Identifier
Created
Classification
Origin
07TBILISI1624
2007-07-10 07:09:00
CONFIDENTIAL
Embassy Tbilisi
Cable title:  

GEORGIA-CHINA: TRADE AND ECONOMIC RELATIONS

Tags:  EFIN ETRD PREL GG 
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PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHSI #1624/01 1910709
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P 100709Z JUL 07
FM AMEMBASSY TBILISI
TO RUEHC/SECSTATE WASHDC PRIORITY 6948
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEAWJA/DEPT OF JUSTICE WASHDC PRIORITY
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RUEHLMC/MILLENNIUM CHALLENGE CORPORATION PRIORITY
C O N F I D E N T I A L SECTION 01 OF 03 TBILISI 001624 

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DOC FOR DANICA STARKS, EUR/CACEN, INR/B

E.O. 12958: DECL: 03/26/2027
TAGS: EFIN ETRD PREL GG
SUBJECT: GEORGIA-CHINA: TRADE AND ECONOMIC RELATIONS


TBILISI 00001624 001.2 OF 003


Classified By: Ambassador John F. Tefft for reasons 1.5 (b) and (d).

C O N F I D E N T I A L SECTION 01 OF 03 TBILISI 001624

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DOC FOR DANICA STARKS, EUR/CACEN, INR/B

E.O. 12958: DECL: 03/26/2027
TAGS: EFIN ETRD PREL GG
SUBJECT: GEORGIA-CHINA: TRADE AND ECONOMIC RELATIONS


TBILISI 00001624 001.2 OF 003


Classified By: Ambassador John F. Tefft for reasons 1.5 (b) and (d).


1. (C) Summary. On June 28, press reports announced that
Chinese buyers purchased Tbilisi's central supermarket. The
news sparked mild protests by some Georgians who feel
threatened by increasing Chinese immigration and investment
in Georgia, which is a natural outgrowth of Georgia's efforts
to increase foreign direct investment (FDI) to develop the
economy. China and Georgia have bilateral economic
agreements dating back to 1993. Chinese FDI totaled USD 51
million from 2002 to 2006, and investors are in diverse
sectors such as energy, transportation, logging, and retail.
The number of Chinese immigrants living in Georgia is
unclear, but estimates range from the over 300 officially
registered residents to unconfirmed press reports of 10,000.
Current trends suggest Chinese immigrants will continue to
come and stay as long as there is money to be made. End
Summary.

Bilateral relations and FDI
--------------


2. (U) China and Georgia have bilateral economic agreements
dating back to 1993. They touch on cooperation in technical
and economic matters, trade, tourism, visa regimes, maritime,
double taxation avoidance, and construction. China has given
several grants and credits totaling over USD 9 million to
Georgia since its independence. These helped establish the
Georgian Embassy in China in 2004 (USD 600,000),forgave
Georgia's debt to China in 2005 (USD 2.4 million),equipped
Georgia's Finance Ministry in 2006 (USD 2.5 million),and
provided a 20-year interest free credit in 2001 (USD 3.7
million). Today, GoG officials are courting Chinese
investment, as evidenced by Minister of Economic Development
Giorgi Arveladze's visit to Beijing in late 2006 for the
China-Georgia business forum. Chinese FDI in Georgia totaled
USD 51 million from 2002 to 2006, representing 1.4 percent of
overall FDI and ranking 16th behind the U.S., U.K., Turkey,
Azerbaijan, Russia, Kazakhstan, and others. Total trade -
113.7 million in 2006 - grew 117 percent from 2005. Imports

increased 121 percent. Copper and ferroalloy scrap made up
97 percent (USD 9.7 million) of 2006 exports to China, with
wine coming in second at 2.3 percent (USD 200,000).

Energy interests
--------------


3. (C) In 2003, Chinese invested nearly USD 20 million into
the Khadori Power Plant, near the Pankisi Gorge, constructed
that year. Liu Hiaohui and You Yimou, Chinese Embassy
officials, told Econoff the plant was built by a Chinese
enterprise with credit from the Chinese export-import bank,
and represents the largest single project in Georgia for the
Chinese. The Chinese Embassy officials said other Chinese
companies are poised to invest in Georgia, but only if the
Khadori plant becomes a success. According to Liu, former
President Shevardnadze's administration promised to buy all
the electricity produced by the plants and maintain a tariff
to customers of 4.66 cents per KW. Now, however, the tariff
is less than 4 cents per KW, and the project likely won't be
financially viable. Both Liu and You emphasized the GoG
should "give good treatment to the project and make it
profitable." According to Steve Yu, a Chinese community
leader, the Chinese chose the wrong place to build a hydro
station, saying winter has no rain and summer brings floods.
Further, the current government is allowing the market to set
the price for electricity. Despite the concerns of Liu and
You, however, interested Chinese investors are not deterred
by the apparent lack of success in the power plant.

Transportation and logging
--------------


4. (C) More recent investments are in the transporation and
logging industries. In early June, the Georgian Railway
signed a USD 16 million agreement with a Chinese-Georgian
joint venture ElektroVagonShemketebeli (Electric Carriage
Repair Plant) to purchase trains for the first time in 33
years. The Chinese side will supply the train interiors.
Other Chinese investors are looking beyond the interior
design of train cars. Upcoming changes to the Law on
Privatization will allow privatization of the state railroad
company, previously marked as a strategic security asset, and
according to press reports the GoG has had discussion with
the Chinese. Other interests are in logging. In May a
Chinese-Georgian joint venture - Wood and Industrial
Development Ltd - paid USD 1.73 million in a controversial

TBILISI 00001624 002.4 OF 003


auction of logging rights to cut 31,000 cubic meters per year
in the Tsalenjikha and Chkhorotsku forest districts in the
Samegrelo region. Opponents to the long-term lease contend
the GoG should have done a full inventory of its forest
assets before leasing them. The GoG claims the license
requires the investors to finish the inventory. The license
also requires a 90 percent local workforce. The joint
venture likely will supply a nearby Chinese-Georgian sawmill,
which currently employs 100 local workers.

Retail
--------------


5. (U) Chinese shops are popping up all over Georgia,
including in Zugdidi near Abkhazia. In May, Chinese and
Japanese investors purchased the central market of Gali in
Abkhazia for USD 150,000 paid to the de facto authorities;
Moscow Mayor Yuri Luzhkov originally introduced the investors
to the region. The press reported the investors will pay USD
50,000 to the Abkhaz separatist regime and pay an annual fee
of 8 percent of the market's profit. Chinese investors also
plan to build a department store in Sukhumi. Press reports
on June 28 announced that Chinese buyers purchased Tbilisi's
central supermarket. The announcements sparked mild protests
by some Georgians, including opposition groups, who feel
threatened by increasing Chinese investment and immigration
in Georgia.

The accidental immigrant
--------------


6. (C) One of the first Chinese immigrants, Steve Yu, came to
Georgia eight years ago from China on a short-term business
trip to help a friend in the timber industry. Having no
plans to stay, he returned to his home in China. Within a
short time, however, he lost his job in China and returned to
Georgia. He opened two Chinese restaurants, and later
started a pig farm in Mskheta. Now he has a Georgian wife,
has made a name for himself, and is the "godfather" of sorts
among the local Chinese merchants. He runs the Chinese
Commodity Center, opened in fall 2006, across from the main
Tbilisi supermarket. Chinese merchants throughout Georgia
purchase Chinese goods at wholesale in the market, which is a
collection of 50 shops. Chinese wholesalers procure products
in China and ship them in containers to Poti port, which
takes 30-35 days. Yu says Georgia is attractive because
merchants can charge double for goods in China. However, Yu
said Georgian customs poses the biggest hurdle, but only for
Chinese merchants. As an example, he said there might be two
identical containers with identical products. The
Chinese-owned container will be valued twice the value of the
Georgian-owned container. Yu estimates that one family-owned
shop can sell two shipping containers of products in one
year. He estimates that about 300 containers destined for
Chinese shops, worth approximately USD 50,000 each, enter
Georgia annually for a total of USD 15 million in products.
Yu said there are between 100 and 150 small Chinese-owned
shops throughout Georgia, with about 60 in Tbilisi alone.


7. (C) Official immigration statistics are unavailable.
However, the Civil Registration Agency in the Ministry of
Justice has records of 199 Chinese who registered in 2006 -
the first year such registration was available - as temporary
residents. In the first quarter 2007, 119 registered. These
numbers represent the lower bound for estimating the number
of Chinese immigrants, but do show a marked increase in the
rate of registration. The true number is higher.
Unconfirmed reports place the total number of Chinese
immigrants at 10,000, but Yu thinks the number is much
smaller. He bases his estimates on knowledge gained through
his personal network of contacts. He said only two years ago
there were less than 50 Chinese in Georgia, but that number
rapidly is increasing. He attributes some of the increase to
Chinese living in Europe looking for a fresh market with less
competition. Approximately 100 of last year's arrivals came
from the Balkans and about 30-40 came from the Czech Republic
and in turn brought their relatives from China. He estimates
there are now 600-700 Chinese living in Georgia, including
those working for the Chinese Embassy. He said last year
border guards estimated about 3000 Chinese exited and entered
Georgia -- some like himself with multiple trips. He also
said the Chinese Embassy issued about 3500 visas last year
for Georgian residents -- including third-country nationals
-- to visit China. According to some local Chinese shop
owners, the Chinese government actively promotes emigration.
These shop owners were interested in emigrating from China,
picked Georgia as their destination country, received

TBILISI 00001624 003.2 OF 003


Georgian language training, and were released from the
two-child rule.

Comment: Fear of the "Incomprehensible"
--------------


8. (C) Comment. There is an increasing buzz of mistrust and
fear of Chinese immigrants in the Georgian press. Georgians
worry a mass influx of a people with a completely unknown
culture will threaten its demographic distribution and
national security -- at a time when the Georgian population
probably is decreasing. The word for "Chinese" in the
Georgian language has been used for years as an adjective to
describe something completely incomprehensible. Whereas
increased investment from Kazakhstan and other Central Asian
countries also brings immigrants, Georgia has a historic
context with them as part of the former Soviet Union that it
does not with China. As Georgia markets itself abroad as a
destination for FDI, GoG leadership at home will need to
manage effectively a public increasingly fearful of being
overrun by an unknown culture. Steve Yu said most Chinese he
knows do not like living in Georgia because they perceive
their standard of living to be lower here than in China. It
is likely that as long as there is money to be made in
Georgia, however, they will continue to come and stay. End
Comment.





TEFFT