07TBILISI1624, GEORGIA-CHINA: TRADE AND ECONOMIC RELATIONS

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Reference ID Created Released Classification Origin
07TBILISI1624 2007-07-10 07:09 2011-08-30 01:44 CONFIDENTIAL Embassy Tbilisi

VZCZCXRO7712
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHSI #1624/01 1910709
ZNY CCCCC ZZH
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
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUEHLMC/MILLENNIUM CHALLENGE CORPORATION PRIORITY

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

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