Foreign Policy Audit. How to revive Ukrainian-Chinese relations

In the years of Ukraine’s independence, these relations have generally followed an upward trend and reached a peak in December 2013 when the Treaty of Friendship and Cooperation was signed. The reserved position of the Chinese leadership on the Revolution of Dignity in Ukraine can reasonably be attributed to China’s cautious attitude to any radical social and political change. The fact that the Chinese leadership distanced itself from the condemnation of Russian aggression in 2014 is due to the desire to complete contracts for the supply of Russian state-of-the-art weapons in accordance with agreements reached by Xi Jinping and Vladimir Putin. Another strong argument for Beijing was the wish to take maximum advantage of Russia’s international isolation in signing a package of oil and gas deals on conditions most favorable for China. China’s leadership welcomed the signing of the EU-Ukraine Association Agreement and has certain strategic plans to involve Ukraine in the Great Silk Road project, which is a personal initiative of China’s leader Xi Jinping. In the case of the successful implementation of this ambitious plan (which bypasses Russia and gives China direct access to Europe through Central Asia and the Caucasus), Ukraine will have a fundamentally new geopolitical place of “the first European country on the Silk Road."

It should be noted that Europe is quite sympathetic to Chinese plans and, given the currently limited financial resources of the European Union, it does not oppose possible Chinese economic activity regarding Ukraine. Moreover, the EU is directly interested in modernizing Ukraine using Chinese money. China’s interest in cooperation with Ukraine is also linked to the decision of the Chinese leadership to create “foreign food bases”. In particular, it includes the use of Ukraine’s agricultural opportunities combined with China’s investment and technological capacities. Military-technical cooperation and cooperation in the aerospace industry may become an important factor in the bilateral relations. China is still interested in the scientific and technical resources of the Ukrainian defense industry. Aircraft and engine construction can become a real area of Ukraine-China cooperation provided that there is a proper responsible attitude of the Ukrainian side. The main obstacle to the development of Ukraine-China strategic partnership from the Chinese side is the unconscious perception of Ukraine as part of the post-Soviet space to which Russia allegedly has some rights. On the other hand, Ukraine has a certain prejudice to “communist” China. Removing artificial barriers to the development of bilateral cooperation is the main task of the current stage of Ukraine China cooperation. However, it should be noted that, unlike European integration, Ukraine’s accession to NATO raises certain concerns in China.

The Chinese view on world order

The overall strategy of modern China’s foreign policy was most fully expressed in the theory of “China’s peaceful rise/development”. This theory began to be shaped and implemented in the mid1990s to improve China’s international reputation through the implementation of the policy of “reforms and openness.” “China’s peaceful rise” is a new approach based on the principles of peaceful development, which will promote peace throughout the world. The peaceful rise theory is identified with China’s further modernization whose success depends on open markets, institutional self-improvement, and mutually beneficial relations with other countries. In general, it is an expression of a more general concept of “peace and development” as a rejection of power politics and Cold War mentality. In November 2012, Xi Jinping proposed a new ideology – the Chinese Dream concept, which attempts to combine traditions with modernity in order to reach a new stage of reforms. The Chinese Dream envisages a strong and rich state, national revival, people’s happiness, and a general vector of reforms in the context of China’s basic strategy “on the way of change.” By refusing to think in the categories of class antagonism during the years of reform, China has relied on the acceptance of anything that will work for the creation of a powerful and rich state and the implementation of the Chinese Dream about the great revival of the Chinese nation. China’s foreign policy radically changed its character due to the rejection Deng Xiaoping’s call for moderation and restraint which he issued in the late 1970s. According to this approach, Chinese diplomats demonstrated that the country set for itself exclusively peaceful purposes and that its foreign policy was aimed at ensuring conditions for internal development. Beijing always avoided talking about any interests outside its own territory and did not intervene in international conflicts. Its responses were limited to the wording of its position — usually, these were calls for peaceful resolution of disputes. Officially, this course remains unchanged, but a new ideology of foreign and defense policy is taking shape. The main elements of this ideology are as follows:

1. China for centuries suffered “humiliation” from the UK, Russia, France, Japan, and then from the Soviet Union and the United States (annexation of territories, looting, and trampling of national interests).
2. China has always been a peaceful state and non-Han nations joined China of their own volition; moreover, these peoples received assistance which contributed to their development.
3. The United States is currently a competitor of China.
4. In order to continue to rise, China badly needs different kinds of resources competition for which becomes tougher every year. Thus, the Chinese army must be ready to protect the interests of the country in any region of the world.
5. As a state with ancient culture and an efficient economy, China has proved its superiority over other countries, so China must become the world leader and most powerful country (“Chinese Dream”).

The key role in the revival of the Chinese nation is given to the stimulation of China’s development by increasing its soft power, which started in the mid-2000s. With the development of all spheres of public life, culture is increasingly becoming an important source of the reunification of the Chinese nation and an important part in the competition for international power. The idea of the “community of common destiny” is the latest Chinese concept of the construction of a new world order. Xi Jinping talked about it in his speech at the 70th UN General Assembly on 28 September 2015 in New York. Xi Jinping called for the creation of international relations of a new type based on cooperation for mutual benefit and for the creation of a community of common destiny. Xi Jinping has stressed that, despite its power, China will never seek world hegemony and expansion and will not claim a sphere of influence. Therefore, as a “center country” China seeks to create a multi-level model of relations with various countries, which has the general outline of a multipolar world. To achieve it China is establishing friendly relations with countries around the world, without paying attention to its importance and significance, as it is literally reflected in China’s foreign policy doctrine. The only condition here is the consistency and predictability of these partnerships, something China encourages not only in the form of economic relations but also by funding certain social projects.

Ukrainian-Chinese relations being rebooted

The current Ukraine-China relations are largely influenced by China’s growing political and economic interests regarding the countries of the EU and New Eastern Europe (Belarus, Ukraine, Moldova, Latvia, Lithuania, and Estonia). In 2012, China and the countries of Central and Eastern Europe (CEE) adopted, on China’s initiative, a joint decision to launch the 16 + 1 format of cooperation. Politically, China would like to be an important player in post-Soviet Europe, which, above all, is an area of interest of the EU and Russia. China consistently strengthens relations with New Eastern Europe by enhancing political dialogue and deepening economic relations, primarily by providing financial assistance. This interaction was most important during the recent global crisis, Since Russia is skeptical about the possibility of providing China with military technologies due to the high probability of copying, obtaining them from Ukraine gives China two advantages: first, China will receive technologies, and secondly, it will strengthen its positions in the country which Russia considers its sphere of influence. In addition, China plans to implement its global strategy to increase exports and investment in potential markets located between Russia and the EU. Ukraine could become an important place to promote Chinese products and brands, gain access to new markets, and acquire strategic assets. Despite China’s interest towards Ukraine, these relations were put on hold since the beginning of the Revolution of Dignity. Likely, this is because rapprochement with Ukraine can go only as far as China will be able to maintain its safe balance in the geopolitical US-Russia-China triangle and in the world. China’s new leadership did not support Yanukovych's approach to the resolution of the political crisis in Ukraine. When the State Duma of the Russian Federation issued permission on 1 March 2014 to use its own troops against Ukraine, China took a clear position as soon as on 2 March in support of Ukraine’s independence, sovereignty, and territorial integrity and urged the sides to use dialogue and negotiations based on international law and the norms of international relations for peace and stability in the region. In addition, a Chinese representative expressed the opinion that there were reasons for the events in Ukraine. This approach made it possible to interpret China’s official position widely and variously. However, unlike the US and Western states, China believes that sanctions against Russia are inefficient. China was one of the first countries in mid-March 2014 to propose a peaceful settlement of the “Crimean issue” in the form of an international coordination mechanism which had to include all stakeholders.19 These calls and China’s position were virtually ignored by Kyiv, its Western partners, and Russia. Talking about the reasons of “freezing relations, it’s worth to take into account previous mistakes of Ukrainian side. Kyiv has practically repeated all the mistakes made by the Orange Revolution leaders: distancing itself from China and attempts to deepen partnership with Japan. This explains the clear reluctance of the Ukrainian authorities to fulfill the already concluded agreements and arrangements with China (including the Program of the Development of Strategic Partnership Relations between Ukraine and the People’s Republic of China for 2014-2018). The Intergovernmental Commission on Cooperation has not met for several years now. As a result, The question is quite urgent now: either Ukraine as a state retains a high level of bilateral relations with China and uses it to solve its own urgent problems or these relations will be frozen for an indefinite period, because the inertia of China’s foreign policy is well-known.

Trade without investments

In terms of trade turnover, Ukraine is China’s third biggest trade partner in the CIS (after Russia and Kazakhstan). The People’s Republic of China ranks first among Ukraine’s trade partners in the Asia-Pacific region.

However, as of 2013, Chinese investments amounted to a mere USD 18.8 mn out of the total USD 54.5 bn of foreign investments in the Ukrainian economy (slightly more than 0.03%). This situation clearly does not meet the needs and potential of Ukraine. The existence of the mechanism of state guarantees in the Ukraine-China economic relations only hampers Ukraine’s opportunities to obtain Chinese investments. Therefore, the issue of working on the algorithm of interaction and looking for new forms of cooperation should be put on the agenda. In particular, it includes using direct investments from Chinese companies, partial state guarantees, and other forms of partnership. The establishment of a joint investment fund on equal terms could be a way out of this situation. Ukraine and China should begin with the elaboration of medium and long-term plans for a partnership between the two countries through production cooperation and creation of industrial parks and zones of technological development involving Chinese capital. Thanks to the joint production of high-tech products with China, Ukraine will be able to secure for itself a worthy place in world markets. Despite the current difficult financial and economic situation, Ukraine still has a number of technological, scientific and industrial capabilities which are of interest to China in the context of developing advanced sectors of its economy and implementing important strategic projects in various fields. Joint projects, implemented by Ukrainian and Chinese experts, deal with high technology, new materials, environmental protection, and production of medications. Cooperation with China in the space sector is particularly beneficial for Ukraine, as it enables the efficient use of Ukraine’s space potential. In Ukraine, the sources of funding are limited in this area, while China is turning into one of the leading investors in space exploration. Ukraine is now fulfilling 21 contracts with China worth a total of over USD 67 mn and is implementing its own five-year program of space industry development (2012-2017). China has a very ambitious and financially secure space program and clear interest in the import of finished high-tech products. Ukraine should take advantage of this in the interests of national production. Another very important issue of Ukraine-China cooperation is cooperation in agriculture. Agricultural production has two essential elements: the availability of fertile land and new technologies. China has made significant progress in growing cereals and livestock development in recent years. The availability of large areas of arable land with high fertility potential in Ukraine is of strategic importance for possible cooperation in this area. According to the signed agreement, Ukraine had to supply 4.5 mn tons of corn and other crops in the 2013 marketing year and 5 mn tons annually starting from 2014 and during the next 13 years. This is a significant opportunity for Ukrainian farmers to strengthen their presence on the world corn markets, particularly on the promising Chinese market. Corn exports to the Far East countries amount to about 13% of Ukraine’s total exports, and penetration into the Chinese market will allow Ukraine to at least double this figure. Ukraine-China interaction opens serious prospects in the construction of transport corridors and supply of Asian goods to Europe. Not only China, but also most countries in Asia are interested in reducing the cost and time of transportation of goods from producer countries to countries with large consumer markets, particularly in the European Union. New transport routes pass through China, Kazakhstan, Russia, Belarus, Poland, and Germany. Transit time is 16-18 days, which is 15 days faster than by sea. Ukraine is interested to actively participate in the expansion of the geography of this transport corridor. Our country’s geo-economic location, developed transport infrastructure, broad consumer opportunities of the domestic market, and active trade and economic relations with neighboring countries and China are conducive to this undertaking. Unfortunately, the attitude of Chinese society to Ukraine has changed over the past decade: people who studied in the Soviet Union, including Ukraine, and worked with Ukrainian specialists and those who provided technical assistance to China after World War II are no longer professionally active. These days, young Chinese people know little about Ukraine and get possible information about our country mainly from third sources. Now, when Russia is waging an information war against Ukraine and resorts to outright misinformation and propaganda provocations against the Ukrainian people, the strengthening of Ukraine-China cooperation in the information sphere becomes strategically important.

Ukraine's place in China's "One belt, one road" project 

In its current form, the One Belt, One Road concept looks like one of the most attractive geo-economic projects for Ukraine. Currently, its key advantages are as follows: inclusivity, openness and profitability for all participants, transition to unified rules for trade, integration and coordination of programs and development strategies for countries. The Chinese project is not contrary to the desire of Ukraine to further economic cooperation and economic integration with the European Union. In fact, it may increase Ukraine’s advantages in this process and provide incentives to economic development in general.

It can also provide an alternative, reduce the negative effects of severing economic relations with Russia, and help overcome Russia’s ban on the transit of Ukrainian goods to Asia. If the initiative is implemented in practice, it can seriously affect the geopolitical landscape and lead to the creation of a number of alternative economic associations and opportunities. China itself initially expected to add about USD 2.5 trillion to its annual turnover ten years after the strategy’s implementation. This should occur through the intensification of trade relations with countries that are in the new Silk Road zone. In 2015, China invested USD 15 bn in the New Silk Road projects, while the amounts of already announced investment projects within the One Belt, One Road implementation reached USD 75.9 bn as of June 2016. The attempt in early 2016 to take practical steps to use the One Belt, One Road project to transport goods from Ukraine to Central Asia and China by railroad was economically unsuccessful. Currently, Kyiv continues negotiations with its partners to reduce transport tariffs for one of the branches of the New Silk Road via Kazakhstan and Transcaucasia countries. Another project discussed by Ukraine and China in the context of developing trade routes is a project of marine deep-water port which could effectively double the capacity of Ukrainian port infrastructure for the needs of the New Silk Road. Georgia is starting to build this kind of port on the eastern coast of the Black Sea in the village of Anaklia. Its design capacity is 100 mn tons of cargo per year. Ukraine is studying the technical capabilities to build a port with the same capacity on the northern coast of the Black Sea. The project cost was earlier estimated at USD 3 bn. Oleh Diomin, Ukraine’s Ambassador to China, comments: “We are now talking not so much about creating routes as about joint projects with China. In comparison with our colleagues, such as Kazakhstan and Azerbaijan, we are lagging behind in the comprehension of the Silk Road.” According to Diomin, Ukraine is not sufficiently active in attracting real Chinese investments, especially when compared to the success of Georgia, Kazakhstan, and Azerbaijan. “In view of a deeper understanding of China’s new economic strategy, it is even more interesting for Ukraine to attract Chinese money for the production of goods in Ukraine and sending them later to Europe and China,” the ambassador said. Authors: Andriy Goncharuk, Senior Research Fellow, the National Institute for strategic studies in Ukraine Evgenia Gobova, Junior Research Fellow, A.Yu. Krymskyi Institute of Oriental Studies, NAS of Ukraine Viktor Kiktenko, Chief of Far East Department at A.Yu. Krymskyi Institute of Oriental Studies, NAS of Ukraine Oleksiy Koval, international journalist, Ukrainian Association of cinologists, member of the board Sergii Koshovyi, key expert at the National Institute for strategic studies in Ukraine The contents are those of the Institute of World Policy (IWP) and do not necessarily reflect the views of the German Marshall Fund (GMF).[/box] Other materials from this series:

• How the Ukrainian-Polish partnership can pass the test of history
• Moldova - Ukraine's problematic neighbor or partner on the road to the EU?
• Ukraine and Romania – friendship through a common enemy?
• Foreign Policy Audit. Ukraine and Georgia are friends, but no longer allies
• Austria: a weak link in Europe or historical ally of Ukraine?