Background and outlooks
Since 1980s, China's GDP had been growing by 15% annually on average; by the end of 1990s its growth rates slowed down to 7-8%, but after entering the WTO intensified again thanks to inflow of foreign direct investments (FDI) and expansion of export. According to expert estimations, the growth may make about 7.5% in 2013, which means dynamic expansion of domestic markets. In general, 40% of growth of the world economy in 2012 accrued to China, and its car market has become the biggest one on sale of new cars.
No surprise that enterprises of Ukraine have been working in Chine for quite a while. Thus, in the first half year of 2013 Ukraine's export to China increased by 60.7% to $1394 million. In turn, Chinese export grew by 19% to $4 billion (electrical machines mostly, which made 28.6% in the cost structure). As for this year, goods turnover is expected to top $10 billion (about $9.6 billion in 2012).Among promising spheres of export to Chine experts note chemical production (oils, lubricants, fertilizers, chemical additive, etc.), as well we biotechnological products and technologies for pharmaceutical, perfumery and food industries and agriculture, including technologies of soil reclamation, waste biodegradation and recycling, methods and equipment for air and water bio-treatment. Let's not forget the export of various machinery, including military equipment, ships, airplanes and armament, and, of course, food products, which is very important for such populous country. Economist Vitaly Melnychuk notes that for the last 10 years domestic export of food to Chine has been growing by 25% annually.
At the same time, in 2012 Ukraine and China signed a protocol on $3 billion loan for the development of Ukrainian agriculture. Moreover, agriculture minister Mykola Prysiazhniuk has declared recently about raising another $3 billion loan for recovery of irrigation systems. According to the minister, the Cabinet is holding talks with Exim Bank of China, and the parties have agreed to a part in money and a part in equipment. Loan conditions are the same as in 2012: 6.5% per annum including servicing and insurance, five-year holidays for interest payments and the principle repayment within 10 years. Prysiazhniuk assures that $3 billion are sufficient for restoration of irrigation systems on 1.2-1.4 million hectares of agricultural land. In general, China's direct investments in Ukraine's agriculture may reach $10 billion with the next years.
Industries in details
In September, the Cabinet's delegation headed by the first vice PM Serhiy Arbuzov paid an official visit to Beijing to talk about increase of financing of domestic agrarian sector, port infrastructure development as well cooperation in the industrial sector, particularly in the aircraft and aerospace industries.
"We intend to focus not only on cultivation, but also on exports, which involvement of ports. Today, we are not able to export all that we grow in the amounts we'd like to. However, export rates are growing, and we will be able to equalize the balance of bilateral trade between Ukraine and China. Strategic directions include agriculture, aviation, space industry, science, culture, and medicine," first vice Prime Minister of Ukraine Serhiy Arbuzov said, summing up preliminary results of his visit to China.
In this respect, Dwight Perkins, research professor of political economy of Harvard University, notes that economic cooperation between the two countries may progress rather fast, as it has gained political support at the highest level. According to the specialist, "it is important for the Chinese to understand what Ukraine can offer, and that is where the official visit comes in. It is also a positive signal for the business. Moreover, China is a WTO member, thus no rules should be changed for the development of mutual trade. Ukraine can count on big investments from China, considering that the latter has changed the legislation to facilitate the investing process aboard. China may invest into extraction of industrial raw materials, and generally speaking, export outlooks are indeed optimistic," considering the growth of the middle class, traditionally important for domestic demand.
John Holden, leading expert on China's business sector and senior associate in the Asia Program of the Carnegie Endowment for International Peace, agrees and believes that Ukraine's agriculture sector may benefit the most. Beijing does needs agricultural products and food and tries to diversify import sources. Ukraine's minister Prysiazhniuk confirms that since the year beginning the export of agricultural production to China has growth fourfold and keep growing. "By the end of the year the parties are to sign a protocol on phytosanitary requirements, allowing to launch supplies of Ukrainian barley and soybeans to China this year and of wheat and rapeseed starting from the next year. We already have a successful experience in corn supply. And now we are very keen to begin exporting barley and soybeans. In the future, we want to expand the range of exported wheat, canola, and the meal," the minister said.
As for Chinese business of Ukrainian soil, economist and political scientist Vitaly Kulik reminds that there are several joint enterprises already working for years, including assembling of car models, production of refractory products for metallurgy. As for infrastructure, apart from sea ports the parties are working on construction and reconstruction of roads and bridges. Thus, this spring the China National Machinery Industry Complete Engineering won the contest on construction project of a railroad line to Boryspil airport, costing about three billion hryvnias. Speaking about aviation, within the next 20 years China will need more than 5300 new airliners, and "Antonov" models fit the requirements.
Finally, thanks to September's official visit, the currency swap agreement signed between Ukraine and China will enter into force soon, whereby the subjects of foreign economic activity of the two countries will be able to carry out reciprocal accounts in their national currencies without dollar. The swap is rated for three years and 15 billion yuan ($2.36 billion) and is called to the reduce the influence of US dollar in Ukraine's financial system.
Kulik believes that such cooperation enables Kyiv to diversify vectors of foreign economic affairs amid still complicated economic situation in the world. "It is important to have a possibility to place risks in different baskets. We should no chose between Brussels and Kremlin. European integration is our principle course, the Customs Union remains a strategic partner, but they are not the only options. The wider the range, the better. Moreover, Beijing is not just an alternative, but a force to take into account, considering that in 15-20 years it may outrun Washington on GDP volumes."
John Holden agrees that our domestic economy gets a good chance to diversify market outlets and to reduce dependence on Russia and CIS. "For you it would be easier to work with China than with traditional partners," the expert says. In turn, president of the Center for market reforms Volodymyr Lanovy reminds about big investment programs, developed jointly with China, namely fuel switching (from gas to coal) for thermal power plants, which will enable to save six billion cubic meters of natural gas annually, and considering high gas prices for our country, such step is also important.
The expert points out that China's influence on the international arena is way stronger than Russia's one ,"as the latter cannot even control the Chinese expansion within its own territory, let alone foreign markets. Beijing is interested in CIS markets and is ready to realize joint projects, unlike the Kremlin. On our side we have potential big market outlet, rich raw material and industrial bases and qualified labor force."
Using these advantages China is able to strengthen its positions in both Europe and CIS, including purchase or formation of enterprises in need of modernization. The policy of joint ventures will continue, and Ukrainian partners will be able to enter foreign markets using the contacts of Chinese partners. Moreover, following the upgrade of standards to the European level, Ukraine's production will become more attractive for Chinese market and other Asian markets in general.
Thus, rapprochement with Beijing is useful and beneficial. Along with the integration in the European Union we can and we will develop cooperation with one of the biggest world economies, which in turn will bring Ukraine the export growth and investment inflow. In the near future we may have not only joint ventures with China, which will offer products of high quality, but also a strong partner to promote our production worldwide, strengthening the national export potential and prosperity of the country and its citizens.
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