What drives the investment? In the last five five years, Ukraine’s food exports to China increased fivefold, to $1 billion. Today, China, the world’s largest importer of food, is Ukraine’s top destination for food exports.
Chinese investment is designed to guarantee reliable supplies of Ukrainian grain and food to feed China’s 1.4 billion people. Last year, Ukraine displaced the United States as the top supplier of corn to China. By 2030, as farm yields grow steadily, Ukraine could displace the US as the world’s top exporter of grains.
Chinese investment is concentrated on the Black Sea coast, Ukraine’ commercial interface with the outside world. The story starts here in Odesa, where China occupies the city’s largest foreign consulate, a three-story building with a commanding view of the port.
Last month, a Chinese company signed a contract to build the first half of a 200 km Chinese-financed cement highway east from Odesa. Built by China Road and Bridge Corporation, this $100 million artery will be Ukraine’s first cement highway, built to take the pounding of fully loaded grain trucks.
The first stop will be at Yuzhny Port, Ukraine’s busiest and deepest port. There, in an $80 million project, China Harbor Engineering Company started dredging last month the seven km access channel. Chinese dredges are deepening depths in front of berths by 30 percent. These two companies, China Road and China Harbor, are subsidiaries of China Communications Construction Co., Ltd, a mixed state and private company.
From Yuzhny the new cement highway will continue 100 km further east to Mykolaiv, Ukraine’s last major port before the Crimean peninsula.
There, Cofco, China's largest food processor and trader, inaugurated last year a 20-silo grain handling complex. It is capable of receiving 120 railcars and 120 trucks per day. The $75 million shipping complex is considered the largest completed Chinese investment to date. By purchasing the land for silos and shipping berths, Cofco bought its own Ukrainian stevedoring company, Danube Shipping-Stevedoring Company.
To held feed grain to the silos in Mykolaiv, Chinese Eximbank is to approve in October, a $330 million loan for construction of a 1 km bridge over the Dnipro River at Kremenchuk. This modern highway bridge will ease a bottleneck for grain trucks draining grain from the Poltava, Kharkiv and Sumy regions down to Mykolaiv port, about 320 km south of the crossing.
“China has identified Ukraine as a strategic partner,” said Ruslan Osypenko, CEO of the China Trade Association in Kyiv. “Infrastructure investment is seen as most important -- road and ports and airports.”
What is happening in Ukraine is a part of a wider phenomenon. China is moving quietly, but firmly, into the economic space that was dominated in the last century by Russia.
In a historic marker, China’s per capita income is to surpass Russia’s this year. And China has 10 times as many ‘capitas’ than Russia.
“In a number of post-Soviet countries, China hasn’t simply joined the top three major suppliers of goods, but already occupies first place, having displaced Russia” reads a report, The Chinese Strategy of Mastering the Post-Soviet Space and the Fate of the Eurasian Union, issued last month by the Institute of Economics of the Russian Academy of Sciences. Referring to nations once controlled by Moscow, it concluded: “The role of Russia in this regard in a number of states is shrinking.”
China’s primary goal in Ukraine is to lock in food supplies for decades to come. Already China is Ukraine’s largest market for flour and sunflower cooking oil.
Expanding from grain, the list of Ukrainian food products approved by China’s sanitary control agencies grows by the month. This year, it was beef, dairy, sugar beet pulp and animal feed. Next year, Ukraine expects to win approvals for eggs, poultry, berries and honey.
China also sees Ukraine as an alternate, if lesser, east-west route in its $1 trillion “One Belt, One Road,” cargo transportation strategy.
“Ukraine is a very important hub on the Eurasian continent,”China’s ambassador to Ukraine, Du Wei, told Ukrinform news agency recently.“We have included Ukraine in the first group of 65 countries that will take part in building the general concept "One Belt - One Road.”
The impact can be seen in two Ukrainian ports west of Odesa. Here, China identified ports that can be used to funnel Chinese goods into the European Union, China’s second largest export market, after the United States.
At Chornomorsk, China Communications Construction is embarking on a $50 million project to upgrade the Soviet-era rail and ferry link at this port, formerly named Illichivsk after Lenin’s patronymic. From Chornomorsk, ferries depart three times week for the 1,250 km trip across the Black Sea to Georgian ports of Poti or Batumi.
“Why a Chinese company? We think they will bring cargo,” Viktor Dovhan, Deputy Infrastructure Minister for European Integration, said in an interview. “Our problem is one way. The trucks come back empty.”
Last week, Chinese Harbor, the company dredging Yuzhny port, submitted a bid to dredge and deepen Chornomorsk port this fall.
"The dredging project is aimed at creating optimal condition for allowing modern bulker ships with deadweight of up to 80,000 tons and container ships of Post Panamax Plus,” Raivis Veckagans, the head of Ukraine’s Sea Port Authority, told Interfax, referring to what is expected to be a $3.5 million project.
About 200 km south of Chornomorsk, at Izmail, Ukrainian Danube Shipping Company signed a memorandum last month to rebuild its river fleet in partnership with another Chinese state company, China National Technical Import & Export Corporation. In a $50 million, Chinese-financed project, the Chinese will build 40 barges and rebuild 21 tugs for the Ukrainian company.
In Ukraine, a maor bottleneck for moving grain from farm to port is Ukrzaliznytsia,
Ukraine’s poorly managed and underfunded railroad. One priority is upgrade 275 of the railroad’s locomotives over the next five years. Undermining this task, separatists control Ukraine’s sole locomotive manufacturer, Luhanskteplovoz.
Here, China Railway Construction Corporation, the world’s second largest construction and engineering company, has signed a memoranda of understanding to build and rebuild locomotives in Ukraine.
“They have three Ukrainian Railways sites in mind: Dnipro, Zaporizhyia, Stryi,” Dovhan, the deputy infrastructure minister said.
China’s new role in Ukraine came after a share of false starts: a $3 billion plan to build a deep water container hub in Crimea, a $7 billion energy credit that has gone unused, millions of dollars disappearing from a Yanukovych-era corn sale and from a credit to build a light rail line from Kyiv to Boryspil.
Now bilateral relations seem to have matured.
"We believe that together we can implement joint projects in Ukraine, and, within six months Ukraine will appear as a logistic hub on China's Silk Road map," Dovhan, the deputy infrastructure minister, told "One Belt One Road" forum in Beijing last April.
Four months later, promises are becoming facts on the ground.
Chinese barges are dredging Yuzhnye, Chinese road graders are arriving to work on the cement highway, and Chinese state company executives are preparing to sign contracts this fall for the new bridge at Kremenchuk and the renovation of the Danube shipping fleet.
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