War Puts Billions of Dollars in Ukraine-China Trade at Risk
By Ralph Jennings February 25, 2022
Prolonged fighting with Russia puts at risk billions of dollars in economic ties between the target country, Ukraine, and its top trading partner, China, experts say.
If the Russian invasion endures, a 3-year-old deal by Chinese networking giant Huawei to install 4G wireless services in the Kyiv metro system will go on hold, and massive agricultural shipments will slow, said Dexter Roberts, U.S.-based author of "The Myth of Chinese Capitalism."
Russia and Ukraine also do a brisk aerospace and defense trade that began with the delivery of China's first aircraft carrier in the late 1990s.
"If the war goes on, then construction on the metro in Kyiv is going to stop, opportunities for Huawei and putting in the telecoms will stop. Even getting grains and things like iron ore out of the Ukraine will become a problem. So that's just sort of on the physical challenge of trying to run an economy and do trade in a war situation," Roberts said.
Russia began a full-scale military invasion of Ukraine on Thursday. A day later, Chinese media outlets reported that Chinese President Xi Jinping suggested to Russian President Vladimir Putin that Russia and Ukraine solve their dispute through negotiation.
Billions in annual trade
The Ukraine-China trade turnover grew in 2017 to $7.69 billion and reached $8.82 billion in the first 11 months of 2018, according to Ukraine's Ministry of Economic Affairs website. The two sides set a goal in 2019 of $10 billion per year, the ministry says.
China became Ukraine's biggest trading partner in 2019, according to data gathered by the Ukrainian law firm Crane IP. Analysts estimate today's two-way trade between $10 billion and $20 billion annually.
Chinese investments in Ukraine total about $150 million per year, said Yan Liang, professor and endowed chair of economics at Willamette University in the U.S. state of Oregon. She said the investments include a wind power plant, agricultural projects and transport infrastructure.
A Chinese consortium agreed in 2017 to build a fourth line for the same metro system where Huawei is installing 4G.
China sells machinery and consumer goods to Ukraine and has an overall trade surplus, Roberts said. He called Chinese trade "very important for Ukraine."
Ukraine also exports commodities to China, such as corn, barley and sunflower oil. About one-third of China's corn comes from Ukraine. China orders nuclear reactor parts from Ukraine too, said Yun Sun, director of the China program at the Stimson Center in Washington.
China has also been eyeing Ukraine's aerospace industry. Beijing Skyrizon Aviation, part of a Chinese state-owned aerospace manufacturer, had tried to acquire a controlling stake in Motor Sich, a Ukrainian producer of plane and helicopter engines. However, a court in Kyiv stopped the deal last year. Ukrainian state security service Chairman Ivan Bakanov described Motor Sich in a statement as "a matter of national security."
The case is now in an international tribunal, where Beijing Skyrizon Aviation is seeking $4.5 billion in compensation from the Ukrainian government for the failed deal.
Impacts of warfare
China may become an even more significant trading partner of Ukraine if Russia takes over and installs a pro-Moscow government, Yun said, because Ukraine would then fall under Western sanctions that have emerged this week. U.S. President Joe Biden already announced a cut in Western financing to Russia on Thursday.
"China will be one of the few options left," Yun said.
Ukrainian officials will hope to keep the trade doors open if they stay independent of Russian rule after the invasion, she added. "If the question is, will Ukraine stop selling things to China because of China's unwillingness to punish Russia, I think the answer is going to be no because China is such a large client and these are economic transactions," Yun said.
After the war ends, China will still see Ukraine as a "strategic location" for its economic interests regardless of who runs the government in Kyiv, Liang said. Long-term Chinese investments such as power plants will pick up again after peace is restored, she predicted.
"I think just from an economic point of view, China and Ukraine's trade (to) a great extent is supplementary, so China will be more than willing to trade with this big European food producer," Liang added. "On the other hand, Ukraine needs China's manufactured goods."
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