China Power

China’s Agricultural Deals with Ukraine in Jeopardy

Reports that China wants $3 billion in loans returned call into question the future of China-Ukraine agricultural deals.

China’s Agricultural Deals with Ukraine in Jeopardy
Credit: China and Ukraine image via Shutterstock

Russian media have been reporting that China is seeking the return of $3 billion in loans. The reports, also picked up by the South China Morning Post, cite an unnamed Ukrainian official as saying that China has filed a complaint against Ukraine for reneging on a deal where $3 billion in loans from China would be repaid in corn exports from Ukraine. According to the official, Kiev only provided a little over $150 million of worth of grain to China.

The original deal was signed in the fall of 2012. At the time, Ukraine’s agriculture minster, Mykola Prysyazhnyuk, told Financial Times that in return for access to $3 billion in loans, Kiev would export about 3 million tons of corn to China each year. Although China has in the past used a similar arrangement in oil-for-loans deals, the arrangement with the Ukraine was a first for China. The loan money was supposed to be mostly put back into the agricultural sector, including a $3 billion irrigation plan for the southern part of Ukraine.

The Foreign Ministry of Ukraine issued a statement denying the reports that China is seeking a return of the loan money. The news release cited a meeting between Victor Mayko, Ukraine’s Deputy Foreign Minister and Chinese Ambassador Zhang Xiyun. Zhang reportedly “emphasized the absence of claims from official Beijing as to the implementation of this contract and the willingness of the Chinese side to continue its realization.” Zhang also told Mayko that “currently there were no problems between Ukraine and China that could negatively affect further development of the two states interaction.”

China’s Foreign Ministry has downplayed the reports, with spokesperson Hua Chunying telling the press that “relevant reports are inconsistent with the facts.” However, she also said that China hopes “the Ukrainian side will ensure the effective implementation,” not exactly a full vote of confidence. Given the political turmoil in Ukraine, China is likely worried about the continuance of its grain imports from the Ukraine. But by the same token, the Chinese government would likely want to avoid adding to Ukraine’s troubles by asking for $3 billion to be returned. An Eastern European specialist at the Chinese Academy of Social Sciences told the Global Times that China would never file such a claim in the midst of such political uncertainty.

China’s food security strategy is a constant concern to Beijing, which must feed 1.3 billion people even while encouraging urbanization and facing the problem of polluted land and water. China’s leadership recently decided to relax its customary emphasis on grain self-sufficiency, allowing for more imports. The Financial Times reported that Chinas’ new guidelines for grains would “stabilize” grain production at around 550 million tons in 2020, 50 million tons less than the 2013 harvest.

Rather than abandoning its emphasis on self-sufficiency, though, it seems China is changing the definition. A January Xinhua article on self-sufficiency in grain production mainly focused on the “key grain supplies” of wheat and rice, which are used for food, rather than grains like corn and soybeans that are typically used as animal feed. A leading government official predicted that China’s corn imports in particular would continue to grow.

As China’s grain imports grow, its connection to Ukraine will also increase. Ukraine is one of the world’s leading exporters of grain, and is hoping to increase production in coming years. In 2013, Ukraine exported 18.5 million tons of grain, and hopes to more than double that amount, reaching 40 million tons by 2020. Ukraine’s plans for its agricultural industry, coupled with China’s need to increase grain imports, will make Kiev an attractive target for increased economic cooperation with Beijing.

Provided, of course, that the political situation in Ukraine doesn’t continue to worsen. Recent reports are not optimistic. Should the political chaos substantially affect Ukraine’s crop production, it could have a major impact on global food supplies, and on China’s food security.