CHEAP CHINESE LOANS TO KEY UZBEK SECTORS

C O N F I D E N T I A L TASHKENT 001022

SIPDIS

SIPDIS

DEPT FOR SCA/CEN

E.O. 12958: DECL: 05/29/2017
TAGS: EINV ECON PREL PGOV CH UZ
SUBJECT: CHEAP CHINESE LOANS TO KEY UZBEK SECTORS

Classified By: CLASSIFIED BY CDA BRAD HANSON FOR REASONS 1.4 (B, D).


1. (U) In April, the Chinese Eximbank extended by one year
the validity of a $300 million export-financing credit line
to the National Bank of Uzbekistan. This credit line was
initially provided in 2004 to finance the purchase of
Chinese-produced equipment for use in key sectors of the
Uzbek economy, including power-generation, oil and gas
development, municipal utilities, and irrigation. In 2006,
Uzbekistan utilized only $18 million of the total; the
majority of funds went towards rebuilding telecommunications
networks.


2. (U) With the extension, the Uzbeks plan to build two small
hydropower plants. They will contract with a Chinese firm
for $16 million to provide, install and maintain the
equipment. Another $15 million is scheduled to finance a
telecommunications equipment supply contract between Chinese
Huawei Technologies and state-owned Uzbektelecom. According
to media reports, Huawei intends to sign a second contract
with Uzbektelecom for $21 million.


3. (C) Comment: Through low-interest export loans, the
Chinese Government is increasing Uzbekistan's dependency on
Chinese equipment in key economic sectors. While the
equipment is often not of the highest quality, as in the case
of drilling burrs, Uzbekistan is desperate for international
investment. These low-interest loans are very attractive in
the short term, as Uzbekistan can develop its infrastructure
at the lowest possible price. Soviet infrastructure was not
the best quality and had a short-life span, so Chinese
equipment should not be a disappointment. China is one of
the largest state lenders to the Uzbek Government and the
Uzbeks are very cautious of borrowing too much money to avoid
an unmanageable debt.


4. (C) Comment cont.: The appearance of warming relations
with China is intended to demonstrate Uzbekistan's
independence from Russia, and possibly from Europe too.
Public Chinese investment is much less significant than the
GOU would like to admit. The same credit line was mentioned
by the local media last year, giving the impression that each
year the Chinese government extends a $300 million-odd line
of credit to the Uzbeks. This signals the GOU's desire to
present its political and economic relations with China as
stronger than in fact.
HANSON