China and Uzbekistan Agree to Trade Deals

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Uzbekistan President Islam Karimov traveled to China to meet with Chinese President Hu Jintao to discuss a series of business and trade agreements. The two leaders signed on to over 25 separate projects totaling $5 billion of Chinese investment in Uzbekistan. The deal includes $1.5 billion in the form of loans to Uzbek banks in order to finance joint investment projects such as transportation and chemical production projects.

The bilateral cooperative agreements will build on the already growing relationship between China and Central Asia. Beyond financial agreements, the two nations agreed to increase trade in technology, communication and enhance cooperation in social programs focusing on culture, education, sports, tourism and environmental protection. The two countries will also work to improve Uzbekistan’s infrastructure and diversify imports and exports. The deal includes a commitment from Uzbekistan to provide 25 billion cubic meters of natural gas per year to China, which is more than twice what the two nations had previously agreed upon and more than one third of Uzbekistan’s current total gas production. The high promised output may be a challenge for Uzbekistan, but the investment gains should accommodate the increase in output. In return, China’s loan will be partially invested in building a China-Uzbekistan natural gas pipeline alongside existing pipelines running from Turkmenistan to China.

China continues to look for energy providers in the region after rejecting, due to cost, an offer from Russia to provide all of China’s gas needs. China has been developing its energy partnership with Central Asia since 2009. Both parties benefit from reducing Russia’s monopoly in the energy market. With more competition in the gas market, Russia will find it harder to increase its market share in China. Russia will also continue to lose its leverage to charge inflated prices to China or undercut the Central Asian countries when purchasing their energy resources. The result will be more favorable prices for both China and Central Asia. The energy deal was accompanied by several diplomatic agreements. The nations vowed to increase cooperation in regional security, calling on both nations to fight extremism and separatism, as well as organized crime. The breadth of the two countries’ talks signals a developing regional attitude. This attitude may be based on energy policy but extends to a deeper social and financial cooperation that can only increase with China’s rising energy needs and commitment to regional infrastructure projects.