Experts and diplomats say Georgia's decision to partner with a sanctioned Chinese company on the Anaklia Deep Sea Port project will completely reshape regional politics in the years to come.
Anaklia, strategically located on the ancient trade route, is a critical transportation hub on the New Silk Road between China and Europe. The location and the technical and infrastructural capabilities of the port will be important factors in attracting goods.
In parallel, ongoing infrastructure developments in the region in support of the One Belt One Road initiative are an important indicator of the future increase in trade between China and Europe.
Today's concerns also include the possible mixed (civilian-military) use of commercial port facilities set up by Chinese companies whose civilian vessels ply global routes; these could also be used to collect sensitive data for military purposes.
[Georgia] The idea of building a new Black Sea port in Georgia has a very long history dating back to the country's Soviet past. Today this project is seen by some as a vital part of the new transportation and logistics infrastructure; particularly since Russia's war with Ukraine diverted cargo traffic to southern Russia. For others, however, there would be serious geopolitical risks because the Georgian government has selected a consortium led by a Chinese state-controlled entity.
It is argued by advocates that this proposed $2 billion deep-sea port would allow larger ships to transport increased volumes at a more efficient rate, and could significantly improve the Middle Corridor’s prospects as an alternative trans-Eurasian route that bypasses Russia. As an additional route, it may be attractive for China, which is in the throes of building global commercial maritime networks for its exports and raw material needs.
Most of the current outcry is based on Georgia’s choice of Chinese finance to be arranged for the government by state-controlled China Communications Construction Company (CCCC) as the leader of the construction consortium. The plan is for CCCC to hold 49 percent of the project, investing and constructing it, alongside its Singapore-based subsidiary China Harbor Engineering. The Georgian government will hold 51 percent of the project.
Georgia is situated in a strategic location on the “One Belt One Road” route, positioned along the shortest route between China and Europe, acting as a gateway for cargo to enter into the landlocked Central Asian and Caucasian regions. Anaklia Port unlocks a primary market (Georgia, Azerbaijan, Armenia) of 17 million people from the Caucasus region and another 147 million people from landlocked countries in Central Asia (Kazakhstan, Uzbekistan, Turkmenistan, Kyrgyzstan and Tajikistan) and Northern Iran.
Anaklia, strategically located on the ancient trade route, represents a critical transport node on the New Silk Road between China and Europe. The location and the technical and infrastructural capabilities of the port of Anaklia will be major factors in attracting cargo. In parallel, ongoing infrastructure developments in the region in support of the One Belt One Road initiative are an important indicator of the future increase in trade between China and Europe.
HistoryA Chinese consortium — China Communications construction company Ltd, together with China harbor investment — was selected as a private investor for the construction of the new deep-water port of Anaklia. The Minister of Economy and Sustainable Development, Levan Davitashvili, announced that a Chinese consortium will be announced as the winner of the Anaklia port project in the coming days. “Finally, we received proposals only from the Chinese consortium. In this case, the detailed application proposal is complete, the relevant bank guarantees are presented. Therefore, in the coming days we will have clarifications, after which we will declare the Chinese consortium as the winner and start negotiations on the partnership agreement. I think this is a very important stage. This project is of great importance, it will employ many people”, said Davitashvili. Background On December 24, 2017, the then Prime Minister Giorgi Kvirikashvili and Mamuka Khazaradze, the founder of Anaklia Development Consortium, officially opened the port construction in Anaklia. On January 9, 2020, during the Prime Ministership of Giorgi Gakharia, the Government of Georgia announced that it was terminating the contract with the “Anaklia Development Consortium”, which was supposed to build the Anaklia Port, due to non-fulfillment of its obligations. The “Anaklia Development Consortium” was founded by Mamuka Khazaradze and included Conti International (USA) and TBC Hodling (Georgia). “Anaklia Development Consortium” (ADC) and its Dutch investor Bob Meyer are conducting an arbitration dispute against Georgia. In order to select a private partner for the project, the government has started preparatory work to announce a new selection process in the second half of 2022. The Anaklia Deepwater Port Development Agency hired international consultants (in commercial issues – MTBS, and in legal issues – Squire Patton Boggs), with whose involvement the documentation of the selection process was prepared. On September 20, 2023, the Ministry of Economy announced that two companies moved to the second stage of the private partner selection of the Anaklia deep-water port project, although they were not named. According to the Minister of Economy, the Swiss-Luxembourgish and Chinese-Singaporean companies moved to the second stage of the selection. On the whole, according to the minister, four companies expressed their desire for private partnership in the construction of the port. Of the two companies that failed to move to the next stage, one is from Israel, and the other is also from China. However, last year, European Commissioner for Transport Adina Valeani said that European companies are also interested in the port of Anaklia. President of Azerbaijan Ilham Aliyev also stated that Baku is interested in implementing joint projects with Georgia, including Anaklia port. However, if we rely on the information provided by the Georgian government so far, they will not show their desire for private partnership of Anaklia port by participating in the competition. As a result of the qualification evaluation of the candidates, the qualified candidates will be given a period of several months to present a technical, commercial and financial proposal, as a result of which the commission will identify the winner and the Ministry of Economy will start negotiations on the concession contract and the partners’ agreement. In parallel with the process, the state established a company that started preparatory works for the construction of marine infrastructure (dredging, breakwater). According to the Ministry of Economy, part of the land plots required for the first phase of construction works will be transferred to the same company as a capital contribution. Together with a private investor, a port construction joint company should be established, where the state will own 51%, and the private partner – 49%. |
The risks from “almond eyes”
Over the past 20 years, the name China Communications Construction Company (CCCC) has often been associated with cases of alleged corruption. From Equatorial Guinea to Tanzania, Malaysia to the Philippines, the Chinese state-owned company has fended off allegations of corruption, fraud, anti-competitive practices, and predatory financing, which have seen it previously excluded by the World Bank and currently blacklisted by the United States.
The majority of the CCCC company that the government awarded a contract to (for the Anaklia project) is owned by the Chinese Communist Party and the Chinese Communist Party is the number one financier of the Russian military today, - US Ambassador to Georgia Robin Dunnigan said in an exclusive interview given to InterPressNews.
According to her, there are also questions about the quality and standards of the company.
“On Anaklia, the majority of the CCCC company that the government awarded a contract to is owned by the Chinese Communist Party and the company is known to be affiliated with the Chinese military. The Chinese Communist Party is the number one financier of the Russian military today. So one question is - why deepen an economic tie with the party that is financing your occupier? Because the Russian military is being financed by the Chinese Communist Party. That's one question. Then there's just a question about the quality and standards of the company in question. So CCCC does not have a good reputation globally. In 2009, the World Bank barred the bank from providing financing to infrastructure projects done by this company. Recently, the company built a port in Sri Lanka. There's a lot of controversy around this port. I don't know if you've read about it. But ultimately, the Chinese government was able to secure a 99 year lease on Sri Lankan soil and its ships, military ships, vessels can come in and out. So there's a lot of controversy about Sri Lanka giving up some of its sovereignty in a key critical infrastructure. The United States Treasury has determined that this company is a company that is on a list of companies that have deep ties with the Communist Party's military. So there are a lot of concerns about Anaklia, of course, it is a sovereign decision, but I'm just reiterating some of the concerns that are seen globally about this particular company”, said the Ambassador.
For Ted Jonas, an international business and environmental defence lawyer based in the Georgian capital of Tbilisi, who was previously involved in the port project, it was little coincidence the announcement fell on 29 May, just one day after the government faced down widespread international condemnation to pass a Kremlin-style law on ‘foreign influence‘.
Decried as punitive and anti-democratic for targeting independent media and government-critical NGOs, these measures have effectively torched the South Caucasian country’s long-standing relations with the Euro-Atlantic community, representing as they have a climax to the staunch anti-Western rhetoric from Georgian officials that has mounted since Russia’s full-scale invasion of Ukraine.
China’s ongoing support for the Putin regime amid the war has proven a source of concern for the US and the EU, as Chinese markets continue to provide a critical lifeline for Russia’s sanctioned economy.
Jonas says Georgia’s recent port deal with CCCC signals a decision to pick a side in the conflict by a country that had otherwise, historically, placed a heavy premium on “strategic ambiguity” since its own disastrous war with Moscow in 2008.
“The port deal is a concrete representation of [the Georgian government’s] anti-Western turn,” Jonas explains.
The foreign agent’s law is relatively abstract as it exists only on paper for now, but the port is a physical project – it will literally be like a new iron curtain, because there can now be no Western involvement in it at all - Ted Jonas, defence lawyer.
The Anaklia Deep Water Port initiative was first floated in 2012 by Georgia’s pro-Western former President Mikheil Saakashvili, just months before his United National Movement government was ousted at the polls by Georgian Dream, the current ruling party.
Georgian Dream had been founded earlier that year by billionaire businessman Bidzina Ivanishvili, who made his fortune in Moscow during the privatisation frenzy of the 1990s, and who has lately faced growing calls to be targeted with international sanctions for his control over domestic public life and longstanding ties to powerful Russian interests.
Georgia has increasingly turned to China for infrastructure projects, with one study by the Tbilisi-based Civic Initiative for Democratic and Euro-Atlantic Choice saying that since 2021, every infrastructure project worth more than $100 million has involved Chinese companies.
In 2017, a consortium was set up between Georgia’s TBC Bank and US-based construction firm Conti International to initiate and oversee initial research and development for the deep water port project.
Two years later, then-US Secretary of State Mike Pompeo was praising the initiative for its promise to “increase Georgia’s relations with free economies” and, in words that have since proven ironic, to “prevent Georgia from being influenced by Russian and Chinese economies”.
But by that point the initiative had already begun to flounder, after TBC Bank founders Mamuka Kharazadze and Badri Japaridze were accused of money laundering by the Georgian government. Both men have denied the allegations, with Kharazadze claiming they were motivated by a desire to sabotage the port initiative owing to conflicts in his personal relationship with oligarch Ivanishvili.
As a result of the charges, Conti International pulled out of the consortium, with the Georgian government winding down and eventually cancelling the project in 2020.
Rumours abounded that the Kremlin pressured Georgian Dream to put an end to the initiative, wary as Moscow was of US interests so close to its own port of Novorossiysk, some 600 km northwest of Anaklia.
When war in Ukraine broke out in February 2022, a swift and significant decline in freight through Novorissiysk was keenly felt by Azerbaijan and Central Asian states like Kazakhstan and Uzbekistan. Amid the flocking to Georgia of concerned diplomats and officials eager to find a solution to the bottleneck, talk soon began to spread of reviving the ditched initiative.
Though the names of the companies involved in the tender process remained unknown until the May 29 announcement, there were already signs of Chinese interest in the project.
In September 2023, the Chinese Ambassador to Georgia Zhou Qian had emphasised the importance of Anaklia for growing trade demand along the Middle Corridor, in comments that came just months after then-Prime Minister Garibashvili had upgraded Georgia’s relations with China to a “strategic partnership” during a diplomatic trip to Chengdu.
Lea Thome, an international security scholar with the Wilson Centre, explains that while many Western firms are subject to certain institutional constraints like workforce regulations, reputational risk and a fear of loss on investment, Chinese state entities are seldom subject to the same restrictions.
In practice, firms like CCCC are therefore able to turn development projects around at great speed, meaning that if all goes ahead as planned, the first stages of the Anaklia port initiative could be completed within the next three years.
“It will have immense consequences for the region, promising to bring in more Chinese companies and more Chinese investment,” Thome says. “The Anaklia initiative was originally oriented toward the West, but with it now being known as a Chinese project part-owned by a sanctioned Chinese company, I think that will really shift the tone of the port, and how heavily it will be utilised by other countries.”
Jonas clarifies there’s no reason Western goods shouldn’t transit through a Chinese port, or that goods from China shouldn’t similarly go out from Anaklia into Western markets.
The concern, shared by many critics of the initiative, rests on the lack of scope for integrating Western services into the port, and the advantages this will afford not only Chinese companies but also, crucially, their customers in this corner of the Black Sea.
“Because of the sanctions in place, there will be no Western financing or investment, there will be, in effect, no Western content to it at all,” Jonas explains. “Western countries cannot sell services to this company that’s going to build the port, so it’s an absolute block on any real involvement – and if the Russians had a set of conditions they needed in order to be okay with this project, you can bet that was on the checklist.”
The Georgian think tank ISET-PI based at Tbilisi State University has also raised strong doubts about the Chinese presence. The a paper titled “A risk profile of China's investment in Anaklia Deep Sea Port Project” ISET-PI argues that although the details of China's financing are unclear, dangers are seen in “several high-risk, high-impact uncertainties” about the project.
The main reason is the planned financial structure.
Specifically, ISET-PI warns that the port may not secure sufficient cargo volume to generate the foreign exchange cash to meet its obligations to cover finance servicing. It says the extent of stress-testing studies on potential cargo volume flows “remain unclear.”
Source: “A risk profile of China's investment in Anaklia Deep Sea Port Project” ISET-PI
The money needed is substantial. The first phase in Anaklia costs $600 million and encompasses constructing a wharf, which can handle an annual seven million tons of cargo and be operational three years from commencement of work. The whole $2 billion project is envisioned to span 49 years.
If it does not generate enough revenue, it is unclear who will bear the costs. Generally, the Chinese push for revenue guarantees and, if this happens, losses could be shouldered by Georgian taxpayers, according to ISET-PI.
“China debt financing through the SOE [state-owned enterprise] and the contingent liabilities stemming from utilizing off-take guarantees and asset pledges could result in direct debt obligations for the state budget, potentially leading to Georgian taxpayers covering the debt service using the NBG foreign exchange reserves. These fiscal risks could intensify if the pension fund opts to invest in the Anaklia project,” ISET-PI said in the brief.
Or—as in the case of Sri Lanka, which failed to service a Chinese debt for port-construction—a solution might be a debt-for-equity swap. In Sri Lanka’s case, such a deal led to its granting of a 100-year lease on the port to China. This deal gives China freedom of movement, which commentators say possibly threatens Sri Lanka’s sovereignty and independence.
Other diplomats have raised concern about the opportunities the port opens for China.
“If you have China building such a key point, then you are giving them the capacity and opportunity to control a very important route for trade between Europe and Asia,” noted Romana Vlahutin, a fellow at the German Marshall Fund and former European Union ambassador-at-large for connectivity, in an interview with Radio Free Europe. “This is not good news for the EU, and I think the fact that [China is now building] the port shows a lack of strategic thinking in Brussels.”
No problem, says Georgian government
According to the Georgian government, however, those sanctions simply don’t exist. “It’s a lie, international sanctions do not apply to this company,” the Ministry of the Economy has claimed. “We believe these unfounded allegations are part of a politicised campaign aimed at hindering the Anaklia port project.”
First Vice Prime Minister Levan Davitashvili has downplayed the concern, announcing in July that part of the Anaklia project, a construction contract, had gone to Jan De Nul, one of the world’s “Big Four” port construction companies, which owns 80 percent of the global dredging fleet.
“We have completed the selection process for the port construction company. Jan de Nul possesses the world’s largest dedicated fleet for port construction, including both dredging and breakwater installation. This is the core, universal maritime infrastructure that will be useful in different configurations as the port develops,” the minister said. Construction work is due to start in September, and the hope is that the port will be taking in container traffic in 2029.
China’s growing maritime reach
The controversy over Anaklia has escalated at a time when Western business is just waking up to the fact that China is the world leader in commercial shipping, controlling movement of goods as well as leading on port automation, shipping IT systems and ship financing.
Despite the widespread international reservations about China, it has succeeded in investing in two-thirds of the world’s largest container ports, including holding a majority stake in two key European ones.
Source: https://www.porteconmics.eu
Securing control of ports is a key factor in China’s global commercial strategy. It has made “investing in overseas ports a top priority for the twenty-first century,” states international news platform Modern Diplomacy. As they continue, “China plans to use outward port developments to create an efficient and well-coordinated transport-trade system, harnessing its dominant position in international shipping.”
“The world’s largest trading country, and second-largest economy, China conducts about 95 percent of its international trade by sea,” says Christopher R. O’Dea, a fellow at the Washington research center Hudson Institute and author of the book Ships of State: China’s New Maritime Empire. Writing in the Diplomat, he refers to a much lesser known component of China’s Belt and Road Initiative (BRI): the 21st Century Maritime Silk Road. This is where the ports come in.
The Maritime Silk Road launched at the 2013 summit of the Association of Southeast Asian Nations (ASEAN). The announcement stated that to accommodate expanding maritime trade traffic, China would invest in port development along the Indian Ocean, from Southeast Asia all the way to East Africa and parts of Europe. Ten years later the Maritime Silk Road connects 50 marine countries. It traverses from Hanoi to India, then East Africa, through the Suez Canal to the Mediterranean and on to the northern Italian hub of Trieste, with its international free port and its rail connections to Central Europe and the North Sea.
Driving China’s export strategy is the need to create overseas market growth to keep its factories going. Its high levels of production result from the country’s economic model, with supply-side targets set out in five-year plans cause factories to produce more than the Chinese themselves can buy. “To continue its domestic growth trajectory, currently around five percent annually, China must sell overseas the goods it can’t consume at home,” states Intereconomics. However, rising Chinese imports mean lower sales of other foreign goods as well as domestically produced items and there have been recurring conflicts.
Jürgen Matthes at the German Economics Institute, writing on China’s Trade Surplus for Intereconomics, states that “China’s merchandise trade surplus has reached an all-time high and is likely to rise further. A key driver appears to be a policy push to further bolster Chinese domestic manufacturing production, implying the danger of significant overcapacities….”
Another assessment of China’s maritime strategies, published in a recent paper from the Greenberg Center of Geoeconomic Studies, part of the US Council on Foreign Relations, states that without being a global naval power, China “has become a leading commercial power that wields significant geoeconomic influence over international sea lanes and commercial ports, underpinning the global flow of goods.”
To date closer relations with Beijing have had a limited impact on the Georgian economy. Chinese exports to Georgia are expanding and are five times higher than Georgia’s exports to China. Georgia’s exports to China, currently at $145 million, are declining and have very little local added value—mainly raw materials (metals ores, herbs, and spices), said Investor.ge.
As it has been written, Chinese companies, mainly SOEs (State Owned Enterprises) such as China COSCO Shipping Corporation and China Merchants Group, have poured nearly $11 billion into global ports over the past decade, gaining access to strategic maritime hubs. The SOEs reportedly invested in 25 port projects in 18 countries from 2010 to December 2020. Others noted that Chinese companies had signed deals on more than 80 port projects during the same period. The total value of these agreements, including those not yet delivered, would have reached nearly $70 billion.
The vast majority of port projects are tied to just two state-owned operators-China Merchants Group and Cosco Group. About 55 terminals around the world already benefit from Cosco's investment. While the latter has 9 projects under its belt, China Merchants has stakes in 11 ports. In December 2019, China Merchants said it would spend $955 million to acquire 10 terminals in Asia, Europe and elsewhere.
Beijing also controls the Port of Long Beach in California, which is the second largest container port in the United States. After the agreement for its acquisition by China's Cosco Company, through its Hong Kong subsidiary, the COSCO Group has become the third largest shipping company in the world
Today's concerns also include the possible mixed (civilian-military) use of commercial port facilities set up by Chinese companies whose civilian vessels ply global routes; these could also be used to collect sensitive data for military purposes.
Not only that: could China-built ports such as Hambantota in Sri Lanka and Gwadar in Pakistan one day host facilities to support the People's Army Liberation Army?
This has already happened in Djibouti, at the southern end of the Red Sea, where China has built military facilities directly adjacent to the commercial port of Doraleh.
Then recently, China has shown interest in acquiring three ports in Liberia on the Atlantic Ocean.
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