Russia’s invasion of Ukraine has put China in a difficult diplomatic position, not least because of its economic relationship with the eastern European nation — a key transit point for Xi Jinping’s Belt and Road Initiative. 

Chinese companies have financed and assisted with the construction of vital infrastructure across Ukraine in recent years. But Russia’s unprovoked attack has jeopardized billions of dollars of Chinese investment, as well as long-running military technology cooperation between China and Ukraine.

This week, The Wire looks at China’s ties to Ukraine, and what the war means for the future of its economic relationship. 

CHINA’S INVESTMENT IN  UKRAINE 

Bilateral trade between China and Ukraine has grown three-fold in the last five years, driven by a significant increase in Ukrainian exports to China. In 2019, China overtook Russia to become Ukraine’s largest single trade partner (although Ukraine’s trade with the EU as a bloc remains much larger). 

Ukraine signed onto the Belt and Road Initiative in 2017. The country is attractive for China’s BRI plans for several reasons: it has a free trade agreement with the EU, while Kyiv has been receptive to Chinese investment in key sectors. 

Over half of Ukrainian telecom operators now rely on Huawei equipment, for example, even as most EU members have excluded the Chinese firm from building their network infrastructure. In 2020, the Ukrainian government signed an MOU with Huawei to cooperate on cybersecurity and cyber defense. Kharkiv, Ukraine’s second largest city and the target of heavy Russian bombing in the last two weeks, has been a participant in Huawei’s safe city project, involving the installation of smart surveillance cameras. 

Chinese state-owned enterprises have made significant investments in Ukrainian ports and railways. COFCO Group, China’s largest agricultural conglomerate, built a $75 million grain transfer terminal in Mykolaiv on the Black Sea in 2016, as well as a $50 million seaport in Mariupol in 2019 that has more than tripled the capacity of its transshipment facilities.¹Transshipment refers to the unloading of goods at an intermediate destination for transfer to another vessel bound for a further destination.

Chinese BRI investment also helped develop strategic Ukrainian trading posts after Russia’s 2014 occupation of Crimea severed the country’s access to major international ports in Sevastopol and Kerch. China Harbour Engineering Company (CHEC)²The company is a subsidiary of the China Communications Construction Company has funded the expansion of ports in Yuzhny and Chornomorsk, which took over some of the Crimean ports’ cargo capacity. 

Other Chinese-backed projects include a new metro line in the capital Kyiv, to be built by China Pacific Construction Group and China Railway International Group, as well as several green energy projects. PowerChina is helping to build a $1 billion wind farm in Donetsk — one of the two Ukrainian regions that President Putin has recognized as ‘independent republics’ — which would be Europe’s largest upon completion. China National Building Material (CNBM) has invested $1 billion to construct ten of the largest solar power plants in Ukraine, accounting for half of the country’s total installed solar capacity.

IMPLICATIONS FOR BRI 

Ukraine’s descent into bitter fighting has threatened China’s Belt and Road projects. Ports in Mariupol and Chornomorsk have been forced to shut down amid attacks from Russian naval forces. Most of the approximately 6,000 Chinese citizens living in Ukraine have been evacuated, according to the Chinese embassy in Ukraine.

It could be hard to restart suspended Chinese projects post-war. After the Libyan civil war, which forced similar evacuations and project suspensions, only Huawei and ZTE later resumed business there, notes Zoe Liu, a political economy expert at the Council for Foreign Relations: at least a dozen Chinese SOEs have not returned.

Beijing’s perceived siding with Moscow, and an outpouring of pro-Russian support on Chinese social media, could imperil Chinese companies’ post-war welcome in Ukraine too. “The Chinese government has already said it’s going to provide [humanitarian] aid to Ukraine, but in terms of aid for post-war reconstruction… to what extent Ukraine would be willing to take China’s aid is a different conversation,” says Liu.

It could also be hard for China to find as reliable a partner in Europe as Ukraine has been. “The trends [for Chinese investment in Europe] are not positive and precede the invasion of Ukraine,” says Mathieu Duchâtel, Asia program director at Institut Montaigne, a French think tank. “I see much more cautiousness by the Europeans when it comes to choosing investments that go into critical infrastructure.”

ONE MAJOR INVESTMENT

Bilateral military cooperation has decreased in recent years, due to pressure on Kyiv from the United States as well as improvements in China’s own military capacity, according to Vasily Kashin, a military analyst at Russia’s Higher School of Economics. Kyiv last year blocked the attempted acquisition by China’s Skyrizon of Motor Sich, Ukraine’s leading aircraft engine manufacturer, shortly after the U.S. blacklisted the Chinese company. 

“The Americans put enormous pressure on the Ukrainians… The Trump administration was successful in pressuring Ukraine to stop [military cooperation with China], but [the Ukrainians] made clear they had done so only because of American pressure,” says Kashin. 

Ukraine still has existing defense contracts with China, including an order of aircraft engines for Chinese training aircraft. Whether they are fulfilled could depend on the war’s outcome. 

“The economic situation after the war will likely be catastrophic. That would be a good situation for the Chinese to conduct effective headhunting and procurement of various scientific and technological data,” says Kashin. “Officially there will likely be no more big projects… but on the lower level, the Chinese would still be able to acquire a certain amount of technology in Ukraine.”

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