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China penetrates deeper into Ukrainian economy

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Published 17 July 2012, updated 20 July 2012

Ukraine has secured two multibillion euro loans for energy and agriculture from China in recent days, a development suggesting that Kyiv is seeking alternatives to the tougher financing conditions set by the International Monetary Fund.

Ukraine's energy and coal industry ministry signed an agreement with the China Development Bank for a $3.656 billion (€3 billion) credit line to help the country switch its power plants to coal from gas, the Platts energy information service reported. The deal was announced on 13 July.

The Ukrainian National Bank, meanwhile, announced a Chinese loan of $3 billion (€2.46 billion) for agriculture.

Ukraine has the seventh-largest coal reserves in the world, but underinvestment and a lack of progress on deregulation have made the country a net coal importer. The country prefers to import coal to reduce its dependence on expensive Russian gas.

Under a controversial 2009 deal under former Prime Minister Yulia Tymoshenko, Kyiv is paying $425 (€340) per thousand cubic metres for natural gas. Ukraine sees a fairer price at $250 (€200).

Kyiv recently decided to cut Russian gas imports to 27 billion cubic metres (bcm) in 2012 from about 40 bcm in 2011. However, Russia insists on a take-or pay clause, according to which Kyiv has to pay for the gas even if it does not use it.

China is also expected to provide technological expertise for the conversion of the plants from gas to coal. In 2010, Ukraine's energy ministry and China Development Bank signed an agreement, under which the bank agreed to consider investing $1.03 billion (€854 million) in the modernisation of seven state-owned coal mines in Ukraine.

A first for agriculture

The national bank, meanwhile, announced a deal on cooperation in agricultural. Under the deal signed by Ukraine’s agriculture minister, Mykola Prysyazhnyuk, and the vice president of the Export-Import Bank of China, Zhu Hongjie, Ukraine will receive a $3 billion (€2.46 billion) loan for 15 years with an interest rate of 6% with the first five years interest-free.

National Bank Governor Sergei Arbuzov said the arrangement was a first in Ukraine’s relations with China and said it would benefit the country’s farm sector.

"China was flexible and we appreciate it. In return we will supply China with high quality agricultural products," he said.

On 26 June, the National Bank of Ukraine and the People's Bank of China signed a currency swap agreement covering a three-year period. The 15 billion yuan (€ 1.92 billion) deal is intended to help develop trade and investment while maintaining financial stability of Ukraine.

Positions: 

Roman Rukomeda, PhD in political science, political analyst of the Ukrainian Foundation for Democracy "People First" commented:

"Expansion of Chinese cooperation with Ukraine is systematic; it foresees: preparation of financial presence, beginning of large-scale investments under the state guarantees with binding to Chinese companies as contractors of projects and expansion of access to technological cooperation in key spheres."

Rukomeda added that the key problem for the Ukrainian government is to chase the external credit resources which the authorities provide China in return for access to the Ukrainian domestic market and unique technologies. They also undermine positions of their own national producers. For the US, the EU and RF actividation of China in Ukraine this means a narrowing of their interests in the Ukrainian economy.     

EurActiv.com

COMMENTS

  • Ukraine should be allowed to join the EU and be totally independent from Russia the more help it gets the better

    By :
    TERESA
    - Posted on :
    17/07/2012
  • China playing safe & solid game while Europe and USA that is developed world is crying due to mishandling of 2nd great recession/depression.

    By :
    chhajuram advocate induscharwak
    - Posted on :
    17/07/2012
  • greedy mad men caused this rescission let them sort it out but Ukraine is a nice country and has suffered in the past at the hands of the Russian so its time other people invested in the Ukraine and give it independence from others

    By :
    TERESA
    - Posted on :
    17/07/2012
  • China is not a global benevolent charity. If it does something, it wants something. The Ukraine's coal reserves and other natural resources easily come to mind.

    Bit-by-bit China has and is amassing tremendous material resources all over the world in the guise of a philanthropic society.

    When will the West and other countries realise that we are just building the Chinese Behemoth into a global domineering control master with all that we get involved with them. Even with a declining inward investment from outsiders we are still pumping up China to the tune of $150 billion a year. $150 billion that should be going into developing new industries in the West, not giving it to China. Are we really intelligent people it has to be asked to allow all this to take place and then continue to do it infinitum? A day of reckoning will happen you can be assured of that, but where we shall all be bowing to China and no-one else.

    Dr David Hill
    Chief Executive
    World Innovation Foundation

    By :
    Dr David Hill - World Innovation Foundation
    - Posted on :
    17/07/2012
  • i thought we already did by buying every thing from them some one has to supply things to Ukraine CHINA is better than Russia even thought there human rights issues suck b but if it wasn't china it would be some other country its just business at least some people can get jobs out of it

    By :
    TERESA
    - Posted on :
    17/07/2012
  • Yes, but it is the undertones that is the problem here and where China has a strategy that will eventually control everything. We are our own worst enemy in this respect.

    Dr David Hill
    Chief executive
    Wold Innovation Foundation

    By :
    Dr David Hill - World Innovation Foundation
    - Posted on :
    18/07/2012
  • This appears to be a good deal, both for China and Ukraine. Agricultural for infrastructure and modest priced consumer products.

    In particular, China has the financial reserves to aid Ukraine in seeking independence from the International Monetary Fascists(IMF).

    Ukraine needs options other than potential dictators from Europe and/or Russia; each of those options comes with the price of accepting interference in what ought to be strictly domestic affairs.

    Perhaps China is a little too loose in not pressuring trade partners in such as worker protection legislature but I prefer errors in the direction of MYOB rather than meddling.

    By :
    david tarbuck
    - Posted on :
    18/07/2012
  • David Hill needs to bone up on history!
    200 years ago China was the most productive per capita of any nation on earth and preferred to be left to their own devices to maintain that state.

    Nevertheless that was not what the "West" had in mind. 150 years of armed (neo) colonialism which played havoc on a standard of living higher than that in any of the colonials followed by Mao's "self help" revolution (since refined to reflect capitalist type instrumental objectives) and we have today's China.

    Now hear the racist "West" cry as they get their own back in return.

    However I am following the good doctor 'off topic'; that topic is Ukraine's finding alternatives to the International Monetary Fascists(IMF). More power to them both!

    By :
    david tarbuck
    - Posted on :
    19/07/2012
  • No need to bone up on history it is the present and future that should concern us all. There is a great deal too than what you think. You probably do not know that one of our members, HE Jian Song former vice-premier of China for 13 years was the person responsible for changing the direction of China towards an economy to be based up science, engineering and technology. Note not an economist or historian but one of China's top engineers.

    The west knows little of the strategy of China and people are sucked in because of lack of this knowledge.

    If you are young enough you will se a different world I can tell you in 25 years time and one that you will not like.

    If you can tell me othrwise please do and what your world will look like in 2037?

    Dr David Hill
    Chief executive
    Wold Innovation Foundation

    By :
    Dr David Hill - World Innovation Foundation
    - Posted on :
    19/07/2012
  • Those who know little and care less of history are bound to repeat the same mistakes.

    But to get back to topic, the central figure in this discussion is and ought to be UKRAINE, NOT China.

    Ukraine is wise to pursue relations with China. Counter balances to the European, Russian and North American self interested entities is what it is all about. Which of these predatory types is the worst?

    Maybe the good doctor has that sorted out? If so on what real basis? Or is he just exhibiting biases?

    By :
    david tarbuck
    - Posted on :
    20/07/2012
  • China is no worse than the other dictators they do things for the good of the people unlike the others who don't care about the people look at the world with the USA as a leader so many suffer so China is no worse apart from there human rights issues in CHINA

    By :
    teresa harris
    - Posted on :
    20/07/2012
  • You arequite right Teresa. That is why everything has to change if e are to preserve the human experience during this current century.

    No biases David just information and where the world is ultimately heading.I depends on your comment as well, how much knowledge you have to determine this also? We have too many who have been complacent and that is why we find ourselves in the horrible mess in the West and where our futures are in decline. This will critcaly show its uly face over the two decades and I can assure of that on our present ways of doing business across the globe.

    Dr David Hill
    Chief executive
    Wold Innovation Foundation

    By :
    Dr David Hill - World Innovation Foundation
    - Posted on :
    20/07/2012
  • David

    Just to give you a bit of an idea what is going on in the wider world and I stress a little, I copy and paste an extract from the Guardian newspaper by international economist Economist Dambisa Moyo.

    …If Moyo's calculations are correct, we are in big trouble – which makes the central premise of her book, Winner Takes All, all the more arresting. Governments across the world, she writes, have singularly failed to grasp what's coming – with one sensational exception. "Simply put, the Chinese are on a global shopping spree." State-sponsored Chinese corporations are busy buying up commodities across Africa, North America, the Middle East, South America – anywhere they can – in a concerted strategy to seize control of resources before the rest of the world wakes up to the looming crisis. They're striking deals with what she calls the "axis of the unloved" – developing countries rich in commodities but poor in political and economic capital – in return for much needed investment, employment and infrastructure. Extravagant shoppers, the Chinese are happy to pay over the odds, treating their trading partners not as poverty-ridden charity cases nor political pariahs but valued commercial equals. But when the resources begin to run dry, the consequences will be catastrophic. Already, since 1990 at least 18 violent conflicts worldwide have been triggered by competition for resources. If nothing is done now, warns Moyo, commodity wars on a terrifying scale are all but inevitable.

    Part review of the new book ‘Winner takes all by Economist Dambisa Moyo - Guardian, 24 June 2012

    Dr David Hill
    Chief executive
    World Innovation Foundation

    By :
    Dr David Hill - World Innovation Foundation
    - Posted on :
    20/07/2012
  • Mr. David Hill, I appreciate your concern about China's trade and investment expansion but please keep in mind China has 1,350 million people to feed, to educate and to care for but only limited domestic resources. Competition for resources is not China's invention, all European colonial powers, -British, French, Dutch, Spanish, Italians etc. were masters in that game. And of course the old Grand Dutchy of Muscovy became Russian empire precisely because it had managed to conquer extensive territories in Europe and Asia containing valuable resources. But to get back to Ukraine, there is nothing wrong with China financing exports of its mining technlogy and processing equipment which Ukraine needs. Most exporting countries do the same, their state agencies advance funds or guarantee loans in order to facilitate exports to countries unable to raise their own capital. And Ukraine is prepared to repay such loans over time with their agri-food exports which is what the Chinese need. Its good business, a win-win situation.

    By :
    Over the Ocean
    - Posted on :
    21/07/2012
  • Yes, but natural resources are running out at an unsustainable rate and many several of the basic 'Elements' will disappear completely over the next 15 years. These are not my figures but eminent resources economists and researchers in the field. The problem is that many are needed to preserve (and increase) advanced technologies that we need to sustain our present status quo. Once these are gone they are not replaceable. The EU Environment commissioner only reinforced the situation at Rio 2 recently where he said on our present path of doing business we shall need the natural resources of 'TWO' planet earths. My foundation stated in our scientific discovery newsletter 15 year ago that by the turn of the 21st century we would need the resources of 3 planet earths.

    Respectfully I gave a 1-hour presentation to the Women in Management (WIM) of the chartered Management Institute in Leeds (UK) last week and where this may enlighten you more of what is on the horizon for humankind if we do not change our ways of doing business. You may also be interested in visiting and reading about how even eminent scientific magazines operate with the big corporations - http://foolscrow.wordpress.com/2010/07/27/return-to-nuremberg-big-pharma-must-answer-for-crimes-against-humanity/ .
    It is in part from a scientific perspective but also from a vital point if we are to sustain ourselves as a specie past this current century.

    If you wish me to send you a copy, just post your email coordinate on this EurActiv comment feedback or give me a ring on 0044(0)1484.537181.

    Dr David Hill
    Chief executive
    Wold Innovation Foundation

    By :
    Dr David Hill - World Innovation Foundation
    - Posted on :
    21/07/2012
  • Dr David Hill portrays himself as an expert on the "wider world" ( wider than what dr. ?) and yet has to copy and paste an article from a main stream media source to make his point.

    By :
    joe public snr.
    - Posted on :
    23/07/2012
Background: 

The IMF in autumn 2008 decided to disburse about $17 billion (€12.6 billion) to Ukraine under the Stand-By Arrangement (SBA) and effectively provide almost $11 billion (€8.2 billion).

After the presidential election and government reshuffles in Ukraine, the 2008 Stand-By Arrangement was suspended, and the IMF decided to renew its loan partnership with Ukraine in the summer of 2010 through a new programme worth about $15.6 billion (€11.6 billion). The first allotments were released in July and December.

However, an IMF mission that worked in Kyiv in March 2011 could not recommend to the IMF Executive Board that it approve a new tranche for Ukraine. The IMF had expected Ukraine to approve pension reform and settle the problem of low prices of natural gas for households.

An IMF mission visited Ukraine recently and issued a statement on 28 June. Ukraine’s authorities were urged to slash gas subsidies, as well as to step up comprehensive structural reforms, including stronger governance and further privatisation.

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