Ukraine opens new era in relations with China

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China has become the second largest trade partner of Ukraine after the EU, and the recent visit of the Ukrainian President in Beijing shows Kiev is trying to rebalance its economic and trade ties in case of tensions with Moscow or Brussels, writes Oleksandr Okhrymenko.

Oleksandr Okhrymenko is a Ukrainian economic expert.

“Viktor Yanukovych’s visit to China on 3-6 December marked Ukraine’s course to diversification of economic partners. The Ukrainian president and the General Secretary of the People’s Republic of China, Xi Jinping, have signed a joint declaration on the further more profound strategic partnership. It comprises more than twenty agreements, memoranda and contracts in different areas for the amount of over 30 billion dollars (over €21.8 billion). The Ukrainian and Chinese trade and economic breakthrough was in the making for more than a year with the active participation of the first vice-premier of Ukraine, Serhiy Arbuzov, who laid the foundation for the currently signed agreements during his visit to the People’s Republic of China.

Choosing China as one of the leaders in the world economy is not accidental. With the help of the new cooperation format between Kyiv and Beijing the current annual goods turnover of 10 billion dollars (€7.3 billion) can be soon tripled.

On Viktor Yanukovych’s visit to the People’s Republic of China there were outlined the contours of strategic cooperation between the countries until the year 2018. China bets on Ukraine as one of its important partners in Eastern Europe. In particular, as soon as next year Ukraine will get 18 billion dollars (€13 billion)in the form of loans and investment. According to the Memorandum between the state mortgage company and the Chinese corporation CITIC Construction on the construction of affordable housing in Ukraine, Chine will provide 15 billion dollars (€10.9 billion) for the period of 15 years with a possible prolongation to expand the projects.

Moreover, as a result of the visit, the Memorandum on the construction of the new modern deep-water port in Saki district of the Crimea and on the reconstruction of the Sebastopol sea fishing port was signed. The new deep-water port comprises a container terminal and also terminals for grain and bulk cargo. The general freight turnover according to the estimates will total to about 140 million tonnes a year. An industrial park will be created and a branch line will be built near the port. The amount of Chinese investment into these projects is planned at the level of 13 billion dollars (over €9.4 billion).

 In the energy area an agreement between the Ministry of Fuel and Energy of Ukraine and the Chinese National Company Wuhuan Engineering Co. Ltd., providing for the construction of the factory, producing synthetic gas. This project will allow Ukraine to create about 2.000 new workplaces in the factory itself and approximately 100 thousand more at coal-mining factories.

The signed protocol on the phytosanitary and inspection requirements for soy and barley export from Ukraine will allow Kyiv to significantly expand the range of agricultural produce supplies to the Chinese market. Next year the Ministry of Agricultural Policy and Food of Ukraine is intending to prepare phytosanitary protocols on rape and wheat export to China. Experts observe that the signed protocols must facilitate the increase in the share of the domestic agricultural produce in the general goods turnover of the People’s Republic of China. They will also become the beneficial factor for the infusion of investment into the domestic economy. In the process of negotiations the Government of China declared that in the upcoming years the investment of the People’s Republic of China into the Ukrainian economy could reach 8 billion US dollars (€5.8 billion), including into the agricultural sector.

In the financial field China will provide the National Bank of Ukraine with the export loan in the yuans in the equivalent of 5 billion dollars (€3.6 billion) with the possible expansion to use the possibility of the currency “swap” in the bilateral foreign payments. Besides, the People’s Bank of the People’s Republic of China will purchase the Ukrainian external loan bonds, which will enable to secure an additional inflow of foreign exchange into the country. The procedure of financial turnover is basically being created to simplify and accelerate the economic programmes with China. Chinese bank are expected to open in Ukraine soon and Ukrainian to appear in China. 

China is also one of the biggest importers in the world. In the next five years the People’s Republic of China is planning to import $10 trillion of products. Ukraine may get its share.

Thus, China is becoming a strategic partner to Ukraine alongside the EU and Russia. This will allow significant balancing the Ukrainian economy and diversifying risks in case of trade complications either with Moscow or Brussels.

The impulse from the joint projects with China will allow increasing the pace of the development in the construction area, in the infrastructure modernization; will lead to the growth in the export of agricultural produce.

At the same time, the Ukrainian government understands that China will demand the fulfillment of additional requirements for the implementation of the projects such as Ukraine’s purchase of the Chinese equipment and construction materials to build housing. These risks will be compensated by the general positive effect from the growth of the economic cooperation with the People’s Republic of China.

In general, the new format of the trade and economic partnership of Ukraine will allow discussing the expansion of Ukraine’s economy and also the expansion of China’s presence on the border with the EU. The possible Association Agreement signature with the EU in 2014 will expand the prospects of the Ukrainian and Chinese partnership even more and will play for the harmonization of the interest of all the trade partners in the region.”