FROM TRADE TO INVESTMENT

Azerbaijan and China intend to diversify their business co-operation by increasing investment in industry and high technology, establishing joint ventures and strengthening the logistics of the Middle Corridor. Recently, the delegation of the Azerbaijani Ministry of Economy visited China. A significant outcome of the visit was the conclusion of a framework agreement on the development of production potential and investment cooperation with the State Committee for Development and Reform of China, as well as the opening of another trade house of Azerbaijan in Beijing.

Largest partner

For many decades, Baku and Beijing have been developing bilateral relations in an atmosphere of friendship, respect and mutually beneficial co-operation. In his recent interview with China Media Group, Azerbaijani leader Ilham Aliyev noted that the positions of the two countries go hand in hand with the main provisions of the global international agenda. "We both have the same positions on issues related to sovereignty, independence, territorial integrity, non-interference in the affairs of other countries. Our positions also coincide on issues related to economic co-operation. The volumes of mutual trade between Azerbaijan and China are growing, and there is considerable potential in the development of new transport routes, which will further unite our countries in the future," Mr. Aliyev said.

Azerbaijan is China's largest trading partner in the South Caucasus, with over 43% of the overall volume of regional trade. In 2019, bilateral trade turnover between the two countries reached $2.18b. Despite a tangible decline a year later, after overcoming the consequences of the coronavirus pandemic, Azerbaijan-China trade and economic ties quickly recovered to pre-crisis indicators. Thus, in 2022, trade turnover between the Baku and Beijing reached $2.159b, which is 21.3% more than in 2021. Overall, in 2021-2022, China held the fourth position among Azerbaijan's main trading partners.

Positive trends in mutual trade noticeably improved in Jan-July 2023. Trade turnover during this period exceeded $1.619b (more than 41% compared to the same period of 2022). Although the Chinese products make the lion's share of this trade turnover, the dynamics of Azerbaijani exports increased 2.21 times in the reporting period. The main volume of Azerbaijani exports to China were petroleum coke, primary polyethylene, iodine, equipment and components, aviation paraffin, organic chemicals, cotton fibre, medicinal plants and perfumes, as well as food industry products.        

This list indicates a high level of export diversification. Moreover, the nomenclature of goods is overwhelmingly represented by the non-oil sector of the national economy. With a population of 1.464b people, the Chinese market is considered one of the largest in the world, also thanks to powerful production facilities working at very low costs. Therefore, exporters need to try very hard to gain a foothold and advance in this market. Azerbaijan has succeeded in this difficult task.

Both the Ministry of Economy and its subdivision, the Agency for the Promotion of Exports and Investments (AZPROMO), have contributed to this success. They have set an extensive system of trade and wine houses in China to promote domestic industrial and agricultural products under the brand name Made in Azerbaijan. Azerbaijani trade houses operate in Qingdao, Chengdu and Zhangjiajie, with branches in Shanghai, Harbin, Jinan and Wuhan, and wine houses in Urumqi and Shanghai. All these structures play a huge role in supporting Azerbaijani trade missions, participation of Azerbaijani companies in Chinese exhibitions, organisation of advertising and promotion campaigns in the leading trade networks of China, etc.

The visit of the Azerbaijani delegation to China coincided with the commissioning of yet another Azerbaijani trade house in Beijing. "Azerbaijan's fourth trade house in China will become a dynamic platform for trade and cultural exchange," Economy Minister Mikayil Jabbarov noted. He noted the successful operation of Azerbaijan's trade missions supporting the promotion of Made in Azerbaijan brand in the Chinese market, expansion of exports of domestic products, as well as the coordination of these operations.

Commenting on Baku's active trade policy in China, Chinese Deputy Minister of Commerce Lin Ji said that since the beginning of 2022, Azerbaijan's trade houses have launched online operations on JD.com, a well-known e-commerce platform in China. "The presence of Azerbaijan's trade houses on this digital platform will play a significant role in the promotion and greater recognition of Azerbaijani products among Chinese consumers," Lin Ji said.

Investments

Expansion of trade relations with China is one of the important, but by no means the only goal. During the recent visit of the Azerbaijani delegation to China, the parties signed important documents and discussed prospects for co-operation in investment and production. The two countries have accumulated an impressive experience in this area over the past decades. In particular, Baku has invested about $1.7b in the Chinese economy, while Chinese investments in Azerbaijan exceed $800m. About 275 companies with Chinese capital have been registered in Azerbaijan. Chinese contractors have joined various projects in Azerbaijan worth over $600m.

Apparently, Azerbaijan still looks appealing to Chinese investors. In recent years, dozens of Chinese companies have applied for the implementation of infrastructure projects in the liberated territories of Azerbaijan. These include the world-famous Huawei company actively involved in the Smart City and Smart Village programmes in Garabagh.

Today, the two states are seeking to tangibly expand investments by targeting the financial vector at various joint production projects in the non-oil sector, development of renewable energy sources (RES), etc.

Priority areas of bilateral cooperation were discussed at the international event Year of Investment in China: Conference on Promoting Greater Openness in Services held during the China International Fair for Trade in Services (CIFTIS) in Beijing. This is the fifth time Azerbaijan has participated in CIFTIS events. The delegation of the Azerbaijani Ministry of Economy learned about the Invest in Azerbaijan stand. "The Azerbaijani economy's commitment to diversification, innovation and transformation provides a favourable environment for foreign capital. Located at the strategic crossroads of East and West, Azerbaijan has great opportunities to attract Chinese investors," Mikayil Jabbarov noted at the forum.

These opportunities are very attractive for Chinese companies. Azerbaijan's active position on joining China's Belt and Road Initiative has led to significant investments in infrastructure development, including the construction of trade ports, roads and airports. Lin Ji stressed that using the potential of the Trans-Caspian International Transport Route, Azerbaijan contributes to the expansion of cargo traffic between China and Europe. At the same time, Chinese investors can take advantage of transport and logistics opportunities of the Free Economic Zone in Alat located at the intersection of international corridors. Beijing also highlighted the prospects for joint activities in the areas of alternative energy, high technology, digital economy, as well as co-operation between SOCAR and Chinese energy companies.

During discussions between Mikail Jabbarov and Xin Gobin, Chinese Deputy Minister of Industry and Informatisation, both parties mentioned that there was a potential for implementing joint projects in shipbuilding, RES sector, etc.

The negotiations with Jin Liqun, President of the Asian Infrastructure Investment Bank, were a significant success of the visit of the Ministry of Economy delegation to China, thanks to discussions on the prospects of projects in Azerbaijan through the bank's financial support, and further areas of joint operations.

The opportunities for Azerbaijani-Chinese cooperation also cover the implementation of technologies of the Fourth Industrial Revolution (4IR), digitalisation of the economy and other high-tech projects. In this regard, the most important outcome of the talks held in Beijing was the conclusion of a framework agreement between the Ministry of Economy of Azerbaijan and the National Development and Reform Commission of the People's Republic of China on production capacities and strengthening investment cooperation. The document provides for partnership in various areas of the economy through implementing best practices in the introduction of 4IR technologies.

Apparently, both China and Azerbaijan are serious about quantitative and qualitative transformation of bilateral trade relations.