January 10, 2014

Ukraine Is China's Gateway to Europe

The Independent Analytical Center for Geopolitical Studies “Borysfen Intel” affords ground to the analysts generation for expressing their point of view regarding the political, economic, security, information situation in Ukraine and in the world in general, according to their personal geopolitical studies and analyses.


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Oleksiy Volovych

Since the visit of the President of Ukraine Viktor Yanukovych to China on December 3-6 last year occurred in the context of the current sharp political crisis, some opposition political forces doubted its point. However, having made an extremely important visit to China, Yanukovych demonstrated that the situation in Ukraine is monitored and controlled not only by the authorities but also by the civil society (Maidan) as well as by the constructive opposition.

Social and political stability and predictability are an extremely important condition for the development of state-to-state relations, especially with countries that are world leaders. To prepare a state visit of a high level, and to such a superpower, which today is China is a very complicated undertaking. In the preparation of strategically important visits, the whole Cabinet of Ministers usually participates. President Viktor Yanukovych could not delegate anybody instead of himself to China, as strategic agreements with superpowers can be achieved only at the highest level.

By the way, Viktor Yanukovych's visit to China was another step towards European integration, since, as stated by the Ambassador of Ukraine Oleg Dyomin in Beijing, the Chinese leadership is interested in the European vector of Ukraine's integration, which, thanks to its large transit abilities, may be considered by it as a gateway to Europe. Prime Minister of the State Council of China Li Keqiang said recently, “China supports the choice of the countries of Central and Eastern Europe to join the European Union. We believe that comprehensive cooperation between China and the countries of the region will not only be useful for our peoples, but will also give a new impetus to the development of relations between China and the united Europe”.

China — a world power

Steady growth of China's economy against the background of the global financial and economic crisis has become a world economic phenomenon. Three decades have passed since the Chinese leader Deng Xiaoping initiated reforms in the Chinese economy, and today the progress of economic development cannot help impressing. During this time, China has managed to increase its economic potential fifteen times, and a hundred times — to expand its foreign trade turnover.

During the past 10 years, China's GDP (by purchasing power parity) grows annually by an average of 8-10%, while the USA's GDP — by 2-3%. It is expected that by the results of 2013, China's GDP growth will exceed 8%. For several years in a row, China has been second only to the USA in the world by GDP, which, as of 2012, respectively, was 12.3 trillion US dollars and 15.6 trillion US dollars. (For comparison, Russia's GDP in 2012 was 2.5 trillion US dollars, Ukraine's one - 0.3 trillion US dollars). In 2012, China's gold and currency reserves amounted to 3.5 trillion US dollars — the first place in the world, while the United States in 2011 had a total 148 billion US dollars — the 20th place in the world. China's direct investments abroad in 2012 had increased by 77 billion US dollars. China believes that by 2015 its direct investments abroad will rise to 560 billion US dollars.

Today China by its economic power is second in the world, and based on IMF data; in 2016 it will surpass the USA by key economic indexes. Experts predict that this year, China's GDP will make 19 trillion US dollars, while the USA's GDP — 18.8 trillion US dollars. Accordingly, the share of U.S. GDP in the world economy by 2016 will decrease to 17.7 %, and the GDP of China will grow to 18% (although 10 years ago the U.S. economy was three times as powerful as that of China). At the end of 2012 the United States for the first time ceded to China its leadership in world trade (respectively 3.82 trillion US dollars and 3.87 trillion US dollars). Commodities have long ceased to be the main item of Chinese exports. Suffice it to say that in 2011 China exported machinery products in excess of 650 billion US dollars (52% of total exports).

The trade turnover between the USA and China in 2012 exceeded 600 billion US dollars. There is no such a precedent in the world. (For comparison, the volume of trade between Russia and China in 2012 amounted to 88 billion US dollars). Therefore, during the talks with Chinese leaders in Beijing in early December last year, J. Biden not accidentally pointed out that the USA-China relations are most important bilateral interstate relations of the 21st century.

China's huge market and its huge investment opportunities attract attention of many countries. Yanukovych's visit to China coincided with the visit of the U.S. Vice President Joe Biden, staying in the same residence as the President of Ukraine — the hotel “Diaoyutai”.  From 5 to 9 December, on an official visit in China were also the French Prime Minister Jean-Marc Ayrault and the Prime Minister of Great Britain David Cameron. In 2012, China's trade turnover with France was 50 billion US dollars, and with Great Britain — 63 billion US dollars. All this testifies to the extremely important role of China in the world economy.

Political Relations

The People's Republic of China was among the first who on the 27th December, 1991 recognized the independence of Ukraine. In 1992, China opened its embassy in Kiev, and the following year the Ukrainian Embassy in Beijing began its work. President Leonid Kravchuk visited China on an official visit in the autumn of 1992. In 1993, the Chinese President Jiang Zemin visited Kyiv. In December 1995, President Kuchma arrived in China with the first state visit. In 2001, the Chinese President Jiang Zemin was in Ukraine on a state visit for the second time. In November 2002, L. Kuchma made ​​his second visit to China. The Ukrainian head of state became the first foreign leader to visit China after the completion of the historic 16th CPC Congress, where was elected a new leadership of the Communist Party of China and the country, headed by Hu Jintao. During this visit, L. Kuchma said that Ukraine was in full solidarity with China in its decision regarding the Taiwan issue and the completion of the full uniting of the country. In early April 2003, L.  Kuchma visited Hong Kong and (for the third time) China. But then in the Ukrainian-Chinese relations there was quite a long pause. From April 2003 to April 2010 due to the fault of the Ukrainian side, the Ukrainian-Chinese dialogue at the level of Heads of States had actually ceased. President Viktor Yushchenko had never visited China on a state visit.

China is rather ambiguously took the Orange Revolution and presidential elections in three rounds. Head of the PRC Hu Jintao, like President of Russia Vladimir Putin, had congratulated Yanukovych on his victory even before the results of the second round of the presidential elections were announced. In 2005 the official Kiev repeated the “Taiwanese mistake” of August 1996, when to Kyiv on a private visit came Vice President and Prime Minister of Taiwan Lien Chan. Although the Ministry of Foreign Affairs of Ukraine knew about Beijing's negative reaction to their foreign partners' contacts with officials of Taiwan. In 2005, a visa was given to the official representative of Taiwan Juan Chzhifan, who came to Ukraine to participate in the meeting of the International Crisis Group. As a consequence, China cancelled the scheduled for early 2006 meeting of the Intergovernmental Commission on Trade and Economic Cooperation. By then the Ukrainian Foreign Minister had not been visiting the PRC for six years, and the Head of the Chinese Foreign Ministry had not been visiting Ukraine for nine years.

Ukrainian-Chinese relations revived only after the election of Viktor Yanukovych to the post of the President of Ukraine. In April 2010, the President of Ukraine Viktor Yanukovych and President of the PRC Hu Jintao met in Washington at the Summit on Nuclear Safety and agreed to propel the Ukrainian-Chinese relations to a qualitatively new level. The Foreign Minister of Ukraine K. Gryshchenko's state visit to China in July 2010 contributed to the resumption of the dialogue between the two governments. Viktor Yanukovych's first state visit to China took place September 2-5, 2010. During it were signed 13 bilateral agreements on 4 billion US dollars

18-20 June 2011 President of the PRC Hu Jintao visited Ukraine on a state visit. April 14-18, 2011 with a working visit China was visited by the Prime Minister of Ukraine M. Azarov. September 24-27, 2013 a government delegation headed by First Vice Prime Minister of Ukraine S. Arbuzov visited China.

State of Affairs in Economic Cooperation

Taking into account the fact that, unlike Russia and Western countries, China does not impose any political conditions regarding the establishment of trade and economic cooperation, it is a priority partner of Ukraine in the international arena. Strategic partnership has been declared between Ukraine and China. As of December 2013, the contractual-legal basis of bilateral relations had more than 250 documents. April 20, 2011 in Kyiv, took place the first meeting of the Intergovernmental Commission on Cooperation between Ukraine and the PRC, within the framework of which a number of specialized sub-committees were established. (For comparison, by now 23 meetings of the Chinese-American Joint Commission for Trade have taken place).

China is the largest trading partner of Ukraine in the Asia-Pacific region and the third in the world after Russia and the EU. In 2012, the total trade turnover between Ukraine and China amounted to 9 billion 783 million US dollars as opposed to 4 billion 257 million US dollars in 2009. The negative balance for Ukraine in 2012 amounted to 6 billion 66 million US dollars, as opposed to 4 billion 27 million US dollars in 2011. In 2012, Ukrainian exports to China of mineral products, mainly iron ore accounted for 80.9 %, machinery and equipment — 4.5 %, fats and oils of animal or vegetable origin — 4.0 %. In the structure of Ukraine's imports from China in 2012 dominated machinery and equipment — 36.3 %, textile products — 11.0 %, metals and metal products — 8.5 %, footwear, headwear, umbrellas — 8.1 %, plastics and rubber — 7.1 %. The Ukrainian government hopes that in 2013 the trade turnover between Ukraine and China will exceed 10 billion US dollars. Experts predict that by 2023, the trade turnover between Ukraine and China could reach 100 billion US dollars.

The leading role in the strategic cooperation between Ukraine and China belongs to agro-industrial complex. According to experts, the amount of potential Chinese investments into the Ukrainian agribusiness industries may be 6-8 billion US dollars annually. Some powerful Ukrainian and Chinese agricultural holdings cooperate without the aid of government agencies. For example, in July 2013 between the Ukrainian agricultural holding “Ukrlandfarming” and the Chinese corporation “SAMS” was signed a memorandum on the construction in Poltava region of a complex for breeding cattle totaling 7 thousand. The project cost is estimated at approximately 400 million US dollars. The construction of the complex is supposed to be completed in 2017.

Xinjiang Production and Construction Corps plans to create in the Dnipropetrovsk region a pig-farm network with the capacity of up to 100 thousand tons of pork per year. This Ukrainian-Chinese enterprise may become the largest pork producer in Ukraine. According to preliminary estimates, the total investment into this project will be 2.6 billion US dollars.

Chinese market provides virtually unlimited opportunities for Ukrainian grain exports. Last year, Ukraine supplied China with 250 thousand tons of corn, wheat and barley. Ukraine has all the possibilities to supply China with at least 6 million tons of grain annually and, in particular, with 80 million tons of corn over the next 15 years. In the perspective, it makes almost half of Ukraine's total grain exports.

 “Ukrlendfarming” group of companies invited Chinese investors to create on Ukrainian lands the “Grain Project” worth 2.5 billion US dollars, which provides for the construction at the territory of Ukraine of series of elevators with the total capacity of 5 million tons, construction of a port with the capacity of 10 million tons, purchase of 3 thousand railway carriages – grain carriers and construction of 5-7 ships for transportation of grain. This project will make it possible to supply China, the Middle East and North Africa with Ukrainian grain.

In a certain way the Ukrainian community felt discontent due to the spread by Western and Chinese media information about an agreement between the aforementioned Chinese Xinjiang Production and Construction Corps and Ukrainian company KGS Agro on ostensibly transfer to China in the long-term lease for 50 years, of about 3 million hectares of arable land (2 % of the territory of Ukraine) for growing grain and livestock development in the Dnipropetrovsk region. It was also reported that the agreement involves the construction of settlements for Chinese workers, who will handle the land and after 10 years of residence in Ukraine will be able to not only get Ukrainian citizenship, but also to create... a Chinese Autonomous Region...

While in Beijing, Minister of Agrarian Policy and Food of Ukraine M. Prysyazhnyuk stated that “concession of land by Chinese companies had not been discussed at any level”. According to him, so far is being discussed “the question of financial cooperation and supplies of agricultural products”. In particular, is being discussed the possibility of cooperation with Chinese companies within the Ukrainian Program for recovery of irrigation systems in the South of Ukraine. For the implementation of this program, Chinese banks can provide a loan in the amount of 2.5 billion US dollars for 15 years at 6.5 %, which will enable Ukraine to solve the problem of irrigation by 85%. Replacement of irrigation equipment in the area of ​​1 million hectares of land will allow to additionally growing about 15 million tons of grain that will virtually make the amount of Ukrainian grain exports for the next 10-15 years.

There appear new prospects for cooperation between Ukraine and China in a joint agricultural machinery building. In April 2013, an agreement was signed on cooperation between the Ukrainian state enterprise “Yuzhnyi (Southern) Machine-Building Plant” and Chinese companies “Citic International Corporation Co.Ltd” and “CHAINA YTO International” on production and deliveries to Ukraine of tractors “YTO-YuMZ”.  YTO Company is a leader at the market in China; its products are exported to more than 80 countries of the world.

China is a promising market for Ukrainian high-tech products, heavy machinery building, and production of aircraft industry, space technologies and military equipment. In December 2011 Mykolaiv's SE RPC “Zorya” - “Mashproekt” and Chinese Petroleum Corporation “Sinopec” signed a contract to supply China with 5 gas turbine-generator units of 16 MW each.

At the end of 2012, Ukraine and China signed an agreement on financing the projects in the Ukrainian energy sector worth nearly 3.7 billion US dollars. During the visit an agreement was signed with the Chinese CNCEC on the construction of plants for production of synthesis gas. This project is supposed to become part of the Ukrainian program for replacing the consumption of natural gas with coal. According to the Minister of Energy and Coal Industry E. Stavytskyi, this project will allow Ukraine to save up to 4 billion cubic meters of natural gas, to provide a market for 10 million tons of coal annually and to create more than 2.000 jobs.

In pursuance of the State Target Program for Energy Efficiency for 2010-2015, in 2010 the LLC “Activ Solar” and PAT “Ukreximbank” signed a framework Agreement on cooperation in the solar industry with the Chinese National Engineering, Industries, General Projecting Corporation,  as well as with the Export-Import Bank of China.

Military-technical cooperation between Ukraine and China is being developed steadily. In April 1995, two agreements were signed: the Agreement on Cooperation between the Ministry of Defence of Ukraine and the Ministry of Defence of China and the Agreement between the Government of Ukraine and the Government of China on cooperation in military-technical sphere. These Agreements laid the foundation of military-technical cooperation between Ukraine and China.

In recent years, Ukraine has been visited by representatives of the senior military leadership of China. In August 2011, Ukraine was visited by the member of the Central Military Commission, Chief of the General Staff of the People’s Liberation Army of China, Colonel-General Bindé Chen. In mid-January 2013 in Kiev on an official visit was a member of the State Council of China, Defence Minister Colonel-General Liang Guanglie. At the talks with the leadership of Ukraine it was pointed out that promising is cooperation in the creation of heavy transport aircrafts, large-tonnage ships, hovercrafts, construction of tanks and AD systems.

Already in 1998, Ukraine sold to China for 25 million US dollars the unfinished aircraft carrier “Varyag” and later helped the Chinese with its modernization. Towing of the unfinished aircraft carrier “Varyag” from Sevastopol to China was quite dramatic and lasted nearly two years from June 2000 to March 2002. In September 2012, renamed “Liaoning”, the aircraft carrier became part of the Navy of China.

In accordance with the Agreement of May 27, 2009, in April 2013, to China was transferred the first of the four world's largest amphibious hovercrafts “Zubr” (“Bison”), built by Feodosia shipbuilding company “More” (“Sea”) at order of the Chinese Navy. The amphibious hovercraft “Zubr” is designed for landing onto an unprepared coast and fire support. The ship is capable of carrying three main tanks weighing up to 150 tons, or 10 armored vehicles and 140 marines. Besides the ships themselves, to Beijing will be also transferred all the technical documentation that will enable the Chinese side to organize independent production of the “Zubr's” copies. Amphibious hovercrafts “Zubr” are also being built in Russia, which has repeatedly expressed concern about China's copying the Russian and Soviet military equipment. In particular, Moscow protested against Kyiv's plans to transfer to China the documentation for the “Zubr”.

Ukraine helped in the creation of the Chinese supersonic trainer-combat aircraft L-15. For this plane Ukraine supplied engines DV-2 made at Zaporizhia Machine-Building Design Bureau “Progress” and engines AІ-222K-25F — production of PJSC “Motor Sich”.

In November 2012 Ukrainian military delegation visited the ninth International Aerospace Exhibition Airshow China-2012 in the Chinese city of Zhuhai, where it got acquainted with the new developments in the Chinese military aviation industry. In recent years, military educational institutions of the Ministry of Defence of Ukraine have trained over 200 Chinese military servicemen.

An important component of Ukrainian-Chinese relations is the cultural and humanitarian cooperation. Suffice it to note that in Ukraine are being trained at least 5 thousand Chinese students (about 10 % of all foreign students in Ukraine). Unfortunately, until present, there was no governmental agreement on cooperation in tourism, and no Chinese travel company operated in Ukraine. Some Ukrainian companies organize tours to China, but none — to Ukraine. And due to this Ukraine loses much as China, according to the World Tourism Organization, ranks first in the world in the number of funds spent by its citizens on outbound tourism. In 2012, Chinese tourists spent abroad 102 billion US dollars (almost 10% of the total world expenses). Absence of direct air connection between Ukraine and China is also one of the factors inhibiting the growth of the exchange of tourists. Only in summer of 2014 “Ukraine's International Airlines” plan to open a direct flight to Beijing. Ability to open flights to other Chinese cities will be considered in 2015. The issue of opening flights to the PRC is also being considered by the Ukrainian charter airline “Windrose”.

At the moment the Ukrainian tourist industry is not ready for a dramatic increase in the number of Chinese tourists, both, because most of them do not speak English, and because of lack of guides and interpreters from Chinese into Ukrainian. On the other hand, for Chinese tourists one of the conditions for their choosing the country is presence of relatively cheap hotels and traditional Chinese cuisine. However, unfortunately, the tourist business of Ukraine is not able to answer either of these demands yet.

Significant role in the development of bilateral Ukrainian-Chinese relations play non-governmental organizations. Let's name just a few. In order to support and develop business cooperation between local authorities, business and the public of Kiev and Beijing, since 2004 operates Association for Business Cooperation “Kiev-Beijing”. In 2008, was established the Association “Ukrainian-Chinese Cooperation,” the main objective of which is development and improvement of areas, forms and means of mutually beneficial cooperation between Ukraine and China. The Association is headed by former Ukrainian Ambassador to China (1999-2001) Ihor Lytvyn. In September 2010, by instruction of President of Ukraine Viktor Yanukovych and former President of China Hu Jintao, was established the Business Council “Ukraine-China”, which aims to promote joint economic, trade and cultural projects, and to strengthen cooperation between business circles of both countries. The Ukrainian part of the organization is headed by former deputy V. Konovalyuk and the Chinese one — by the President of the corporation “Sinomash” Ren Hongbin. In August 2010, the Business Council organized the first in the history of relations between the two countries, Ukrainian-Chinese Economic Forum of Business Circles. In Mykolaiv since 2013 has been working the “Association for the Advancement of Ukrainian- Chinese tourist, business and cultural cooperation”. Such associations, centers and societies work in many cities of Ukraine.

The Main Results of Viktor Yanukovych's  Visit  to China

The President of Ukraine's visit to China was at the highest level. V. Yanukovych had talks with President Xi Jinping, with the Chairman of the Standing Committee of the National People's Congress Zhang Dejiang, with Premier of the State Council of the PRC Li Keqiang, Vice-Premier of the State Council of the PRC Ma Kai, Head of the National Government of the province of Shensi Lowe Tsintszyan and other Chinese senior officials.

President of Ukraine in China was accompanied by a large delegation, which included three Ministers: the Minister of Energy and Coal Industry E. Stawytskyi, Minister of Agrarian Policy and Food M. Prysyazhnyuk, Minister of Economic Development and Trade of Ukraine I. Prasolov.

On the first day of the visit, being in Xi'an (the administrative center of the province of Shensi), the President visited the aircraft enterprise of the “AVIC” corporation which produces transport, passenger and military aircrafts. This company has partnered with the Ukrainian state enterprise “Antonov”. V.Yanukovych also visited China Radio International (CRI), where he launched online broadcasts in Ukrainian.

Speaking at the Second Ukrainian-Chinese Business Forum in Beijing, the President of Ukraine called the project of construction of the ring road around Kiev one of the most promising for Chinese investors. As an example of successful implementation of national projects with Chinese investors, V. Yanukovych mentioned the project “Air Express”, which suggests organization of passenger railway connection between Kyiv and the international airport “Boryspil”.

V. Yanukovych declared about Ukraine's support to Chinese initiative regarding the revival of the “Great Silk Road”, which provides for the construction of high-speed railway “Beijing-London” through Astana, Moscow, Kyiv, Warsaw, Berlin and Paris. It should be noted that thanks to the ancient “Great Silk Road”, the northern branch of which came through the territory of modern Ukraine in the Crimea, relations between Ukraine and China began to emerge in the days of Kyivan Rus. Development of Ukrainian transport network in the context of transcontinental transportation meets strategic interests of Chinese exports to Europe and, accordingly, has investment attractiveness for Chinese business.

During the meeting of the Director General of “Ukroboronprom” (Ukrainian Defence Industrial Company) S. Gromov with the leadership of the Defence Industrial Company “Poly Technologies” were discussed prospects of cooperation in the sphere of creation and modernization of armored vehicles, high-precision weapons, general development of advanced weapons systems, in particular in the field of shipbuilding. China is interested in Ukrainian engines for military equipment.

During the visit, about 20 bilateral documents were signed. Let's mention the main ones: Agreement on Friendship and Cooperation between Ukraine and China, General Declaration of Ukraine and China on Further Deepening Strategic Partnership, Intergovernmental Agreement on Economic and Technological Cooperation, Agreement on Cooperation in the Spheres of Energy Efficiency, Energy Conservation and Renewable Energy Sources, the Framework Contract for construction of a new mine in Krasnoarmeysk (Donetsk region), Memorandum of Cooperation in the development, manufacturing and maintenance of aircrafts, Memorandum of Mutual Understanding on the establishment of the rolling stock of the national project “Air Express”, Memorandum between the Ukrainian company “Kyivgidroinvest” and the Chinese company BICIM on building a deep-water port in the Crimea, the Memorandum between the State Agency for Tourism and Resorts and the National Tourism Administration of China on the Promotion of group travel of Chinese tourists to Ukraine.

According to the Ukrainian side's estimates, to implement projects determined in these and other bilateral documents, about 8 billion US dollars of Chinese investments will have to be involved. If all these projects get implemented, it will be a great achievement for Ukraine.

China is interested to invest into the Ukrainian economy, taking into consideration its favorable geopolitical location, good transport system, the presence of a strong scientific-industrial complex, the access to the markets of the CIS and the EU.

Development of friendly and mutually beneficial relations with the world's largest power - China - is extremely important for Ukraine. Both countries have similar attitudes to the solution of international questions, positive historical experience of cooperation and no problems in bilateral relations in the past. And today, the complementary nature of economic systems, significant potential of cooperation in trade-economic, scientific- technical and military-technical and humanitarian sectors create the necessary prerequisites for progressive development of mutually beneficial Ukrainian-Chinese relations.