China’s Growing Interest in Ukraine: A Window of Opportunity or a Point of Concern?

During his recent visit to Ukraine, on August 28, United States National Security Advisor John R. Bolton forcefully argued against Kyiv permitting the selling of a controlling stake in Motor Sich—one of the world’s largest manufacturers of advanced engines for civil and military airplanes and helicopters—to China’s Beijing Skyrizon Aviation. Such a decision would be a strategic mistake that might lure Ukraine into a Chinese “debt trap,” Bolton asserted. He also warned of China’s proclivity to steal cutting-edge technology, pointing to the suspicious similarities between the Chinese fifth-generation stealth aircraft and the US’s F-35 Lightning II joint strike fighter (Interfax.com.ua, August 28). In response, the Chinese ambassador to Ukraine said that Beijing does not interfere in private commercial deals like the one involving Motor Sich (Pravda.com.ua, August 30).

Nevertheless, Bolton’s assertions were echoed by Ihor Smeshko, the former head of the Security Service of Ukraine (SSU). Writing for Gordonua.com, Smeshko contends that selling Motor Sich to the Chinese might pose an immediate threat to the defense and national security of Ukraine and would be tantamount to a “national betrayal” (Gordonua.com, August 29). According to the editor-in-chief of the online investigative platform Censor.NET, Yuri Butusov, China actively seeks to attract Ukrainian scientists, especially those with a Soviet technical background; however, China has so far not been able to master the entire technological cycle of various Soviet-legacy military products. Thus, the potential purchase of an entire Ukrainian plant would allow Beijing to overcome this weakness and, arguably, achieve a qualitative leap toward becoming the world’s leading producer of helicopters, for example (Gordonua.com, August 26).

Chinese interest in the Ukrainian defense industry and its inexpensive products dates back decades. In 1998, the Chinese Chong Lot Travel Agency, Ltd. purchased the aging Ukrainian heavy aircraft carrier cruiser Varyag for only $20 million—purportedly for “tourism” purposes (Operkor.wordpress.com, October 3, 2011). But once in Chinese hands, the vessel was modernized and refitted into Beijing’s first active aircraft carrier—the Liaoning (Aif.by, April 26, 2017). And the aforementioned Beijing Skyrizon Aviation, which is now interested in acquiring Motor Sich, purchased technology from heavy airplane manufacturer Antonov State Company back in 2012 (BBC News—Ukrainian service, September 3, 2019).

In 2015, China’s Xinwei Group indicated the first serious signs of interest in the Motor Sich company—initially at the level of proposed joint projects. A year later, some stakes in Motor Sich were sold to several foreign companies controlled by a Chinese citizen, and the Ukrainian company received concessional loans in the amount of $100 million (Getman.media, August 20, 2019). But in 2017, the Ukrainian SSU opened a criminal case related to the sales, reportedly investigating “sabotage” and “preparation of a crime.” Subsequently, the Shevchenko District Court in Kyiv issued an injunction to block the deal and arrested 41 percent of Motor Sich’s stakes, owned by five offshore companies (Biz.nv.ua, August 30, 2019). The episode revealed that Beijing Skyrizon Aviation had attempted to use subsidiary companies registered in the British Virgin Islands and Panama to acquire a majority stake in Motor Sich (Gordonua.com, April 27, 2018).

The Chinese firm renewed its efforts to buy Motor Sich in July 2019 (Janes.com, July 15). And on August 25, Anatoliy Malysh, the PR director at Motor Sich, confirmed that a deal had been reached between the Ukrainian plant and Skyrizon Aircraft Holding (British Virgin Islands) as well as Xinwei Technology Group. To date, the contract is awaiting final approval from the Ukrainian state’s Antimonopoly Committee (Epravda.com.ua, August 25). The two Chinese companies reportedly offered a “loan” of $100 million to the Ukrainian aviation industry to help “move things along” (Epravda.com.ua, August 19). Ukraine’s state-owned military industrial corporation Ukroboronprom (which, following the sale, will retain only a 25 percent stake in Motor Sich) has apparently reached an agreement with Chinese firms Skyrizon Aircraft and Xinwei Technology Group to jointly control the Ukrainian aviation engine producer (Uprom.info, August 23).

Apart from its interest in Ukraine’s defense manufacturers, China is also trying to strengthen its influence and presence in other sectors of the Ukrainian economy. Notably, Beijing’s trans-continental Belt and Road Initiative (BRI) had originally sought to boost China’s presence in Crimea (Ukrinform.ua, May 3). But following Russia’s annexation of the peninsula in March 2014, China redirected its focus on the ports of Odesa and Mykolaiv, which could be used as major hubs for transporting grain and raw minerals (Uiamp.org.ua, January 24, 2016).

As a result of the escalating conflict in China’s trade relations with the United States, Ukraine is becoming increasingly important as an alternative grain supplier to China. In effect, Ukraine already outperforms the US on this score (Uiamp.org.ua, January 24, 2016). Another area attracting Chinese attention is Ukraine’s nuclear industry (Dsnews.ua, July 21, 2015). Cooperation in this sector might be especially important for Beijing given Chinese plans to build up to 30 nuclear reactors by 2030 in countries involved in the BRI project (Glavcom.ua, June 20, 2019). This summer, during Ukrainian President Volodymyr Zelenskyy’s meeting with Chinese investors in Kyiv, it was reported that up to $10 billion could be invested in Ukraine (President.gov.ua, July 19).

Despite this optimistic façade, the reality is much less rosy. Namely, the majority of Chinese projects in Ukraine are today either frozen or only in an initial stage of development, thereby exemplifying China’s so-called “debt-trap diplomacy.” One of the best examples is the Air Express project—a planned railway between Kyiv and Boryspil airport. Despite initial enthusiasm, in 2017, the progress on the project slowed down due to a lack of funds. Ultimately, the renamed Kyiv Boryspil Express had to be fully financed by Ukrainian Railways (Ukrzaliznytsia) despite initial hopes vested in the Chinese investors (Cfts.org.ua, November 13, 2018).

As an economic giant with global ambitions, China is naturally interested in certain strategically crucial branches of the Ukrainian economy, such as Motor Sich. And China’s determination to establish a new transcontinental “Silk Road” to Europe (via BRI) is likely to increasingly involve Ukraine’s maritime infrastructure. Undoubtedly, aware of Ukraine’s internal economic woes and, importantly, the country’s problems with rampant corruption, Beijing is likely to use this situation to its advantage. Consequently, any ill-calculated actions/decisions by Kyiv in the realm of strategic industries will increasingly jeopardize the country’s national security. Given the strategic importance of the United States’ support for Ukraine since 2014 as well as the developing nature of Chinese-Russian security ties (see EDM, July 25, 30), Kyiv will be wise to carefully consider Bolton’s recent warning.