Take a fresh look at your lifestyle.

What role will China play in Ukraine’s post-war transformation?

0

The following article is based on research conducted under the State Department’s Title VIII Fellowship, for the Frontier Europe Initiative at MEI.

Cost estimates for Ukraine’s post-war reconstruction will be mighty. The World Bank estimates the price tag at $349 billion across various social, productive, and infrastructure sectors. The Ukrainian government assessed its needs at $750 billion. But meanwhile, the world economy is slowing down. The International Monetary Fund’s (IMF) global economic forecast for 2023 envisions that countries collectively making up one-third of the world economy will go into a recession or experience anemic growth through next year.

Among these economies are the largest financial supporters of Ukrainians’ fight against Russian aggression, including the United States, United Kingdom, and Germany. They will also be highly involved in Ukraine’s post-war transformation. Decelerating economies and Ukraine’s coming price tag are a worrying match. Given the headwinds, Western states will not be able to foot the bill exclusively. Enter China. Where does the world’s second-largest economy fit in the rebuilding to come?

Chinese-Ukrainian trade and investment ties grew extensively over the previous decade. In 2019, the People’s Republic of China (PRC) replaced Russia as Ukraine’s top trade partner, with 12% of the latter’s exports ($8 billion) going eastward. The PRC’s exports to Ukraine, in turn, nearly doubled in recent years. With its 42 million acres of arable farmland, Ukraine provided 80% of China’s corn imports in 2019. Purchases of Ukrainian grain — accounting for one-half of PRC imports from Ukraine in 2020 — and leasing of its farmland are strategically linked with Chinese firms’ investments in grain silos, seed-oil processing facilities, and port enhancement projects along the Black Sea littoral.

China’s investments in Ukrainian transit and energy infrastructure have been comparatively limited. As of early 2021, only $47 million came from mainland China. Aside from some successful port dredging projects, China’s infrastructure works in the transportation sector have been poorly received. This was true of the much-delayed and over-budgeted Kyiv-Borspill airport rail express line; while, the now-shoddy conditions of various highways and roadworks constructed by the Chinese fail to inspire Ukrainians forced to drive upon them.

PRC commercial and financial engagement came with other costs. Politically, Kyiv has been muscled into towing Beijing’s line on its abysmal human rights record in Xinjiang province. In 2021, Beijing threatened to withhold COVID-19 vaccines in response to Ukraine’s signature on a joint statement calling for a greater United Nations inquiry there. Additionally, concerns about Chinese theft of advanced aerospace industry technology were at the heart of a Chinese Skyrizon’s attempted takeover of Ukraine’s Motor Sich. And in the wake of Russia’s first invasion of Ukraine, in 2014, Beijing was conspicuously quiet and refrained from openly criticizing Moscow, other than to voice staid concerns about the principle of territorial integrity.

Like elsewhere in Central and Southeastern Europe, the allure of “easy” Chinese money via Belt and Road (BRI) and related initiatives has diminished in Ukraine. The Second Russo-Ukrainian War further undermined Kyiv-Beijing relations — for the moment. Disappointed by China’s performance and unfulfilled promises, Ukrainian perceptions of the PRC are increasingly resentful given China’s “pro-Russian neutrality” (as referred to colloquially).  Yet a consensus regarding the future of Chinese-Ukrainian relations eluded the Ukrainian business leaders, Verkhovna Rada (parliament) members, diplomats, and journalists whom I interviewed in late summer 2022.

As sour as opinions pertaining to PRC dealings have turned in Kyiv and elsewhere, there was nonetheless a general acceptance that when the fighting stops and rebuilding begins, China will contribute to that effort. China’s need for Ukrainian grain and other agricultural products — as well as raw metals — will persist. In telecommunications, Chinese firms are unlikely to withdraw from the Ukrainian market. In late 2021, Huawei and Vodaphone were granted permission to test 5G operations there. Ukraine’s smartphone market is led by Xiaomi; Huawei’s share is at 7%. Chinese-manufactured routers are the country’s most common. In addition, the massive restoration of Ukraine’s infrastructure will present opportunities for Chinese engineering conglomerates.

China could have a beneficial role to play in Ukraine’s reconstruction and post-war economy. Although the decline in trade between the two over the past year is notable, it could well be temporary considering China’s presence in certain markets. The PRC’s consumption of Ukrainian agriculture and raw materials provides significant revenue for the Ukrainian economy. And Chinese imports are affordable for many Ukrainians. Both Kyiv and Beijing have won from the trade expansion of late, nearly achieving parity in the value of their exports to one another.

Ukrainian experts I spoke with acknowledged that potential Chinese loans and investments in Ukraine’s critical infrastructure have their upsides. Chinese state-backed financing moves fast. And the comparatively cheap project costs associated with Chinese infrastructure projects gives China’s state-owned enterprises (SOEs) an edge. Considering the extent of damage Russian attacks have done to Ukraine’s roads, power stations, and rail network, speedy construction will be crucial.

Despite these ostensible advantages, Chinese firms will need to be barred from rebuilding critical infrastructure in post-war Ukraine. Authoritarian Beijing’s growing alignment with its counterpart in Moscow is placing the PRC increasingly at odds with an open and democratic world order.

Allowing Chinese firms to permanently establish a presence or cultivate technological reliance in Ukraine’s transport, energy, rail, and telecommunications sectors weakens greater transatlantic security. As one Ukraine-China analyst observed, “Take a bridge for example. It is more than concrete and asphalt. There are sensors for traffic weight, CCTV [closed-circuit television]… means of gathering information. If built by the PRC, those could reveal the location of our troops and weaponry.” Neither the aspiring North Atlantic Treaty Organization (NATO) candidate country nor the Euro-Atlantic alliance itself can afford such vulnerabilities given China’s current collaboration with Russia.

A Ukrainian victory over Russia in this war is not a guarantee against future interventions by China, Vladimir Putin’s ranking “ally.” In fact, PRC presence in Ukrainian critical infrastructure would permit China to further meddle by proxy in Ukrainian affairs, to the great detriment of the latter’s democratic consolidation, physical security, and unrealized economic potential. Furthermore, it would allow for the expansion of anti-Western authoritarian forces throughout the Black Sea region.

Effective steps against such an outcome can be taken. Ukraine’s foreign investment screening mechanism, unfortunately, is languishing in its execution. Kyiv’s allies should be pushing President Volodymyr Zelenskyy and the Rada to get the necessary legislation ratified. The bedrock of oversight mechanisms for foreign funds for Ukraine’s future reconstruction should be cemented in enforceable commitments to transparency and accountability applied equally to all engaged. If effectively upheld, they will help to deter malign investments from unfriendly powers. Finally, if the West seeks to keep Chinese firms out of Ukrainian industry — as was the case with Motor Sich — American and other friendly companies must be willing to fill the gap.

 

Richard Kraemer is a is a Non-Resident Scholar for the Frontier Europe Initiative and an MEI Black Sea State Department Title VIII Fellow. He is also President of the U.S.-Europe Alliance and formerly a senior program officer for Afghanistan, Iran, and Turkey at the National Endowment for Democracy.

Photo by Celestino Arce/NurPhoto via Getty Images


The Middle East Institute (MEI) is an independent, non-partisan, non-for-profit, educational organization. It does not engage in advocacy and its scholars’ opinions are their own. MEI welcomes financial donations, but retains sole editorial control over its work and its publications reflect only the authors’ views. For a listing of MEI donors, please click here.

Leave A Reply

Your email address will not be published.