PRC/CENTRAL ASIA: NATURAL GAS PIPELINE OPENING

C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 000102

SIPDIS

DEPT FOR EAOP/CM

E.O. 12958: DECL: 01/14/2030
TAGS: PREL PGOV EFIN ENRG EWWT EPET ETRD MARR CH
IR, RS, ZK
SUBJECT: PRC/CENTRAL ASIA: NATURAL GAS PIPELINE OPENING
SIGNALS INCREASING CHINESE PRESENCE IN CENTRAL ASIA

REF: A. 09 ASTANA 2168

B. 09 ASHGABAT 1619

C. 09 BEIJING 1844

D. 09 BEIJING 3326

E. 09 BAKU 996

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Classified By: Political Minister Counselor Aubrey Carlson. Reasons 1.
4 (b, d)


1. (C) Summary: Following President Hu Jintao's December
12-14 visit to Central Asia and his participation in the
inauguration of the China-Central Asia natural gas pipeline,
the PRC hopes to deepen political and economic ties to the
region, according to the Ministry of Foreign Affairs (MFA).
In bilateral talks with Kazakhstan, its most important
partner in the region, the PRC expressed desire to strengthen
"mutual political trust" and economic cooperation. In
Turkmenistan, the PRC seeks to expand investment in
transportation, communications and infrastructure sectors,
among others, in addition to investing in energy projects.
The Shanghai Cooperation Organization (SCO) will not serve as
a framework for future energy cooperation, according to the
MFA, because security cooperation and maintaining stability
will remain the organization's primary foci. While Russia,
China and the Central Asian countries agree on the need to
maintain stability in the region, counter-terrorism
cooperation has been inconsistent, according to a PRC
scholar. End Summary.


2. (C) MFA European and Central Asian Affairs Department
Central Asia Division Director Guo Yu December 30 told PolOff
that PRC President Hu Jintao's December 12-14 working visits
to Kazakhstan and Turkmenistan and his participation in the
inauguration ceremony of the China-Central Asia natural gas
pipeline with the leaders of Kazakhstan, Turkmenistan and
Uzbekistan reflected PRC recognition of Central Asia's
growing importance to China. Guo stated that Hu's separate
talks with Kazakhstan President Nursultan Nazarbayev,
Turkmenistan President Gurbanguli Berdimuhamedov and
Uzbekistan President Islam Karimov had been uniformly
positive and paved the way for deepening bilateral ties.

Kazakhstan: PRC's Most Important Partner in Central Asia
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3. (C) China viewed Kazakhstan as its most important partner
in the region, according to Guo. China sought to promote the
Sino-Kazakh strategic partnership by strengthening bilateral
"political mutual trust," which entailed continuing
high-level exchanges and ensuring each side "clearly
articulated" its positions on issues of mutual concern.
Noting the many areas of potential economic cooperation in
addition to energy (ref A),Gu highlighted hydro-electric,
agriculture and infrastructure sectors as drawing increased
attention from Chinese investors. Asked whether projects in
these or other sectors would tap into the USD-5-billion loan
from the EXIM Bank of China (an amount coupled to the
USD-5-billion China National Petroleum Company loan to the
Kazakh state oil company) announced in April, Guo
acknowledged that to date no loan funds had been committed to
projects.

Turkmenistan: Trade Destination/Pipeline Inauguration
-------------- --------------


4. (C) Turkmenistan Embassy Counselor Bayram Klychmamedov
(protect) told PolOff December 29 that President Hu's
participation in the China-Central Asia natural gas pipeline
inauguration reflected the region's growing importance to the
PRC. He noted that in contrast to when he arrived in Beijing
in 2001, when he had spent much time explaining basic facts
about Turkmenistan to Chinese investors completely unfamiliar
with the region, Chinese investors now regularly sought him
out to explore investment possibilities. Klychmamedov
claimed that over the past ten years Sino-Turkmen trade
volume had increased twenty fold, up to USD 1 billion in

2009. He noted that the majority of the trade volume
consisted of Chinese exports to Turkmenistan, but with the
advent of the natural gas pipeline, he expected the deficit
to swing toward China.

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5. (C) Klychmamedov acknowledged that the agreement to send
30 billion cubic meters (bcm) per annum to the PRC
represented a sizeable commitment of Turkmenistan's natural
gas reserves. Klychmamedov suggested, however, that
Turkmenistan could easily produce up to 100 bcm annually, and
therefore could accommodate its PRC commitments as well as
the 30 bcm pledged to Russia and 10 bcm to Iran (through the
soon-to-be-opened Dovletabat-Sarakhs-Khangiran pipeline) (ref
B). MFA's Guo commented separately that the two sides were
still discussing pricing, and while aware of the different
potential export markets for Turkmenistan's natural gas, the
PRC had stressed in bilateral discussions the need for secure
and smooth operation of the China-Central Asia gas pipeline.


6. (C) In addition to the inauguration of the natural gas
pipeline, Klychmamedov reported, the two sides had agreed to
implement the second phase of a telecommunications project.
Turkmenistan also planned to purchase Chinese railcars and
locomotives as part of a PRC-financed transportation project.
MFA's Guo confirmed that while the PRC hoped to promote
greater economic cooperation "in all sectors," the PRC had
offered no new soft loans or grants during the December visit.

No SCO Involvement in Future Energy Projects
--------------


7. (C) Commenting on prospects for future agreements on
energy projects within the SCO framework, Renmin University
Central Asia scholar Chen Xinming told PolOff December 30
that "like all multilateral institutions, the SCO would be a
cumbersome channel to work out (energy project) agreements."
He said that the China-Central Asia pipeline demonstrated
that a series of bilateral agreements among participating
countries was a more effective means to implement
collaborative projects. Turkmen diplomat Klychmamedov
separately agreed and affirmed that Turkmenistan had no plans
to join the SCO, particularly given that the pipeline project
demonstrated that Turkmenistan's interests could be addressed
bilaterally. MFA's Guo acknowledged that the June 16 SCO
summit in Yekaterinburg had focused members on the global
financial crisis (ref C),but noted that China viewed the SCO
mainly as a security grouping for maintaining stability and
addressing the "three evils" of terrorism, extremism and
separatism, and that economic issues were a subordinate focus.

Maintaining Peace and Security
--------------


8. (C) MFA's Guo noted that during Hu's Central Asia visit,
the four countries (China, Kazakhstan, Uzbekistan and
Turkmenistan) had pledged to strengthen security cooperation
through training programs, exchanges of security personnel
and "information-sharing." Turkmen diplomat Klychmamedov
reported that in bilateral discussions, beyond basic
agreement to fight the "three evils," neither side had
discussed specific terrorist threats or cooperative measures.

No Consensus on Addressing Terrorism in Region
-------------- -


9. (C) Renmin University's Professor Chen commented that
while Russia, China and the Central Asian states all grasped
that stability was a regional imperative and that terrorism
was a threat to stability, little consensus existed among
them on how to address the threat. He suggested, for
example, that Kyrgyzstan's agreement to allow the United
States to use Manas airbase for operations in Afghanistan
represented one strategy to promote stability that was not
supported by others in the region. Chen averred that
cooperation on terrorist issues was sometimes inconsistent.
While offering no specifics, Chen claimed that "certain
groups" in Kazakhstan and Uzbekistan, while not conducting
illegal activities locally, were supporting separatist
elements in China's far-western Xinjiang region. The Kazakh
and Uzbek governments would take action against these groups
only in response to PRC requests; absent PRC pressure, the
authorities would leave them alone.
HUNTSMAN