Ukraine’s Zelensky Sanctions China over Attempted Takeover of Key Defense Firm

Ukrainian President Volodymyr Zelensky speaks to media on October 10, 2019
AFP Genya SAVILOV

Ukrainian President Volodymyr Zelensky sanctioned a major Chinese company last week in response to an attempt to take a controlling stake in Motor Sich, a Ukrainian aeronautics company. China lodged a protest against the move Wednesday and has demanded Ukraine “uphold the legal rights and interests” of the Chinese.

The unilateral move against Chinese corporate expansionism by a state with little economic firepower to confront the world’s second-largest economy is particularly startling in light of years of attempts by Beijing to infiltrate the Ukrainian economy through its Belt and Road Initiative (BRI). Ukraine is a BRI partner and, as recently as December, Chinese state media outlets were boasting of plans to “deepen cooperation” with Ukrainian enterprises.

China established a Belt and Road Trade and Investment Promotion Center in Kiev shortly after the country joined the project in 2017. In 2019, the Asian politics outlet The Diplomat described Ukraine as being “in the front row of hidden Chinese debtor nations.”

The Belt and Road Initiative is a Chinese global infrastructure plan the goal of which, Beijing says, is to recreate the Ancient Silk Road that connected China to Europe. As Ukraine sits squarely in between Beijing and western Europe, its location is prime for BRI projects. In practice, countries participating in BRI, particularly underdeveloped economies in Africa and Southeast Asia, have found themselves entangled in predatory loans that have resulted in outsized Chinese government influence in their state affairs. Countries like Kenya and Zimbabwe have also cataloged a substantial increase in incidents of racial hatred by Chinese businessmen towards locals, including the implementation of “apartheid” systems on BRI work sites.

Motor Sich is a key firm for Ukraine’s strategic defense, manufacturing jet engines and other technology critical to the nation’s military. In an attempt to protect it from foreign interference, Zelensky said, the president signed a decree on Friday sanctioning four Chinese companies and three individual Chinese nationals for attempting to enforce the purchase of a controlling stake in the company. The biggest name sanctioned is Beijing Skyrizon Aviation, which, according to Reuters, now cannot move capital invested in Kyiv outside of the country for at least three years. The sanctions also significantly limited Skyrizon’s ability to purchase assets in the country.

Skyrizon had already purchased what would have been a controlling stake in Motor Sich under the tenure of former President Petro Poroshenko, who lost to Zelensky, a sitcom comedian prior to becoming head of state, amid widespread accusations of corruption. Ukrainian authorities have barred Skyrizon from acting on that controlling share and frozen the purchase to investigate if the sale was done legitimately. Since then, Skyrizon has attempted to partner with other Chinese companies, making repeated attempts to come to an agreement to buy the company that Kyiv would approve.

Skyrizon is owned by Chinese tycoon Wang Jing and is believed to have ties to the People’s Liberation Army (PLA). China is a communist society that does not recognize true private institutions and legally requires all companies to cooperate with the state.

On Sunday, Ukraine’s state security service (SBU) raided a Motor Sich shareholders’ meeting convened specifically to discuss how to push the Skyrizon purchase forward.

Beijing responded with outrage to Zelensky’s move, noting that it was unilateral in nature and belying some surprise, given that China is Ukraine’s largest trade partner and that a years-long war on its eastern border with Russia has stagnated Ukraine’s economy.

“China as always opposes unilateral sanctions on Chinese enterprises by foreign governments,” Foreign Ministry spokesman Wang Wenbin said on Monday. “In the meantime, we ask Chinese enterprises to abide by laws when doing business overseas. We hope the Ukrainian side will uphold the legal rights and interests of Chinese enterprises and investors.”

Skyrizon itself issued a statement calling the sanctions a “barbaric robbery.”

“On the part of Ukraine, such actions are barbaric robbery and serious violation of the legitimate rights and interests of Chinese companies working abroad,” Skyrizon asserted, adding that it showed “unprecedented disrespect for the principles and rules of international trade.”

On Wednesday, the Ukrainian Foreign Ministry confirmed that China had sent a diplomatic note to Kiev on the matter, but refused to specify its contents.

“Indeed, the Ministry of Foreign Affairs of Ukraine received a note from the Chinese side on the situation with the Motor Sich. The note is a confidential diplomatic correspondence, therefore we cannot disclose its contents,” spokesman Oleh Nikolenko said, according to Ukraine’s Interfax. “The Ministry has informed the state bodies that are involved in this case about the document.”

Shortly after imposing the sanctions, Zelensky told the U.S. media outlet Axios that he did not consider China a national security threat to Ukraine. Asked about America’s continued identification of China as such, Zelensky said, “I cannot agree with that because in Ukraine we do not feel this.”

“There really is this a sort of cold war between China and the United States. We know United States business is represented in Ukraine, but at the same time, it’s true that Chinese business is also represented,” Zelensky continued. “I believe that regardless of the nation, the nationality, if people, if business, if a certain country, treats you with respect, respecting your people and borders, they can be present in your country.”

On Motor Sich specifically, however, he asserted he would “never” allow any foreign company to buy it.

“The president said that the question is not in China. The question is not even how the shares of Motor Sich were bought during the time of the former president, during the time of Poroshenko,” according to Interfax. “The question is that Ukraine has no right to sell the controlling stake for managing strategic defense enterprises of Ukraine to any country.”

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