The Debate

Sorry Ukraine, China’s Just Not That Into You

The Ukrainian President is in China looking for investment money. It’s a hard sell.

Sorry Ukraine, China’s Just Not That Into You
Credit: Wikimedia Commons

With all the excitement surrounding U.S. Vice President Joe Biden’s visit to Beijing, Viktor Yanukovych must be feeling a bit neglected. The Ukrainian President is also in China this week, and met with Xi Jinping on Thursday. On the other hand, Yanukovych might be grateful for the relative anonymity, given that he’s receiving all sorts of negative attention at home. Since Yanukovych refused to sign a planned free-trade agreement with the European Union, protestors have taken to the streets of Kiev, even blockading the main government building.

As the protests worsened and political opponents held an unsuccessful no-confidence vote in Ukraine’s parliament, many wondered why Yanukovych left for China in the midst of the crisis. According to Interfax, Ukrainian Prime Minister Mykola Azarov told ambassadors from the EU, U.S., and Canada that the government was having difficulty performing basic functions due to the protests. “This has all the signs of a coup d’etat,” he said. And yet Yanukovych spent Wednesday visiting China’s famous terra cotta soldiers, instead of defusing a political crisis at home. Why?

The simplest answer might be that he had no choice. The dire economic conditions that drove the Ukraine to seek a free trade deal with the EU also forced the government to drop out of the agreement amid Russia’s economic threats. As Carnegie Moscow Center Director Dmitri Trenin remarked in a Global Times editorial, the EU was ultimately “both unwilling and unable to play by the rules of the region, where money rules the day.” According to widespread media reports, Ukraine needs a US$17 billion cash infusion to pay its debts. With his country in such economic trouble, it makes sense that Yanukovych would place top priority on a trip to China, which has already provided US$10 billion in loans for Ukraine. In any contest where “money rules,” as Trenin put it, China can be considered one of the foremost players.

And yet China’s response was tepid. True, the two countries did sign trade agreements, which Yanukoych expects will result in some US$8 billion in investments coming to the Ukrainian economy.” But the Chinese government was less than enthused about the possibility of extending substantial new loans to an ailing economy. When asked directly if China was certain about “providing Ukraine with any aid or loans,” Foreign Ministry spokesperson Hong Lei avoided answering the question. He would only say that Chinese leaders and Yanukovych would have “in-depth discussions … about issues of common interest, including mutually beneficially cooperation.”

Even the bilateral meeting between Chinese President Xi Jinping and Yanukovych was restrained. While Yanukovych indicated that Ukraine is “willing to participate in the building of infrastructure” and “welcomes more Chinese investment,” Xi was noncommittal. He recommended that the two countries “gradually promote large project partnership[s]” and said that China was “willing to discuss cooperation” with Ukraine on the new Silk Road Economic Belt.

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The response is especially interesting when compared with another recent meeting between Chinese and Eastern European leaders. When Premier Li Keqiang visited Romania last week, he made it clear that China is invested (no pun intended) in boosting its relationship with all of Eastern Europe. In fact, Li announced that China will seek to double its trade with Central and Eastern Europe by 2018. In Romania, China has already begun implementing its Silk Road Economic Belt — but Xi is only “willing to discuss” the possibility of cooperating with Ukraine.

China was more interested in Ukraine just a few years ago. Back in 2011, China’s Ministry of Foreign Affairs complained that “bilateral investment cooperation does not correspond to China’s capabilities and needs of Ukraine.” At that point, Beijing was actively pushing for more investment opportunities in Ukraine. 2011 was the same year that China and the Ukraine officially became “strategic partners.” At the same time, China agreed to cooperate on or finance a number of infrastructure projects, including building a railway between Kiev and the Borypil International Airport and establishing a Ukrainian-Chinese Innovation Industrial Park.

Yet right after these agreements, the growth of China-Ukraine trade skidded to a halt. From 2011 to 2012, the total value of bilateral trade actually decreased by half a percent, settling at US$103 billion in 2012 compared to US$104 billion in 2011. To put this in context, in the five years leading up to 2011 China-Ukraine trade grew by an average of over 36 percent annually. Clearly, the last time China agreed to major investments in Ukraine, it didn’t pay off. Now, in 2013, the country’s mounting debt problems coupled with political instability makes it an even less attractive destination for foreign investment.

China hasn’t given up on Ukraine entirely. Just in September, a Chinese company announced that it had signed a multi-billion dollar agreement leasing Ukrainian farmland for farming and raising livestock. Still, China’s engagement with Ukraine remains cautious, especially given Ukraine’s potential strategic importance for China’s “march West” policy. This could have important implications for China’s other new friends in Central and Eastern Europe. Should their economies head south, China will not weather a bad economic climate merely because it fits with a long-term geopolitical strategy. If the deal isn’t profitable, Beijing will lose interest.