Caspian Sea is China's best bet for Belt and Road
Kazakhstan-to-Greece route aligns Beijing's land and maritime strategies
Most attention on China's Belt and Road Initiative has so far centered on northern rail routes through Russia and Central Asia and investments in Mediterranean and Indian Ocean seaports. But policymakers in Beijing have long dreamt of an alternative that would more closely align China's land and maritime trade strategies. They may have found it in the route from Piraeus, Greece, to Khorgos, on Kazakhstan's border with China.
Of all the potential Belt and Road corridors between the European Union and China with a land component, Piraeus to Khorgos involves the smallest land element, passing through only three intermediate countries -- Georgia, Azerbaijan and Kazakhstan. This is the smallest number for any proposed land bridge between the EU and China that also avoids Russia. But the route depends on cross-Caspian Sea ferry logistics and better rail links across the Caucasus.
Four competing land routes appear in the Chinese National Development and Reform Commission's "China-Europe Corridor Construction and Development Plan," published in 2016: Manchuria-Russia-Belarus; Mongolia-Russia-Belarus; Kazakhstan-Russia-Belarus; and Kyrgyzstan-Uzbekistan-Turkmenistan-Iran-Turkey.
The Russia-Belarus route crosses the fewest jurisdictions, but includes Russia and requires by far the longest distance by railway -- two factors that conflict with a Chinese policy designed to subvert Russian and U.S. trade institutions.
The Mongolia-Russia-Belarus route is also long, and also involves Russia. The same is true of the Kazakhstan-Russia-Belarus route. The Kyrgyz route passes through five jurisdictions and requires two rail gauge changes: one from China to Kyrgyzstan, and another from Turkmenistan to Iran.
By contrast, the Piraeus to Khorgos route connects the Greek port of Athens, where China COSCO Shipping operates a container terminal, to the Georgian terminals of Batumi and Anaklia across the Black Sea, which is protected by international maritime law. For China, shifting containers across Georgia and Azerbaijan to the Caspian Sea may be worth the higher cost than a pure sea route, and would be much cheaper and quicker than the Belarus-Russia or Belarus-Russia-Mongolia routes.
In April, Kazakhstan, Azerbaijan and Georgia signed a three-way "Cross-sea Transport Channel Agreement," to coordinate construction of the trans-Eurasian transport corridor. The route joins Khorgos to the Black Sea by upgrading the cross-Kazakhstan rail link to the Kazakh port of Aktau, on the Caspian, improving the ferry linking Aktau to Baku, in Azerbaijan, and linking Baku to Georgia's new deep water port at Anaklia, on the Black Sea, through a cross-Caucasus rail corridor.
Using the Black and Caspian seas means that China's Xinjiang region would be connected to Europe by a mostly maritime route, moving goods from the EU to China through a land crossing in the Caucasus that could become an inland equivalent of the Panama and Suez canals. Rail transport in the Caucasus and in Kazakhstan would be subsidized by the Chinese taxpayer, making the Caspian route the closest thing to an economically viable maritime route from Europe to western China.
Beijing's industrial and trade ambitions in the Caucasus have been clear throughout the Belt and Road planning process. A trade agreement between China and Georgia was concluded in May -- the first with any of China's strategic transport corridor partners -- and will come into force at the end of 2017 or in early 2018.
Under that deal, 90.9% of China's imports from Georgia will be tariff-free, while China's exports to Georgia will be 96.5% tariff-free. For China, this makes Georgia a nearly tax-free land bridge through which to move EU-China trade. For Georgia, it is an element of the great-power balancing needed to offset its perennial struggle with neighboring Russia.
For Azerbaijan, the new trade route represents a chance to connect to new markets and to diversify away from hydrocarbon dependency. Azerbaijan has been taking great strides to internationalize, with the State Oil Fund of Azerbaijan increasingly active in international markets. The Ministry of Economic Affairs recently released "Ten Strategic Objectives for 2021," focusing on developing non-oil and gas sectors, increasing export competitiveness and investing in transport infrastructure. This fits China's needs perfectly.
Kazakhstan plans are to expand the capacity of the Caspian Sea rail and maritime corridor over the coming five years, hoping that cargo volumes will treble. The eventual size of a new COSCO logistics hub in Khorgos should give some indication of the potential container and dry freight capacity of the corridor.
There is no doubt that this is Kazakhstan's main rail infrastructure project, outranking Khorgos to Moscow and Khorgos to Turkmenistan, the two other transport corridors that China wants to see developed. Aktau port has already been expanded, and Kazakhstan is also hoping to develop its other Caspian Sea ports.
Completion of the Baku-Tbilisi-Kars railway connecting Azerbaijan, to both Georgia and Turkey by land, creates another trade route that will increase throughput on the Caspian. China is also likely to issue more policy notifications and trade regulations over the coming 12 months to strengthen the cross-Caspian ferry corridor and build capacity in the key ports of Aktau, Baku and Anaklia.
China's "one by one" trade policy, treating each country separately, leverages its enormous bargaining power and will extend a global trend toward bilateral trade agreements at the expense of multilateral, rules-based systems. However, global trade will benefit if China's consumer markets can provide sufficient demand to drive infrastructure and economic advancement throughout Central Asia and the Caucasus.
If Georgia could one day join the EU it could develop as a crossroads between western Europe, the Russian-led Eurasian Economic Union and China. But China's strategy for its trading partners must ultimately benefit the people in the region, rather than simply serving a grand plan in Beijing.
Tristan Kenderdine is research director at the consultancy Future Risk and a PhD candidate at Australian National University's Crawford School of Public Policy.