CHINA'S EXPANDING POLITICAL RELATIONS WITH ARMENIA

C O N F I D E N T I A L SECTION 01 OF 02 YEREVAN 000242

SIPDIS

DEPT FOR EUR/CACEN FOR SIDEREAS

E.O. 12958: DECL: 02/10/2015
TAGS: ECON EPET CH AM
SUBJECT: CHINA'S EXPANDING POLITICAL RELATIONS WITH ARMENIA


Classified By: CDA A.F. Godfrey for reasons 1.4 (b,d)

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SUMMARY
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1. (C) Government of China (GOC) representatives in Yerevan
and Armenian government officials recently reported their
view that relations between the GOC and the Government of
Armenia (GOAM) are expanding. They qualified these
statements, however, with a more realistic picture of
potential economic links between the two nations, defusing
some of the hype that accompanied Armenian President Robert
Kocharian's recent visit to China. The Chinese emphasized
their government's policy of maintaining balance in their
relationship between the Caucasus countries, specifically
with regard to Armenia and Azerbaijan and the
Nagorno-Karabakh (NK) conflict. The GOAM emphasized their
desire to keep and maintain a direct relationship with China.
End Summary.

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STATE VISIT IMPROVES RELATIONS
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2. (C) The Chinese Embassy in Armenia told us that an
important part of current GOC policy was to strengthen
relations in the Caucasus to complement their interests in
Central Asia. They believed that the much-touted October
2004 state protocol visit to China by Armenian President
Robert Kocharian would help improve bi-lateral relations.
Deputy Chief of Mission of the Chinese embassy in Armenia,
Zhao Xiangrong, expressed satisfaction that the GOAM publicly
supported policies important to the GOC regarding Taiwan and
Tibet. Vahe Gevorgian, head of section of Asia Pacific and
Africa department believed that the Chinese government had no
clear approaches to the GOAM other than to include Armenia in
the Chinese world-wide policy of defending their interests
overseas. Gevorgian emphasized that the GOAM policy of
supporting China's Taiwan and Tibet policy had been
consistent since 1992.

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CHINA TRIES TO REMAIN BALANCED
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3. (C) Zhao told us that main objectives for the October 2004
visit were to maintain a perception of balance in China's
relationships between Armenia and Azerbaijan. The GOC had
over the past several years sent and received several
high-level delegations to Azerbaijan, Chinese officials
wanted to show the GOAM similar courtesies. Armenian
officials and the Chinese embassy in Yerevan, had lobbied for
a presidential level visit. Gevorgian noted that the visit
emphasized the GOAM's desire to have a direct relationship
with China. Gevorgian stated that the GOAM wanted to
emphasize that their foreign policy goals were not dependent
on the government of Russia's (GOR) relationship with the
GOC.

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SOME IMPROVEMENT IN ECONOMIC RELATIONS
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4. (C) Zhao downplayed the significance of the economic
agreements signed between the GOAM and GOC during the October
2004 state visit. Zhao confirmed reports of an approximate
USD 100 million dollar chloroprene rubber plant joint venture
in Shaansi, China. She stated that the GOC would finance
most if not all of the project with the GOAM supplying
technical expertise and some equipment. Zhao told us that
the GOC would continue to help Armenia's agricultural sector
with donations of Chinese tractors. She further explained
that Chinese companies had some commercial interests in
Armenian fertilizers and apricot farming. Zhao claimed that
the press reports describing 15 new scientific joint projects
between the GOC and the GOAM were not accurate, and they were
only in the preliminary discussion stages. Gevorgian
confirmed to us that 90 percent of the agreements signed
between the GOC and the GOAM were agricultural in nature. He
also emphasized that the one major joint venture project was
the chloroprene rubber plant in Shaansi China.


5. (C) According to the Chinese, reports of a recent increase
of Armenian exports to China were exaggerated as they
reflected only an increase in the world price of copper and
copper products which were exported to China. Overall, Zhao
did not foresee Armenian-Chinese trade increasing
dramatically in the near future. She listed the problems
that plague all of Armenia's potential trading partners: a
small domestic market and closed borders with Turkey and
Azerbaijan. Gevorgian believed that Armenia had little to
export to China other than copper and copper products. He
stated that products like Armenian cigarettes were difficult
to export to China because of counterfeiting problems.
Gevorgian believed that Armenia probably imported five times
more textiles from China than recorded in official figures.
Gevorgian explained, however, that Armenian traders often had
difficulties in obtaining licenses to work with Chinese
businessmen, so therefore often used central Asian companies
to purchase Chinese textiles for sale in Armenia. In 2003,
Armenia imported USD 8.5 million dollars of goods from China
which put China in 15th place behind the Ukraine in terms of
trading volume. Armenian imports from China were mostly
textiles and clothing. Armenia exported USD 4.5 million
worth of goods to China which put China in 12th place, behind
Turkey. The bulk of Armenian exports to China consisted of
copper, copper products, and some chemical products.


6. (C) Albert Sukiasyan, head of the Nairit-2 rubber plant in
Yerevan, Armenia confirmed press reports that a joint venture
had been created between his plant and the GOC. Sukiasyan
explained that the joint venture would be 40 percent
GOAM-owned and 60 percent GOC-owned. Sukiasyan told us that
the GOAM would borrow the money for their part of the joint
venture with a GOC loan guarantee. The GOC would thus supply
the initial capital and equipment. Nairit-2 would supply
experts to work and train the Chinese at the plant.
Sukiasyan explained that the GOAM had signed a 20-year
contract to work with the GOC and the joint venture plant
should be completed by 2006. Sukiasyan stated that currently
100 Armenian nationals work at the plant and this figure
should increase to about 350. Sukiasyan felt that this joint
venture could easily lead to others with the GOC.

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CHINESE/IRANIAN RELATIONS INFLUENCE ON ARMENIA
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7. (C) Gevorgian noted that the recent announcement
concerning the multi-billion dollar gas agreement between
China and Iran would not have a direct influence on GOAM and
GOC relations. Gevorgian explained to us that currently
there were no specific economic joint China/Iran/Armenia
projects that would be affected by the Chinese/Iran gas
agreement. Gevorgian explained that this agreement would be
more likely to affect Chinese/Azerbaijani relations where the
GOC has energy interests, or Chinese/Central Asian relations,
since China would need a transportation route to export the
gas from Iran to China.

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CHINESE ROLE IN NAGORNO KARABAKH
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8. (C) Zhao told us that the GOC was not interested in
playing a mediating role in the NK conflict. While clearly
aware of the need to maintain balance on the issue, Zhao
explained that the GOC was geographically too far removed to
play any significant role in the peace process. Zhao claimed
that the Armenian Deputy Defense Minister, Yuriy Khachaturov,
who was on the Armenian delegation for the presidential visit
to China, came for familiarization purposes only and not to
push for nor sign any military agreements. Gevorgian stated
that the Armenian government was pleased that the GOC
abstained from the latest Government of Azerbaijan initiative
in the United Nations. The GOAM was also happy that the GOC
has repeatedly stated that they are for the peaceful
resolution of the NK conflict and have not taken sides in
this issue.

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COMMENT: RELATIVELY MINOR PLAYERS IN ARMENIA
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9. (C) China remains a relatively minor consumer of Armenian
exports, and we expect the new joint venture will do little
to change the overall picture. The same constraints that all
of Armenia's other trading partners face apply to China as
well, and there seems little prospect for immediate change.
GODFREY