China’s Influence in Eastern Europe & the South Caucasus:
PRC influence in Eastern Europe and the South Caucasus is modest compared to Russia and the European Union. However, CCP diplomatic and economic activity in Belarus, Ukraine, Moldova, Azerbaijan, Armenia and Georgia has grown since the end of 2013 with the launch of the Belt and Road Initiative because Beijing sees the region as a trans-continental link between Asia and Europe.
The CCP’s economic interest in the region is most prominent in the infrastructure, energy, transportation, and agriculture sectors. The CCP is combining its economic activities with regional defense and security cooperation. In particular, Beijing has sought to build stronger defense ties with Ukraine, which inherited a large part of the Soviet military-industrial complex at the end of the Cold War.
The CCP has been cautious thus far not to run counter to Russian interests in these countries given Moscow perceives the region to be in its sphere of influence. These countries also calibrate their relations with the PRC with Moscow in mind. For example, following the 2014 Russian invasion, Ukraine turned toward the PRC in search of an export market to replace that of Russia. Belarus, Armenia, and Azerbaijan have also sought out the PRC as a partner to mitigate concerns of becoming overly dependent on Russia.
China’s Trade and Foreign Investment in Eastern Europe & the South Caucasus:
Belarus, Moldova, Ukraine, Georgia, Azerbaijan and Armenia have all joined the CCP’s Belt and Road Initiative.
In 2019, the PRC surpassed Russia as Ukraine’s largest bilateral trading partner (the EU as a whole is Ukraine’s largest trading partner). In 2019, Ukraine’s trade with the PRC amounted to almost $13 billion, with Russia $10.23 billion and with the EU as a whole $45.75 billion.
The CCP has primarily invested in Ukrainian infrastructure and renewable energy projects, including two Black Sea ports, a highway reconstruction project, $2 billion new line for the Kyiv metro, solar power plants and a large wind farm.
Belarus receives little PRC direct investment with PRC FDI into Belarus’s economy totaling $368 million between 2010 and 2018. However, Beijing has been generously providing “tied loans” to Minsk. Around $8 billion has so far been allocated to Belarus-based projects out of $15 billion pledged by China in 2009.
The CCP is Belarus’ third largest goods trading partner. According to 2018 Belarusian data, the PRC is also Belarus’ second-largest export market for one of Minsk’s key commodities: potash (fertilizer).
The most ambitious Belarusian-Chinese project by far is the Great Stone Industrial Park, which President Xi hailed as the “pearl” of the Silk Road. The China Exim Bank and the China Development Bank provided $3 billion in loans to develop the Park. Yet, as of mid-2020, only 60 companies reside in the China-Belarus Industrial Park and benefit from its property, land, and income tax exemptions and other advantages. Planned benchmarks on the volumes of production and investment have not been reached either.
China’s Trade and Foreign Investment in Eastern Europe & the South Caucasus (Cont’d):
In 2019, Azerbaijan boasted the signing of several agreements worth over $800 million at the 2nd Belt and Road Forum for International Cooperation in Beijing.
PRC SOEs have received contracts to construct and modernize highways and railways in Armenia and Georgia, and one launched a new container railway link in Baku in September 2020 which will cut shipping times from China to Azerbaijan by a third.
- In 2018, a PRC railway company was criticized for workplace conditions and the treatment of journalists in Georgia; despite this, another SOE with a track record of corruption, poor workmanship, and environmental issues was awarded a contract to reconstruct a Georgian road in 2020.
- In 2019, Armenian officials criticized another company for poor highway construction and delays; later on an investigation was opened regarding suspected tax evasion as well.
There is also significant PRC investment in the mining and energy industries in the region.
- A subsidiary of China’s State Grid Corporation, a SOE, funded and constructed the Khadori Hydropower Plant in Georgia which opened in 2006; CEFC China Energy also reportedly purchased 75% of the Poti Free Industrial Zone on the Black Sea in 2017.
- Last year, a Chinese aluminum company announced plans to invest $100 million to develop an aluminum industrial zone in Armenia.
- In 2002, the China National Petroleum Corporation (CNPC), another SOE, signed a production sharing agreement with Azerbaijan for the Kursangi-Karabagli oilfield; and in 2003, CNPC acquired majority control of the Gobustan oilfield.
China’s Security and Defense-Industrial Cooperation in Eastern Europe & the South Caucasus:
The PRC is Ukraine’s largest buyer of defense equipment, and Ukraine is the PRC’s second largest supplier of defense equipment after Russia. These deliveries have included diesel tank engines, gas turbines for naval destroyers, and turbofan engines for fighter-trainer jets, as well as aerial refueling tankers.
The U.S. is lobbying against the PRC’s aerospace company Skyrizon’s attempts to acquire Ukrainian Motor Sich, a global leader in helicopter and airplane engine maker. Skyrizon was added to the U.S. Commerce Department’s Military End User list in January 2021.
Belarus is an observer in the Shanghai Cooperation Organization (SCO), making Minsk the only European country represented in the organization. The SCO is a security-oriented organization that includes the PRC and Russia, among others.
The CCP is heavily involved in the development of Belarus’ Polonez multiple launch rocket system. The CCP also financed and launched Belarus’ first commercial satellite, Belintersat-1, in 2016.
Armenia’s first non-Russian weaponry purchase came from the PRC in the late 1990s – according to media reports, Armenia acquired new CCP AR1A multiple-launch rocket systems in 2013.
Following the Armenian Defense Minister’s visit to the PRC in 2017, the CCP also agreed to provide about $1.5 million in non-lethal assistance to Armenia.
Huawei’s Activity in Eastern Europe & the South Caucasus
Huawei is active throughout the region. In Belarus, Huawei has been supplying video surveillance systems to the Lukashenko government since 2011.
In 2019, Huawei hosted a Ukraine Digital Transformation Forum, where it said that it had “helped Ukraine move from 2G to 4G and increase its mobile penetration from 8 percent to 65 percent.”
Huawei is the 2nd highest seller of cell phones in Georgia and is looking at developing a technology park in the country.
In 2017, Huawei signed an agreement to develop a “Smart City” project in Yerevan, Armenia; negotiations were supposedly still ongoing in early 2019.
The same year, a Huawei representative also announced plans to establish a “Smart City” project and public Wi-Fi system in Baku.
Huawei also announced its intention to develop Azerbaijan’s 5G network in 2019; as of now, roughly half of Azerbaijan’s population uses Huawei’s services.
China’s Soft Power in Eastern Europe & the South Caucasus
The region’s first Confucius Institute opened its doors in Belarus in 2006 and was housed by the State University; it was followed by others in Armenia and Moldova in 2009, Georgia and Ukraine in 2010 and Azerbaijan in 2011. Ukraine and Belarus now each host six Confucius Institutes.
- Confucius Institutes are CCP funded institutions that are embedded in universities throughout the world to promote the CCP’s political agenda.
The CCP funded a $12 million, 400 student Chinese-Armenian Friendship School that includes Chinese-language curriculum in 2018.
Beijing sent medical supplies and equipment to help Belarus, Ukraine and Moldova fight the coronavirus. In April 2020, the CCP’s aid for Moldova was delivered by a Russian military cargo airplane. The Russian MoD said it was the first joint Russian-PRC humanitarian mission related to the pandemic.
In April 2020, Armenia received a shipment of medical supplies and equipment from the PRC, which included both Armenian-purchased and CCP-donated goods. Prior to 2020, the CCP had also donated hundreds of buses and ambulances to Armenia.
*Last Updated: 3/16/2021