Ukraine: China Flexes Its Investment Muscle

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Ukraine: China Flexes Its Investment Muscle

“If China wants to come here and improve our ports and railways and build our roads, why would we stop them?”

Ukraine: China Flexes Its Investment Muscle

Ukraine’s port of Yuzhny on the country’s Black Sea coast handles millions of tons of cargo annually. The China Harbor Engineering company has just completed a $40 million dredging project to prepare it for larger container ships. Storage silos, vital for Ukraine’s $1 billion in grain exports to China, have also been upgraded by investors from Beijing.

Credit: Kravtsov Aleksey/UNIAN

KIEVHere in Ukraine, China doesn’t pressure for political or judicial reforms, nor are they much interested in voicing opinions on illegally-annexed Crimea or the simmering conflict in eastern Donbass.

Instead, Beijing pursues an aggressive, business-focused agenda.

In the wake of 2014’s Euromaidan Revolution, Russia’s seizure of Crimea, and the start of secessionist conflicts in Donetsk and Luhansk, Ukraine looked to Europe and North America as their new, logical allies. Those partnerships have, in many respects, grown and strengthened. But now China aggressively competes with Ukraine’s Western partners for a strong foothold in this important frontier economy.

While investment and aid from Europe and North America has a price-tag, China and Chinese companies have a huge pot of money that they’re largely willing to spend without explicit conditions.

A free trade agreement and visa-free regime has contributed to the European Union becoming Ukraine’s largest bilateral trading partner – 30 billion euros ($35 billion) per year, with 27 percent year-on-year increases. Canada also has an FTA with Ukraine while trade with the United States is steady.

But these Western friends can, at times, also be Kiev’s biggest critics.

The International Monetary Fund recently told Ukraine they could expect no further support until the country approves a robust anti-corruption court. At the same time, the European Union is withholding 600 million euros in macro-financial assistance, citing their frustration with the pace of judicial reforms in Ukraine.

Prospective foreign investors from Western countries cite corruption and political instability as their biggest obstacle to bringing their business here.

But against this backdrop, China steps up with billions of dollars worth of investment and low-interest loans, demanding very little in return but access to a country that is, for them, strategically vital.

China Spends Big in New Ukraine

Few parties are willing or able to compete with Beijing’s spending power in Ukraine.

In this fledgling free-market economy, Chinese companies now compete with European rivals on tenders for big infrastructure projects. Their ability to come in under budget and complete large projects ahead of schedule means that, more often than not, they’re winning the big contracts.

While Beijing had pledged at least $7 billion for major Ukrainian infrastructure projects, Chinese companies have already been making their move.

On the southeastern Black Sea coast, the China Harbor Engineering company just completed a $40 million dredging operation to give bigger ships access to Yuzhny port. It’s predicted that other important ports in Odessa, Chornomorsk, and Izmail will receive similar Chinese attention.

“We can expect more such projects to be undertaken by the Chinese,” said infrastructure minister Volodymry Omelyan in a recent interview. “They’ve become very interested in Ukraine.”

“I hope that other Chinese companies will follow this example and enter the Ukrainian market,” Chinese ambassador to Ukraine, Du Wei, said at a high-level meeting in Kiev last summer.

And following the example they are. From the Black Sea to Kiev, Chinese companies are staking their claim and planting their flags.

One Chinese company will soon break ground on a 200 kilometer cement coastal highway, built to withstand the burden of heavy, grain-laden trucks. Another company is investing in new grain silos and port elevators to help with quicker transportation as another plans to build a popular new ring road around Kiev.

Also in the capital, the China Pacific Construction Group recently signed a $2 billion deal with Kiev Mayor Vitaliy Klitschko to construct a fourth metro line – a Chinese bank will cover 85 percent of the cost with loans.

Beyond infrastructure, China is purchasing more shares in the new Ukraine.

Later this year, the China Civil Engineering Construction Corporation will start financing a new state-backed mortgage scheme with a $500 million loan, meaning that a Chinese company will have a stake in Ukrainian home ownership. Other companies are targeting the country’s energy sector, with one firm planning to build a 500 MW wind farm, the largest in eastern Europe

Some observers have suggested that Beijing’s growing influence and interests in Ukraine don’t exactly run parallel with Ukraine’s ambitions for European integration and eventual membership of NATO. But in Kiev’s corridors of power, the response to this concern is clear: Ukraine needs the money and China is willing to spend.

“We aren’t actively targeting China for foreign direct investment,” says one top economic advisor to Prime Minister Volodymyr Groysman. “We’re prioritizing Germany, France, and the United Kingdom. But if China wants to come here and improve our ports and railways and build our roads, why would we stop them?”

At the moment, Chinese self-interest is highly compatible with Ukraine’s state-building objectives and political leaders here are doing everything they can to improve bilateral ties with the Asian giant.

According to Prime Minister Groysman, China is a “strategic partner” and “strategic priority” for Ukraine. “We’re ready to stimulate and deepen the cooperation,” he said at a recent meeting with Chinese Vice Premier Ma Kai.

China’s Door to Europe

The question as to why China has become so interested and heavily invested in a country 6,500 kilometers from Beijing is easily answered.

“China’s growing interest in Ukraine makes sense,” says British-Ukrainian historian Bohdan Nahaylo. “The country has resources, a highly skilled but low-cost labor force and, geographically, it’s very strategically located.”

Access to the Black Sea, Sea of Azov, and the Danube river have grabbed Beijing’s attention as they plan the maritime aspect of their Belt and Road trade and transportation initiative to more easily transport Chinese goods around the world.

Ukraine’s position as a transport corridor linking east and west with 170,000 kilometers of road and 22,000 kilometers of interconnected railway – although much is in need of repairs –  represents a chance to dramatically decrease transport times for trillions of dollars worth of Chinese goods headed west. The new free trade agreement with the European Union makes it a perfect and logical transport corridor to the world’s wealthiest consumer market.

But hungry China also needs access to the world’s farms and Ukraine’s growing agriculture sector will soon have the capacity to feed 800 million people, according to experts. This year, Ukraine has already overtaken the United States as China’s biggest corn supplier as total bilateral trade passes $7.6 billion.

While Beijing’s strong movements into Ukraine are significant, the broader picture is one of China’s deep push into Europe, investing heavily in every country from Bulgaria to Norway. In the last 10 years, experts say that Chinese companies have invested at least $318 billion into Europe, representing a relentless advance on the continent.

While some European politicians have raised red flags and leaders like Angela Merkel and Emmanuel Macron have said Europe needs a common strategy to manage this, for Ukraine it’s a question of economic necessity.

If the Chinese money keeps flowing, politicians and project managers here in Ukraine will happily find a way to spend it.

Jack Laurenson is a British journalist and award-winning magazine editor with years of experience in Asia, particularly in India, Cambodia, Myanmar and Vietnam. Since early 2017, he has been based in Kiev, where he’s managing editor of the Ukraine Business Journal.