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© RIA Novosti. Alexandr Kryazhev

Tensions push Ukraine to look to Beijing

by Tai Adelaja at 16/07/2012 20:38

With Russia turning its back and Europe giving it the cold shoulder, Ukraine is trying to hedge its bets with closer engagement with China. After the scuffles and fistfights that accompanied the debate on the Russian language law two weeks ago, the Ukrainian Parliament passed a bill that will considerably expand Chinese farming investments in the country. But the move could also boost China’s ability to influence developments in that country, which experts say is of far greater strategic importance to both Russia and Europe.

The Chinese-Ukrainian agreement ratified by the pro-government faction on July 3 will allow the government to immediately attract up to $3 billion in Chinese investments in agricultural development, Nezavisimaya Gazeta reported. Part of the loan will be spent on the construction of a plant for organic fertilizer processing, according to the Ukrainian government. However, a portion of the money will go to buy Chinese-made agricultural equipment, crop-protection agents as well as seeds. Ukraine will in turn be able to boost its grain production capacity and supply China with more oil, corn and soybeans.

Chinese investment activities in the country are expected to receive a further boost next year, when a law that permits the sale, lease and purchase of agricultural land takes effect. However, some analysts have expressed concerns that the law could indeed pave the way for a complete Chinese takeover of fertile Ukrainian agricultural land. Others have cited the experience of Kazakhstan, where the Chinese invested just over $20 billion to take control of 70 percent of that country’s natural resources, including oil and gas.

Easy access for Chinese

“The real reason China readily invests in agricultural programs is that it gives the Chinese easy access to fertile land around the world,” said Sergei Nalivka of AAA Consulting, a Ukrainian consulting firm. “And the reason our officials easily take the money is that it’s a feeding trough for them and their relatives.” Nalivka pointed to a clause in the new law that he said would allow the Ukrainian government to use its discretion to lease land to legal entities, saying that such a provision could enable countries like China to take over Ukrainian land through long-term leases.

As growing tension puts a strain on Ukraine’s relationship with both the European Union and Russia, Ukrainian politicians are also turning east to embrace China.

“They [the Chinese] do not put forward unrealistic demands and they never mix economics with politics,” said an unnamed government official cited by Nezavisimaya Gazeta. “They have the tools, the technology, capabilities and above all, they are interested.”

Ukraine signed a framework agreement with the Chinese government last month in hopes of unlocking additional loans to undertake a major overhaul of its agricultural sector.

“Yes, the countries intend to carry out joint work in the area of crop cultivation, plant protection, agricultural engineering and veterinary drugs,” Agriculture Minister Mykola Prysyazhnyuk declared after the signing ceremony. “I understand that by uniting natural, technical and financial resources, we can produce goods and export them to the markets of third countries.”

Import-export deal

In addition to the agreement, the central banks of both countries also inked a currency swap deal worth 15 billion yuan ($2.36 billion) that will enable companies from either side to use national currencies for exportimport operations and to conduct settlements in national currencies without involving the currencies of third countries. The deals could offer some relief to Ukraine, which currently spends about $1 billion yearly to import chemical fertilizer.

There are at least six other Ukrainian-Chinese projects of national importance currently under consideration, ranging from the development of conventional and alternative energy sources to the construction of residential buildings and the computerization of schools. An ad hoc Ukrainian-Chinese committee is also reportedly working on the possibility of converting Ukrainian alcohol plants to factories that will produce biofuel. The Chinese have also shown particular interest in the development of the steppe regions of Crimea, as well as in the land reclamation project there.

But whatever benefits the newfound cooperation may hold, some officials are calling for caution.

“In recent years, the Chinese government has expressed interest in doing some quick turnover businesses in Ukraine,” said Vladimir Makiyenko, a pro-Europe Ukrainian lawmaker. “However, the government needs to weigh the pros and cons, and the durability of each project must be carefully examined.” Makiyenko said that while it is understandable that working with the Europeans could be harder and more expensive, such cooperation might be worthwhile because “it could be more promising in the long term.”

Other experts have dismissed as myth the impending Chinese takeover of Ukrainian land.

“Investment has no nationality,” said Konstantin Bondarenko of the Kiev-based National Strategy Institute. It is in Ukraine’s interest to open the door wide to investments from China, Europe, Russia, or wherever, he said.

“This will speed up the development of agriculture, which is the strategic sector of the Ukrainian economy,” Bondarenko said. “In any case, the saving grace is still that non-residents will not be eligible to buy Ukrainian land.”

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