One belt, two ways

Six years of war, loss of territory, a pandemic. Even a strong state would struggle to cope with so many problems, all at the same time. If you add a weak economy and constant domestic strife, you will get Ukraine.
According to the IMF, all these negative factors will result in Ukraine’s GDP falling by 7.7% in 2020. The consensus forecast of the Ukrainian government is somewhat more optimistic, at – 4.2%.
Regardless of the number, Kyiv is in dire need of money, and the more the better. Negotiations with international donors are tough, and hints at restoring former economic ties with Russia, which in 2014 seized the Ukrainian Crimea and effectively governs the separatists in the east, receive an extremely negative response of the majority of Ukrainians. Under such conditions, there are voices calling on Ukraine to turn its gaze to the East, namely China.

China doesn’t seem to mind. Back in 2013, Beijing and Kyiv signed a Friendship and Cooperation Agreement, as well as a Joint Declaration on Further Strengthening of Strategic Partnership Relations and a Strategic Partnership Program until 2018. China viewed Ukraine as a promising hub in its One Belt, One Way initiative, and Kyiv expressed its desire to join China’s 16+1 initiative. Ukraine hoped for Chinese investments in key infrastructure projects and promising sectors of its stagnant economy. Time has shown that Beijing is primarily interested in agriculture (see our stories), the energy sector, especially green energy (see our stories), and military technologies (see our story).

When Ukraine’s President Viktor Yanukovich shook hands with Chinese President Xi Jinping at the Great Hall of the People in Beijing December 5, 2013, optimism was in the air. Those times are forgotten. Source: Reuters

Since then, economic indicators have been steadily increasing. China has become Ukraine’s largest trading partner, selling 2.5 times more to Kyiv than it buys. In 2019, Ukraine’s exports to China amounted to $ 3.6 billion, and imports to $ 9.2 billion. Since 2015, Ukraine has firmly established itself in the top five largest exporters of agricultural products to China. For example, it supplies 3/4 of the corn.

However, cheery numbers cannot obscure a real recourse. In fact, none of the large-scale joint plans have been implemented, the relations between the two countries are declarative and basically frozen. The treaty ratified by both parliaments remains on paper and the parties have not yet exchanged their ratification documents. The paths of Kyiv and Beijing are diverging. Why? There are several reasons for this.

1. China is not ready to invest in Ukraine because it views it as a risky country. There are no conditions for investing the billions of dollars that the Ukrainian authorities are calling for. Ukraine cannot guarantee the stability in investment rules and laws that the Chinese seek. Kyiv also lacks strategic plans for the country’s development, so the Chinese are unwilling to invest for the long term.

Even the loans Kyiv receives are specifically Chinese in nature. Beijing actually finances its own producers and companies, and in Ukraine it tries to do so under state guarantees or guarantees of large state-owned enterprises – such as the fuel and energy giant Naftogaz. “There is little investment. Direct investment is only $ 40 million. That is nothing. Of these, 20% are Ukrainian assets and another 50% are Ukrainian enterprises’ debt. But China’s contribution to various projects is already at $ 7 billion. What are these projects? This is the money China provides as loans. Chinese money is paid for Chinese work and goods,”says leading Ukrainian expert Oleksiy Koval.

2. For China, Ukraine is a really unreliable partner. The irony is that all-powerful China has not found a way to overcome pervasive Ukrainian corruption. Among its biggest failures (see our stories) is the case of the Grain Corporation (see our story). Others include the case of the unused fuel loan for $ 3.6 billion. “Having been painfully burned several times, the Chinese now control their money and projects”, – emphasizes Koval.

3. Unlike authoritarian Russia, for China democratic Ukraine is an inconvenient political partner. In the post-Soviet space, Kyiv is a constant troublemaker, a source and exporter of instability. This contradicts Beijing’s state doctrine of tightly controlled, regulated and planned development. Kyiv continuous to declare its European and Euro-Atlantic orientation and receives substantial support from its Western partners. Unlike Western donors and the IMF, the Chinese have never accompanied their investments with any political demands, but this approach has not provided them any advantages. Also, several new hotspots have recently emerged in Ukrainian-Chinese relations. These include Beijing’s political alliance with Moscow, China’s foggy stance on the war in eastern Ukraine, and Ukraine’s civil society being largely sympathetic with Hong Kong protesters. “It is very important for China to look at a country and understand whether it is a friend or not,” says Oleksiy Koval.

4. In Ukraine, China found itself on uncomfortable territory. Its attempt to acquire the Motor Sich plant, a powerful aviation manufacturer that could strengthen China’s military, has shown just how powerful Washington, Beijing’s main geopolitical rival, is in Ukraine (see our story). Visits by US officials, who openly expressed their dissatisfaction with the agreement and basically demanded its termination, forced Beijing to defend itself. China’s soft power policy did not work well when confronted with the brute force of the Trump administration. For the first time in the history of Ukrainian-Chinese relations, Beijing violated its principle of non-public under-the-rug diplomacy and acted out an unusual role. The Chinese ambassador to Ukraine called a press conference and stated that Ukraine should decide for itself whom it should listen to.

Ukraine’s relations with China are showing clear signs of stagnation. The last rapprochement between Kyiv and Beijing took place during the presidency of Viktor Yanukovych in 2013. Since then, all attempts by the Chinese to fill numerous documents of “strategic” nature with real meaning have been a history of trial and error, and sometimes terrible fiascos. In Ukraine, China still faces insurmountable obstacles – constant Ukrainian political chaos, Kyiv’s unreliability as a partner, local corruption and US geopolitical interests. Overcoming these barriers requires Beijing’s patience, consistency and perseverance — traits that have always characterized China’s far-sighted policies. China’s influence in Ukraine will grow, but not at the pace it wants and only with the weakening influence of other important players.

 

Read the stories:

Is China a savior?

Donetsk Transit

Honey, you can make my Motor (Sich) run

Gone with the wind

Corruption Inc.

The Scam Express

Bohai’s feeler

No state guarantees, no project

On the road of disappointment

Ukrainian grain to China

Highway to the EU

Foreign investor & local corruption

Struggle for a place under the sun