By Emil Filtenborg and Stefan Weichert
The dispute over the ownership of Ukrainian helicopter and jet engine manufacturer Motor Sich seems to have come to an end after Ukraine’s President Volodymyr Zelenskyy sided with the US instead of China.
The case, which according to experts has become a political issue between the two superpowers, could cool the otherwise warm relationship between Ukraine and China, and prevent China from advancing its engine technology in helicopters and jet planes.
“The US sees China’s influence in Ukraine and the purchase of the company as a threat,” says Nan Tian, a senior researcher at the Arms and Military Expenditure Programme at Stockholm International Peace Research Institute (SIPRI).
He tells Euronews: “It is about power politics from the US perspective, and the engines are just one concern. The US wants to stop China from moving too much to the West.”
Zelenskyy decided to place three-year sanctions on four Chinese companies, said to be close to the Chinese leadership, which started to purchase shares in Motor Sich back in 2015.
His security service, the SBU, then broke up a meeting between Chinese and Ukrainian investors, claiming ownership of the Ukrainian engine manufacturer this week.
“The issue (about ownership of Motor Sich) is not about China. The issue is not even how Motor Sich’s shares were bought under the former President, under Poroshenko. The issue is that we do not have the right to sell a controlling stake in the management of strategic defence enterprises of Ukraine to any country; during my presidency, this will not be the case,” said Zelenskyy in an interview with HBO.
Zelenskyy’s decision came under pressure from the US, which fears the Chinese purchase of Motor Sich would advance its military capabilities. In 2019, then-US National Security Advisor John Bolton visited Ukraine and had several meetings where Motor Sich is said to have been discussed.
A few weeks ago, the then-US Commerce Secretary Wilbur Ross also classified Skyrizon, the major Chinese investor company in Motor Sich, as prohibited military end-users
“Skyrizon — a Chinese state-owned company — and its push to acquire and indigenise foreign military technologies pose a significant threat to US national security and foreign policy interests,” said Ross, according to the Ukrainian business site UBN.
The Ukrainian SBU says that they are blocking the deal because China has a military helicopter production contract with Russia and, therefore, could share the engine technology with Russia, which annexed the Crimean peninsula in 2014 and later supported separatists in war in eastern Ukraine.
Skyrizon said in a statement that Ukraine’s “actions are a barbaric robbery and a serious violation of the legal rights and interests of Chinese companies operating abroad, an unprecedented disrespect for the principles and rules of international trade.”
Skyrizon is suing Ukraine for $3.5 billion for cancelling the deal.
Changing geopolitical equation
The story about Motor Sich began in 2014 when Russia annexed Crimea and the war between Ukraine and the Russian-backed separatists broke out in Ukraine’s east.
Suddenly, Motor Sich was, due to the conflict, unable to sell its engines to Russia and was instead facing economic problems. China was looking to advance its engines for its army combat helicopters and was, therefore, interested in Motor Sich. Ukraine was producing a lot of the military hardware for the Soviet Union during the Cold War and still had appealing technology. Ukraine is still the 12th largest weapons exporter in the world, according to SIPRI, and it all made Ukraine an interesting place for China. Skyrizon, with other investors, secured a majority of the shares around 2017.
“Russia was not at all interested in providing the assets and technical support that Ukraine could offer the Chinese. The initiative by the PLA (China’s People’s Liberation Army) to engage Ukrainian industry goes back to the early 1990s, for the simple reason that it was not in Russia’s interest to provide these capabilities to Beijing,” said a leading Ukraine defence industrial director, according to the Middle East Institute.
Yuan Jiang, who is a Chinese researcher in the Digital Media Research Centre at the Queensland University of Technology, and Vladimir Legenko, who is a Ukrainian researcher and current chief commercial officer at a Ukrainian company, have examined the Motor Sich case and Chinese military procurement in Ukraine over the years. They conclude that Chinese purchases of Ukrainian military hardware have been going on for many years because the collapse of the Soviet Union severely affected Ukraine and made the country short of revenue and willing to sell military technology.
According to their research, China bought an unfinished aircraft carrier from Ukraine back in 1998, which became the Chinese aircraft carrier Liaoning. It is estimated that it saved the Chinese navy 15 years of research. Legenko and Jiang also point to other examples such as the Chinese purchase of the Ukrainian UGT-25000 gas turbine in the 1990s, used in warships, and the Chinese purchase of the Ukrainian D136 aircraft engine and the AI 222-25 engine – which is now used in the PLA Air Force’s JL-10 aircraft.
“What is happening in Ukraine is similar to what we have seen with Chinese purchases of Russian military equipment. They want to copy the technology and bring it back to China,” says Legenko. “After 30 years of copying technologies in Ukraine, there is not much more left for China to acquire at this point.”
Legenko says that he is in doubt about whether the Chinese investors have already taken the Motor Sich engine technology. He refers to how the Chinese investors already bought shares in Motor Sich back in 2015, but that it was not revealed until 2017 and that China, therefore, “had two years to do what they want.”
According to Nan Tian, China has decreased its purchases of foreign military technology and hardware around the world in recent years as the country has caught up militarily and produces its own. The US’ recent strategy to stop China might be too late, he says. However, Motor Sich shows that China still might be interested in some foreign companies in some areas – such as the development of its engines.
The US has provided Ukraine with $1.5 billion in military support from 2014 to 2019 to help it modernise its military, according to the nonpartisan Congressional Research Service.
The US plays a crucial role in Ukraine’s struggle with Russia, and it could be a reason for Ukraine’s position on Motor Sich. However, China has also become a much bigger economic player in Ukraine over the years. According to Ukrainian State Customs Service, China was Ukraine’s largest trading partner in 2020 with 11.6 per cent of all trade. The US numbers are much lower.
“We need to see the big picture here”, says Yuan Jiang. “For Ukraine, it is not about a small military company. It is about its relations with the US. Of course, China is much less involved in Ukraine’s politics, or I would like to say China may be reluctant to be involved in Ukraine’s politics. This time, Ukraine’s political concerns may have overtaken their economic concerns. It seems like they have decided to give them this to make them happy. After all, Ukraine is strongly dependent on American help overall.”
What happens next?
Andrey Buzarov, who is a Ukrainian expert with the KyivStratPro analytical group, has a different analysis about what is going on. He does not think US pressure made Ukraine impose recent sanctions against the Chinese investors.
While he agrees the US has been pressuring Ukraine for a long time, he believes the reason for the Motor Sich decision is due to the Ukrainian President wanting to send a signal to the new US President Joe Biden that he is on his side.
Iuliia Mendel, the press secretary for Zelenskyy’s administration, told Euronews that Ukraine has not been under any pressure from the US. Instead, she says the case is a matter of “protecting our state”.
“Let’s look at these things as sensibly as possible,” she wrote. “This is a Ukrainian strategic enterprise. It is absolutely logical that such enterprises should retain their significance. Based on this alone, certain action was needed at the state level. Ukraine does not accept pressure from other states; it independently solves both domestic issues and those of international importance. That is why there was no pressure, this is our policy aimed at preserving strategic enterprises.”
She also said that “the misunderstanding in the Motor Sich case, which was provoked by the actions of certain people more than three years ago, is being resolved diplomatically and will not affect the sincere and strong relations between the two countries (China and Ukraine).”
Wang Wenbin, a spokesman for China’s Foreign Ministry, commented on the Ukrainian sanctions against the Chinese investors. “We noted relevant reports. China always opposes unilateral sanctions on Chinese enterprises by foreign governments,” Wenbin said on Monday.
“We hope the Ukrainian side will uphold the legal rights and interests of Chinese enterprises and investors.”
According to Buzarov, it is likely that the relationship between Ukraine and China will “now be put on ice”.
“I think that this will freeze the relationship between Ukraine and China,” says Buzarov, who fears that China now to a larger extent will ally with Russia against Ukraine.