54 georgiafinance | autumn 2015

Source: GeoStat; Research done by PMCG

China 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 inten-sify 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.

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

The results of possible Free Trade Agreement between Georgia and China

Source: GeoStat

S i l k R o a d S i l k R o a d

for further cooperation with China.

Two initiatives were recently put forth by Chinese President Xi Jiping: 1) reconstructing a Silk Road Eco-nomic Belt; 2) a 21st-century Mari-time Silk Road. These initiatives are aimed at boosting international coop-eration 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 im-prove the quality of life for millions of people across Asia and Europe.

Georgia is a crossroad between Eu-rope and Asia, serving as the short-est 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 initia-tives can intersect. Taking advantage of our strategic location, we will play superior role in regional trade, devel-opment, 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 People’s Republic of China and the Asian Development Bank.

This novel event aims to establish a platform for annual high-level meet-ings 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.

Reconstructing Silk Road Economic Belt

Specifically, the Forum aims to:

• raise awareness and inform the in-vestment community about the scale and range of potential cooperation across the region;

• facilitate regional cooperation and trade;

• enhance partnerships across trans-portation, energy, trade, and increase people-to-people contacts; and,

• reflect Georgia’s effort to attract direct foreign direct investment and economic growth.

The Tbilisi Silk Road Forum will consist of presentations by political leaders, panel discussions, business-to-business meetings, and other related events. High officials from 40 countries and 30 international organ-isations and financial institutions are among the invited participants. More than 200 Chinese representatives will attend the Forum, including high-level government officials, private sector and media. We expect Tbilisi Silk Road Forum to attract over 600 delegates from various countries.

The Prime Minister’s efforts to cre-ate the Tbilisi Silk Road Forum as a regional platform to exchange ideas and knowledge will help revitalize Georgia’s important and historic role as a strategic partner connect-ing Asian and European economies. Through close cooperation, Georgia and its partners can work together to ensure regional security and stabil-ity and enhance integrated regional economic growth.

In recent years, China has been one of the top investors in Geor-gia. 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 invest-ment was in the construction sector. Such a significant rise demonstrates the increased interest from Chinese inves-tors 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 Hualing’s investments exceeds US $500 million. Hualing is a perfect example of a successful bilateral economic partnership. Georgia is al-ways open to new initiatives and ready

DIMITRY KUMSISHVILIMinister of Economy and Sustainable Development of Georgia

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 Georgia’s annual exports to China by 9 percent, and China’s 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.

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

56 georgiafinance | autumn 2015 georgiafinance | autumn 2015 57

Source: GeoStat

Source: National Bureau of Statistics of China

(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).

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 invest-ments recorded 217.9 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 increas-ing the investment potential of Georgia.

S i l k R o a d S i l k R o a d

Source: Research done by PMCG

Source: GeoStat

Source: Research done by PMCG

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%).

PMCG’s research did not seek to analyze the possible effect on the products, which have never ex-ported to China, but this agreement might affect export potential of these products.

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).

“Substiution effect” has 48% contri-bution in the growth of Chinese im-port, while 52% is “Demand effect”.

The cheaper import from China will replace Turkey’s import. In 2014, Turkey was the largest trading part-ner in terms of import (20.1% of the total import), followed by China (8.6% of the total import).

In 2014, the largest imported com-modity groups from China to Geor-gia are: automatic data-processing machines (6%), structures of iron or steel (4%), telephone sets (3%), flat-rolled products of iron or non-alloy steel (3%) and refrigerators, freezers (3%).

After signing the FTA between Georgia and China, the import mostly will increase in the follow-ing 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).

After signing the FTA, the Chinese import to Georgia will increase

PMCG’s research did not seek to analyze the possible effect on the products, which have never exported to China, but this agreementmight affect export potential of these products.