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Can China Help GUAM Diversify Away from Russia?

Established in 1997, GUAM—a platform named after its members Georgia, Ukraine, Azerbaijan, and Moldova and originally created to improve multilateral collaboration between member states—is now celebrating its 20th anniversary. Despite this milestone year, the organization now lacks a clear purpose. The group was initiated with much support from the U.S., with the aim of establishing an institution to bring together countries that wanted a counterbalance to Russian influence and a guarantee of geopolitical pluralism in the post-Soviet space.
 
Despite U.S. support, GUAM has languished in recent years. Some of its key collaboration areas, such as the rule of law and regional stability, are now being contradicted by member states. For instance, the political situation in Azerbaijan, which is increasingly autocratic, directly violates GUAM’s democratic principles. Meanwhile, the organization has not proven an effective defense against Russia. For example, during the 2008 Russo-Georgian War, Georgia was blockaded by Russia’s Black Sea Fleet, whose base was in Sevastopol, on the territory of GUAM member Ukraine.
 
Since 2008, GUAM has been generally inactive. The first high-level GUAM meeting since 2008 did not occur until 2017. Even the symbolic meetings of foreign ministers between GUAM and the U.S., once held annually throughout the 2000s, have stopped.
 
What explains this inactivity? The biggest issue is that GUAM, as an organization, lacks clear common political ground. Its member states have divergent political interests, particularly with regard to Russia. For instance, Moldovan leadership has wavered between the West and Russia. Its former president, Vladimir Voronin, is believed to have skipped the 2008 summit to win Russia’s support. In April 2017, Moldova’s President Igor Dodon sought to obtain an observer status in the Russia-led Eurasian Economic Union, which would seem to contradict the purpose of GUAM. Likewise, Azerbaijan is also developing closer relations with Russia because of its economic downturn and cooling relations with the EU and the U.S. This lack of common political ground does not just explain GUAM’s internal inaction; it has also prevented GUAM from building ties with the U.S., which has resulted in diminishing interest from Washington.
 
As GUAM became inactive and U.S. support cooled, China began to show its ambition in broader Eurasia. In September 2013, Chinese President Xi Jinping initiated the “One Belt, One Road” (OBOR) across Eurasia. GUAM not only falls within the Silk Road Economic Belt, but it also draws China’s attention with its Trans-Caspian potential.
 
What is China Doing in the Region?
 
Under the banner of its OBOR theme, Beijing is promoting economic ties as well as deepening geopolitical connections with the GUAM states.
 
Although not the largest economy in GUAM, Georgia attracts most of China’s attention. In recent years, China’s trade volume and investment in Georgia dramatically increased. In 2014, China became the third largest trade partner and the largest investor in Georgia. In 2016, China became the third largest importer of Georgian wine—one of the major exports of Georgia. Chinese companies have become active in every industry from real estate to mining, and have started to move into the tourism sector. In 2015, China and Georgia started negotiating the China-Georgia Free Trade Agreement (FTA), China’s first such agreement in Eurasia. The two countries signed the agreement on May 13, 2017, and it is scheduled to go into force over the next year. This FTA will likely boost bilateral trade to new heights.
 
Before the war in Ukraine and China’s launch of OBOR, Ukraine’s economic ties with China were not particularly robust. From 2005 to 2012, China hardly entered top ten destinations of Ukrainian exports. With the Ukrainian crisis, however, China has been on the list of top four export destinations for every year since 2013. Relations have become stronger, as Kyiv looks to diversify its economic ties. In 2015, China became the largest consumer of Ukrainian agricultural products, and Ukraine overtook the U.S. as China’s biggest supplier of corn. In 2016, China was the second biggest destination for Ukrainian exports. This fact is especially important in light of Ukraine’s loss of a big portion of its traditional markets—the Commonwealth of Independent States (CIS) countries—because of Russia’s transport ban on Ukraine in January 2016. With China’s support, however, Ukraine, on January 15, 2016, launched its pilot freight train to China, bypassing Russia via Georgia, Azerbaijan, and Kazakhstan as a continuation of the Trans-Caspian International Transport Route (TITR). This new route has offered Kyiv a compelling strategic alternative to connect with Asia and bypass the Russian ban.
 
Compared to Georgia and Ukraine, Azerbaijan has weaker economic ties with China. Nevertheless, the two sides have actively developed economic relations. By the end of 2015, China, for the first time, became one of the top ten trade partners of Azerbaijan. From late 2015 to mid-2016, within half a year, China and Azerbaijan had a series of senior-level official visits involving the Azerbaijani president and two Chinese politburo members (including one Standing Committee member). Such frequency is rarely observed between China and any other Eastern European country. During the visit of Zhang Gaoli, China’s first vice prime minister, the State Oil Company of Azerbaijan Republic (SOCAR), and China National Petroleum Corporation signed an agreement to cooperate in the oil, gas, and petrochemical spheres. Particular attention was also paid to the cooperation in transport and logistics, particularly in the construction of the Baku-Tbilisi-Kars railway, which will link the railways of China and Europe. In addition to the achievements of governmental interaction, in December 2016, the China-backed Asian Infrastructure Investment Bank (AIIB) approved a $600 million loan—the largest AIIB loan so far—to finance the Trans-Anatolian gas pipeline (TANAP) from Azerbaijan through Georgia to Turkey.
 
Of all the GUAM states, Moldova has the most limited relations with China. The size of Moldovan exports to China is quite small, and Moldovan imports from China have been decreasing. Nevertheless, the latest report by Alibaba Group, China’s largest e-commerce company, published in April 2017, shows that Moldova ranks seventh in the E-Commerce Connectivity Index (ECI) among 65 countries along OBOR. The index indicates how products are traded between China and partner countries through e-commerce. Regarding China-Moldova export e-commerce connectivity, Moldova ranks fifth, which implies that Moldova-China economic ties have a strong base from which to grow.
 
Geopolitical Implications for the GUAM Region
 
Given these developments, there is no doubt that China’s activities in the region are economically benefitting GUAM states as well as China itself. For all sides, the activities involving OBOR provide significant opportunities for opening new markets, increasing trade, and developing investments. Compared with the fruitful cooperation with Georgia, Ukraine, and Azerbaijan, Chinese cooperation with Moldova is lagging behind. But as a part of GUAM, Moldova could still enjoy much of China’s support, such as the expansion of TITR.
 
In terms of geopolitics and security, the GUAM states are likely to benefit even more if they continue welcoming China’s activities in the region. Currently, all of the GUAM states have either frozen or ongoing conflicts with different levels of Russian intervention. Georgia’s Abkhazia and South Ossetia, Ukraine’s Crimea and Donbas, Azerbaijan’s Nagorno-Karabakh, and Moldova’s Transnistria are all either under de facto Russian control or influenced by Russian presence. China has not recognized any of the separatist movements in this region. In both the 2008 Russo-Georgian war and the 2014 Ukrainian crisis, Beijing abstained from voting on the UN Security Council resolutions, demonstrating support for territorial integrity and sovereignty. Although China is unlikely to directly counteract Russia’s activities in the region, a more engaged China will reduce GUAM states’ sense of threat from Russia, especially since the continuous Russia-West confrontations leave Russia no choice but to stay close to China. In other words, the closer that the GUAM states get with China, the safer they are from Russia because they will have more diversified economic relations.
 
What Does This Mean for Russia and the United States?
 
While it is true that China’s closer ties with the GUAM states will decrease Moscow’s advantage in the region, this advantage is more likely a temporary one than a permanent one. After all, the GUAM-Russian frozen conflicts continue to exist. Moreover, Russia’s influence will remain significant, even if China plays a bigger role. Even when Beijing offers Kyiv a new transit route to avoid Moscow’s transit ban, this is more of a political decision than a realistic alternative for Ukrainian exports because of the high cost. Although something is better than nothing, this alternative route, at least in the short term, does not bring substantial change to the situation. Politically, while China’s engagement offers GUAM a way to be safer from Russian aggression, some countries may not choose to take the offer. For instance, Moldova and Azerbaijan are developing closer relations with Russia despite their respective disputes with it in Transnistria and Nagorno-Karabakh. Against this backdrop, China’s activities can do little to change the big picture of the region’s political dynamics in the near future.
 
However, China’s enhanced presence in the GUAM states still provides challenges for Russia. Moscow should worry that China’s presence will create new ground for cooperation among the GUAM states. Although Beijing is not able to create a political commonality for GUAM, with Beijing’s active participation, GUAM’s economic basis is being injected with fresh impetus. At its latest 2017 meeting, GUAM members decided to embrace a more economic agenda and focus primarily on TITR and a free trade agreement among GUAM member states. This common economic ground will likely expand with the development of China-backed regional projects, such as TITR and TANAP. With the development of a GUAM FTA and with the activation of the China-Georgia FTA, the integration of the region’s economy will increase.
 
In fact, the necessity of reconsidering U.S. strategy in the South Caucasus was already confronted in 2010, which indicates that the U.S. was not getting enough control on GUAM well before China’s Eurasia plan started. Moreover, the U.S. aim of using GUAM to counterbalance Russia has become even less effective in recent years as Azerbaijan got closer with Russia and Moldova elected a pro-Russian president. Washington probably needs to accelerate its change of strategy before worrying about Beijing’s activities. Barring a radical shift in the United States’ regional strategy, Beijing’s presence in GUAM is favorable to Washington’s geopolitical interests: a counterbalance against Russian influence. It may not be the ideal option for the U.S. as no state wants to see an organization that it helped create fall under another country’s influence. But the U.S. has few other good options. Confronting China in the GUAM region would only benefit Russia. Besides, the U.S. cannot compete economically with Russia and China in the region. Even its once sizeable oil imports from Azerbaijan have dropped substantially in recent years.
 
Although GUAM states will remain geopolitically engaged with the U.S. and Russia, Beijing will help reunify the flailing GUAM organization. This developing situation will allow GUAM countries to be more independent from Moscow and Washington, while closer to Beijing. If Beijing eventually creates a “4+1” platform with GUAM resembling its “16+1 Forum” with Central Eastern European countries, concern from Washington and Moscow may increase. But just like Beijing’s OBOR and AIIB, with new developments in GUAM-China relations, current international political conditions leave Moscow no choice but to comply fully. Even Washington possesses no efficient ways to curb Beijing in Eurasia. Indeed, in May 2017, President Trump sent a senior-level delegation to attend Beijing’s first OBOR forum—an action the Obama administration would have never taken. But the once tough-on-China Trump has no choice but to recognize China’s growing role in the Black Sea region.
 

Editor's note: 
Qiyang Niu is a former intern at EastWest Institute and UNDP Regional Bureau for Europe and the CIS.
Qiyang Niu is a former intern at EastWest Institute and UNDP Regional Bureau for Europe and the CIS.