China/Central Asia - Weak Infrastructure and

UNCLAS SECTION 01 OF 02 BEIJING 006456

SIPDIS

SENSITIVE
SIPDIS

USDOC FOR ITA/MAC/AP/MCQUEEN
STATE PASS USTR STRATFORD, WINTER, ALTBACH
GENEVA PASS USTR

E.O. 12958: N/A
TAGS: ECON ECIN ETRD PREL PTER CH ZK

SUBJECT: China/Central Asia - Weak Infrastructure and
Limited Economic Integration Hinders Development

REF: 06 Beijing 19030

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Summary
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1. (SBU) Transportation and logistics issues continue
to hamper regional economic growth linking China and
Central, West and South Asia. The widely hyped Horgos
Cross Border trade area featured at last year's High-
Level Forum on Regional Economic Cooperation in Urumqi
is still under construction and may be years away from
railway integration. China-Central Asia trade
(Central Asian raw materials in return for Chinese
finished manufactured goods) continues to grow at
double-digit rates. End Summary.

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Travel to Xinjiang
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2. (SBU) Econoff traveled to Xinjiang Autonomous
Region in early September to attend the High-Level
Forum on Regional Economic Cooperation in Urumqi, the
region's capital, and to meet with provincial
officials about economic integration between Western
China and Central Asia.

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Infrastructure Challenges Hinder Central Asian Trade
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3. (SBU) Miao Gengshu, Chairman of the China
International Investment Promotion Council, emphasized
the need to focus on transportation and logistics
linking China to Central, West and South Asia at the
annual Urumqi-based High-Level Forum on Regional
Economic Integration. He noted that Eurasian land
bridge shipments spend on average thirty to fifty
percent of transit time held up in customs processing.
Director Irmatov of the Uzbekistan Foreign Investment
Information Security and Promotion Agency commented in
his speech that construction of a 270 km road from
Andijon in Kazakhstan through Osh to Kashgar in China
would greatly enhance bilateral trade and avoid a
lengthy detour.


4. (SBU) Xing Guangcheng, Director of the Chinese
Academy of Social Sciences' Institute of Russian, East
European and Central Asian Studies, noted during a
meeting in Beijing that barter trade between China and
Kazakhstan still has not been completely monetized.
Other hindrances to greater economic integration
include: Kazakhstan's investment climate; Kazakh laws
and regulations that obstruct Chinese companies; and
the relatively low level of investment.

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Horgos Land Port Still Under Development
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5. (SBU) At this year's High-Level Forum there was
little mention of the Kazakstan-Horgos International
Development Zone, which was so widely hyped at last
year's forum. According to a Chinese Academy of
Social Science researcher, the railway line on the
China side won't be completed until 2009 and it may
take another five years to connect to Kazakstan. The
project involves construction of a "free-trade zone"
on both sides of the China-Kazakhstan border in

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addition to border processing agreements. According
to the Xinjiang National Development and Reform
Commission (NDRC) the facility is still being built
and they hope it will be completed by the end of the
year. (Note: the Horgos land crossing is
approximately 8 hours by road from Urumqi, the capital
of Xinjiang Autonomous Region. End Note.)

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And yet . . . Lopsided Trade Continues to Grow
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6. (SBU) Trade between China and Central Asia
continues to grow at double digit rates, though growth
slowed to 37 percent in 2006, down from 48 percent the
previous year. China's trade balance with the region
shifted from deficit to surplus in 2003, and grew 95
percent in 2006 to USD 3.1 billion. The majority of
the surplus is attributable to rapidly expanding
exports to Kazakhstan and Kyrgyzstan (primarily
manufactured goods). Total Chinese trade with
Central Asia (Kazakhstan, Kyrgyzstan, Turkmenistan,
and Uzbekistan) accounted for 0.7 percent of China's
total 2006 global trade.

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While Criticism is Muted, Turkey Expresses Concern
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7. (SBU) Kazakhstan Deputy Director of the Chamber of
Industry and Commerce Biyaluofu hinted at the raw
materials for manufactured goods dynamic but focused
on Kazakhstan's post industrial policy shifting from
energy-intensive production to investment in
processing and services. He noted potential Chinese
investment in petrochemicals, oil machinery, food,
textiles, transport/logistics, metallurgy, building
materials and tourism - an electrode plant in Pavlodar,
Kazakhstan was the only example cited.


8. (SBU) The only potentially disparaging comments among
the speakers came from Ender Oncu, Turkey's Head of
Department, UnderSecretariat of Foreign Trade. He
specifically mentioned that China is Turkey's 2nd
largest source of trade deficit. (Note: He was also
the most outspoken last year regarding the lopsided
trading relationship. See reftel. End note.) He
concluded by saying that Turkey and China had agreed
on concluding a "Strategic Partnership Agreement" and
a comprehensive "Market Promotion Program" to address
sustainable and healthy economic relations.

Piccuta