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13:53 PM Tuesday, January 23, 2018
Opinion
​With Russia on the Sidelines, China Moves Aggressively into Ukraine
Dredging ports, building grain silos and highways, China moves while Russia watches
image/svg+xml Kyiv Lutsk Rivne Zhytomyr Lviv Ternopil Khmelnytskyi Uzhgorod Chernivtsi Vinnytsia Chernigiv Sumy Kharkiv Poltava Cherkasy Kirovohrad Lugansk Dnipropetrovsk Donetsk Zaporizhzhia Mykolaiv Odesa Kherson Simferopol Sevastopol Ivano- Frankivsk

KYIV -- On Ukraine’s Black Sea coast, the most active foreign actor is not Russia. It is China.

On the Danube, Chinese investors are mulling buying a Ukrainian river shipping company that could insert Chinese products deep into Eastern Europe. At the two big ports flanking Odesa, China Harbor Engineering Company just finished dredging Yuzhny and now is bidding to dredge Chornomorsk, and to build a rail-to-ferry terminal.

On land, one Chinese company starts work shortly on a 200 km cement coastal highway, built to take the pounding of overladen grain trucks. At Mykolaiv, another Chinese company has built modern grain silos and port elevators. Further east, Chinese companies study dredging in two more ports, Mariupol and Berdyansk.

And herein lies the geopolitical rub.

Chinese Boats in a ‘Russian Lake?’

The two ports are on the Sea of Azov, a body of water that, after the 2014 annexation of Crimea, the Kremlin would like to turn into a Russian lake. If, as expected, a Chinese company wins the dredging contracts, the Russians would watch Chinese dredgers sail under the new Russian bridge connecting Crimea with Russia’s mainland.

In Ukraine, China carefully avoids public conflict with its ‘strategic partner,’ Russia.

Last month, when Ma Kai, a Chinese vice premier, visited Kyiv to review investment projects, his public statements were few and bland. He said: “We consider Ukraine as one of the logistics and industrial hubs on the way to the European Union.”Few people focused when he announced $7 billion in Chinese investment projects for Ukraine.

President Poroshenko welcomes Ma Kai, vice premier of China, in Kyiv last month. (UNIAN/Nikolay Lazarenko)

China’s Long Term Goals

Quietly and aggressively, China pursues its own self interests in Ukraine.

Not only is a Chinese company expected to upgrade Ukraine’s two commercial ports on the Sea of Azov, but another Chinese company wants to capitalize on the wind coming off the Azov. It wants to build a 500 mw wind farm -- right in the path of where Russia threatened to open a ‘land bridge’ from Donetsk to Crimea.

In Ukraine, Chinese self-interest means two things: guaranteeing access to Ukraine’s abundant food crops, and building a lesser route for its multi-strand Silk Road to Europe. Aiming for the world’s richest consumer market, this route would go from Kazakhstan, across the Caspian to Azerbaijan, on to Georgia, and then across the Black Sea to Chornomorsk.

“For China, Ukraine is critically important for exporting to the European market,” said Henry Shterenberg, an American investment advisor here. “They are afraid the U.S. is going impose a 5% tariff on imports from China.”

“In Zaporizhia, they are buying empty industrial buildings, looking at assembling cars,” he continued, referring to a Dnipro River city that historically has been Ukraine’s center of auto manufacturing.

Western Cos. are Toe Dippers

For Ukraine, China is a welcome investor, moving where Western companies often fear to tread.

“Ukraine needs the money, China has the money,” said Radu Magdin, a Bucharest-based political consultant visiting from Romania. “Also, Chinese investments are not values related. There are no conditionalities.”

At the same time, China introduces to Ukraine a welcome geopolitical diversification from the old choice, Russia or Europe. This spring, China is to start regular freight service from Western China through Ukraine to Europe. Few people worry that Russia would block the trains.

Many of China’s projects are related to guaranteeing food exports – port modernizations, dockside silos, highways, a new bridge over the Dnipro, and an offer to build railroad locomotives in Ukraine. The dredging and deepening of Yuzhny port is part of a $150 million, Cargill project which will increase Ukraine’s total grain export capacity by 15%.

For COFCO, China's largest food processor and trader, it was all smiles at the 2016 inauguration of the $75 million silo and grain exporting complex at Mykolaiv (supplied)

Crowd Pleasing Projects for Kyiv

Two projects seem designed to win friends and influence. In November, two Chinese companies signed a contract to build Kyiv’s fourth metro line, a $2 billion arcing line designed to ease crowding in the city center. Other projects under negotiation by Chinese companies are guaranteed to please the nation’s media and political elite: a ring road highway around Kyiv and a fast light rail from central Kyiv to Boryspil, the city’s busiest airport.

Some analysts fear that China eventually will form an unholy partnership with Russia, dragging Ukraine back under Russia-oriented authoritarian rule.

“China has a very aggressive economic strategy in Europe,” Jack Keane, retired US Army general and chairman of the Institute for the Study of War, warned in an interview last month while visit here from Washington. “What will follow is geopolitical influence to move Ukraine away from the West.”

China Does Not Boost Russia

In Greece, billions of dollars of Chinese investment, notably in the port of Piraeus, has led to pro-Chinese stances by Athens. But China’s rise seems to be helping China, not Russia.

In Central Asia, Chinese diplomacy, flattery and new facts on the ground have reduced Moscow to playing a new, unfamiliar role: rent-a-cop in the Chinese shopping mall.

In Ukraine, one French banker in Kyiv argues, China may be happy to have Russia tied up in an expensive, pointless war on its Western end. This makes the Kremlin more open to Chinese demands on its Eastern end. Since 2014, Chinese investment in the Russian Far East has grown in what China wants: oil, gas, iron and farmland.

With Russia ejected from Ukraine’s investment scene, China makes its moves. Last fall, in a move to facilitate public and private investment, China’s Bohai Commodity Exchange acquired the Ukrainian Bank for Reconstruction and Development, or UBRD.

China Moves Under Ukraine’s Radar

In Ukraine, the understandable obsession with Russia is so great, that China’s recent investment push is passing largely unnoticed.

In Odesa, the talk is about Russia’s control of Crimea, 200 km away by ship. It is not about the proposed 500 km Chinese-built fast train from Kyiv to Odesa.

Out of the eye of the Kyiv press corps, China's consulate general in Odesa coordinates Chinese investment up and down Ukraine's Black Sea coast. (The Flying Dutchman)

In Odesa, China’s three-story consulate, the largest diplomatic mission in “the Pearl of the Black Sea,” stands two kilometers from Mechnikov National University, the city’s leading institute of higher learning.

But a two-week search for a China-Ukraine expert came up empty. A professor of international relations asked around, then emailed back: “Turns out that none of them have ever done any studies of Ukraine - China relations…This is not something on my radar.”


This article also appeared on the Atlantic Council's Ukraine Alert blog. For comments and story ideas, please contact UBJ Executive Editor James Brooke at james.brooke@theubj.com


Posted Jan. 6, 2018

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