China and Azerbaijan: Geopolitical Prospects for Bilateral Relations in the Economic and Logistics Spheres

Elbrus Mamedov

Director of the “Center for Information Support
of the Azerbaijan-Georgia-Turkey Strategic Partnership”

 

China and Azerbaijan: Geopolitical Prospects for Bilateral Relations in the Economic and Logistics Spheres, Expected Reaction of the West

 

 Abstract. China and Azerbaijan call their cooperation strategic, emphasizing the key role of Azerbaijan as a logistics and energy hub in the South Caucasus in the implementation of the Belt and Road Initiative (BRI). Azerbaijan provides China with access to the Middle Corridor, a transport route linking China with Europe via Central Asia, the Caspian Sea, the South Caucasus and Turkey. The countries seek not only to develop transport links, but also to strengthen cultural interaction and technology exchange. China sees Azerbaijan as a stable partner providing transit of goods and energy resources, while Azerbaijan views China as a source of long-term investment and technological cooperation. At the same time, the partnership is aimed at ensuring sustainable economic growth and diversification of the Azerbaijani economy. At the same time, the attitude of all geopolitical camps in the region and further afield to the high development of bilateral relations between the countries is not unequivocally positive.

Logistics routes, Middle corridor

Over the past five years, the parties have signed a number of key agreements aimed at strengthening cooperation. For example, at the Shanghai Cooperation Organization summit in Astana, the presidents of China and Azerbaijan signed a declaration on the establishment of a strategic partnership. The Joint Declaration on Strategic Partnership was signed on July 3, 2024. Memorandums in the field of transport logistics were signed. In 2019, Azerbaijan and China agreed on closer cooperation within the Middle Corridor, including the simplification of customs procedures for the transit of Chinese goods. Several agreements were also signed related to Chinese investment in infrastructure, energy and the IT sector. Azerbaijan and China have also deepened exchanges in the field of education, including through the provision of scholarships for Azerbaijani students to study in China.

The trade turnover between China and Azerbaijan in 2023 amounted to about 2.5 billion US dollars, and it continues to grow. Azerbaijan's exports to China are mainly represented by oil and oil products, as well as agricultural products, including nuts and cotton. Imports from China include industrial goods, construction materials, electronics and equipment for infrastructure projects.

Azerbaijan occupies a strategically important position in China's export-import flows in the region. The introduction of new logistics routes, such as the Baku-Tbilisi-Kars railway, has significantly increased the volume of Chinese goods transiting the country. Chinese investments are targeted at several key sectors of the Azerbaijani economy. China is actively building and modernizing infrastructure, including railways, highways, and seaports. For example, the Baku Port has become an important transit point for Chinese goods to Europe. Chinese companies are actively involved in modernizing Azerbaijan’s energy infrastructure, including solar and wind power plants. China is investing in the agricultural sector, which is helping to develop the export of nuts, fruits, and cotton. Chinese firms are helping to develop telecommunications infrastructure, including 5G networks, which is contributing to the digitalization of the economy. Several large infrastructure projects with the participation of Chinese investments have been implemented in Azerbaijan. Chinese companies have played an important role in the modernization of the Baku Port, which is now a key transportation hub on the Middle Corridor. China has invested in improving the Baku-Tbilisi-Kars railway line, which links China with Europe via the South Caucasus. Chinese companies have been involved in establishing industrial parks near Baku focused on processing and exporting commodities such as cotton and textiles.

The Middle Corridor has significant potential to become one of the key routes for cargo transportation from China to Europe due to its advantages. Azerbaijan offers China several strategic advantages within the Middle Corridor. Azerbaijan links Central Asia with Europe via the Caucasus and Turkey, offering a cost-effective route. In the Middle Corridor, the transportation time for cargo along the Middle Corridor is 10-15 days, which is faster than sea routes. The Middle Corridor passes through stable countries, including Azerbaijan, making it attractive for long-term use. In recent years, Azerbaijan, with the support of China, has been actively upgrading its transport network, including ports and railways. However, the route’s prospects depend on solving a number of problems, such as simplifying customs procedures, increasing throughput capacity and removing bottlenecks, including ferry service across the Caspian Sea. The Baku Port is a key link in the supply chain, which ensures the transit of goods between Central Asia and the Caucasus via the Caspian Sea. The port is equipped with modern container handling terminals, which speeds up the unloading and dispatch of goods. The port is integrated with rail and road routes, making it an important hub for multimodal transportation. The Baku port, railway lines and modern terminals ensure fast and convenient transit of Chinese goods. Azerbaijan provides simplified conditions for the transit of goods, which reduces costs and speeds up the transportation process. Cooperation in the energy sector allows China to diversify its sources of supply and invest in the development of alternative energy resources.

China highly values ​​the strategic importance of the Baku-Tbilisi-Kars (BTK) railway line as a key component of the Middle Corridor. BTK connects China with Turkey and Europe, bypassing routes through Russia, which makes cargo transportation more independent of geopolitical factors. The capacity of the line is growing thanks to investments in modernization, which allows for the transportation of up to 5 million tons of cargo annually. The railway route significantly reduces the time it takes to transport Chinese goods to European markets.

 Chinese investment in infrastructure projects

 Cooperation with China strengthens Azerbaijan's international position in a number of ways. This participation in Chinese infrastructure and investment projects, such as the Belt and Road Initiative, strengthens Azerbaijan's economy and makes it an important link between the East and the West. Chinese investments contribute to the modernization of transport, energy and logistics infrastructure, which increases Azerbaijan's role as a transit hub. Cooperation with China demonstrates Azerbaijan's independence from traditional partners such as Russia or the West and strengthens its sovereignty. Deepening ties with China strengthens Azerbaijan's voice in international organizations such as the UN and allows it to take a more active position in global initiatives.

China is building a balanced policy in the region through a number of important approaches. For example, China is actively investing in Georgian ports and transport infrastructure, which complements its projects in Azerbaijan. Georgia is also an important part of the Middle Corridor, and its cooperation with Azerbaijan is seen by China as a positive factor for the integration of the region. China seeks to maintain relations with Armenia through economic initiatives, but the restrictions due to the conflict with Azerbaijan complicate this cooperation. However, China maintains neutrality and calls for a settlement of the conflict to facilitate Armenia's inclusion in regional projects. China sees Azerbaijan as a key partner in promoting its initiative in the Caucasus, which indirectly affects the development of relations with other countries in the region.

Azerbaijan's participation in international organizations, especially the Shanghai Cooperation Organization (SCO), is important for China. Azerbaijan's accession to the SCO expands opportunities for coordinating infrastructure and economic projects in the region.

Western attitudes towards bilateral relations

The West uses several key tools to put pressure on Azerbaijan. Azerbaijan is often criticized by Western organizations such as the European Union and the United States for allegedly “insufficient respect for human rights and democratic standards.” The West can use access to its markets and investments as a tool of influence, especially in the oil and gas sector. In some cases, threats to impose restrictions on Azerbaijani officials or companies are used. Negative publications in Western media can be aimed at creating an unfavorable image of Azerbaijan in the international arena. The West is increasing support for Armenia, which can be seen as a way to contain Azerbaijan. These tools of pressure, however, are limited, as Azerbaijan remains an important partner for the West in the energy and transport sectors.

Azerbaijan uses a multi-vector foreign policy to balance relations with the West and China. Active participation in projects such as the Middle Corridor allows Azerbaijan to remain a necessary link for both the West and China. Azerbaijan attracts investments not only from China, but also from the EU, Turkey and other countries, which reduces dependence on one partner.

Azerbaijan's cooperation with China may cause some wariness in the West for several reasons. The West may view China's active participation in Azerbaijan's economy and infrastructure as an attempt to increase its presence in the region. China-backed projects may be perceived as competing with Western transport and energy initiatives. Successful cooperation with China demonstrates Azerbaijan’s ability to diversify partnerships. However, Western countries also recognize Azerbaijan’s importance as a strategic partner in energy and transport, which limits their criticism. Western sanctions or restrictions that could affect Azerbaijan’s cooperation with China are not ineffective but counterproductive. The West could limit Azerbaijan’s access to critical technologies if they are used in projects related to China. Imposing sanctions on banks involved in financing Chinese projects in Azerbaijan could complicate, but would not stop, the implementation of infrastructure initiatives. The West could increase trade barriers on goods that pass through Azerbaijan via Chinese routes, but this would not stop trade routes, despite the West’s use of international organizations to create obstacles to the implementation of Chinese projects in the region. Despite these risks, Azerbaijan is trying to diversify its sources of funding and develop relationships with other partners to minimize the potential impact of sanctions. Azerbaijan uses a number of strategies to counter Western attempts to limit Chinese projects in the Caucasus. For example, Azerbaijan is promoting the Belt and Road Initiative in a proportionate and self-interested manner and emphasizes the importance of Georgia and Azerbaijan participating in this initiative in tandem. The modernization of transport and energy facilities makes Azerbaijan more independent in implementing Chinese projects. Azerbaijan continues to interact with the West, convincing it that Chinese projects do not contradict Western interests, but complement them. China perceives Azerbaijan as a key player in ensuring stability in the Caucasus for several reasons. Azerbaijan is a major oil and gas supplier that plays an important role in ensuring energy stability in the region and its ties with Europe. For China, this is important in the context of supply diversification. Situated at the intersection of transport corridors, Azerbaijan helps create conditions for a stable energy flow along the Middle Corridor connecting China with Europe. Azerbaijan sees China as a potential mediator in dialogue with Armenia, especially in post-conflict settlement issues. This helps strengthen stability within the framework of the Belt and Road Initiative".

Azerbaijan serves as a link between the Caucasus and Central Asia, which is in line with China's strategic goals in the region. Azerbaijan's participation in the SCO strengthens integration into global transport and energy networks. It is important for China that Azerbaijan participates in structures that strengthen the multipolar world order and resist any hegemony.

Thus, bilateral cooperation enhances the geopolitical status of the entire region in the world.

Sources:
 
1. Azerbaijan Country Case Study. By Olena Bogdan// https://openknowledge.worldbank.org/server/api/core/bitstreams/b0c69259-3fe8-56eb-bbd5-162cc7950b94/content 
2. Azerbaijan’s Contribution to the Chinese
3. Belt Road Initiative.Babayev, B. and Ismailzade, F. Munich Personal RePEc Archive. 13 May 2020
4. Gafarova, K. (2024).The Current Issues of Economic Relations between the Republic of Azerbaijan and the People's Republic of China: The Realities of the Present Time. Akademik Tarih ve Düşünce Dergisi, 11 (4), 2560-2577. https://doi.org/10.46868/atdd.2024.766 
5. Lu, H., Rohr, C., Hafner, M., and Knack, A., (2018) “China Belt and Road Initiative: Measuring the impact of improving transportation connectivity on trade in the region”, Rand Corporation.
6. Region”, PONARS Eurasia Policy Memo No. 621.
7. South Caucasus and Central Asia: Belt and Road Initiative
8. Strategic Recalibration: Azerbaijan’s Growing Partnership with China amid Global Shifts.08 Dec 2024// https://trendsresearch.org/insight/strategic-recalibration-azerbaijans-growing-partnership-with-china-amid-global-shifts/?srsltid=AfmBOopB-mvAvADT1X0bUDVfc9yejU6S3RPcbg6vCenUZlvTTa-SZ6tU 
9. The Azerbaijan-China Strategic Partnership: Opportunities and Challenges for the EU// https://chinaobservers.eu/the-azerbaijan-china-strategic-partnership-opportunities-and-challenges-for-the-eu/ 
10. The Current Issues of Economic Relations between the Republic of
11. Valiyev, A., (2019) “Azerbaijan through the Prism of BRI: China’s Mounting Interests and Influence in the
12.What Can Azerbaijan Expect From Its New Partnership With China?//https://carnegieendowment.org/russia-eurasia/politika/2024/08/azerbaijan-china-relations?lang=en