A recent visit to the biggest mall in the Caucasus found only two souls in its cavernous main hall: a security guard and a little boy. The former ambled aimlessly; the latter found amusement in walking the wrong way on escalators. Shopkeepers kept each other company, drinking Turkish coffee and checking each other’s blood pressure. Occasional customers wandered the long, half-lit hallways, but shoppers were outnumbered by shops.

Hualing Tbilisi Sea Plaza is the centerpiece of a Chinese-built city on the outskirts of Tbilisi. Much like Georgian-Sino relations, the city is a work in progress.

“Many people still have not found their way here, but this is the largest shopping center in Georgia,” one attendant at a phone accessories shop said, a bit defensively, in response to a joke about having no customers. “There will be more people after the district is finished.” 

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This semi-built city is the largest Chinese investment in Georgia to date, sprawling across 420 hectares on Tbilisi’s northeastern edge. Past a melancholy maze of gray, Soviet-era housing projects, the city pops up as a bit of a surprise, with a phalanx of perky, colorful buildings lining one side of a broad new avenue. The road ends in ochre hills that wall off a reservoir known as the Tbilisi Sea. The new district, accordingly, is called Hualing Tbilisi Sea New City.

Construction began in 2013. China’s Hualing Group has poured some $170 million, and counting, into the city that so far boasts of a 5-star hotel, the mall and some gated residential complexes. It is ultimately envisioned as a self-sufficient city with schools, a hospital, restaurants, fitness centers and a police station. Tucked behind the residential towers are a customs terminal, a warehouse and an ambition to establish the largest logistics center in the region.

The city and national authorities have showered Hualing Group with incentives under a local law that offers tax breaks for development projects linked to Olympic sports; athletes in the European Youth Olympics Festival in 2015 were accommodated at Hualing Tbilisi Sea New City.

The Georgian government also has bought more than 200 apartments from Hualing to provide permanent housing for Georgians displaced from the separatist regions of Abkhazia and South Ossetia. But the bulk of the apartments remain up for sale.

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It could be a while before Hualing Tbilisi Sea New City starts turning a profit, but Georgians expect the Chinese investors are playing a long game.

Always in search of foreign investment, the Georgian government has hoped the city would open the gates to a torrent of Chinese money. Officials have been shuttling from Tbilisi to China for years in attempts to attract more business, but so far, Hualing Tbilisi Sea New City remains the largest single Chinese investment in Georgia. Hualing – which operates wholesale markets in China’s northwestern Xinjiang province – also has bought a Georgian bank and is developing a free economic zone.

Chinese investment in Georgia peaked in 2014 at about $218 million. That number then declined sharply, before ticking up following a free-trade agreement in 2017, but even in 2018 it reached only $75 million. Some in Georgia have blamed the slow pace on the delays and dispute over a planned deep-sea port, Anaklia, which is slated as a layover spot for China’s exports to the West.

China’s investment in Georgia is inextricably linked to its massive Belt and Road Initiative, a global transit network aimed at facilitating China’s trade with the world.

Currently, most of China’s trade with Europe passes through Russia, but if even crumbs transit the Caucasus on a new southerly corridor, countries like Georgia could benefit enormously.

“The volume of China’s trade with the West is so astronomical that getting even a small amount of that will mean enormous business for Georgia,” said George Welton, an economic analyst based in Tbilisi. “Simply transiting stuff, however, does not give you that much economic benefit,” he added. “What you really want is people adding value to the transit trade in your own country.”

Georgia has cleared the way for foreign investment by slashing taxes, cutting red tape, and rooting out corruption, but that alone is not enough to attract Chinese business. “The Chinese are adept at working in difficult business environments. The main pull for them is scale, not the ease of doing business. They’ll do what it takes to enter a difficult market, as long as stakes are high,” said one Georgian government official involved in talks with China, who asked not to be identified.      

One competitive advantage Georgia has is its free-trade agreement with the European Union. 

“We now have free trade agreements with both EU and China, which makes Georgia potentially an attractive place for the Chinese to manufacture or partly manufacture goods and sell to Europe,” said David Aptsiauri, Georgia’s ambassador to China from 2014 to 2018. “Chinese companies can import a share of supplies to Georgia and export a finished product to Europe, all free of customs fees. But we need a scale of production for this to work.”

One plan is to repurpose a Soviet-era car plant in Kutaisi, Georgia’s second city, into an electric car factory. Chongqing-based Changan Corporation has pledged to start producing cars next year for sale within Georgia and to the EU.

At the same time, Georgia has been trying to wade into the Chinese market, which in some ways is more accessible than Georgia’s two major alternatives – the EU and Russia. The former is now the largest outlet for Georgian exports – at over $730 million – but growth has been slow as many Georgian producers are daunted by Europe’s strict market regulations. Russia takes in almost $437 million of Georgian exports, but the two countries’ political disputes frequently spill over into trade wars.  

China, in the meantime, does appear to be developing a taste for one key Georgian product: wine. Downing nearly 7 million bottles last year, China became the world’s largest drinker of Georgian wine after Russia (over 53 million bottles) and Ukraine (11 million). “Even if some small part of China decides that they like Georgian wine, they can buy every bottle that Georgia produces without breaking a sweat,” Welton, the economic analyst, said.

Overall, though, exports to China have plateaued at around $200 million annually and are dwarfed by imports – $834 million in 2018. “We are not seeing a whole lot of expansion. Perhaps it is not the great opportunity that we thought it was or maybe we just have not found the right thing,” Welton said.

“[China is] a new and complex market for Georgians to access,” said Giorgi Pertaia, the former head of Georgia’s investment agency and currently president of Georgia’s Chamber for Commerce and Industry. “Our businesspeople need to get the hang of the rules, business culture and market opportunities that are very different and also vary across China’s regions.”

The Chamber has appointed a special representative in Guangzhou, the capital of China’s southern Guangdong province, to help Georgian businesses get their bearings in the Chinese market. The government is also setting up Georgian-Chinese business conferences. “We have already created an environment conducive to trade and investment,” Pertaia said. “What we need now is for businesspeople on both sides to meet, talk and come up with ideas.”