Ukraine’s China Policy: A (Not so) Delicate Balance

Reporting on the saga of Chinese efforts to purchase Ukraine’s strategic Motor Sich aerospace production company frequently casts Kyiv as a weak “pawn” on the geopolitical chessboard, caught in the middle of the larger rivalry between Beijing and Washington. Yet Ukraine is pursuing its own regional leadership ambitions (Weforum.org, Jan 22, 2020); and as part of that effort, the Ukrainian government has adopted a harder stance vis-à-vis Chinese investors, recently imposing sanctions on multi-millionaire Wang Jing and his Skyrizon Group as well as other individuals and business entities over their attempt to take over Motor Sich (see EDM, February 3, 2021). The Chinese side certainly anticipated Kyiv’s growing hostility (Global Times December 9, 2020), but the unprecedented sanctions triggered a diplomatic protest note and a strongly worded press statement from the Chinese foreign ministry (Interfax, February 3; Global Times February 1).

The Ukrainian government’s tough actions notwithstanding, President Volodymyr Zelenskyy’s rhetoric on China appears more nuanced. In a recent interview with Axios, Zelenskyy objected to labeling China a “number one geopolitical threat,” assuring that “we don’t feel this in Ukraine.” Though declaring that no foreign entity shall control Ukraine’s defense-industry champion, Zelenskyy otherwise encouraged the presence of Chinese business in Ukraine (President.gov.ua February 1). Earlier, speaking to China’s official, state-run news agency Xinhua, the Ukrainian head of state welcomed “further expansion of bilateral trade and economic cooperation,” praised China’s respect for Ukrainian sovereignty and territorial integrity, and expressed gratitude to its government, citizens, non-governmental organizations (NGO) and companies for the humanitarian assistance they extended to Ukraine to combat COVID-19 (President.gov.ua October 1, 2020).

In 2019, economists called China replacing Russia as Ukraine’s main trading partner “a tectonic shift” (Eurointegration.com.ua, February 3, 2020). Ukrainian exports to China further surged 98 percent, to $7.1 billion (imports totaled $8.3 billion), in 2020, driven by iron ore ($2.5 billion), grains ($1.9 billion), fats and plant oil ($1.1 billion), and iron and steel ($0.6 billion) (Niss.gov.ua, January 2021). One prominent Ukrainian sinologist argued that China’s presence in Ukraine serves as a positive counterbalance to ongoing Russian aggression, pointing to Beijing’s non-recognition of the occupation of Crimea and its rejection of a genuine military alliance with Moscow (Ukrlife.tv, October 9, 2019). A February 2020 public opinion survey by SOCIS concluded that almost 60 percent of Ukrainians believed China has a “neutral” attitude toward Ukraine, and about 13 percent thought it was “friendly”; in contrast, over 63 percent contended Russia had a “hostile” attitude, and 5 percent said “friendly” (Socis.kiev.ua, February 2020).

For a time, the Ukrainian authorities’ stance toward Chinese business was welcoming. In fact, then–deputy prime minister Stepan Kubiv had been the one to consecrate the original Chinese investment in Motor Sich (Ukrinform, May 2017). Nevertheless, the Security Service of Ukraine (SSU) opened criminal proceedings into the matter in July 2017, and Motor Sich’s “blue chip” shares were delisted by a court decision the following year (Smida.gov.ua September 30, 2020). Moreover, the Anti-Monopoly Committee has continually stalled on whether to permit Chinese control. Still, as argued by defense expert Valentyn Badrak, the government never adopted a coherent policy to support Motor Sich domestically (Lb.ua September 25, 2020).

Some moves by the United States were likewise mixed. Reportedly, former President “Donald Trump’s administration” approached Erik Prince “and at least one other potential buyer from the private sector about Motor Sich” (Wall Street Journal, November 5, 2019). On a positive note, in September 2019, the US Department of Defense certified Ukraine to carry out repairs of Mi helicopters for international customers (Defense Express September 27, 2019).

The role of big business in Ukraine’s politics is yet another issue. In 2020, Chinese investors in Motor Sich established a consortium with Oleksandr Yaroslavsky’s company, DCH Group, and sued the Ukrainian government for $3.5 billion. At the same time, Yaroslavsky reportedly employed Alibaba founder Jack Ma to secure first-response Chinese tests and protective supplies for Ukraine against COVID-19 (Ukrinform, March 27, 2020). Yaroslavsky does not normally comment on politics publicly, yet his firm’s website reprinted an article that called on President Zelenskyy to listen to “his 73 percent of voters, those of the southeastern [regions], and industrial cities” about the need to cooperate with China (Dch.ua, August 5, 2020). The Ukrainian billionaire was summoned for questioning by the SSU as a “witness” in the Motor Sich Chinese buyout case last month (Interfax, January 18, 2021).

Motor Sich is not the only company China has a problem with in Ukraine. During a visit by then–US Under Secretary of State Keith Krach (Ukrinform, December 23, 2020), the Ukrainian government removed Chinese telecommunications giant Huawei’s equipment from its offices. Huawei exemplifies the political tensions inside Ukraine between pursuing economic development on the one hand and national security considerations on the other. Cooperating in Ukraine since 2000, with an R&D center there since 2016 (Huawei.com, accessed February 10, 2021), Huawei has been proactive in government and public relations. The firm promotes digital inclusivity and has supported dozens of Ukrainian students to study IT in China (Nv.ua, November 30, 2020). Huawei backed the Ukrainian Ministry of Digital Transformation’s flagship deregulation and anti-corruption program “Dia Business.” And it boasts of “successful projects to modernize infrastructure” with the National Bank of Ukraine and the Ministries of Foreign Affairs as well as Development of Economy, Trade and Agriculture.

And yet, Ukraine’s State Service of Special Communications and Information Protection conspicuously deleted all mention on its website of a cooperation memorandum it had signed with Huawei in October 2020 “on cybersecurity, cyber defense, and telecommunications” (Eurointegration.com.ua, October 16, 2020); and Foreign Minister Dmytro Kuleba later upbraided the agency for allegedly having failed to coordinate the deal with the foreign ministry (Epravda.com.ua, October 28, 2020). Additionally, Huawei was reportedly removed from Kyiv’s “Smart City” digitalization program, in favor of Cisco (Twitter.com/State_E, December 22, 2020). Under Secretary Krach suggested that the US might compensate Ukraine for the price difference if it rejects Huawei’s cheaper 5G equipment (Radio Svoboda December 22, 2020). Despite these setbacks, Huawei has not exited the market, acknowledging Ukraine’s potential, the company’s CEO, Jim Su, noted (Epravda.com.ua, October 9, 2017).

Geopolitical influence notwithstanding, many of Ukraine’s political problems with China have domestic roots—namely a lack of expertise on Beijing in Ukrainian governmental institutions. Still, the authorities in Kyiv are now taking steps to address the inherent tension between bilateral economic cooperation and national security considerations. Recently, the economic development and trade ministry drafted the first bill in Ukrainian history to introduce an inter-agency procedure to scan international investments for potential national security risks (Me.gov.ua, January 20, 2021). Indeed, a smart and transparent industrial policy should make Ukraine more attractive to all of its strategic international partners.