Azerbaijan aims to become a key trade and manufacturing hub for China

Azerbaijan is laying the groundwork to increase its ambitions in the South Caucasus and is looking to China for help.

In just two months, Baku’s ties with Beijing have advanced rapidly as the oil-rich country has drawn closer politically and economically through a series of agreements that could boost China’s presence in the region and open the door to new Chinese investment in Azerbaijan.

The series of recent moves began on July 3 when Azerbaijani President Ilham Aliyev met with Chinese leader Xi Jinping on the sidelines of the Shanghai Cooperation Organization (SCO) summit in Astana and said they had improved bilateral relations through a new partnership strategically that requires them. to work more closely together economically, militarily and politically.

A few weeks later, Baku applied upgrade its status within the SCO from dialogue partner to observer, setting the stage for potential full membership.

And then, on August 20, Azerbaijan announced that it had applied to join the BRICS group of emerging economies led by China and Russia, which also includes Brazil, India and South Africa as founding members.

Taken together, the collection of moves is part of China’s growing push into the region as an investor and trading partner since Russia’s full-scale invasion of Ukraine in 2022, which has left governments and shipping companies scrambling for alternatives due to the sanctions imposed on Russia. has left its vast rail network — previously the main route between China and Europe for overland trade — less viable.

For Azerbaijan, which is at a crossroads for trade on the Caspian Sea, this has led to new energy for the so-called Middle Corridor, the alternative trade route that bypasses Russia, passing through Central Asia and the South Caucasus to connect to Europe. Union and we have seen billions of dollars worth of new investment.

“The Middle Corridor is a key issue and Baku needs Beijing’s support,” Zaur Shiriyev, a non-resident scholar at the Carnegie Russia Eurasia Center, told RFE/RL. “The immediate concern is that the success of the Middle Corridor depends on a steady flow. of goods from China to establish a strong China-Europe long-term route.”

A series of new offers and more

Attracting more Chinese interest and investment in the Middle Corridor is a top priority for Azerbaijan and is at the heart of the strategic partnership agreement. signed in July.

China pledged in the document to help develop and use the trade route, and Baku hopes it will lead to more Chinese investment in infrastructure, which would make the route more competitive and strengthen Azerbaijan’s role as a central hub in the region.

But “Baku’s cooperation menu with Beijing is extensive,” Shiriyev says, with Azerbaijan pursuing new deals in green energy, advanced technology and military procurement.

The Azerbaijani government has also expressed its desire for Chinese companies to establish a regional production center for electric vehicles in the country and has actively sought more Chinese investment.

Bilateral trade between the two countries is also growing, albeit heavily tilted in favor of Beijing, with China overtaking Turkey as Azerbaijan’s second largest source of imports (after Russia), with $3.1 billion worth of goods in 2023, a 40% increase over the previous year.

“Chinese companies are already participating in the diversification of Azerbaijan’s economy, but we expect more,” Hikmet Hajiyev, Aliyev’s foreign policy adviser, said Chinese state broadcaster CGTN during a March interview in Beijing.

Growing trade and investment appear to be driving Baku’s recent moves as the country seeks to diversify away from the hydrocarbon wealth that has sustained its economy for decades.

Another part of the strategic partnership agreement calls for China’s support for Azerbaijan’s full membership in the World Trade Organization and its bid to join BRICS could also open up new markets. While there is no clear procedure for admitting new members or an application deadline for joining BRICS, it expanded in January to include Iran, the United Arab Emirates, Ethiopia and Egypt — and has a long list of other countries that have expressed an interest in applying.

“Accession could give Baku the opportunity to expand access to the large and fast-growing markets of the BRICS countries, potentially creating new opportunities for bilateral trade agreements and investment in the Azerbaijani economy,” Shiriyev said.

A new balance of power

The appeal of closer ties with Beijing is not limited to trade and investment, says Vadim Dubnov, a regional expert at RFE/RL’s Echo of the Caucasus, who notes that China is also an increasingly important partner for Baku to lean on in the region. rapidly changing geopolitical environment.

A shrinking footprint of Western powers combined with Russia weak and distracted through his war in Ukraine he gave Azerbaijan more room to maneuver in foreign affairs. This has led Baku to deepen ties with Turkey and Iran and invite China to play a bigger role.

“Aliyev is trying to reposition himself and find a new balance with all the major players in the South Caucasus,” Dubnov said. “Closer ties with China allow Baku not to sit entirely in one camp.”

But the warming ties between Baku and Beijing are not a one-sided process.

Since Azerbaijan’s success in its 2020 war with Armenia, China’s interest in the South Caucasus has grown and Beijing hopes that Baku’s stronger regional position will lead to more stability and opportunities for more Chinese investment and influence in the region, such as be additional trade routes connecting Azerbaijan. to Turkey through Armenia.

Azerbaijan is also pursuing other opportunities to use its geographic position to its advantage.

While the Middle Corridor forms an East-West trade route that bypasses Russia, the upheaval in global trade brought about by the war in Ukraine has also created renewed interest in other alternatives, including those that seek to eliminate the West.

As the Middle Corridor grew, Moscow sought to mobilize investment in the International North-South Transport Corridor, which runs south from Russia to Azerbaijan and then aims to connect with Iran and India.

China, which has close trade ties with Central Asia and the EU, as well as Russia and Iran, has expressed its support for both the Middle Corridor and the North-South route, which Azerbaijan is seeking to capitalize on, given its central position in both.

“If Baku was previously able to use its energy resources (as leverage) in its relations with the West, international trade corridors are now tools of strategic importance in Azerbaijan’s foreign policy,” Nurlan Aliyev, a lecturer at the University of Economics and Humanities. Science from Warsaw, told RFE/RL.

Via RFE/RL

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