The FINANCIAL — Since the establishment of diplomatic relations between China and Georgia in 1992, the bilateral relation of economic and trade cooperation has entered a new era. Namely trade turnover went up from a mere 3.7 million USD in 1992 to 550 million USD in 2011.
Investments have not lagged behind either, namely 1.7 billion USD is presumed to be flowing into the country in the next five years according to Mr. Liu Bo, Economic and Commercial Counsellor of the Embassy of the People’s Republic of China in Georgia, with whom The FINANCIAL spoke last week.
Q. How would you describe the economic relationship between China and Georgia?
A. This year, 2012, is very significant because it is the 20th anniversary of China-Georgia diplomatic relations. China and Georgia started out with a very good relationship. Even though in the beginning there was not much commercial activity taking place between the two countries now trade as well as investments have intensified and moved to a much higher level. We suppose, based on current projects as well as future ones coming up, that the number will hit 1.7 billion USD in the next five years time which is unprecedented and has not taken place before.
Q. Georgian export to China has been showing growth in the last 4-5 years. What do you make of that, what kinds of products have the potential to be represented in the Chinese market?
A. Nowadays Georgia, as well as many other countries, imports more from China than it exports to there. Some products however, like Georgian wine, have huge potential in China. Wine has been exported since 2008, reaching 180,000 litres whilst in 2011 – 580,000 bottles were exported.
Year after year economic ties between the two countries have been intensifying i.e. only last year the trade volume between the two countries reached 550 million USD. We presume that this figure will be doubled this year as more and more Georgian wine companies are taking an interest in the Chinese market.
Georgia exports not only wine but also scrap copper, other mining products, nuts, wood, tourism souvenirs etc.
Q. How about investments, could you single out some of the biggest investments made so far?
A. Certainly! There are many investors but I will pick out the three biggest ones:
Sichuan Electric Power Corp China
The very first big investor which took an interest in Georgia was Sichuan Electric Power Corp China, (SEPC) – which built the Khadori Hydro Power Plant, located at the confluence of the two rivers Alazani and Samkura in Pankisi Valley, Akhmeta, Kakheti.
Khadori HPP has a capacity of 24,000 kilowatt with annual generation of approximately 120 million kWHs.
It started in 2000 and it is a BOO (Build, Own, Operate) project – whilst the date of commissioning was November 20, 2004.
The company invested a total of 34 million USD and it’s 93% owned by SEPC, China, and 7% by Peri, Georgia. The initial ROI for the project is 5%. Due to some reason the goal was not reached. Invested in HPP at Georgia is the commercial activity of the company, however it get supports from both Chinese and Georgian governments.
The total amount of employees there is 60, out of which 50 are Georgian and 10 Chinese.
SEPC is a 100% subsidiary of the State Grid Corporation of China, which ranks among the world’s top 500. The Chinese company has undertaken more than 20 overseas projects including thermal power plants, hydropower plants, transmission lines, substations and other civil works in the regions of Southeast Asia, South Asia, the Middle East, Africa, Eastern Europe and the Pacific area in the past 20 years.
China Xinjiang Hualing Group
Q. In what sectors of the economy did Xinjiang Hualing Group invest?
A. They started their investment in 2005 and until now this has been the biggest investor from China. They are involved in mining, timber cutting – its factory and processing. They have a factory in Kutaisi, West Georgia – they make cupboards and also make furniture and sell it on the local market as well as in other countries.
They have a 20 year license for timber with 88,000 cubic meters per year. They also have a similar facility in Tsalenjikha – they have paid 20 million GEL (14 million USD approximately) for the license and leased a massive forest for 25 years. Ready produce – saw timber – is exported to Turkey and also to Armenia, China and Dubai. In 2010 they processed 10,000 cubic meters. This company was the largest taxpayer of the region and still remains so.
Q. How about the mining operations by Hualing Group?
A. As for mining they have bought four mines for marble in the west of Georgia. 20 years concession has been approved for the Gehuri 16 hectares gold mine. Geological work of the earlier stage for 0.3 hectares has finished. Geological work for 8 hectares is planned to be completed within the year. There is also an additional plan to explore marble, granite mining etc.
Q. What other projects were realized?
A. To improve their investments in Georgia, Xinjiang Hualing Group joined Shanghai Boda Group (one of the mains partners of Shanghai EXPO) to invest at least 100 million USD and operate FIZ in Kutaisi.
They also have a local Georgian labour force of 1,600. In addition there are Chinese workers, around 200, mostly engineers but also experts (including management team). Usually according to Georgian law investors should have at least 60-70% Georgian labour. That means most of the labour is Georgian.
The same company is also building a trade centre for wholesale as well as Olympic Village designed for the 2015 European Youth Olympic Games around Tbilisi Sea. For this project the total amount of land purchased is 420 hectares also including one five-star hotel. There are also entertainment facilities, houses, apartment buildings and villas planned to be built.
In the coming 5-6 years the company will spend at least 1.5 billion USD to complete these projects. Taking into account the fact that the construction projects aren’t in full swing of operation at Tbilisi Sea that’s why on May 16 there will be a very large opening ceremony – the start of construction for this project.
The same investment group also has an interest in buying Basis Bank in Georgia, the whole share of it. They have already signed a Memorandum of Understanding with this bank and in the following months they will take over the bank fully.
Chong Qing Wan Li Lian Xing Group
Q. When did this investment group start its activities in Georgia and in which fields?
A. This company started investing in Georgia in 2011. They started mining for copper and gold.
The total coverage of the land is 100 KM2. The license to do mining is for 36 years for this company. A mining facility will be built in the South of Georgia, in Adjara, a mountainous part of it to be specific.
Until now this company has invested 3.5 million USD but they are going to invest 200 million USD in the next five years. Currently they are running experimental drilling although due to heavy snow (about 2 meters) they have stopped operation and will resume in the summer and then in the coming years they will add several hundred people to the workforce.
Q. What is the overall share of Georgian and Chinese employees in the projects you’ve listed?
A. The ratio of Chinese employees to Georgian employees is 1:8, so that’s for every one Chinese worker there are eight Georgians.
For these three projects alone the total amount of labour is 2,000 people. Also once XinJiang Hualing Group starts its construction next month around the Tbilisi Sea area there may well be another 1,000 people employed on top of that.
Q. Are there any trainings planned for Georgians for future projects by Chinese investors?
A. Yes. XinJiang Hualing Group will send some Georgians for training in China whilst some of them will be trained here. Trainings will mainly be in the field of hotel management.
They have already sent about 20 Georgians from Kutaisi Free Industrial Zone for training in China. When it comes to the Tbilisi Sea project they will send about 200 people for training in China especially for hotel management as well as trade centre management.
Chinese and Georgian governments also cooperate over Official Development Assistance (ODA). In the human resource cooperation scheme more than 370 Georgian officials and technical personnel (stats 2010) had their trips to China for seminars and training programmes sponsored by Chinese governmental organizations.
Q. What impact have Chinese investments had on the Georgian economy overall?
A. Chinese investments will have huge mutual benefits for the two countries. Those investors not only make a profit here but they also employ local people thus decrease the unemployment rate which is around 16% in Georgia.
There are some other Chinese companies who are taking an interest in the Georgian Government’s plan to build more than 15 hydro power plants all across Georgia. For example, Sino Hydro and China Railway 23rd Bereau Group are interested in this project.
Actually both of the companies have been in Georgia for two years. In 2010, through international bidding, China Sino Hydro Corporation and China Railway 23rd Bereau Group (joint with Georgian JSC Khidmsheni Company) had the chance to win respectively the bids for rehabilitation of the Rikoti Tunnel, and the design & construction of the Tbilisi Railway Bypass route. Now Sinohydro has already finished rehabilitation of the Rikoti tunnel, which connects West Georgia to the East. In 2011, Sino hydro had begun to build the Kobuleti bypass road, West Georgia, and China Railway 23rd Bereau Group had begun to design and construct the project of the railway’s modernization.