Azerbaijan’s active role in regional peace stimulates booming trade with China

By Ulviyya Shahin

Trade relations between Azerbaijan and China have seen significant growth in recent years, reflecting the strengthening economic ties between the two countries. The first quarter of 2024 witnessed a substantial increase in trade turnover.

During this period, the trade turnover between Azerbaijan and China reached a noteworthy sum of $748,8 million. This figure represents a considerable surge compared to the same period in 2023, with an impressive increase of $123,8 million, marking a notable rise of 19.8%.

Against the background of the economic relation between the two countries, Dr Mehmood Ul Hassan Khan, an expert on China, and Executive Director of the Center for South & International Studies (CSAIS) Islamabad shared his opinions with Azernews.

Azernews presents the interview:

Q. Dr. Hassan Khan, as a Chinese trade expert, what factors do you believe have contributed to the significant growth in trade relations between Azerbaijan and China in recent years?

A. It seems that better political understanding; economic cooperation, enhanced inflows of FDIs, joint ventures, and energy cooperation between Azerbaijan and China have trigged volumes of bilateral trade and economic ties.

The consolidation of relations between China and Azerbaijan in recent years demonstrates mutual benefit and strategic partnership. Trade growth, the enhancement of investment cooperation, the development of transport infrastructure, and joint projects in green energy are the cornerstones of this cooperation.

Historically, China and Azerbaijan enjoy close exchanges at all levels, solid political mutual trust, solid progress in high-quality BRI, and effective international coordination. Both countries are ready to work to earnestly follow through on the common understandings reached between the two heads of state, push for steady, deep, and solid bilateral cooperation in all fields from a strategic perspective, and constantly upgrade the level of China-Azerbaijan relations.

Additionally, Azerbaijan attaches great importance to developing Azerbaijan-China relations, supports the one-China principle, and is willing to firmly support each other with China on issues concerning each other's core interests, expand cooperation with China in such fields as economy, trade, transportation, and new energy, and achieve common development and prosperity.

According to official data, from January to October 2023, the volume of China-Azerbaijan trade reached an impressive 2.57 billion dollars, marking a 47.5 percent increase compared to the previous year which clearly demonstrates the growing significance of the economic relationship between the two countries. China, emerging as the largest source of imports, has become Azerbaijan's fourth-largest trading partner, reflecting the strategic importance of this cooperation.

Critical analysis reveals that exports from China to Azerbaijan predominantly consist of high-tech products which account for over 50 percent of the total export volume. This focus on advanced technologies significantly impacts Azerbaijan's socio-economic development, opening new prospects for local businesses.

Greater socio-economic cooperation, banking & financial integration, high qualitative industrialization, trans-regional connectivity, digitalization, e-commerce, AI, and last but not least, green technologies cooperation is gearing bilateral relations towards a greater sphere of cooperation, coordination, and collaboration between two countries.

Moreover, geo-politically Azerbaijan’s strategic status as a Middle Corridor and essential connecting hub in the greater Eurasian region, the formation of alternative routes having seaports and integrated railways systems are also important factors in increasing the trade relations between the two countries.

Geo-strategically Azerbaijan’s positive and productive role in regional peace, stability, connectivity, and potential membership in the SCO and BRICS makes it one of the most important countries in the region for China’s BRI connections in the Black Sea and Eastern Europe and beyond.

Q. With Azerbaijan's imports from China experiencing a notable surge, what do you see as the primary drivers behind this increased demand for Chinese goods within the Azerbaijani market?

A. The emerging economic trends in the region and at the international level have forced the government of Azerbaijan to increase trade and economic ties with China being the global stimulator of industrial growth and supply chains. China’s EVs, superiority in renewables mainly solar & wind apparatus, comparatively cheap but qualitative products, regional proximity, and last but not least infrastructure development of the newly liberated areas provide a window of opportunity for Azerbaijan and its private companies to foster bilateral relations.

Furthermore, Azerbaijan’s green transformation, COP29 ownership, booming services sector, tourism, cultural cooperation, and last but not least economic liberalization stimulate bilateral trade cooperation between the two countries. Last but not least, China’s new productive drivers, qualitative industrialization, and openness remained the key drivers of greater economic ties and trade cooperation between the two nations.

Q. How do you interpret the upward trajectory in trade activities between Azerbaijan and China, particularly considering the notable rise in trade turnover compared to the same period in 2023?

A. It is positive, productive, and participatory with bright prospects. It is a good omen that the pace of their bilateral trade and economic ties remained upward providing a new window of opportunities for both countries. Energy cooperation in terms of oil & gas, chemical industries, agricultural cooperation, and green energy is one the main drivers of booming trade ties.

Bilateral relations between China and Azerbaijan have been further strengthened after the meeting of two heads of state in SCO-2022. Azerbaijan is an important economic and trade partner for China. China sees Azerbaijan as a single investment market. It has a keen interest in cooperating with Azerbaijan in the financial and agricultural sectors. China attaches great importance to the development of mutually beneficial and close cooperation with Azerbaijan and has implemented several large-scale infrastructure and industrial projects that have played an active role in the socio-economic development of Azerbaijan.

It is a good omen for both countries to view and plan for bilateral relations from a strategic height, increase strategic mutual trust, strengthen mutual support, deepen mutually beneficial cooperation, and work for steady, in-depth, and practical cooperation in various fields between the two countries. Xi also said China welcomes Azerbaijan to join China in implementing the Global Development Initiative (GDI) and the Global Security Initiative (GSI).

Q. In your opinion, what measures can both Azerbaijan and China take to sustain and enhance the momentum of their economic partnership in the face of global economic uncertainties and challenges?

A. Both countries should also expand trade, improve the trade mix, increase the number of China-Europe Express freight train services, and ensure unimpeded international supply chains. Xi also expressed confidence that the Belt and Road cooperation between China and Azerbaijan enjoys broad prospects. For his part, Aliyev said that Azerbaijan and China are true strategic partners, that the two sides maintain close communication in international affairs, and that bilateral cooperation is advancing steadily.

Q. How do you see the role of bilateral agreements and initiatives in facilitating and fostering closer economic cooperation between Azerbaijan and China, particularly in the context of the Belt and Road Initiative?

A. It is estimated that BRI has a great impact on Azerbaijan’s macro-economy through Azerbaijan’s connectivity and trade with the BRI economies. BRI projects have further improved its transport, power, and ICT infrastructure. Azerbaijan is a BRI partner country in the South Caucasus strategically located between Asia and Europe. It can play the role of a strategic partner, middle corridor, and hub connecting China with the Middle East and Europe. In this regard, Azerbaijan perceives BRI as a promising initiative. The Azerbaijani government has a strong political will, economic ability, and the infrastructural capacity to contribute a win-win proposition for both countries.

Q. Are there any specific areas or opportunities for collaboration that you would recommend exploring to further strengthen trade and investment ties between Azerbaijan and China?

A.For further strengthening of bilateral relations and widening of scope, utility and strategic importance of mutual ties and BRI, China, and Azerbaijan should closely work to strengthen the BRI’s influence in Central Asia and South Caucasus and prioritise the Trans-Caspian International Transport Route (TITR) passing through Azerbaijan. The TITR, known as the Middle Corridor, had been in development as part of China’s BRI for several years. The 6,500-kilometer network of roads, railroads, and ports spanning Kazakhstan, the Caspian Sea, Azerbaijan, and Georgia, then into Turkiye and/or the Black Sea is intended to reduce shipping times from 60 days by ocean to a fortnight. It is backed by billions of dollars in loans and grants from the Chinese government.

Q. Looking ahead, what strategies or steps do you believe both countries should prioritize to capitalize on the current momentum and maximize the potential benefits of their growing economic relationship?

A. Both countries have already inked several agreements including an investment of US$ 300 million by China National Electric Engineering Company (CNEEC) into a tire factory in Azerbaijan. It will create 800 new jobs and boost the plant’s production potential to 3.3 million tires per year. Another multimillion-dollar agreement would see investments into the agriculture sector.

In 2018-2019, imports from China increased by 40 percent and trade turnover reached $1.3 billion. Azerbaijan has become China’s number one trading partner in the South Caucasus compared to Armenia and Georgia. On the other hand, Azerbaijan’s investments in China’s economy reached $1.7 billion, while China’s investments in Azerbaijan’s economy came close to $800 million. About 119 companies relying on Chinese capital are operating in Azerbaijan which is indeed a good omen.

Energy cooperation between China and Azerbaijan holds a significant place in their bilateral relations, especially in the context of transitioning towards sustainable and renewable energy sources. In 2023, a substantial memorandum of understanding was signed between the energy departments of both countries, aimed at developing cooperation in the field of renewable energy.

The Chinese company Dongfang is currently involved in constructing the 230 MW "Garadagh" solar power plants in Azerbaijan. This project is a crucial step towards increasing the share of green energy in the country's energy balance. Furthermore, cooperation with China Gezhouba Group Overseas Investment opens new prospects for implementing renewable energy projects.