China has been eyeing strategic investments and acquisitions across Ukraine for at least a year now – but a Chinese state-owned credit firm appeared to up the stakes on April 2 as it inked a deal to provide $1 billion in insurance coverage to Ukrainian energy conglomerate Naftogaz.
Naftogaz has said that the new Chinese insurance from Beijing-based Sinosure is essentially a financial guarantee on the company being able to attract debt financing and further direct investment from China.
The China Export & Credit Insurance Corporation, widely known under the brand name Sinosure, is a state-owned enterprise in China that specializes in export credit insurance — mostly for high-value goods that China needs.
Naftogaz is the state-owned Ukrainian oil and gas monopoly that handles the extraction, refinement and transportation of natural gas and oil.
Under the terms of the deal, Sinosure will provide Naftogaz with $1 billion worth of insurance, allowing the Ukrainian energy monopoly to attract an equivalent amount of debt financing and direct investment from China.
State-owned Sinosure has strong links to the ruling Chinese Communist Party, and was established in 2001 as the result of a merger between now-defunct parts of the People’s Insurance Company of China and the China Export and Import Bank.
Naftogaz’s new insurance coverage will attract $160 million in guarantees at the initial stage, followed by a later injection of $800 million for new projects according to a Naftogaz press statement issued on April 2.
The initial $160 million will be used to finance existing gas projects for Naftogaz’s natural gas subsidiary, UkrGasVydobuvannya, Naftogaz said, adding that the company needs to finance existing contracts with Chinese companies who are supplying drilling equipment.
In its press statement, Naftogaz notes that the group is already cooperating with Chinese companies, including Sinosure.
“In 2018, due to insurance cover from Sinosure for UkrGasVydobuvannya, 13 drilling rigs worth about $140 million with a 5-year payment delay were purchased. The machines are being purchased from the Chinese company Honghua International, a member of the State Aerospace Concern of the People’s Republic of China,” Naftogaz said.
Growing ties
Data shows that China might replace Russia as Ukraine’s largest single-nation trading partner if growth rates in bilateral commerce between the two countries remain steady or increase.
According to Ukraine’s Economy Ministry, bilateral trade between China and Ukraine increased by about 20 percent through 2018. In January-November of last year, trade turnover between the two countries amounted to $8.82 billion.
If such an upward trade trend increases, or at least remains steady – as most observers and analysts expect it should – Ukrainian-Chinese trade could total $10 billion by the end of 2019, trade officials have said.
By comparison, Ukraine-Russia trade was $11.1 billion at the end of 2017, and it hasn’t changed much.
Troublesome acquisitions
But China’s business strategy in Ukraine, sometimes labeled mercantile opportunism, has raised some concerns in Ukraine and abroad.
On Feb. 26, the Kyiv Post reported that investors from China with strong ties to its government and armed forces would likely acquire a majority stake in Ukrainian aerospace giant Motor Sich, one of the world’s most important manufacturers of engines for military helicopters.
Days earlier, the Chinese and the Russians announced that they were ready to move ahead on a joint venture to build next-generation military helicopters.
In December 2018, the Kyiv Post reported that China’s Bohai Commodity Exchange Co. would be allowed to acquire more than 25 percent of Ukraine’s PFTS Stock Exchange, a leading Ukrainian stock exchange and trading system based in Kyiv.
Chinese investments into Ukraine no longer come as a surprise. In infrastructure alone, Beijing has pledged at least $7 billion to major new projects, mostly in the form of loans. Ports and highways that can transport heavy goods are especially interesting to China, and Ukrainian Infrastructure Minister Volodymyr Omelyan has said more such investments are coming.
Ukraine’s Western and NATO allies, especially Japan, the United States and the United Kingdom have expressed strong concerns about China’s interest in Ukraine – they warn that investments are largely driven by Chinese self-interest and could pose a security threat to the alliance and Ukraine.
But Ukraine is far from alone in being subject to Beijing’s attention, and other countries debate as to whether Chinese investment is a good thing. In the last 10 years, experts say that Chinese companies have invested at least $318 billion into Europe, signalling China’s relentless economic advance on the continent.
