Problematic issues
However, the general picture shows that Ukraine is currently out of the main investment focus of China due to only 1% of total Chinese investment was directed into Ukrainian economy in recent years.
Thus, Ukraine-China economic relations are still at the "minimum" level and are mainly focused on trade. In turn, China considers Ukraine a good platform for gaining access to the EU markets. However, cooperation developments are still without any concrete agreements and deadlines.
Additionally, the following issues in economic relations Ukraine-China are rather problematic:
- An ambiguous marker for Chinese investors is the issue of "State Food Grain Corporation of Ukraine" (GPZKU). Particularly, on December 26, 2012, China provided $ 1.5 billion loan with a 15-year maturity. According to the related contract, GPZKU had to sell grain in volumes of 4-6 million tons per year for 15 years, and the Chinese National Corporation of the Machine Industry and General Contracts had to sell GPZKU agricultural equipment. However, the terms of the general agreement were not beneficial for the Ukrainian company and the Chinese company due to the technical nuances were not taken into account. As a result, it turned out that loan payments exceeded the possible incomes of GPZKU. In recent years, the interests and the body of the loan were paid; a debt restructuring plan has emerged.
- The recent case of "Motor Sich" has drastically worsened the Ukraine-China relations. The current official reasoning for the cancellation of acquirement of "Motor Sich" by the "Skyrizon" (a Chinese state-owned company) is that Ukraine should not sell a controlling stake in the management of strategic defense enterprises to any country. Later on, on January 29, 2021, the President of Ukraine Volodymyr Zelensky signed a decree, which applied sanctions against several Chinese state-owned companies, which made it an even more sensitive case. In turn, the Chinese party holds to the point that political reasoning dominates over the economic rationale for Ukraine. Such a situation leads to possible frozen economic relations between the countries.
Vague perspectives
Under basic scenario, economic cooperation with China will be likely "frozen" at the current level. In near future, except trade, other forms of cooperation will have a selective character. In turn, the Chinese capital may slowly exit the Ukrainian market. On the other hand, this process will not be rapid.
However, in contrast to the above-mentioned issues, long term presence of Chinese businesses, large Ukrainian markets, demand for technologies and close geographical position to the EU still makes Ukraine attractive for China. With the China`s need to increase the share of its goods and influence on the EU market, especially during the pandemic, there may be some room left for negotiations.
As for Ukraine, despite worsened relations, China is still the biggest trade partner for Ukraine. It is currently keeping the markets open for the Ukrainian products with low added value, thus giving the possibility for the Ukrainian exporters to earn additional profits, while there is growing protectionism on the other markets. Taking into account that China is rapidly recovering, it will guarantee stable profits for the Ukrainian business. Moreover, Ukraine is currently interested in the medical equipment from China.
Both sides are showing caution in building economic relationships. Of course, the reason is not only the geographical distance between the countries, but also the unpreparedness of state institutions and the Ukrainian economy for cooperation with economically powerful China. The visits of the officials from both countries may become a signal for the improvement of economic relations between Ukraine and China. Until then, there will be no significant progress in cooperation between the countries in near future.
Summing up, the statistics showed positive trends in terms of trade cooperation between Ukraine and China. However, facts also indicate that there are a number of opportunities for deepening economic ties between the countries due to there are mutual interest for the both sides for cooperation. In case of deterioration of economic cooperation with China and in case of improper support of Ukraine by other economic partners, such a situation will require a pre-thought out, specific and targeted adaptation of Ukrainian policy regarding the defense of the internal market, diversification of critical exports and imports.
