Is Armenia Playing a Dangerous Game with China?

Is Armenia falling into a debt-trap with China?

As construction resumes on the North-South Corridor, a large number of Han Chinese contractors can be spotted mingling with local workers near the small industrial town of Maralik. This highway project, the largest undertaken in Armenia’s independent history, is expected to plug the country into the world economy, by providing better access to seaports in Poti and Batumi, as well as Iranian markets in the South. SinoHydro, a Chinese State-owned construction firm, has taken responsibility for completing a stretch of road connecting Armenia’s second largest city of Gyumri to the Georgian border to help accelerate the much-delayed project.

This undertaking is not People’s Republic of China (PRC)’s only significant investment in the tiny Caucasian republic’s transportation infrastructure. Another Chinese firm recently concluded a feasibility study for the construction of a rail line linking Armenia to rail hubs in Iran. Armenia, it turns out, is strategically located to benefit from China’s much-touted Belt and Road initiative. This trillion-dollar undertaking, a flagship project for Chinese President Xi Jinping, aims to reorient the flow of global trade toward the Middle Kingdom, by financing and constructing of a series of highways, rail links and shipping routes across much of Eurasia and Africa. You Zhengsheng, chairman of the National Committee of the Chinese People’s Political Consultative Conference, explained this policy like this: “China is willing to work with Armenia to consolidate the political and public opinion foundations for bilateral relations, and jointly push forward the Belt and Road Initiative and practical cooperation.”

This newfound interest was symbolized last year in a ground-breaking ceremony attended by the PRC’s Assistant Foreign Minister Li Huilai on the site of a new 40,000-square-meter embassy compound expected to become the second largest in the former Soviet Union. The compound’s emplacement, just down the road from the US embassy, (itself once the largest American diplomatic structure in the world) serves as a visual manifestation of China’s growing interest in Armenia.

Diplomats in Yerevan and Beijing have penned cooperation agreements for agriculture, energy production, infrastructure development and even military assistance. Last year, former defense chief Vigen Sargsyan returned from a diplomatic visit to Beijing with pledges totaling $1.5 million in additional military aid.

China’s presence stretches to education as well. Over the summer, Prime Minister Nikol Pashinyan joined Chinese Ambassador Tian Erlong at the inauguration of the Chinese-Armenian Friendship School in Yerevan. This state-of-the-art school, which cost $12 million to build will accommodate up to 500 young Armenian students who will learn Mandarin and Chinese culture on top of the regular Armenian curriculum.

This school is not the first Chinese educational institution operating in Armenia. The Confucius Institute, a controversial Mandarin language center with links to the Chinese Communist Party, has been running two branches in Armenia since 2009. Chinese universities have also begun competing with their European and American counterparts for Armenian students.

Armenia has been more than welcoming of this attention. The Sargsyan government had already been pursuing a quiet policy of rapprochement with China for years. For Yerevan, the benefits are apparent: the Armenia would gain access to no-questions-asked financial assistance from Chinese banks and import Chinese technology at a fraction of the cost than the original western IT rate. The strategic advantages are just as straightforward: the good grace of a rising world power which could act as an alternative to the country’s traditional balancing act (a policy known as complementarism) between Russia and the West.

According to analysts, China’s behavior can be best described as predatory and crypto-colonial.

China is already Armenia’s third largest trade partner, trailing only behind the European Union and Russia. This 41 percent year-on-year increase in trade turnover comes as Armenian producers look to the Chinese market for Armenian wines, technology and agricultural products, while Chinese firms take advantage of Armenia’s lax environmental regulations to invest some $500 million in at least three Armenian mining operations.

The Pashinyan administration looks set to maintain this strategic leverage. With a high-level intergovernmental conference taking place last fall, Armenian policymakers have been discussing increased economic and political cooperation with their Chinese counterparts.

Though Beijing repeatedly touts the mutually beneficial nature of its infrastructure and trade projects abroad, experiences in other developing countries have shown that closer ties with China usually come with strings attached. According to analysts, China’s behavior can be best described as predatory and crypto-colonial. Critics have accused Beijing of exploiting underdeveloped countries through a strategy known as “Debt-trap diplomacy.”

Last year, Sri Lanka was forced to hand over a newly constructed seaport to the Chinese People’s Navy after defaulting on loans owed to Chinese banks. In the meantime, newly-elected governments in Pakistan, Malaysia and Nepal have turned down fresh loan offers from China and promised to open investigations into previous contracts.

With the North-South Highway already dramatically over budget, it remains yet unclear how Yerevan intends to pay up.

Hrant Abajyan, Armenia’s trade representative to China in Beijing, doesn’t appear to be worried. According to him, Armenia has everything to gain from closer relations with China. “There are no compromises because there are no problems,” he told interviewers. “There are no issues that don’t match each other. China has always been a friendly nation for Armenia. We are in a great relationship.”

Abajyan’s collective ideas are not universally shared. Two years ago, Armenia extradited 78 Taiwanese nationals suspected of fraud to the PRC, rather than rival Taiwan under pressure from Beijing. The PRC has been known to pressure states in which it has a substantial presence for solidarity in the international arena.

Questions have also been raised about the business practices of some of the Chinese state-owned companies operating in Armenia. SinoHydro, the company tasked with building three sections of the North-South Highway, has been tied to human rights abuses and shady business agreements across the world. Meanwhile, the Chinese consulting firm which published the feasibility study for the railway link to Iran is at the center of its own controversy.

With the North-South Highway already dramatically over budget, it remains yet unclear how Yerevan intends to pay up. A study by the Centre for Global Development warned that Armenia may be at risk of falling into China’s debt-trap, which owns over $340 million of the country’s public debt. According to the International Monetary Fund, this high share of foreign debt is a source of continued vulnerability for Armenia, despite sustainable rates of public debt.

So far, the advantages of this new relationship with China may seem to outweigh the risks, but for policymakers in Yerevan, the question is: for how long?

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Raffi Elliott

Columnist & Armenia Correspondent
Raffi Elliott is a Canadian-born entrepreneur and occasional journalist who likes to ramble on about socioeconomic and political issues in Armenia. He lives in Yerevan with his family. He also holds a masters degree in International Relations.

27 Comments

  1. What a missed opportunity and disappointing article. Yes, indeed one there are ALWAYS strings when dealing with major powers like the US, Russia, EU or China. Also, that railroad deal has been dead for over a year and went via Azerbaijan. Instead of actually finding a proper balance, you took the lazy simplistic path of criticizing and finding other articles that support your goal of writing a negative article. I can find you hundreds of articles from people who don’t agree with the Chinese government but find the language school a net positive. I also went to school in China in 1985 and can tell you the main goal was to push the agenda of China. Hello, what do you think USAID is…a benevolent aid organization? I am an American and I can tell you all US programs come with an agenda.

    What you fail to really cover is how Armenia startups must focus on learning how to understand and sell to the China market. What a huge opportunity for the young Armenian tech sector? China’s mobile phone App markets are larger then the US and EU COMBINED. My Gyumri company has opened an office in Hong Kong and has developed 2 Apps already for the Chinese market to good success.

    How can Armenia capitalize on Chinese tourist growth, the fastest growing segment in the world??? There are so many opportunities. I do agree Armenia needs to be cautious. You can ask Argentina about thinking that money is free. The UK US and France impounded ships to pay off debts. How about China offerest such a huge opportunity and Armenia should test the waters first, but it is where the water is flowing.

    –Todd

    • I really appreciated Raffi’s article because it seems there are more people who take for granted China’s investments in Armenia without considering the strings attached. However, this is an interesting rebuttal, especially given your business experience in the country, and I think would could make for a great opinion piece. Any interest in writing something? If so, please shoot me an email: karine@armenianweekly.com

    • Mr. Fabacher:

      You are Chinese-educated, you are heavily invested in China and you are clearly biased. Plus, enough of the sophomoric equivalence between US or EU policy and dictatorial, communist Chinese policy. Yes, USAID compared to the PRC is a benevolent aid organization.

      Raffi’s unassailable point is that China is interested in Armenia because it fits into their geopolitical plan to dominate what they consider their immediate sphere of influence. It’s certainly not because they like our khingali!

      Also, isn’t history littered with incidents of major world powers taking advantage of small nations with resources? I believe that China is a nation with much to offer the world. But China will never be a truly great nation until it sheds its PRC shingles.

      If you don’t agree with that, then that’s on you. Go sell apps to the Chinese market and make all the money you want. Just stop pretending you care about future prosperity and security for Armenia.

  2. Raffi, you sound like a typical western propaganda machine!! are you paid by the CIA / Mi6 or something?
    Yes, Chinese assistance come some “strings”, but at least there is some benefits for Armenia in terms of real projects; unlike the west that takes everything and gives nothing. Besides, China is the rising power and the west is in deep crisis and on its way to total collapse. Any smart nation would put its bets on the rising star instead of the “sinking western ship”

  3. It was a good article with much information. Slightly biased against China definitely. But when playing with the big boys there are always strings attached. Nothing is free. Armenia will either have to take the path of the US/EU, Russia, or China. We all know US/EU power is dwindling. EU is a shell of what it used to be. Russia has some possibilities to offer but I think Armenia has already exhausted those. China is the new world power and clinging onto them and partnering with them may be the best option.

    • I agree with Todd Fabacher and you Aren. Russia is the present, but China is the future. Need to be careful of course but China is our only hope and partially, Iran perhaps after US sanctions are lifted.

    • Luis Alba, a dog is a noble trustworthy animal that works hard to serve. In your case however, nothing good can be said about cockroaches.

  4. I learned something I didnt know before, that China is Armenia’s third largest market, whuch is pretty interesting. Would need to fact-check though, as the article seems full of other factual mistakes (like the railroad fate and that mandarin and chinese are two different languages). Awaiting with great interest opinion pieces in similar scaremongering spirit, such us, Indian students colonizing Armenian universities and Iranian tourists filling Yerevan streets, and how all these come with strings attached and will eventually turn bad for Armenia.

  5. I totally agree with Kristine.
    I hope coutry will not turn bad
    . After will not be easy to reverse. We have to remember our unsestor’s mistakes.

  6. China’s Belt and Road Initiative is a tremendously valuable act of socialist solidarity. I want more of it for Armenia, not less.

  7. Armenia in it’s historically dancing&balancing performance has to deal with China too. Dangers are everywhere, I agree. What seems central for me is the balancing act, avoiding single and strong dependencies from single partners. A other important point are the politics, social and environmental protection that have to becime stronger. Here is whete the new Parliament has work to do. And gifts from anywhere have to be analyzed carefully!

  8. Flirting with the West has gotten Armenia a neo-liberal system of government which has looted the country for decades, a neo-bolshevik social engineering program that has destroyed the social and educational institutions that created all the exceptional Armenian talent during the Soviet period, and a 7 billion dollar national debt with nothing to show for it. And you’re scaremongering about the Chinese. Do I smell some politically motivated propaganda?

    • Bravo Gurgen2.
      Armenians are Armenia’s worst enemy.
      Image our world without a Russia or a china…
      Thank God for Russia. Thank God for China.

  9. Someone needs to draw a political cartoon showing the west (US, EU, etc) pulling one of Armenia’s arms and the east (China, Russia, etc) pulling the other, with Armenia asking “When am I going to benefit from this?”

  10. Is Mr. Elliot suggesting only Chinese investments are predatory? Oh! What loan is not in essence predatory? Perhaps he should talk to Greeks.
    How about e.g. Coca-Cola, fancy and luxury cars like Mercedes, BMW, etc. that crowd Yerevan’s roads? While paying by hard to find hard currency, what anything of long term “constructive” or durable nature Armenians gain from those for the national economy? Anything of useful purpose has been invested in Armenia, other than some roads (to promote more cars), hotels and rural water conduits (by the USAID), since independence 27 years ago?

  11. “Gazprom Armenia” is one of the biggest scams perpetrated on the Armenian public by “Mother Russia”, using gas, threatening to cut it off, as a tool of terror if “Armenians don’t behave themselves”. When Armenia was getting a pipeline built from Iran, of course 1. Russia intervened and made sure it would be small enough so as not to threaten Russia’s future threats of cutting off Armenia’s gas, and 2. Owning shares of that pipeline so they can also have the second option of a threat to cut off gas. This was all contrary to Armenia’s prosperity and sovereignty, and it was all aided and made possible by the Three Donkeys calling themselves the “President of Armenia”, all puppets who sold off Armenia piece by piece to various foreign ventures.

    Right on cue, now that Russia is starting to feel like “Armenia is starting to think independently”, the gas prices get raised promptly, for no real reason other than for Russia to intervene in Armenia’s political affairs, since “Putin does not like that his friend Kocharyan has been jailed”. Meanwhile, Russia enjoys protecting its own interests and future in the Caucasus by sitting in Armenia for FREE and letting the Armenian dupe public pay for it, and next unload all the leftover unwanted junk weapons other countries don’t want to buy “at a discount to Armenia” as a “consolation”.

    If Armenia was a real country, run by real politicians, the ideal environment in Armenia would be that all energy infrastructures in Armenia would be under Armenian control, without any foreign influence of interference, and Russia and Iran would both compete to supply gas to Armenia, making Armenia get the best possible price to benefit the Armenian public. Then again, when “Mother Russia” landlocked Armenia and also made checkered divisions on purpose during the Soviet period, it was all done for very specific reasons: keep Armenia in a permanent state of subjugation and misery.

    • From China to Gazprom. A great leap and wonderful musings!
      Right after independence the 1st president promptly shut down Medzamor on some good advice from God knows who. For at least two winters Armenians froze through the winters, cut down forest trees wholesale to survive, started the rush to abroad.
      Now, based on your good teachings, let the new PM cut off the Gazprom gas to teach Russia a very good lesson. Who cares if Iran is under US sanctions. We have great experience from our past centuries in living in mountains and caves.

    • Shavarsh, where am I suggesting Armenia should teach Russia a lesson by cutting gas? I am pointing out how an incompetent leadership works which becomes a puppet of foreign nations at the expense of the future of the nation. And that is precisely why Armenians now are at the mercy of a foreign power. Some crap happens in Armenia, Armenians have the means or at least the chance to solve it. Some crap happens in a foreign nation controlling Armenia’s infrastructure, Armenians have no means to solve anything. Russia is welcomed to show us it has the best interests of Armenia at heart, and April 2016 showed us, it does not. History has also shown it. All the perks Russia has ever handed out have been NOT for Armenia, ever, and at the benefit of Turkey and Azerbaijan. Even though the Armenian political landscape has always been rotten from the core, ditching the presidential system was a right step, because now a make-believe strong-man who is actually a puppet of Russia has less chance to damage the countries future. The worst scenario now is that, Armenia has been sold off enough to the point of no return. Is that the case? I don’t know, Armenians living in Armenia with the aid of the diaspora need to determine their future in that regard.

    • How true! Beautifully analyzed and explained! I couldn’t have said this any better Zartir. 👍👍👍

  12. Although it’s sometimes good to have outside countries help out Armenia on it’s economy & to create jobs for our people, at the same time we must be carefull it is not overdone in such a way that Armenians lose out in controlling our own country. These are things that the Armenian Government must be careful on. We have wealthy Armenians around the world & they are all afraid to set up businesses in Armenia whereby the Mafia might want a chip of those whom set up businesses.

  13. It is a fake news. There is no 500 mln Chinese investments in Armenia… This article is nothing…
    If you want to read real history of modern Sino-Armenian Relations in the era of the Silk Road, you must read this book “China’s One Belt One Road initiative and Armenia
    https://payhip.com/b/Y38s

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