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Russia is not the only country with a commercial and military interest in Ukraine. China has been watching the threatening gestures between Kiev and Moscow with mounting unease but few have noticed that Beijing is not an entirely dispassionate observer. That became clear on Monday when the Chinese government delivered a diplomatic brush-off to President Vladimir Putin. After assurances from Kremlin officials that China supported the Russian military intervention in Ukraine, the Chinese government demurred, declaring its support for "the independence, sovereignty and territorial integrity of Ukraine."

The Russian President no doubt hoped he would get the nod from a global power that is actively claiming its sovereignty over territory disputed with Japan. If so, he was wrongly advised and Beijing's ambivalence and cool treatment of Russia is not due to cussed neutrality or even a historic rivalry with a troublesome neighbour. It is because China has large commercial and political interest in Ukraine. Think of arms deals, food deals and huge loans to the fiscally-challenged European nation.

Ukraine ranks in the top 10 exporters of conventional weapons, a legacy of the Soviet weapons industry. According to Stockholm International Peace Research Institute, Ukraine ranked fourth in weapons exports globally in 2012. China has been keen to get access to Russian technology, it has found Ukraine to be a useful back door to the former Soviet weapons workshops and while Russia's enthusiasm to supply its increasingly powerful neighbour has dwindled, Ukraine has been happy to fill the gap.

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The former Chinese president Hu Jintao did deals with the now exiled President Yanukovych over the purchase of military jet engines and licensing of aircraft manufacture in 2011. The arms supply relationship started in 1998 when Ukraine sold the hulk of a former Soviet aircraft carrier, the Admiral Kuznetsov, to China, ostensibly to be converted into a floating casino. It was floated to Dalian, then reequipped in China as a military vessel and renamed Liaoning, to become China's first naval aircraft carrier.

In December last year, the Ukrainian president visited Beijing to celebrate the Sino-Ukrainian trade relationship – worth some $10-billion (U.S.), making it a major trading partner – and to sign a slew of trade and loan agreements, involving infrastructure, grain terminals and new ports in Crimea.

China's interest in Ukraine goes further than the purchase of guns; it is more interested in food and Ukraine's enormous agricultural potential. Last year, the Chinese press reported that a Chinese company had secured a deal to lease 5 per cent of Ukraine's agricultural land to produce food, grain and pigs, for export to China. In addition it would provide infrastructure.

In 2012, China entered into a novel loans-for-food deal, under which China would provide $3-billion of credit to be repaid in deliveries of corn. Similar to other loans-for-oil deals agreed with Russia and Venezuela, the intention was that Ukraine would use the credit to buy agricultural technology, enabling it to boost output while China would secure a large source of grain; the People's Republic's huge demand for animal feed has made it one of the biggest importers of corn.

Unfortunately, the deal appears to have turned sour along with most Ukrainian financing arrangements. The South China Morning Post recently reported that China is suing Ukraine for return of the $3-billion loan due to Ukraine's failure to supply more than $150-million of corn. The government of Ukraine is already believed to be heavily in debt to China. In desperate search for solutions to the country's unpaid energy bills, President Yanukovych flew to Beijing in December last year and secured the promise of an $8-billion loan from President Xi Jinping. The money would come on top of an existing $10-billion credit from China, according to Reuters.

China's assiduous courting of Ukraine and apparent willingness to bankroll a country notorious for its rocky finances may seem surprising. However, it reflects China's determination to secure long-term sources of basic goods such as oil, grain and metals. It explains why Beijing is on tenterhooks as it watches the revival of a Cold War drama – a tussle between the NATO countries and Russia over an Eastern European state.

China has no interest in the nature of the government in Kiev – it wants to buy food and it is prepared to pay good money for it, apparently up front. China has different deals to do with Russia over the supply of oil and gas. It has therefore no desire to see the annexation by its huge energy-rich neighbour of a potentially large food supplier. Such a situation would put too many eggs in one basket. Hence, the snub to President Putin.

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About the Author

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K. With a career spanning investment banking, journalism and consulting for global companies, he was for many years a financial writer and columnist for The Times of London. More


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