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China has agreed to provide $350m to build a railway tunnel linking the Uzbek Fergana Valley to the country's main rail network, setting the groundwork for a direct line from China to Tashkent.

The tunnel will end Uzbekistan's dependence on a Soviet-built stretch of line through Tajikistan. Further than that, if plans to build a China-Kyrgyzstan-Uzbekistan line go ahead, it will offer a direct link from western China to the Uzbek capital.

The agreement was one of several signed during Chinese Prime Minister Li Keqiang's visit to Uzbekistan on November 30. Uzbekistan Railways has already signed a contract with China Railway Tunnel Group to build the tunnel in June 2013.

The new line will run from Angren, one of Uzbekistan's main industrial cities, to Pap in the densely populated Fergana Valley, passing under the 2,200 metre high Kamchik Pass in the Chatkal- Kuramin mountains.

This will mean Uzbek passenger and freight trains will be able to travel from the country's main cities to the Fergana Valley through Uzbek territory. The existing line from the Fergana Valley, where most of Uzbekistan's agricultural land as well as cities including Andijan, Fergana and Namanjan are located, to other parts of Uzbekistan runs through Tajikistan - a potential problem given the worsening relations between the two countries.

Preparations for the new railway line started early in 2013, and construction is due to be completed by 2016, RIA Novosti reports. The tunnel is expected to cost around $455m, with the entire Angren-Pap line costing $1.9bn. In addition to the funding from the Chinese government, Tashkent is footing part of the bill and looking to raise the rest from international financial institutions.

Two other deals were also agreed during Li's visit. The two countries will launch a $40m programme to support small businesses in Uzbekistan, while the China Development Bank will extend a $10m credit line to Uzbekistan's Uzpromstroybank.

The funding for the railway tunnel is in line with China's high level of investment into infrastructure projects within Central Asia. It could also benefit China directly, if plans to build the China-Kyrgyzstan-Uzbekistan railway go ahead. The line would run from Kashagar in western China through Kyrgyzstan to the Kyrgyz-Uzbek border, linking to the Uzbek rail network in the Fergana Valley. Building the Angren-Pap line will also connect the line to the Uzbek capital.