China is pursuing investment in Azerbaijan through the Belt and Road Initiative to take advantage of its strategic position in central Asia, according to experts, even as Baku maintains rigid limits on foreign capital inflows, thwarting Chinese efforts to invest in the service sector.
Beijing has used the ongoing bilateral negotiations on Azerbaijan's prolonged World Trade Organisation (WTO) membership process to open up access for projects under its belt and road plan to grow global trade.
Rather than seeking a purely export-import trade deal, China has been seeking market access commitments from other belt and road countries looking to join the WTO since announcing its plan to grow global trade in 2013, according to international trade lawyer Julien Chaisse.
The Azerbaijani government is seen to be slow walking its efforts to join the WTO so it can maintain barriers that safeguard the state-supported monopolies that control the country's underdeveloped service sector, particularly financial and business services, as well as telecommunications.
Chaisse, who has handled some negotiations for Azerbaijan, said China's demands for market access were one of the stumbling blocks for Azerbaijan, even though the requests did not go against WTO rules. Talks with China are not believed to have stopped entirely, although there are obstacles around "how much" market access is suitable.
"The basic idea is China is using the WTO accession process to leverage interest towards the Belt and Road Initiative to obtain greater commitments fromexisting and potential [belt and road] nations," Chaisse said.
"China is not offering any [trade deal] as part of WTOaccession but … on the contrary China is requesting market access commitments from candidate countries such as Azerbaijan.
"China's trade commitments from potential accession countries are becoming more pronounced since the [belt and road] launch in 2013, with increasing and sometimes onerous expectations of the acceding countries."
The main belt and road project involving Azerbaijan is the Trans-Caspian International Transport Route, a land transport network stretching from China andSoutheast Asia to Europe, part of Beijing's effort to replicate the ancient Silk Road route.
China's focus on Azerbaijan started with its oil and gas resources before the belt and road launch, Anar Valiyev, a Baku-based public affairs researcher, said, although it was the Belt and Road Initiative that really kicked off its interest some five years ago.
Azerbaijan State University of Economics lecturer Bahruz Babayev said Azerbaijan, at the crossroads of East and West, offered China "an advantageous location and logistic opportunities to accommodate Chinese exports coming through Central Asia and the Caspian Sea". "And the [belt and road plan] overlaps with the strategic interests of Azerbaijan, therefore it is perceived as a welcome initiative."
It is seen locally as a mutual win for both countries, with the plan enabling Azerbaijan to boost its domestic market particularly as a "transit hub", according to Babayev.
Aside from the exports of oil and gas, Azerbaijan wants to offer transport services such as port and rail facilities for shipments moving between western China and Europe on the Trans-Caspian International Transport Route.
Transport time from China to Europe along the so-called middle corridor, one of the six official routes of the New Silk Road, is significantly quicker than transport by sea, as well as offering an alternative to the path through Russia.
Current government policy in Azerbaijan is both a blessing and a curse for China in that it provides support for the belt and road strategy, but also shuts out Beijing's market access efforts that would be boosted by WTO membership.
"It is not the case that Azerbaijan does not want to give China [market] access. Simply, the Azerbaijani market is highly monopolistic," Valiyev said. "Thus, it creates unfavourable conditions for everyone."
For now, as it focuses onits own economy, Azerbaijan appears to be in no hurry to join the WTO, having started the process in 1997. "I think the time has not yet come. This is due to the fact that the bulk of our exports is still oil and gas and you do not need to be a member of the WTO to export these products," President Ilham Aliyev said in December.
Azerbaijan's business sector, though, would welcome more Chinese investments, according to Valiyev. There are some 119 companies in Azerbaijan relying on Chinese capital.
"Both the Azerbaijani public and political establishmentcontend that China does not have a political agenda in the region due to its geographical distance. Chinese projects are therefore considered in purely economic terms," Valiyev said.