US embassy cable - 05YEREVAN242

C O N F I D E N T I A L SECTION 01 OF 02 YEREVAN 000242 
 
SIPDIS 
 
DEPT FOR EUR/CACEN FOR SIDEREAS 
 
E.O. 12958: DECL: 02/10/2015 
TAGS: ECON, EPET, CH, AM 
SUBJECT: CHINA'S EXPANDING POLITICAL RELATIONS WITH ARMENIA 
 
 
Classified By: CDA A.F. Godfrey for reasons 1.4 (b,d) 
 
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SUMMARY 
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1. (C) Government of China (GOC) representatives in Yerevan 
and Armenian government officials recently reported their 
view that relations between the GOC and the Government of 
Armenia (GOAM) are expanding.  They qualified these 
statements, however, with a more realistic picture of 
potential economic links between the two nations, defusing 
some of the hype that accompanied Armenian President Robert 
Kocharian's recent visit to China.  The Chinese emphasized 
their government's policy of maintaining balance in their 
relationship between the Caucasus countries, specifically 
with regard to Armenia and Azerbaijan and the 
Nagorno-Karabakh (NK) conflict.  The GOAM emphasized their 
desire to keep and maintain a direct relationship with China. 
 End Summary. 
 
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STATE VISIT IMPROVES RELATIONS 
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2. (C) The Chinese Embassy in Armenia told us that an 
important part of current GOC policy was to strengthen 
relations in the Caucasus to complement their interests in 
Central Asia.  They believed that the much-touted October 
2004 state protocol visit to China by Armenian President 
Robert Kocharian would help improve bi-lateral relations. 
Deputy Chief of Mission of the Chinese embassy in Armenia, 
Zhao Xiangrong, expressed satisfaction that the GOAM publicly 
supported policies important to the GOC regarding Taiwan and 
Tibet.  Vahe Gevorgian, head of section of Asia Pacific and 
Africa department believed that the Chinese government had no 
clear approaches to the GOAM other than to include Armenia in 
the Chinese world-wide policy of defending their interests 
overseas.  Gevorgian emphasized that the GOAM policy of 
supporting China's Taiwan and Tibet policy had been 
consistent since 1992. 
 
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CHINA TRIES TO REMAIN BALANCED 
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3. (C) Zhao told us that main objectives for the October 2004 
visit were to maintain a perception of balance in China's 
relationships between Armenia and Azerbaijan.  The GOC had 
over the past several years sent and received several 
high-level delegations to Azerbaijan, Chinese officials 
wanted to show the GOAM similar courtesies.  Armenian 
officials and the Chinese embassy in Yerevan, had lobbied for 
a presidential level visit. Gevorgian noted that the visit 
emphasized the GOAM's desire to have a direct relationship 
with China.  Gevorgian stated that the GOAM wanted to 
emphasize that their foreign policy goals were not dependent 
on the government of Russia's (GOR) relationship with the 
GOC. 
 
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SOME IMPROVEMENT IN ECONOMIC RELATIONS 
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4. (C) Zhao downplayed the significance of the economic 
agreements signed between the GOAM and GOC during the October 
2004 state visit.  Zhao confirmed reports of an approximate 
USD 100 million dollar chloroprene rubber plant joint venture 
in Shaansi, China.  She stated that the GOC would finance 
most if not all of the project with the GOAM supplying 
technical expertise and some equipment.  Zhao told us that 
the GOC would continue to help Armenia's agricultural sector 
with donations of Chinese tractors.  She further explained 
that Chinese companies had some commercial interests in 
Armenian fertilizers and apricot farming.  Zhao claimed that 
the press reports describing 15 new scientific joint projects 
between the GOC and the GOAM were not accurate, and they were 
only in the preliminary discussion stages.  Gevorgian 
confirmed to us that 90 percent of the agreements signed 
between the GOC and the GOAM were agricultural in nature.  He 
also emphasized that the one major joint venture project was 
the chloroprene rubber plant in Shaansi China. 
 
5. (C) According to the Chinese, reports of a recent increase 
of Armenian exports to China were exaggerated as they 
reflected only an increase in the world price of copper and 
copper products which were exported to China.  Overall, Zhao 
did not foresee Armenian-Chinese trade increasing 
dramatically in the near future.  She listed the problems 
that plague all of Armenia's potential trading partners:  a 
small domestic market and closed borders with Turkey and 
Azerbaijan.  Gevorgian believed that Armenia had little to 
export to China other than copper and copper products.  He 
stated that products like Armenian cigarettes were difficult 
to export to China because of counterfeiting problems. 
Gevorgian believed that Armenia probably imported five times 
more textiles from China than recorded in official figures. 
Gevorgian explained, however, that Armenian traders often had 
difficulties in obtaining licenses to work with Chinese 
businessmen, so therefore often used central Asian companies 
to purchase Chinese textiles for sale in Armenia.  In 2003, 
Armenia imported USD 8.5 million dollars of goods from China 
which put China in 15th place behind the Ukraine in terms of 
trading volume.  Armenian imports from China were mostly 
textiles and clothing.  Armenia exported USD 4.5 million 
worth of goods to China which put China in 12th place, behind 
Turkey.  The bulk of Armenian exports to China consisted of 
copper, copper products, and some chemical products. 
 
6. (C) Albert Sukiasyan, head of the Nairit-2 rubber plant in 
Yerevan, Armenia confirmed press reports that a joint venture 
had been created between his plant and the GOC.  Sukiasyan 
explained that the joint venture would be 40 percent 
GOAM-owned and 60 percent GOC-owned.  Sukiasyan told us that 
the GOAM would borrow the money for their part of the joint 
venture with a GOC loan guarantee.  The GOC would thus supply 
the initial capital and equipment.  Nairit-2 would supply 
experts to work and train the Chinese at the plant. 
Sukiasyan explained that the GOAM had signed a 20-year 
contract to work with the GOC and the joint venture plant 
should be completed by 2006.  Sukiasyan stated that currently 
100 Armenian nationals work at the  plant and this figure 
should increase to about 350.  Sukiasyan felt that this joint 
venture could easily lead to others with the GOC. 
 
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CHINESE/IRANIAN RELATIONS INFLUENCE ON ARMENIA 
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7. (C) Gevorgian noted that the recent announcement 
concerning the multi-billion dollar gas agreement between 
China and Iran would not have a direct influence on GOAM and 
GOC relations.  Gevorgian explained to us that currently 
there were no specific economic joint China/Iran/Armenia 
projects that would be affected by the Chinese/Iran gas 
agreement.  Gevorgian explained that this agreement would be 
more likely to affect Chinese/Azerbaijani relations where the 
GOC has energy interests, or Chinese/Central Asian relations, 
since China would need a transportation route to export the 
gas from Iran to China. 
 
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CHINESE ROLE IN NAGORNO KARABAKH 
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8. (C) Zhao told us that the GOC was not interested in 
playing a mediating role in the NK conflict.  While clearly 
aware of the need to maintain balance on the issue, Zhao 
explained that the GOC was geographically too far removed to 
play any significant role in the peace process.  Zhao claimed 
that the Armenian Deputy Defense Minister, Yuriy Khachaturov, 
who was on the Armenian delegation for the presidential visit 
to China, came for familiarization purposes only and not to 
push for nor sign any military agreements.  Gevorgian stated 
that the Armenian government was pleased that the GOC 
abstained from the latest Government of Azerbaijan initiative 
in the United Nations.  The GOAM was also happy that the GOC 
has repeatedly stated that they are for the peaceful 
resolution of the NK conflict and have not taken sides in 
this issue. 
 
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COMMENT: RELATIVELY MINOR PLAYERS IN ARMENIA 
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9. (C) China remains a relatively minor consumer of Armenian 
exports, and we expect the new joint venture will do little 
to change the overall picture.  The same constraints that all 
of Armenia's other trading partners face apply to China as 
well, and there seems little prospect for immediate change. 
GODFREY