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