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Reconstructing Silk Road

Economic Belt
'Georgia is a crossroad between Europe and Asia, serving as the shortest transit route connecting
the two continents and rapidly becoming a key regional trading and logistics hub,'' claims Dimitri
Kumsishvili, Minister of Economy and Sustainable Development of Georgia.

DIMITRY KUMSISHVILI
Minister of Economy and Sustainable
Development of Georgia

n recent years, China has been

one of the top investors in Georgia. In 2014, the total volume of
Chinese investment in Georgia was
US $218 million, a 142 percent
increase compared to the previous
year. Almost 90 percent of this investment was in the construction sector.
Such a significant rise demonstrates the
increased interest from Chinese investors to invest in Georgia.
As an example, Hualing Group, one of
the top Chinese investors in Georgia,
entered the market in 2007. Since that
time, investments were made in many
different economic sectors, including
construction and financial. Today, the
total volume of Hualings investments
exceeds US $500 million. Hualing is a
perfect example of a successful bilateral
economic partnership. Georgia is always open to new initiatives and ready

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for further cooperation with China.

Specifically, the Forum aims to:

Two initiatives were recently put

forth by Chinese President Xi Jiping:
1) reconstructing a Silk Road Economic Belt; 2) a 21st-century Maritime Silk Road. These initiatives are
aimed at boosting international cooperation and joint development across
Asia and Europe. Through reviving
both the overland and maritime Silk
Roads, the Chinese economic miracle
has a potential to significantly improve the quality of life for millions
of people across Asia and Europe.

raise awareness and inform the investment community about the scale
and range of potential cooperation
across the region;

Georgia is a crossroad between Europe and Asia, serving as the shortest transit route connecting the two
continents and rapidly becoming a
key regional trading and logistics hub.
Georgia is the perfect place sitting
on the border between Europe and
Asia where various Silk Road initiatives can intersect. Taking advantage
of our strategic location, we will play
superior role in regional trade, development, and economic cooperation.
On October 15-16, Georgia will host
the Tbilisi Silk Road Forum. The
Forum was launched by the Prime
Minister of Georgia and is supported
by the Government of the Peoples
Republic of China and the Asian
Development Bank.
This novel event aims to establish a
platform for annual high-level meetings for political and business leaders,
as well as international organisations,
to explore new opportunities and
enhance partnerships across four
strategic areas: transportation, energy,
trade, and business.

facilitate regional cooperation and

trade;
enhance partnerships across transportation, energy, trade, and increase
people-to-people contacts; and,
reflect Georgias effort to attract
direct foreign direct investment and
economic growth.
The Tbilisi Silk Road Forum will
consist of presentations by political
leaders, panel discussions, businessto-business meetings, and other
related events. High officials from 40
countries and 30 international organisations and financial institutions are
among the invited participants. More
than 200 Chinese representatives will
attend the Forum, including highlevel government officials, private
sector and media. We expect Tbilisi
Silk Road Forum to attract over 600
delegates from various countries.
The Prime Ministers efforts to create the Tbilisi Silk Road Forum as a
regional platform to exchange ideas
and knowledge will help revitalize
Georgias important and historic
role as a strategic partner connecting Asian and European economies.
Through close cooperation, Georgia
and its partners can work together to
ensure regional security and stability and enhance integrated regional
economic growth.

R o a d

The results of possible

Free Trade Agreement
between Georgia and China
Policy and Management Consulting Group (PMCG) conducted research about the economic feasibility of
this agreement. The study uses the partial-equilibrium model, which analyzes the possible results in a
short-run period. The agreement would boost Georgias annual exports to China by 9 percent, and Chinas
by 1.7 percent. The study was produced in collaboration with the University of International Business
and Economics, the Ministry of Economy and Sustainable Development of Georgia and the Ministry of
Economy of China, and finds that a free trade deal would increase bilateral trade in goods as well as foster
trade in services and foreign direct investment.

hina is the second

largest trading
partner of Georgia.
In 2014, total trade
turnover between
Georgia and China
amounted to 823.4 mln. USD, which
is 7.2 % of total turnover.
Georgia and China intend to intensify bilateral trade and economic
relations through concluding Free
Trade Agreement (FTA).
PMCG conducted research about the
economic feasibility of this agreement.
The study uses the partial-equilibrium
model, which analyzes the possible
results in a short-run period.

Source: GeoStat; Research done by PMCG

The study shows that FTA can

contribute to increase the volume
of export from Georgia to China.
The volume of import and FDI from
China to Georgia will also increase.
After signing the FTA between
Georgia and China, it is expected to
increase the volume of export from
Georgia to China by 9.0% (2.1 mln.
USD) in the short-run period (2-3
years).
In 2014, 75% of Georgian export to
China was the re-export of copper
Source: GeoStat

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ores and concentrates (67.4 mln.

USD).
After signing the FTA, export of
wine (28.5%) and non-alcoholic
beverages (36.7%) will increase
significantly, while the export of
copper and aluminium scrap will
increase slightly (3.3%).
PMCGs research did not seek to
analyze the possible effect on the
products, which have never exported to China, but this agreement
might affect export potential of
these products.
Source: Research done by PMCG

After signing the FTA between

Georgia and China, it is excepted to
increase the volume of import from
China to Georgia by 1.7% (12.4 mln.
USD) in the short-run period (2-3
years).

PMCGs research did

not seek to analyze the
possible effect on the
products, which have
never exported to China,
but this agreement
might affect export
potential of these
products.

Substiution effect has 48% contribution in the growth of Chinese import, while 52% is Demand effect.
The cheaper import from China will
replace Turkeys import. In 2014,
Turkey was the largest trading partner in terms of import (20.1% of
the total import), followed by China
(8.6% of the total import).
In 2014, the largest imported commodity groups from China to Georgia are: automatic data-processing
machines (6%), structures of iron or
steel (4%), telephone sets (3%), flatrolled products of iron or non-alloy
steel (3%) and refrigerators, freezers
(3%).

Source: GeoStat
Source: GeoStat

FTA will foster FDI flows and create

stronger ties with China.
In 2014, China was the third largest
investor in Georgia (12.4% of the
total FDI) and the volume of investments recorded 217.9 mln. USD.

After signing the FTA between

Georgia and China, the import
mostly will increase in the following commoty groups: doors and
their frames (1.4 mln. USD), frozen
cuts of domestic fowls (1.1 mln.
USD), containers of iron for gas (0.7
mln. USD), polished granite (0.5
mln. USD) and building elements of
plastics (0.4 mln. USD).

It should be noted, that in 2008

China signed free trade agreement
with New Zealand, which caused
the growth of Chinese FDI inflows
into New Zealand.
Consequently, FTA between Georgia
and China can contribute to increasing the investment potential of
Georgia.

After signing the FTA, the Chinese

import to Georgia will increase

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(1.7%), however due to the zero

import duty, import tax revenue will
decrease by 11.7% (-8.2 mln. GEL),
while the total tax revenue from
Chinese import (VTA, excise, tariff)
will decrease by 0.5% (-7.2 mln.
GEL).

Source: Research done by PMCG

Source: National Bureau of Statistics of China

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