On March 26, 2025, the National Bank of Georgia (NBG) and the People’s Bank of China (PBOC) signed a Memorandum of Understanding (MOU), outlining collaboration in the following areas:
- Monetary policy;
- Exchange of information and expertise in financial technology, payment systems, and securities market development.
During an official visit to Beijing, the Governor of the NBG, Natia Turnava, met with representatives of key Chinese state-controlled financial institutions, including the Industrial and Commercial Bank of China, the Bank of China, and the China Construction Bank.
As previously reported by Civic IDEA, periodic meetings between the NBG and the PBOC have taken place since March 2024, exploring avenues for cooperation. Consequently, the signing of the March 26, 2025, MOU was anticipated.
This engagement with the Chinese banking sector aligns with the increasingly anti-Western foreign policy direction pursued by the ruling Georgian Dream party. Notably, on August 30, 2021, then-chairman of the party, Irakli Kobakhidze, announced the rejection of a €75 million EU microfinance assistance package.
The pro-China orientation of the Georgian Dream has been reflected in Georgia’s evolving debt structure. As of 2025, Georgia’s external credit obligations to international financial institutions where China plays a dominant role have risen significantly:
- Asian Development Bank (ADB): $2.26 billion
- Asian Infrastructure Investment Bank (AIIB): $211 million
While both ADB and AIIB are international financial institutions, and their cooperation does not inherently expose Georgia to “debt-trap diplomacy,” direct collaboration between the NBG and Chinese state institutions marks a significant shift. The March 26 MOU suggests that following the Anaklia port project, Georgia’s financial sector may now also fall under Chinese influence.
Risks Associated with Cooperation with China’s Banking Sector
Closer cooperation with China’s banking institutions presents economic and political challenges for Georgia, primarily due to the structural characteristics of China’s financial system:
- Communist Party Influence: Chinese banks, akin to other state-owned enterprises, operate under Communist Party control. While the PBOC previously functioned with a degree of institutional independence, in 2024, President Xi Jinping introduced reforms tightening party oversight. As a result, analysts believe that China’s financial system has become an even more direct instrument of party policy.
- Opacity: Unlike Western central banks, the PBOC lacks transparency. It does not adhere to a consistent communication strategy, often making abrupt monetary policy decisions without prior notification or clear justification, thereby generating uncertainty both domestically and internationally.
- Corruption: Corruption remains a persistent issue within China’s banking sector. In 2024, former PBOC Vice Governor Fan Yifei was sentenced to life in prison for corruption, underscoring governance weaknesses.
- Financial Instability: China’s economy continues to face significant challenges. The COVID-19 pandemic severely impacted financial institutions, with Bloomberg reporting that 13% of Chinese financial entities were classified as “high-risk.” As of March 2025, China’s total debt exceeded 300% of GDP. Additionally, the ongoing US-China trade war has further exacerbated economic volatility.
Given these factors, China’s banking system functions as a tool for advancing the political ambitions of the Communist Party. China and its affiliated institutions have been actively striving to expand their global economic influence. In recent years, the People’s Republic and its close authoritarian allies, including BRICS member states, have promoted de-dollarization in international trade. In response to these efforts, U.S. President Donald Trump threatened to impose a 100% tariff on BRICS nations.
A key player in advancing de-dollarization is the People’s Bank of China. In 2024, the PBC signed currency swap agreements with more than 40 foreign financial institutions. If cooperation between the National Bank of Georgia and the PBC intensifies, Georgia may gradually shift away from the Western monetary system, increasing its financial reliance on China.
Due to the nature of China’s financial system, several emerging economies have defaulted under the weight of its lending practices, which are characterized by:
- Confidentiality: Former U.S. National Security Council official Grant T. Harris has highlighted that one of the defining features of Chinese loans is their secrecy. Key terms, and in some cases even the existence of the agreements, are often undisclosed.
- Challenging Debt Restructuring: China is not a member of the Paris Club, ( an informal group of creditor nations that negotiates with debtor countries to restructure or provide relief on sovereign debt ) an international forum for coordinating debt relief. Consequently, debtor nations must engage in direct negotiations with Beijing, often resulting in outcomes that undermine their sovereignty. A notable example is Sri Lanka, which, in 2017, was compelled to transfer 70% of its strategic Hambantota Port to a Chinese state-owned entity due to its inability to service its debts.
- Cross-Default Clauses: Many Chinese loan agreements include cross-default provisions, whereby a borrowing nation is considered in default if it fails to meet unrelated obligations. These obligations can include shifts in diplomatic policy or regime change, granting Beijing significant leverage over debtor states.
- Collateral-Based Lending: Chinese loans frequently require collateral arrangements, sometimes involving strategic assets. In 2011, Tajikistan ceded 1,000 square kilometers of land to China as part of a debt settlement arrangement.
Considering Georgia’s past experiences in Sino-Georgian relations, the growing presence of Chinese financial institutions in the country raises credible concerns regarding potential debt-trap diplomacy. Previous agreements signed between Georgian Dream and Chinese banks have often been marked by a lack of transparency. Despite multiple reports of irregularities in Chinese banking operations, the Georgian government has consistently refrained from addressing these concerns.
In light of these trends, it remains plausible that the Georgian Dream will continue to facilitate Chinese financial expansion in Georgia, potentially exposing the country to unsustainable debt and economic dependency on Beijing.
