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The Analysis of the Relationship between China and Ukraine

Release Time: 2016-01-11 13:00:47   Author:Liu Zuokui   Source: 转载   View Count:


Abstract: This article summarizes the categories of Chinese strategic partnership and the implication to Ukraine. The trade and investment cooperation potential, the political and military cooperation between China and Ukraine is discussed as well. The author argues that, Ukraine has a huge market potential, however, the economic and trade cooperation between China and Ukraine is not so optimistic. China is increasingly cautious about Ukraine’s investment risks and political instability. The military industries and techonlogies cooperations between them are not so important and sustainable compared with China-Russia cooperations on these regards. The political cooperation between them is relatively good and Ukraine may become an important strategic pivot for China’s building of the Silk Road Economic Belt. However, the crisis causes a serious impact on the bilateral political cooperation and its role in the construction of the Silk Road Economic Belt. China does not want to play the role of diplomatic intermediary in Ukraine Crisis and at the same time, it is ready to accommodate both the interests of Russia and the EU. From Chinese point of view, the stability and development of Ukarine benefit most to it. China has no instruments and abilities to change the general situation happened in Ukraine currently.


Key Words: Strategic Partnership   Market Potential   Silk Road Economic Belt  Military Cooperation    Trade and Investment Cooperations    EU and Russia


I. China’s Strategic Partnership and its Implication to Ukraine


By the end of April 2014, China has established strategic partnerships with 44 countries around the world. Among these countries, 19 are from Asia, 14 from Europe, 7 from the Americas and 4 from Africa. In examining the choices of China’s strategic partners, some common categories emerge. First, many of the partners are the neighboring countries of China. Naturally, they are the main focus of China’s foreign policy. Not only are they engaged in close economic and trade cooperation with China, but also have an impact on the overall peace and stability in the region.


The second category includes larger countries in size. China and these countries need each other in trade and developing common strategies. They are crucial for China to achieve its goals in the areas of economic development, security cooperation and global governance. These states (or organisations of states) are usually either China’s neighbours or are in close cooperation with China, especially in the areas of bilateral trade and creating a common strategy. Among them are Russia, the Association of Southeast Asian Nations and European Union. 


The third category is a more diverse group of countries, which nonetheless share some common characteristics. They either have relatively close economic and trade relations with China or show a potential for development of cooperation. Most of them are regional powers or have a geopolitical importance. Clearly and for many different reasons, there are still countries which have not concluded a strategic partnership with China. The United States and Japan are the best examples. These two countries obviously have some of the features described above and therefore are also on the list of China’s important strategic collaborators.


Ukraine belongs to the third category of countries. It is neither China’s neighbour, nor is it a large country. China chooses to engage in a strategic partnership with it based on four criteria. First and foremost is the economy and whether the country shows a high potential for economic development. In China’s foreign policy, economic and trade cooperation are the foundation of all relationships which leads to more pragmatic and extensive cooperation in other areas. The second criterion is a history of friendly relations between both countries which could continue to influence both sides towards reaching a comprehensive and broad consensus regarding each other’s core interests. The third criterion is whether the country is an influential regional power or has geopolitical importance. This could set the stage for the active promotion of Chinese regional cooperation. The fourth and final criterion relates to whether there are prominent and important areas of cooperation that could enhance both countries’ strategic positions. 


China concluded a strategic partnership with Ukraine in 2011. Since that moment, however, a serious crisis has unfolded in Ukraine which, naturally, has brought serious questions that China’s policymakers now need to answer. What effects will the instability in Ukraine have on China’s foreign policy? To answer this question let us use the four above-mentioned criteria to assess them.  


II. The Trade and Investment Cooperation Potential between China and Ukraine


In China’s view, Ukraine has a huge market potential. As a matter of fact, Ukraine does represent the biggest market among the post-Soviet states except Russia. Its main industrial sectors include metallurgy, machinery manufacturing, petroleum refining, shipbuilding, aerospace, aviation and others. Ukraine once held the key position of the production of military industries in former Soviet Union. In addition, Ukraine has a highly developed agricultural sector and is rich in fertile land which is well known as the “Breadbasket of the Europe”. These competitive advantages indicate a great potential for developing economic and trade relations between Ukraine and China. 


Available data on bilateral trade relations between both countries also demonstrates a steady, although relatively slow, increase over the last decade (see Table One). Having said that, it is yet important to stress that Ukraine cannot be regarded as China’s major trading partner in Europe. Chinese-Russian trade, for example, is already eight times higher than is the Chinese-Ukrainian trade, and the size of trade exchanges between China and the EU members is even larger. In 2013, Germany, the Netherlands and the United Kingdom were the three largest trading partners of China in Europe. Trade with Germany was recorded to be more than ten times greater than that with Ukraine. Statistical data from Ukraine, however, shows that China enjoys a certain status in its import and export markets; China is ranked ninth in the export markets of Ukraine and second in its import markets. 


Table One:  Trade between China and Ukarine and other Countries  from 2007 to 2013 (Unit: Ten thousand USD)

Year/Country2007         2008        2009        2010        2011        2012        2013

USA       30,208,271   33,373,763   29,825,877  38,534,135  44,664,666  48,468,252 52,100,209

EU28      35,615,124    42,557,769  36,404,170  47,971,255  56,721,283  54,604,330 55,904,032

Germany   9,411,164     11,500,901  10,568,365  14,238,930  16,915,115  16,112,972 16,155,151

Netherland 4,634,082    5,121,109    4,180,448  5,618,312    6,815,308   6,760,904  7,014,739

UK         3,943,539    4,562,363    3,915,472  5,007,505    5,868,499   6,310,538  7,004,017

CIS        7,600,486    9,841,428    7,000,813  9,604,515   13,277,227  14,838,223  15,440,080

Russia     4,816,537    5,683,054    3,879,672  5,544,879    7,924,930   8,815,804  8,921,269

Ukraine       652,957     866,086     577,632     773,194    1,041,108   1,035,517  1,111,521

Belarus        83,981      85,892      81,002     127,174      130,373     158,316    145,151

Source: European Department of Ministry of Commerce, the People’s Republic of China, and the website is http://ozs.mofcom.gov.cn/ (access to the site on 6 April, 2014)


Looking into the future, it’s justified to say that Ukraine will continue to demand more Chinese goods and products. Generally speaking, the economic power and market size between them are to a great extent asymmetrical. Ukraine with its 45.5 million inhabitants cannot be comparable with China and its more 1.3 billion inhabitants. The economic strength of the two countries is also the case. As a result, relations between the two countries form the situation in which Ukraine needs China more than China needs Ukraine. We may even hazard a guess that Ukraine may become a target market for China to implement its diversified trade and investment strategy, although the course of these relations still obviously depends on Ukraine’s economic situation after the current political crisis. However, even a glimpse at the structure of the bilateral economic and trade relations between China and Ukraine can raise some concern. First of all there is a problem of the oversimplification of trade. For many years, Chinese exports to Ukraine were limited to textile products or consumer goods. Ukraine’s exports to China, on the other hand, have primarily focused on steel. In 2000, steel exports accounted for more than 90 per cent in Ukraine-China trade. Such a simplification of the commodity structure is yet easily affected by market changes and adjustments of industrial policy by both countries. Indeed, with the growth of China’s own steel industry, the demand for foreign steel has declined over the years. Since 2005, China has transformed from being a steel importer to a net exporter. Consequently and unavoidably, Ukraine’s exports to China have fallen sharply and the trade deficit has increased.


In addition, the political volatility that has started to characterise Ukraine’s market in recent months has also had negative effects on the bilateral trade between the two states, especially in the light of the separatist activities taking place in eastern Ukraine. This suggests that Ukraine’s political problems may not only hinder the country’s path towards sustained and stable development, but may also affect the country’s relations with China. On top of this, there are tensions between the EU and Russia over Ukraine, which also have an effect on their overall trade relations with China as a third-party market.


Chinese investments in Ukraine have increased rapidly between 2005 and 2012. These data are, however, less rosy when we make a comparison with Ukraine’s neighbours. In 2012, China investments in Belarus were more than two times greater than those in Ukraine. Based on data from Ukraine’s National Bureau of Statistics, China accounts for only a small share of Ukraine’s foreign direct investment which reached 54.462 billion US dollars in 2012. Cyprus, Germany, the Netherlands and Russia, on the other hand, were ranked as the top four foreign investors in Ukraine whose investments accounted for 60 per cent of the country’s total foreign investment.(See Table Two)


Table Two:The Investment Stock of China to Ukraine and relevant European Countries from 2005 to 2012(Unit: Ten Thousand USD)

Year/Country   2005  2006  2007  2008  2009  2010  2011  2012

New Eastern European Countries

Ukraine        278   654   1351   1592  2079  2229  2929   3314

Belarus        29    29     29     239   449  2371  2907   7747

Moldova        78    78     78      78    78    78    78    211

Central and Eastern European Countries

Poland       1239   8718   9893   10993  12030  14031  20126  20811

Hungary       281   5365   7817   8875    9741  46570  47535  50741

Czech         138   1467   1964   3243    4934   5233   6683  20245

Slovakia       10    10     510    510     936    982   2578   8601

Romania      3943   6563   7288   8566    9334  12495  12583  16109

Bulgaria      299    474    474    474     231   1860   7256  12674

The Top Three  of China’s investment in Europe

Luxemborg     -       -    6702   12283   248438  578675 708197 897789

UK          10797  20187  95031   83766  102828  135835  253058  893427

Russia      46557  92976  142151 183828  222037  278756  376364  488849

Source:  Minstry of  Commerce of the People’s Republic of China,National Bureau of Statistics of the People’s Republic of China, State Administration of Foreign Exchange, 2012 Statistical Bulletin of China’s Outward Foreign Direct Investment, China Statistics Press, 2013.


Overall, while Ukraine does offer an attractive ground for certain kinds of investment, the risks related to making business with this country are also very high especially considering its poor investment environment, inadequate legal protections, corruption, political instability and complicated social situation. All major Chinese investment projects in Ukraine have faced challenges. Many key investment activities have been even dropped such as the deep-water port project in Crimea. At the same time, it is less optimistic for China’s investment in the construction of the world’s largest logistic center near Kyiv airport. Even though Ukraine’s authorities have been providing Chinese investors with their sovereign guarantee on safe investments in their country, the serious problems that affect their country’s economy, debt crises and recent regime change have all made it increasingly more difficult to maintain confidence on behalf of Chinese investors. As a matter of fact, Ukraine is interested in intensifying Chinese FDI inflows while China prefers credit operations with an important condition of purchasing Chinese goods. Especially, China provides Ukraine with loans for the sector from  which China needs the Ukrainian production. This kind of mutual demand causes the fact that, Chinese FDI inflows to Ukraine are relatively insignificant.  


Stuck in the middle between Russia and the EU, Ukraine may now seem even more eager to seek a new path of independent development. This could mean closer cooperation with China. China, however, continues to depend on the solid economic and trade cooperation with European countries as well as the Russian markets. Thus, China will not easily change directions to explore risky markets such as Ukraine. 


III. The Characteristic Cooperation between China and Ukraine--Military Industries


Military cooperation is one area in China and Ukraine relations that could remain an important element in bilateral relations. Ukraine inherited approximately 35 per cent of the Soviet-era military capacity and is currently the world’s sixth-largest arms exporter.China has purchased from Ukraine various military equipment including ships, tanks, aircraft and the transfer of the aircraft carrier formerly named Varyag (now known as Liaoning – used as a training vessel for the Chinese navy). 


Ukraine has also been exporting different types so far around 30 of military technology to China, including power systems for aircraft carriers and large ships, supersonic advanced training aircraft, key equipment for tank engines and air-to-air missiles as well as engines for high altitude helicopters. The “Snow Dragon” was also purchased from Ukraine in the mid-1990s and rebuilt according to China’s needs. For the Chinese government purchasing arms from Ukraine is relatively cheap and allows it to avoid some burdensome intellectual property rights protection issues.


Statistical data suggests that between the years 1992 and 2013, Ukraine’s military exports exceeded seven billion US dollars with its major sales targets being Pakistan, China and other countries. While there is no direct data about the amount exported to China, it appears that the overall volume, relatively speaking, was quite small.However, there are also some prospects of military cooperation between the two sides.


With Ukraine’s political instability and obsolete military technology, however, bilateral military cooperation will most likely face more problems in the future. Already in the recent years, China has not purchased much new equipment from Ukraine. In contrast, Russia is producing newer technologies that are demanded by China and which include, for example, next-generation stealth fighter radars, engines, etc. This suggests that from the Chinese perspective, the value of cooperation with Ukraine in the area of military has been greatly reduced. With the EU arms embargo against  China and the US policy of not selling any high-end weapons to China, Russia’s importance as a provider of military innovations is significant. In the future, we can still argue that, Ukraine may be an important cooperative partner on the military weapons development between these two countries. However, Russia, as the most important military weapons provider to China, its status will not change easily and would still be China’s major cooperative partner.


IV.The History and Status Quo of Political Exchange and Cooperation between China and Ukraine


Since the 1990s, that is the decade when the bilateral relations between China and Ukraine began, both countries declared respect for each other’s core interests: national sovereignty and territorial integrity. In June 1994, Leonid Kuchma took office as Ukraine’s president and helped further establish bilateral relations between the two countries. Kuchma paid two visits to China; He arrived in Beijing first in December 1995 and later in November 2002. 


The travel of Ukraine’s president to China led to more high level interactions between both sides and became more frequent. On April 3rd 2003, there was a meeting in Beijing between President Hu Jintao and Kuchma during which China’s head of state officially declared Ukraine to be a key partner in Eastern Europe. Hu Jintao then also emphasized that the leadership of his country was committed to a further consolidation and development of bilateral relations and cooperation. Following the Orange Revolution in 2004, which ultimately led to the election of Viktor Yushchenko as Ukraine’s next president, the new authorities in Kyiv insisted on Ukraine expanding cooperation with China. This seemingly qualitative leap forward, however, was never materialised in bilateral trade. 


It wasn’t until 2010, after Viktor Yanukovych was elected president, that Chinese-Ukrainian relations reached a new level. On several occasions, Yanukovych pointed to the many political, economic, moral and geopolitical factors that, in his view, would lead towards an enhanced cooperation with China. Yanukovych’s main goal was for Ukraine to become more independent from the EU and Russia. Driven by this object, Yanukovych wanted to become a dialogue partner in the Shanghai Cooperation Organisation.


In early September 2010, Yanukovych visited China and the two countries signed 12 cooperation agreements, including provisions on aviation, infrastructure, finance, customs, commerce, transport and electricity. As their result Ukraine’s ministry of energy and the coal industry opened up seven projects worth one billion US dollars to Chinese investors. In addition, the construction of a logistics centre at Boryspol airport in Kyiv was set to begin. The completion of this project would allow for the transport time of goods from Eurasia to the other end of the continent to be reduced from 45 days to 12-14 days. After signing the agreements, Valery Konovaluk, Yanukovych’s representative at the time, named it the establishment of a “New Silk Road”.


In June 2011, Chinese President Hu Jintao visited Ukarine under the invitation of Ukraine President Yanukovych. The two leaders signed a joint statement upgrading the countries' friendly and cooperative relations to a strategic partnership. An important content of the China-Ukraine strategic partnership is that they will offer firm support to each other on issues concerning national sovereignty, reunification and territorial integrity.The two sides agreed that cooperation in the fields of trade and economy, investment, science and technology, aviation, aerospace, agriculture, and infrastructure construction is a priority in the future development of bilateral relations.


The choice made by Yanukovych not to sign the Association Agreement with the EU in 2013, which triggered civil unrest in the streets of Kyiv, also brought the Chinese-Ukrainan relationship to the forefront. Yanukovych had hoped to count on China’s help during the EuroMaidan protests and met with Zhang Dejiang, Vice-Chairman of the National People’s Congress Standing Committee, Li Keqiang, the vice prime minister and President Xi Jinping on December 6th 2013. The two sides reached a consensus on further deepening the bilateral partnership, approving the China-Ukraine Strategic Partnership Development Plan (2014-2018). 


In February 2014, following the bloody fights in Kyiv, the Ukrainian government was once again changed. Yanukovych’s camp fell and the pro-western opposition parties came to power, which also had an effect on China-Ukraine relations. Yet, at the Third Nuclear Security Summit which was held on March 24th 2014, the representatives of the new Ukrainian government expressed their commitment to honour all agreements that the country’s previous authorities had concluded with China. In the same manner, the Chinese government expressed its commitment to continue to develop the bilateral strategic partnership and expressed its hope that Ukraine would maintain continuity in its policies towards China. Clearly, the further development of Chinese-Ukrainian relations still heavily depends on the further course of the political situation in Ukraine as well as the choice which Kyiv will make as whether it wants to be pro-EU, pro-Russian or maybe look for a potential third way. 


V. Was Ukraine the  very Important Country of China’s Geopolitical Strategy?


With its location in the heart of Eurasia, Ukraine acts as a buffer zone between Russia and the West. As a major transit point for oil and gas resources from Russia to European countries, Ukraine has important strategic position. That’s why in September 2013, China’s President Xi Jinping announced the strategic concept called the “Silk Road Economic Belt”. The ultimate object of this strategy is to link Asian and European markets together. In its implementation, Ukraine could play an important role and such a wish was expressed by the country’s previous authorities, especially during Yanukovych’s visit to Beijing in late 2013. 


However as mentioned earlier, China has already a strong commitment to develop further economic and trade relations with the EU states, which suggests that Ukraine’s value still needs to be proved. Ukraine has a long way ahead before it receives full access to the EU, which makes this country’s strategic weight in China-EU relations significantly reduced. What’s more, China may still wipe out the possiblities to integrate the Ukraine into its China and Central and Eastern European Countries cooperative mechanism which is titled “16+1 framework”, although some western media and decision makers think that Ukraine is one part of China-CEE cooperation and insists that the crisis happening in Ukraine has a setback in China’s Central and Eastern Europe strategy.As a matter of fact, China is trying to keep distance its policy to Central and Eastern Europe from Ukraine. The reasons are the following: 


First of all, China sees its CEE strategy as part of a broader cooperation with the European Union (EU). It is obvious that the 16 CEE countries are either EU members or candidate EU members. Ukraine, as a matter of fact, has never been considered a potential EU member. Therefore, the argument that Ukraine is "a key plank" in Beijing's CEE strategy apparently goes against China's foreign policy.


Additionally, despite Ukraine's geographical proximity to the CEE countries, it will still not be included on the list as China has to consider the concerns of the CEE countries. Ukraine is one of the target countries within the Eastern Partnership (EP), a multilateral framework co-initiated by some CEE countries (for example, Poland and Lithuania) and EU members (for example Sweden) in an effort to boost cooperation between the EU and its eastern neighbors. The EP constitutes an important part of the foreign policy of the EU and the CEE countries. China, instead of interfering in this process, chooses to understand and support their efforts, which will in return deepen the strategic common ground between China and the CEE countries.


On a third note, Ukraine maintains a close political and strategic relationship with Russia, which actually views Ukraine to be situated within its traditional sphere of influence. China will certainly not run the risk of antagonizing Russia and include Ukraine into its CEE strategy as this would be detrimental to the China-Russia strategic partnership.


Since Ukraine's geopolitical sensitivity makes it vulnerable to the tug-of-war between Russia and the EU, China in particular should tread a fine line between the two sides. China has no intention of intervening in the Eurasian Union or the free trade zone negotiations between Ukraine and the EU.


As of today, Ukraine can only be seen as an element in the construction of China’s Silk Road Economic Belt. Its real involvement, however, still remains uncertain. What’s more, taking into account Ukraine’s instability, it’s justified to say that it might not perform quite well at all. The volatility that characterises the new Eastern European states has also an effect on China’s engagement with the region and explains why Beijing looks at Ukraine with some caution. 


VI. China’s Policy Preference to Ukraine


Despite all these weaknesses, China recognises Ukraine’s economic potential and sees this country as an important trade and investment partner. However, Beijing must also take a realistic view of Ukraine. That is why, from the very outset of relations, China and Ukraine have focused on respecting each other’s core interests (i.e. sovereignty and territorial integrity) while areas of political and strategic cooperation have remained quite limited in scope. 

What’s more, the political crisis in Ukraine has also effected EU-Russia relations. It is clear that the lack of stability in the region needs to be taken into account when thinking about the future of Chinese-Ukrainian relations. China does not want to play the role of diplomatic intermediary in Ukraine. On the contrary, Beijing is ready to accommodate both the interests of Russia and the EU. In other words, China believes that a peaceful resolution to Ukraine’s crisis depends on a consensus among both parties (the EU/US and Russia). Without this consensus, China cannot guarantee Ukraine a peaceful future or maximise benefits from its partnership. Thus, China supports resolving Ukraine’s quagmire through negotiations between the EU/US and Russia and has no wish to play a final weight to tilt the balance in one direction or another.


Only when the Ukraine crisis calms down and steps forward to peaceful development, China has the opportunity and confidence to develope a closer cooperation with it regardless of its huge potential of market and geopolitics. In the long run, China will attach highly importance to the Ukraine Crisis and its future development. However, currently, China is very clear about its weight. China has no instruments and abilities to make either side of Russia or EU/US to change their policy preferences to Ukraine thus makes the crisis  standstill. 


On many occasions Chinese policymakers stress the need for ethics and responsibility in diplomacy in the Ukraine crisis, believing that sticking to particular interests will not bring a solution to the table. With all this in mind, it is also justified to say that out of all the major stakeholders involved in the current Ukraine crisis, China is the least connected. However, it is also quite clear that Beijing recognises that in the context of an international crisis it also needs to bear some moral responsibility and obligation for resolving crises peacefully.


Most importantly, in the context of the increasing global interdependence, China is against a full-scale conflict between the EU/US and Russia that could evolve over Ukraine. Such a course of events would bring unfavourable results, also for China. For this reason, anyone who still believes that an EU/US-Russia conflict would actually benefit China is quite short-sighted. The truth is that a continued confrontation between these two important strategic partners of China would not only bring serious consequences to the EU/US and Russia, but it could also be a fatal blow to China. We can just generalise the following phenomenon that, when Ukraine in history pursued the multivector policy oriented on uniting the Russia and the EU properly and held a balanced and peaceful policies between them, the cooperation between China and Ukraine in various regions increased relatively smoothly and vice versa.


Before concluding the article, the author emphasizes that, this article was just finished in April, 2014. During the next a few months in the year of 2014, great changes have taken place in the Ukraine, thus China’s policy or standpoint towards Ukraine maybe change according to the actual situation. But this paper doesn’t include the new development of Ukraine situations.