Against the background of unstable economic situation in the world, Ukraine tries to use all available sources of foreign credit and investment resources. IMF financial assistance is late. And this summer the Cabinet agreed with China on allocation of two large credits - $3 billion and $3.6 billion. It is planned to use this money to switch thermal power plants to coal water fuel and to build new plants on gasification of brown and mineral coal.

Beijing also expects certain benefits. Thus, in exchange for 'agrarian' loan Ukrainian side will use Chinese equipment, seeds and fertilizers. Moreover, Ukraine may hire Chinese workers.

ForUm has decided to analyze what the cooperation with Chine means for Ukraine and its economy.

Global background

As known, China moves in the direction of several macroregions of the planet: South-Eastern Asia, Africa, Latin America. Moreover, China is the biggest holder of US state debt and possesses American bonds at $1.1 trillion. As for Europe, China's PM Wen Jiabao said recently that  The Celestial Empire was ready to allocate $10-billion loan, especially for Eastern and South Europe, hoping to reach annual trade turnover up to $100 billion. Beijing also actively works within BRICS emerging economies.

China has also allocated large investments into a number of African countries (South Africa, Nigeria, Zambia, Sudan, etc.). According to the data of Commerce Ministry of China, the amount of trade turnover with African countries made $126.9 billion in 2010, and $150 billion in 2011. Moreover, African countries annually get direct financial assistance in the amount of $1-2 billion.

As for Latin America countries, this summer Wen Jiabao offered them a $10-billion credit line to support infrastructure projects and also proposed to create a joint fund on industry development. With Brazil and Argentine China concluded agreements on currency swap. Within the next five years China intends to increase annual trade with Latin America up to $400 billion.

In this respect, economist and political scientist Vitaly Kulik recalls that Chinese bank of development plans to allocate credits in its national currency - yuan, which means yuan will enter the global financial market. "What is more important, China is ready to allot means for long-term period (15 years and more) and with vacation period for interest payment. It concerns Ukraine as well," the expert sums up.

What do we gain from all this

Close cooperation with China means strengthening of economic positions of China in Ukraine, because Beijing works with us not for charitable cause, but for benefits, head of the parliamentary subcommittee on foreign economic issues Ihor Gryniv says. However, financial support from alternative sources is an advantage.

Moreover, activity of China on Ukraine's territory also endangers local interests of Russia. Thus, switching thermal power plants to coal fuel will allow to save 6 billion cu m of natural gas per year, and with development of domestic mining, energy saving technologies and reduction of consumption we may reduce the total gas import to 10 billion cu m, former economy minister Volodymyr Lanovoy presumes. China may play the principal role in decrease of Ukraine's dependence on Russia. Moreover, Moscow cannot even stop China's expansion on its own territory.

So, what China is so interested in Ukraine? Lanovoy points our two principle motivations: access to the rich raw material and industrial base with its qualified labor force and strengthening of its influence on CIS and the EU. In particular, building or buying core businesses in Ukraine, China may get access to the EU markets. One of the major flaws of domestic enterprises is expensive gas, but if with China's credits we will switch thermal power plants to coal, China will have convenient platform for further advancement.

We can and we should

Analysts remind that for the last 5-7 years China has created a number of joint enterprises in Ukraine, for example assembling of Chinese car models. As for infrastructure, the parties have been developing projects on construction and reconstruction of roads, bridges, sea ports. For example, China Bank of Development and Fan Zheng corporations are interested in aprticipation in the construction of modern highway "Luhansk-Chop".

Summing up, we can say that further cooperation with Beijing indeed means China's arrival in Ukraine's economy, with its investments, technologies and regional interest China will defend. Will it bring additional conflicts with Europe? Hardly. Europe itself is very interested in China and its investments. Will it complicate the relations with Russia? Probably. However, in return, we will get energy saving, industry development and other real benefits. Moscow's promises of improvement, on the other hand, remain promises without concrete actions, while high gas prices and continuous economic pressure do not disappear. 

All this means that we can and we should cooperate with Chine, putting our interests in front, but not discriminating the partner.

Andriy Boyarunets

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