This piece is part of a series by Dante Schulz and CPC’s Senior Fellows that researches the bilateral relationship between China and the 8 Caspian countries. CPC will release one article on each of the countries and publish a volume encompassing all the research after the last article is released.

China recognized Azerbaijan’s independence in December 1991 and established official diplomatic channels with the South Caucasus country shortly after in April 1992.¹ The two countries have maintained close diplomatic ties with numerous high-level visits. In 1994, Azerbaijan’s then President Heydar Aliyev made his first visit to China.² Likewise, current President Ilham Aliyev has visited China five times since his tenure as president began in 2003.³ Azerbaijan’s energetic foreign policy, for example its term on the UN Security Council and its current role as head of the Non-Aligned Movement, as well as its efforts to build international understanding and support for its position in the conflict with Armenia over Karabakh, are likely factors in Baku’s engagement with Beijing.

Azerbaijan’s location on the shores of the Caspian Sea and as the only country bordering Russia and Iran makes it a critical partner in any energy, telecommunications, or transportation routes that seek to connect Europe with east or south Asia that don’t cross either Russian or Iranian territory. With transit routes extending to Georgia, Iran, Turkey, and Russia that Azerbaijan has upgraded or built, the country is an ideal partner for China’s Belt and Road Initiative (BRI). President Xi has thus called for bolstering Azerbaijan-China bilateral relations on the eve of the 30th anniversary of their diplomatic relationship.⁴

Azerbaijan invited Chinese companies to work in the Alat Free Economic Zone. Source: Caspian News

Economic Relations

In 2015 during President Aliyev’s official visit to China, the Azerbaijanis signed a memorandum of understanding (MoU) for jointly promoting China’s Belt and Road Initiative.⁵ There was a striking 28,190 percent increase in average Chinese official financial commitments between 2014, the year before signing the MoU, and 2016, the year after. By 2017, five BRI projects were being implemented in Azerbaijan, valued at $54 million.⁶ Nevertheless, unlike many other countries participating in BRI-related efforts, Azerbaijan has financed most of the projects in the country itself. Such projects include the Baku-Tbilisi-Kars railway and construction of the new Caspian seaport/free trade facility at Alat, including the construction of new ships connecting Alat with ports in Kazakhstan and Turkmenistan. This ability to call on its own financial resources or to raise funds on its own may be a reason why Azerbaijan has the second-shortest average implementation time for BRI infrastructure projects among countries with five or more active BRI projects at only 307 days.⁷ For comparison, Nigeria has the longest average implementation time for BRI infrastructure projects, with five or more active BRI projects at 3,333 days (9.1 years).

Geographic realities make Azerbaijan and China integral components of each other’s overland transit ambitions. Azerbaijan launched the Trans-Caspian International Transport Route (TITR) or Middle Corridor, to consolidate the rail companies of China, Kazakhstan, Azerbaijan, Georgia, Turkey, Romania, and Poland to shorten overland rail travel.^₈ The initiative seeks to link rail companies with China’s West 2 CR Express corridor to connect Chinese cities with European countries via rail.⁹ Key to this effort, in October 2017 Azerbaijan opened the Baku-Tbilisi-Kars Railway to connect Kars, Turkey and thus the European rail network, with the Baku International Sea Trade Port, which opened shortly after in January 2018.¹⁰ This system forms the shortest east-west transit route, cutting travel between Europe and China to 12 days.¹¹ Azerbaijan's desire – and efforts – to assemble a trans-Eurasian rail network gives it a strategic edge as a transit hub for Chinese goods and positions Azerbaijan and the surrounding region to benefit from intensified trade with China.¹²

At the same time, Azerbaijan actively seeks Chinese engagement in projects to help build its industrial sector and diversify the economy away from its long-standing dependence on oil and natural gas production. Such projects are key to the country’s long-term development and creating jobs for its young and growing population. Thus, numerous joint projects have been enacted since the MoU, such as the $800 million economic package in 2019 to intensify non-oil sector investment.¹³  According to the agreement, China National Electric Engineering Company (CNEEC) pledged to invest $300 million in a tire factory, generating 800 new factory jobs. Other projects in the agreement included a new greenhouse complex in the Kurdamir region, agrological industrial parks, an agreement on Azerbaijani exports of wine to China, and an Azerbaijan Trade House in Chengdu, China.

Bilateral trade between the two countries has increased, but with imbalances. In 2019, Azerbaijani exports to China were valued at $760 million making China Azerbaijan’s sixth-largest trading partner. On the other hand, Azerbaijani imports from China equaled $820 million, ranking Azerbaijan as China’s 121st largest trading partner. Furthermore, imports from China increased between July 2020 and July 2021 by 69.4 percent while exports to China dropped 70.7 percent.¹⁴

Customs officials in Qingdao, Shandong province inspect a train headed to Azerbaijan. Source: China Daily

Security Relations

In a similar fashion to Armenia, China has engaged in arms sales with Azerbaijan. In 2018, Azerbaijani Defense Minister Zakir Hasanov announced additional purchases of Chinese military-defense equipment, including radio electronic facilities and short-range tactical missiles.¹⁵ Elkhan Shahinoglu from the Atlas Research Center in Baku argued that Moscow could not object to Chinese armament sales to Azerbaijan because it is not a western country.¹⁶

The Azerbaijani public and politicians generally see China as nonthreatening because of its geographical distance from the South Caucasus country.¹⁷ However, China has remained wary of Turkey’s expansion into the Caspian region and sees any Pan-Turkic solidarity as perhaps supporting the Uyghurs in China’s Xinjiang Uyghur Autonomous Region and thus undermining Chinese security.¹⁸ Azerbaijan and Turkey enjoy extremely close relations, and China is concerned that Turkey’s growing soft-power influence in the Caspian region could tilt the scales in favor of Ankara.  

Conclusion

Azerbaijan’s geography makes it key to any middle route across Eurasia. Moreover, it is a Caspian Sea littoral country with large reserves of proven hydrocarbon resources. Therefore, Baku should expedite the completion of the Alat Free Economic Zone. The Alat seaport on the Caspian Sea coast, merely 40 miles from Baku with modern rail and marine connections facilities, makes it an ideal location for a free economic zone with assembly and manufacturing as well as logistics activities.¹⁹ The completion of the Azerbaijani vision for Alat, which includes a separate legal regime that would follow international business-law best practices, including preventing nationalization and confiscation measures, as well as allowing transactions in any currency, is attractive to Chinese investors.²⁰ The completion of the legal regime would increase the flow of Chinese FDI into the country, boosting economic activity in Azerbaijan and perhaps in the region more broadly as well.

In addition, Azerbaijan should strive to be a bridge for China with other regional actors. Azerbaijan has already shown an interest and ability to play on the broader international stage, e.g., through its leadership of the Non-Aligned Movement. Azerbaijan is also active in European and Islamic fora. There could well be a role for Azerbaijan in helping facilitate communications and understanding between China and the region, including acting as a bridge between China and Turkey.

Azerbaijan is already a key player in Trans-Caspian relations and trade and would serve as an optimal linkage between China and the West. Its robust infrastructure and attractive investment environment are prime for Chinese businesses looking to expand into the Caspian Region. Azerbaijan should maintain this outlook to benefit from Chinese engagement in the region while also improving its economic situation to increase its accessibility to foreign investors.

 

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1. Jafarli, S. (2020, September 22). Azerbaijan-China relations. Baku Research Institute. https://bakuresearchinstitute.org/en/azerbaijan-china-relations/.

2. (1994, March 7-10). Official visit of the President of the Republic of Azerbaijan Heydar Aliyev to the People’s Republic of China. https://lib.aliyevheritage.org/en/32490422.html.

3. Jintao, H. (2021, May 10). Speech by Former President Hu Jintao. https://beijing.mfa.gov.az/en/news/3297/heydar-aliyev-a-well-known-politician-in-the-world-and-a-person-having-friendly-attitude-towards-the-peoples-republic-of-china-played-an-important-role-in-the-development-of-friendly-relations-between-china-and-azerbaijan.

4. (2021, June 3). Xi calls for greater development of China-Azerbaijan relations. Xinhuanet. http://www.xinhuanet.com/english/2021-06/03/c_139986348.htm.

5. Jafarli, S. (2020, September 22). Azerbaijan-China relations. Baku Research Institute. https://bakuresearchinstitute.org/en/azerbaijan-china-relations/.

6. Malik, A. A., Parks, B., Russell, B., Lin, J. J., Walsh, K., Solomon, K., Zhang, S., Elston, T., & Goodman, S. (2021, September). Banking on the Belt and Road: Insights from a new global dataset of 13,427 Chinese development projects. AidData. https://docs.aiddata.org/ad4/pdfs/Banking_on_the_Belt_and_Road__Insights_from_a_new_global_dataset_of_13427_Chinese_development_projects.pdf.

7. Ibid.

8. Bucsky, P. & Kenderdine, T. (2020, December 8). Middle Corridor Struggles to Find Its Way Across Eurasia. The Diplomat. https://thediplomat.com/2020/12/middle-corridor-struggles-to-find-its-way-across-eurasia/.

9. (2019, April 20). CR Express: A rail linking two continents. China Global Television Network. https://news.cgtn.com/news/3d3d414e344d544d34457a6333566d54/index.html.

10. Baku-Tbilisi-Kars (BTK) Rail Line, Azerbaijan, Georgia, Turkey. Railway Technology. https://www.railway-technology.com/projects/baku-tbilisi-kars/.

11. Mammadov, S. (2021, April 29). Another route from China to Europe in the South Caucasus. China Daily. https://www.chinadaily.com.cn/a/202104/29/WS608a5c75a31024ad0babb4e9.html.

12. Mammadov, S. (2019, September 2). Azerbaijan could be transit hub for Chinese goods. Global Times. https://www.globaltimes.cn/content/1163420.shtml?fbclid=IwAR0fmXfLKtEJ_YJPrVyHv_VpMyeQ8fBHHgusiVZ1-3j6Vg_aKToC35TpGDs.

13. Baghirov, O. (2019, May 29). Azerbaijan and China Sign $800 Million Economic Package: The Geo-Economic Implications. Eurasia Daily Monitor, 78(16). https://jamestown.org/program/azerbaijan-and-china-sign-800-million-economic-package-the-geo-economic-implications/.

14. OEC. China/Azerbaijan. https://oec.world/en/profile/bilateral-country/chn/partner/aze.

15. Abrahamyan, E. (2018, August 22). Azerbaijan’s Ballistic Missile Dilemma. The Central Asia-Caucasus Analyst. https://www.cacianalyst.org/publications/analytical-articles/item/13530-azerbaijans-ballistic-missile-dilemma.html.

16. Mehdiyev, M. (2018, May 4). Chinese Military Sales Poised To Expand Further In The Caspian Region. Caspian News. https://caspiannews.com/news-detail/chinese-military-sales-poised-to-expand-further-in-the-caspian-region-2018-5-2-6/.

17. Valiyev, A. (2019, October 28). Azerbaijan Through the Prism of BRI: China’s Mounting Interests and Influence in the Region. Ponars Eurasia. https://www.ponarseurasia.org/azerbaijan-through-the-prism-of-bri-china-s-mounting-interests-and-influence-in-the-region/.

18. Tanchum, M. (2021, January 21). Has Turkey Outfoxed China in Azerbaijan To Become A Rising Eurasian Power? Turkish Policy. http://turkishpolicy.com/blog/54/has-turkey-outfoxed-china-in-azerbaijan-to-become-a-rising-eurasian-power.

19. Museyibov, A. (2021, August 12). The Alat Free Economic Zone’s Role in Azerbaijan’s Long-Term Geo-Economic Strategy. The Jamestown Foundation. https://jamestown.org/?post_type=program&p=90302.

20 .Mehdiyev, M. (2020, May 26). Azerbaijan Creates Free Economic Zone Offering Competitive Advantages. Caspian News. https://caspiannews.com/news-detail/azerbaijan-creates-free-economic-zone-offering-competitive-advantages-2020-5-26-29/.