatic relations. The partnership is evolving at an increasing pace in the economic, political, and social spheres, with the economic sector being the priority.
The direction of current economic relations between the two countries was determined by a memorandum signed in 2015 during Ilham Aliyev’s last official visit to China. That year, China became Azerbaijan’s largest trading partner.
Today, over 125 Chinese companies operate in Azerbaijan, and the two countries invest in each other’s economies. Areas of cooperation include industrial production, the oil and gas sector, heavy machinery, high-tech, infrastructure, education, culture, and tourism.
Azerbaijan is an important partner for China’s Belt and Road Initiative (BRI), an international infrastructure development strategy adopted by the Chinese government. Since the start of the BRI in 2013, China’s trade turnover in Azerbaijan has increased by 100%.
Between 1995 and 2011, Chinese companies invested $102.5 million in Azerbaijan’s economy, not including the oil sector. In the first quarter of 2012, the trade turnover between Azerbaijan and China increased by 60%.
The dynamic of Azerbaijan-China bilateral trade turnover is as follows:
in 2014 – $760 million,
in 2015 – $561 million,
in 2016 – $975 million,
in 2017 – $1 billion, 298 million,
in 2018 – $1 billion, 310 million,
and in 2019 – $2 billion, 184 million dollars.
The increase in trade is clear. (See the chart below).
By 2019, Chinese investors had invested more than $800 million in Azerbaijan. At that time, the volume of Azerbaijani investments in Chinese securities amounted to $1.7 billion. Experts see this as a trade imbalance.
Areas of interest in import and export
In 2020, $1.4 billion worth of goods were imported from China to Azerbaijan. In the same year, Azerbaijan exported $750 million worth of goods to China.
Azerbaijan’s exports to China include energy carriers (mainly crude oil), chemicals, and food. According to Azerbaijani officials, the country’s exports to China, especially in wine, agricultural products, and similar areas, could be expanded.
Azerbaijan’s imports from China include heavy equipment and machinery, metals, chemicals, pesticides, plastics, and consumer goods.
Figure 1. Trade turnover between the two countries (in millions) Source: Ministry of Foreign Affairs of Azerbaijan
China’s trade surplus with Azerbaijan is 43%–the largest in the south Caucasus.
The Second Belt and Road international forum was held in the Chinese capital on April 24th, 2019, and at that event, Azerbaijani and Chinese companies signed 10 agreements in various sectors worth a combined $821 million.
These documents include a Memorandum of Cooperation signed on the construction of a tire plant in Sumgayit Chemical Industrial Park, the construction of a modern greenhouse complex on an area of 300 hectares in Kurdamir region, and the establishment of agro-logistics industrial parks in Guba, Khachmaz, and Goychay.
The oil sector as the engine of the Azerbaijani economy
Azerbaijan made the first step in oil exports to China in December 2010. Since then, China’s interest in this sector in Azerbaijan has been growing rapidly.
Azerbaijan-China relations have strengthened significantly since 2013 — after Azerbaijan expressed full support for President Xi Jinping’s BRI. The main areas of development now are energy and road projects.
Today, the China National Petroleum Corporation (CNPC) and other Chinese companies are actively involved in the development of Azerbaijan’s hydrocarbon resources, particularly in the oil sector, the engine of Azerbaijan’s economy. In 2018, SOCAR (State Oil Company of Azerbaijan) and BGP Inc., a subsidiary of CNPC, signed an agreement establishing a joint venture.
BGP’s main areas of activity include onshore, transitional, and offshore exploration, as well as the acquisition, processing, and interpretation of seismic data through complex operations, the production of seismic equipment, and the provision of relevant information and communication technology services.
CNPC is also expected to participate and join as a shareholder in the Oil and Gas Refining and Petrochemical Complex project built by SOCAR in the Garadagh district of Baku. SOCAR and CNPC signed a memorandum on this project in 2016.
SOCAR and BGP have also set up a joint venture for seismic exploration – Caspian GEO LLC. Fifty-one percent of the company belongs to SOCAR and 49% to BGP Offshore.
In 2020, Azerbaijan ranked ninth in China’s oil imports. In May of that year, China bought 333,755,000 barrels of crude oil per day from Azerbaijan. By June 2020, China’s total daily oil imports amounted to 11.342 million barrels.
According to information received by Report (local information agency in Azerbaijan), in the first five months of 2020, China received $1 million from SOCAR and purchased 253,300 tons of Azerbaijani oil. China’s share in Azerbaijan’s total oil exports was 14%. During this period in 2020, China became the second largest buyer of Azerbaijani oil.
Investing in infrastructure
Beijing has also invested in several major infrastructure projects involving Azerbaijan.
One of them is the Trans Anatolian Natural Gas Pipeline Project (TANAP), which transports Azerbaijani gas to Southern Europe via Georgia and Turkey. In 2016, in the words of politicians, a year after Beijing and Baku “began to intensify political relations,” the Asian Infrastructure Investment Bank (AIIB) approved a $600 million loan for the construction of part of TANAP.
The Asian Infrastructure Investment Bank also invested $300 million in a tire plant in Sumgayit in 2018 under a package of agreements worth $821 million between Azerbaijan and China.
In response to China’s growing interest in Azerbaijan, Azerbaijan worked to upgrade the International Sea Trade Port, bringing in an additional $2 million in grants and equipment from China to help in the process.
Thanks to the opening of the Baku-Tbilisi-Kars railway in 2017, which will transport Chinese goods to Europe, Azerbaijan will benefit from increasing the transit of Chinese goods. Although the Baku-Tbilisi-Kars railway opened before the pandemic, the virus has delayed its start. Experts believe that after the pandemic, increasing the transit of Chinese goods will be beneficial for both countries.
China’s military support to Azerbaijan
China is actively selling arms to Azerbaijan, and the two countries periodically sign agreements on “military assistance.”
Military cooperation first started in December 2009 with an agreement that China would provide military property assistance to Azerbaijan in the amount of 3 million Yuan. A subsequent agreement was signed in January 2013 in Beijing stating that China would provide free military property assistance to Azerbaijan in the amount of 3 million Yuan. The most recent agreement with similar stipulations was signed in April 2018 in Beijing.
According to the Azeri defense portal, after the agreement was signed in 2013, various types of seasonal military gear were sent to the Azerbaijani army from China. The Polonez multi-launch missile system sent from Belarus to Azerbaijan was developed jointly with China. Azerbaijan also purchased a Turkish-made Kasirga (Hurricane) T-300 system under a Chinese license, and China has offered several other systems to the Azerbaijani army.
High-ranking Chinese government officials have repeatedly visited Azerbaijani universities and met with students. There is a student exchange between the two countries. The Confucius Institutes and centers have a presence in Azerbaijan, demonstrating a soft power meant to advance China’s language and culture, which is funded by the Chinese government.
China’s influence in Azerbaijan is increasingly growing as China invests heavily in Azerbaijan’s resources and infrastructure. Azerbaijan’s government fully supports the BRI, and it is likely that China’s role in the region’s economy will only become stronger. In future blog posts, we will further analyze the more nuanced aspects of this influence.