The Battle for Motor Sich: A Sino-American Dispute in Ukraine

Introduction

This summer, Ukraine became another venue for competition between the United States and the People’s Republic of China (PRC). In August, then-U.S. National Security Advisor John Bolton held several meetings with the Ukrainian leadership; according to the U.S. Embassy in Kyiv, the hurriedly arranged trip was intended to “underscore U.S. support for Ukraine’s sovereignty, territorial integrity and Euro-Atlantic path” (U.S. Embassy Kyiv Twitter Account, August 27). Many observers believed that a key purpose of Bolton’s trip was to convince the Ukrainian government to block the acquisition of the Ukraine-based company Motor Sich (Мотор Січ) by the Chinese enterprise Beijing Skyrizon Aviation (UNIAN, August 25; Nikkei Asian Review, September 3; Eurasia Daily Monitor, Sep 6).

Motor Sich is one of the largest aviation companies in the world, and is a manufacturer of advanced engines for both rotary-wing and fixed-wing aircraft. Furthermore, Motor Sich has a 60-year contract to share design and operational documentation with the state-owned-enterprise Ivchenko-Progress (Dzerkalo Tyzhnia, September 21)—and therefore, China’s recent efforts to acquire Motor Sich would also give access to Ivchenko-Progress’s vast archive of technical documentation. A Chinese acquisition of Motor Sich offers the People’s Liberation Army (PLA) the resources and knowledge to deploy more advanced engines in PLA combat helicopters—potentially raising PLA capabilities in areas such as logistics and close air support.

The History of Chinese Military Procurement in Ukraine

Washington’s recent focus on Chinese military purchases in Ukraine may have come too late. In 1998, Beijing bought the unfinished aircraft carrier Varyag—which would later become the Liaoning—from the Ukrainian Black Sea Shipyard through an intermediary Hong Kong businessman. The PLA Navy (PLAN) was thereby able to leapfrog an estimated 15 years of research and development to achieve aircraft carrier capabilities in 2013, when the Liaoning entered active service (SCMP, April 29, 2015). The PRC also obtained production technology for the UGT-25000 gas turbine from Ukraine in the 1990s (later re-developed as the QC 280) and incorporated it into the propulsion systems of several of the PLAN’s large warships, to include the Type 052 Renhai-class destroyer, the Type 055 Kunming-class destroyer, and the forthcoming Type 011 Shandong aircraft carrier (Yandex Zen, July 14; Deagel, October 24; Deagel, December 19, 2018).

China also acquired the production technology for the D136 aircraft engine and the AI222-25 engine from Ukraine. The latter engine system is used in the PLA Air Force (PLAAF)’s JL-10 aircraft. Converted Soviet AL-31F-M1 engines were adapted with Ukranian engineering aid for use in the the J-11 and EMEI aircraft. Around the same time, the PRC created the WS 15 engine—which bears suspicious similarity to the Russian AL-31FN engine—for use in the PLAAF’s fifth generation J-20 fighter jet (Yandex Zen, July 14). The PRC has already had many years of successful procurement experience in the Ukrainian military technology market.

While Ukrainian technologies are not the only factor in the rise of modern Chinese military hardware, China has clearly benefited from opportunities presented by the current imbalance between Ukraine’s ongoing economic and military quagmire and its historic expertise in high-tech industries. After the collapse of the Soviet Union, independent Ukraine became one of the poorest countries in Europe: Ukraine is ranked last in the international market research firm Growth from Knowledge (GfK)’s 2019 “Purchasing Power Europe” report, with a per capita purchasing power of $2042 (GfK, October 21). The 2014 Crimea Crisis and ongoing war in Donbass have exacerbated this situation, making it impossible to guarantee a stable environment for investment or economic development. In the past, a third of all industrial enterprises of the Soviet Union were located in the Ukraine, including factories for the production of aircraft, missiles, ships and tanks. Chinese entities have bought up many of these neglected technologies and employed Ukranian experts at low cost.

The Process of Motor Sich Acquisition

Acquiring Motor Sich would have been a considerable victory for the PLA’s efforts to develop a modern warfighting capability, but Chinese buyers quickly ran into trouble. Beijing Skyrizon Aviation’s acquisition plan was first obstructed due to an inspection by the Security Service of Ukraine (SBU), which accused Motor Sich of continuing to sell products to Russia. The company maintains ties to the Russian government and defense industry, and according to the National Security Council of Ukraine, about 80 percent of Russian combat helicopters are equipped with Motor Sich engines (Hvylya News, September 19). The SBU has also accused a branch of the company of providing financial support to the separatist authorities of the Donetsk People’s Republic (Eurasia Daily Monitor, Sep 19).

Beijing Skyrizon’s attempt to purchase Motor Sich was conducted in a surreptitious manner. An SBU audit conducted in 2016 found that 56 percent of Motor Sich shares had been sold to various shell companies, with Skyrizon as the ultimate beneficiary. Skyrizon had, in turn, borrowed money for the purchase from the state-owned China Development Bank (CDB). If Skyrizon goes bankrupt, the Chinese government will gain control over Motor Sich via the CDB. Also in 2016, another Chinese company gave Motor Sich a soft loan of $100 million dollars (at 0.3 percent interest for 10 years). This loan may explain why Motor Sich was able to purchase plants in Ukraine and Belarus, despite suffering huge losses from the Ukranian trade ban with Russia during the same time period. After receiving a petition from the SBU in 2018, the Ukrainian court system froze 56 percent of Motor Sich’s shares previously sold to the Chinese and banned further equity sales (Dzerkalo Tyzhnia, September 21). Following these developments, Beijing Skyrizon Aviation was left with a 25 percent stake in Motor Sich—short of a controlling majority, but more than enough for a blocking minority.

Following this year’s presidential and snap parliamentary elections in Ukraine, it was revealed in June that the Chinese companies Skyrizon Aviation and Xinwei Technology Group had applied to the Antimonopoly Committee of Ukraine for a controlling stake in Motor Sich (061.ua, October 19). The compromise agreement made public provides that the companies receive an ownership stake of more than 50 percent in Motor Sich, but also that at least 25 percent of the shares be held by the Ukrainian state entity Ukroboronprom. The companies also pledged in the same agreement to contribute $100 million for the development of the Ukrainian aviation industry. Aside from the risk of default, it is expected that more than 40 percent of the Ukrainian government’s budget over the next two years will go to paying down the national debt; given this reality, the new Ukrainian government has been tempted to agree to this Chinese proposal (112.ua, September 18).

Ukraine’s Economic Ties with China and the United States

Regional analysts have noted that “Chinese investment [in Ukraine] has significantly increased by 50 times in the last decade [and] bilateral trade relations between China and Ukraine have grown dramatically… China has become the largest single nation trading partner [of Ukraine], bypassing Russia.” In recent years, the PRC has planned to invest over $7 billion in joint projects (Kyiv Post, September 14). Ukraine’s geographic position also makes it “highly attractive as a logistic transit hub within the Belt and Road Initiative (BRI) that links China with the European Union” (The Diplomat, October 4). To this end, the Kyiv-based “One Belt One Road Trade and Investment Promotion Center” has worked to deepen Sino-Ukrainian economic cooperation, and to build up Ukraine’s potential as a regional transit link (Xinhua, July 6, 2018).

By contrast, Ukrainian-American economic relations have stagnated for decades. In 2018, the Ukrainian-American two-way trade in goods was worth $3.8 billion; the equivalent trade between Ukraine and China in the same period was worth $10.1 billion (USTR, undated). According to U.S. 2019 import and export data, Ukraine offers mostly low-tech products to the U.S. market, which are potentially substitutable (Forbes, September 30).

Conclusion: Who Will Win in the Struggle Over Ukrainian Military Technology?

During John Bolton’s September trip to Kyiv, the U.S. administration indicated it was only concerned with security, and did not offer any pragmatic economic deals. The recent withdrawal of troops from Syria and Afghanistan has greatly reduced the trustworthiness of American security support and severely weakened its perceived international standing. During the Cold War, a territory like Ukraine was a strategic priority in the U.S. effort to contain the Soviet Union; however, Washington has apparently decided that it is not worth wasting too much strategic energy in Kyiv.

Some Ukrainian political experts, such as Yuri Romanenko and Alexander Kochetkov, argue that the controversy over Motor Sich could have been avoided if a U.S. entity had purchased the company (Hvylya News, September 9; UKR Life, September 3). American private companies (for example, General Electric) are engaged in the production of advanced aviation engines and compete with foreign counterparts such as Motor Sich for government contracts. The U.S. military procurement apparatus has privileged native suppliers for national security reasons, and has invested heavily in research and development for new military technologies, such as the development of 5th generation fighter aircraft. However, no US-based company has yet indicated serious interest in competing with Chinese entities for the purchase of Motor Sich. [1]

If we ask who will win in this particular case—China or the United States—the question is essentially this: which nation is able and willing to offer more to Ukraine? In the future, Beijing Skyrizon Aviation—and therefore the PLA—may acquire the engines for 5th generation fighter aircraft, based on past successes in the Ukrainian market and the depressed economic reality of Ukraine. The question is not one of right or wrong, but rather the realities of competition between a rising power and the existing dominant power across the globe. In our view, there will be only one winner in this battle for Ukranian technology: China.

Yuan Jiang is a Chinese PhD student currently studying at the Queensland University of Technology. He is affiliated with the QUT Digital Media Research Centre. He completed his master’s degree of political science at Moscow State Institute of International Relations, and bachelor’s degree of law at Shanghai University. He worked with ZTE Corporation in Moscow and as a special correspondent with Asia Weekly and Pengpai News. His writing has also appeared in The Diplomat, Australian Institute of International Affairs, People’s Daily (Overseas Edition), and Caixin. 

Vladimir Legenko is a Ukranian Masters degree student currently studying private international law at the Institute of International Relations of Taras Shevchenko National University of Kyiv (IIR). He serves as the Director for Foreign Economic Affairs for a Ukrainian LLC. He completed his bachelor’s degree of international law at Moscow State Institute of International Relations.

Notes

[1] Media reports in early November 2019 indicated possible interest on the part of Hong Kong-based Frontier Services (owned by Blackwater founder Eric Prince) in purchasing Motor Sich, but this remains unconfirmed (WSJ, November 5; Radio Free Europe, November 7).