2019 will be the Year of China for Ukraine, according to Prime Minister Volodymyr Groysman. But to make the most of it, the nation needs to show better results for its Asian partner.
Ukraine’s relationship with China warmed up in 2017, with visiting Chinese Vice Premier Ma Kai announcing plans for $7 billion in joint projects, especially for the infrastructure sector.
China’s ambitious plans include building a new ring road around the capital, an additional metro line and a direct train from Kyiv to Boryspil International Airport. Many similar projects have been talked about for more than a decade, with no results.
But this time could be different.
Ruslan Osypenko, CEO of the Chinese Commerce Association, said that with Ukraine getting a strong message of interest from China, it’s now Ukraine’s turn to reciprocate.
“Everything now depends on Ukraine,” Osypenko said. “We’re not such a big deal in the grand scheme of things. Ukraine is not even a regional player so far. Our economy is not prosperous enough to show something to big partners, like China and the United States.”
No free market
One way to tempt the Chinese would be for Ukraine to boost competition in its market, which is still heavily dominated by monopolies, Osypenko said.
“Ukraine left Russia’s sphere of influence, but we’ve not created a free market economy,” he said.
While it is good that Ukraine has signed a political and trade association agreement with the European Union, the country should not limit its horizons to Europe, but should look to trade globally, Osypenko said.
China-Ukraine trade increased by 18 percent, to $7.68 billion in 2017, according to Ukraine’s Economy Ministry, but the government needs to successfully implement Chinese infrastructure projects to maintain that upward trajectory.
“China is ready to give money for such projects, which are very important for Ukraine, but first and foremost China asked about state guarantees in order to reduce various kinds of risks,” Osypenko said. “However, today Ukraine is not able to give such guarantees for big infrastructure projects.”
Forming public-private partnerships could be one answer to the problem, Osypenko said, but there are other issues too, such as the tough situation in Ukraine’s financial system.
“In Ukraine, we don’t have one first-class bank that could guarantee a big business project between two parties,” he said. “We have to get through this period more quickly in order to start a successful story in our bilateral relationship. If we don’t, we’ll lose interest — and not only from Chinese investors.”
Bilateral progress
Even though Osypenko is alarmed at Ukraine’s lack of preparation, his partner, Weijian Zhou, the president of the Chinese Commerce Association and Lenovo Ukraine’s former general manager, says that bilateral relations have progressed.
The association, a non-profit organization, has grown to 50 members since its launch in 2015, when it started with 15.
Chinese companies “come and go,” but the trend shows that interest of Chinese companies is on the rise, Zhou said.
Making 2019 the Year of China in Ukraine helps. “It means that top line officials are really paying attention to the relationship of two countries, and they think that the relationship is very important,” Zhou said.
So far, 15 main Chinese players are doing business in Ukraine. They include China Road and Bridge Corporation, Bohai Commodity Exchange, Lenovo, Huawei, Cofco Agri, COSCO Shipping, and the China National Complete Engineering Corporation.
The Chinese Commerce Association helps these businesses reduce risks and participate in tenders. It also lobbies Ukrainian lawmakers in its members’ interests. In essence, it functions as a bridge between Ukraine and China, also helping Ukrainian businesses enter the Chinese market.
Entering China
But for Ukrainian businesses in China, the situation is bleaker.
At the moment, Ukraine mostly exports raw agricultural materials and some food products to China. The challenge is to switch its exports to finished goods that would bring more added value to the Ukrainian producer.
Osypenko’s association has proposed a new policy to the Ukrainian government on how to do that.
“A lot of representatives from the Ukrainian government are saying that it’s enough for Ukraine just to be an agricultural hub,” he said. “We have another point of view: Ukraine has to develop the industrial sector in order to get a profit, to develop quickly, and to be a first-class country.”
The other problem is that most Ukrainian businesses have short-term business plans: they don’t understand their product niche or how much they might have to invest. Most simply focus on trying to find a partner in China, and don’t even make any attempt to adapt their product to the local market.
“If you want to enter a new market, first you need to understand what the market needs,” Zhou said. “You need to have the right products in the Chinese market. You need to understand what the people need. I rarely see a Ukrainian company come to us with the right plan to build up a business in China.”
Chinese priority?
Ukrainians still have much to do to make Chinese and other foreign investors welcome.
“We have to demonstrate that we’re able to achieve quick reforms here in Ukraine: to have an open market for all players and provide them with the right international rules,” Osypenko said.
He agrees with the recent American Chamber of Commerce findings that most of its 600 members want to see an independent anti-corruption court, a fair judicial system and a non-corrupt tax and customs system.
The Chinese Commerce Association last April was among the founders of the International Council of Business Associations and Chambers. It is a union of six chambers and associations from six countries — the United States, France, Germany, Turkey, China and Ukraine.
“We created a council of heads of associations in order to be able to discuss the situation in Ukraine and to communicate our opinion to the government of Ukraine,” Osypenko said.
The associations see the same problems — a poor business climate, the need for fiscal service and judicial reform, and a shortage of qualified professionals, since many have left the country.
“We should have more ambitious goals… to become one of the top 10 developed countries worldwide, instead of getting the 50th position in some sort of business rating,” Osypenko said.
