Cash-hungry Ukraine embraces China
By ANTON TROIANOVSKI | The Washington Post | Published: May 21, 2019
ZAPORIZHIA, Ukraine — The president of a top Ukrainian aerospace company says its new Chinese investors often ask the staff for "little conversations."
They want to know about record-keeping and planning, the setup of production lines and the interplay between workshops.
"They'll talk for three hours, and the next day, a totally different group of people will come," said Vyacheslav Boguslayev, whose sprawling Soviet-era company, Motor Sich, is one of the most advanced military aircraft engine manufacturers in the world.
"They'll ask all the same questions as yesterday, and this continues for a week," he said.
Racing to upgrade its military, China has been turning to Ukraine. And Ukraine - with its economy scrambled by hostilities with Russia - has been willing to accept China's embrace.
"If they ban us from working with China," Boguslayev said, "then the first thing I'll do is fire 10,000 people."
Motor Sich, dubbed the "Czar of Engines" in the Chinese media, has what Beijing wants: It can supply warplane engines and the know-how to one day possibly make a Chinese-built version.
The Chinese, in turn, have what Motor Sich wants: reliable buyers.
The company lost its biggest market - supplying engines for military helicopters and other aircraft in Russia - after war broke out in eastern Ukraine in 2014. Now it sells mainly to China.
China's under-the-radar push into Ukraine illustrates Beijing's hunger for technology imports and its ability to access them even though Western countries have limited military-related exports to China.
It comes as Ukraine struggles to reorient its economy away from Russia. And it puts Washington in a quandary as U.S. rhetoric supporting Ukraine in its conflict with Russia collides with the Trump administration's widening competition with Beijing.
"Local people here are calm, well educated and inexpensive," Liu Tsiun, the trade and economic adviser at the Chinese Embassy in Kiev, said in an interview, speaking fluent Russian at the embassy's walled villa in the Ukrainian capital. "I always think of Ukraine as having great potential in technology and science."
Ukraine's factories once churned out tanks, battleships and intercontinental ballistic missiles for the Red Army. They became key to the Russian defense industry's supply chain.
In 2014, Ukraine's pro-Western revolution and the outbreak of hostilities with Moscow-backed separatists spurred Kiev to seek markets beyond Russia - its biggest neighbor and trading partner.
But European and American investors were nervous about dealing with a country reeling from war, with crumbling infrastructure and widespread corruption. China, on the other hand, saw an opportunity. Ukrainian companies such as Motor Sich, based in the city of Zaporizhia, about 100 miles from the front line in eastern Ukraine, grew desperate as sales to Russia dried up.
"What we care about right now is the following: Is America ready to buy our goods? No. Period," said Gennadiy Chyzhykov, president of the Ukrainian Chamber of Commerce and Industry. "China does buy our goods."
China is on pace to surpass Russia by next year as Ukraine's biggest single-country trading partner. In 2018, Ukraine traded $9.8 billion in goods with China - a 51% increase over two years and more than double the $4 billion in trade with the United States.
In the past year, China has garnered positive coverage in the Ukrainian news media by making a series of gifts: 50 ambulances, 50 search-and-rescue vehicles, and $137 million for medical equipment for regional hospitals. In April, the Ukrainian government announced $340 million in Chinese financing for a new bridge across the Dnieper River.
"If someone comes with money, they'll take it," Andreas Umland, a Kiev-based political analyst, said of Ukraine. "They don't have the luxury to think very strategically here many years ahead."
At the time of the 2014 revolution, China already had an economic and defense-industry relationship with Ukraine. It bought an unfinished Soviet-era aircraft carrier from Ukraine in 1998 and ordered four huge military hovercraft in 2009. Western countries, by contrast, had little use for Ukraine's Soviet-legacy defense production.
"One way or another, Ukraine will have to choose," said one Western diplomat in Kiev who is examining Ukraine's links with China and who wasn't authorized to comment publicly. "They cannot eternally integrate with China while moving toward the West."
The Ukrainian Foreign Ministry declined to comment for this article. Ukraine-China relations are a delicate issue, officials in Kiev said, given Ukraine's desire for close ties with the United States on the one hand and China's expanding partnership with Russia on the other. But Ukraine's new president, Volodymyr Zelensky, who took office Monday, met with the Chinese ambassador in Kiev early this month and offered a vote of confidence.
"China's experience and investments are important to Ukraine," he said.
China has been aggressive in expanding its influence across the former Soviet Union. In Belarus, China is co-financing a massive new industrial park to house more than 100,000 workers. On the Black Sea, Georgia is emerging as a key hub for Chinese trade with Europe.
But Ukraine offers unique resources for China in helping fill knowledge gaps as Beijing looks to build a world-class military, Western diplomats and analysts say.
Motor Sich's Boguslayev said the only engines his company is building for China are for aircraft that don't carry weapons, such as the L-15 training jet. But Reuben Johnson, an American defense industry analyst based in Kiev, said a tighter relationship with Motor Sich could allow China to mass-produce its own fighter jets.
"The Chinese - for all of the resources they have poured into the endeavor - have not been able to develop reliable fighter-jet engines that are producible in large numbers and run for enough hours between overhauls to be practical," Johnson said. "Acquiring the brainpower and the expertise of Motor Sich could allow them to jump over that very big hurdle."
A Chinese firm, Beijing Skyrizon Aviation Industry Investment, tried to buy a controlling stake in Motor Sich in 2017. Ukrainian authorities froze the deal on national security grounds. But Boguslayev said that $100 million of Beijing Skyrizon's promised $250 million did come through and that the Chinese company now owns a stake of at least 25% in Motor Sich.
A spokesman for Motor Sich said 35% of the company's $450 million in sales last year went to China, making the country the company's biggest destination for its aircraft engines. No sales went to Russia, the spokesman said. Six years ago, by contrast, one-third of the company's $1.1 billion in total sales went to Russia.
"Russia is gone. So I have to be in China now," Boguslayev said.
He said he hears frequently from Ukrainian government officials that the United States is unhappy with his dealings with China. His response: "Then how about the State Department gives us work?"
Asked for comment about Motor Sich, a State Department spokeswoman said the United States doesn't "oppose China's economic and technological development through legitimate means. However, we are concerned by actions China's government has taken that are out of step with international norms.
"The United States encourages our partners to consider national security risks that may arise from foreign investment transactions," the spokeswoman said.
In the southwestern Chinese city of Chongqing, Motor Sich and Beijing Skyrizon in 2017 agreed to jointly build a plant to service and manufacture aircraft engines. The Chinese partners offered to build a small town in which Ukrainian engineers would feel at home, Boguslayev said.
"They said, 'Give us 1,000 people,' " Boguslayev recalled. " 'We'll build a church for you here. We'll build a kindergarten.' "
The plant has been partially built, Boguslayev said, but is not yet operational.
Beijing Skyrizon representatives continue to tour Motor Sich plants regularly, Boguslayev said, taking copious notes and interviewing workers.
China is interested in Ukrainian technology beyond Motor Sich, hiring Ukrainian engineers and bringing them to China, Western officials and Ukrainian defense industry specialists say.
"It's not just outsourcing, but taking our specialists in both the missile sector and in aircraft-building," said Sergii Bondarchuk, a former head of Ukrainian defense export company Ukrspecexport who now lives in ___
The Washington Post's Paul Sonne in Washington, Lyric Li in Beijing, Oksana Parafeniuk in Kiev and Natalia Abbakumova in Moscow contributed to this report.
A plane on display outside Motor Sich's Boguslayev Technical Museum.
OKSANA PARAFENIUK FOR THE WASHINGTON POST