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Recently, analysts looking at Ukraine, Belarus, and Moldova highlighted the region’s rapidly developing ties with China—and rightly so. In 2019, China overtook Russia as Ukraine’s largest trading partner. Belarus has become key to the Belt and Road Initiative, with the rail links connecting China to Europe running through its territory. And China is now a major importer of Moldovan wine.
China’s economic presence in the region has grown so much over the past two decades that the country is increasingly regarded as a potential competitor—for Russia and Europe alike—for geopolitical influence in the countries that are wedged between them.
Double-digit trade growth figures paint a picture of success and dynamism that overlooks something important: the global context. Over the past decade, China has expanded its economic links with much of the world, from the liberal New Zealand to the socialist Cuba. As such, the mere fact of growing ties with China says little, since almost every country in the world can claim such expansion. What is more significant is the structure of economic ties.
A closer look at China’s relations with Ukraine, Belarus, and Moldova suggests that things are less rosy than they seem. In most areas, China’s cooperation with the three countries is developing more slowly than China’s economic relations with the world on average. In China’s trade, Ukraine, Belarus, and Moldova are trailing behind dozens of other countries around the world.
For Beijing, the region remains nonessential in economic terms: its goods and services can be easily replaced. Trade volumes are uneven, influenced by a host of domestic and international factors. Unburdened—unlike Russia and Europe—by historical and geopolitical hang-ups in its relations with the three countries, China can be pragmatic with Ukraine, Belarus, and Moldova.
Since the turn of the century, China has been seen in Kyiv, Minsk, and Chisinau as a promising economic partner. By that time Ukraine, Belarus, and Moldova, having become accustomed to their independent status, also realized that their goods had little chance to sell in Western markets. China then seemed to be a more accessible option, as well as an alternative to the Russian market—on which Ukraine, Belarus, and Moldova were overly dependent. There was also a sense that there were no limits to the growth of trade—and to the profits to be made—in the Chinese market, and that a shared communist past would surely make navigating it easier.
It appeared at first that the technological gap between China and the three former Soviet republics was not that great, that their economies could complement each other in many respects, and that economic relations could be structured in a fairly balanced way. Disappointment was not long in coming. China quickly managed to acquire those technologies in which it was interested and soured on industrial imports. Many projects collapsed already at the discussion stage, and those Ukrainian and Belarusian companies that had managed to expand into China were soon forced to withdraw from that country or to be content with only a symbolic presence there.
As a result, China’s trade with Ukraine, Belarus, and Moldova closely resembles Beijing’s relations with developing nations. The three countries supply China with raw materials with a low degree of processing and other easily replaceable products, while China exports to them industrial equipment and consumer goods.
Over the past decade, Ukraine, Belarus, and Moldova have all established niches for themselves from which they will hardly be able to exit. Indeed, two or three types of goods account for 70–80 percent of each country’s exports to China: iron ore (35 percent in 2019), grain (24 percent), and sunflower oil (14 percent) in Ukraine’s case; fertilizer (61 percent) and meat and milk (12 percent) in Belarus’s; and wine (36 percent) and clothing (30 percent) in Moldova’s.
Not only does the production of these goods create few jobs or add little value. These products are also vulnerable to fluctuations in world prices, competition from other producers, and protectionist policies. Moreover, many of these goods are key to Chinese trade with its major trading partners, with which China can strike bilateral deals that seriously impact the terms of the goods’ import from third countries.
Thus, tough competition from Canada and Russia for dominance in the Chinese market has eaten away at the profitability of Belarusian fertilizer exports over the past decade. Potassium fertilizers are a case in point: their average price in Sino-Belarusian contracts fell from $470 per ton in 2011 to $220 per ton in 2019.
The main reason behind the boom in Ukrainian grain exports to China has been Beijing’s trade war with Washington. Seizing the opportunity, Ukraine took over the U.S. share of Chinese corn imports. Ukrainian corn sales to Beijing increased from $26 million in 2013 to $896 million in 2019 in parallel with the decline of U.S. corn sales from $847 million to $75 million over the same period. Yet Ukraine could face a reversal of fortune if the Biden administration opts for mending trade ties with China.
Another problem common to all three countries is that trade with China is growing largely because of their rising imports, creating a growing trade imbalance. In 2019, Ukraine, Belarus, and Moldova each imported from China products worth about twice as much as they exported to it, a gap measured in the billions of dollars for Ukraine and Belarus. Thus, the growth of their trade with China is essentially the growth in Chinese imports. It speaks more to the problems of these post-Soviet economies than to any achievements.
For instance, shoe imports to Ukraine from China doubled in 2015–2019, but this is a testimony to the weakness of the domestic Ukrainian production and the population’s low purchasing power.
Similarly, Belarus’s increasing import of industrial equipment from China does little for the former’s competitiveness. Carried out as part of large-scale and poorly conceived state-run programs, it saddles state-owned factories with new debt but leaves efficiency and marketing issues unresolved.
The three countries’ expectations about Chinese investments and soft loans were no less optimistic than their anticipation of easy profits from their entry into the Chinese market. In the wake of the 2007–2008 global financial crisis, it seemed that the West’s economic dominance was ebbing and that China would step in by actively investing its large reserves abroad. After 2013, when Beijing launched its Belt and Road Initiative, Ukraine, Belarus, and Moldova, like so many others, assumed that China would need them in order to extend transport infrastructure to Western Europe.
China came to be seen in the region as a magical partner that, for reasons unknown, would invest in and bring order to loss-making state-owned enterprises and even entire industries. Convinced of China’s generosity and their own indispensability, Ukraine, Belarus, and Moldova neglected to make themselves more attractive to Chinese business, and no real flow of investment to the region ever arrived. As of 2018, the three countries ranked either near the bottom of the top 100 countries in terms of direct investment flows from China or even below that.
For years, there was talk in Kyiv of China’s supposed interest in Ukraine’s agriculture, construction, coal, nuclear, and other capital-strapped industries. But the results have been meager, with inflows of Chinese FDI limited to just a few million dollars per year. The same is true of Moldova, where China had invested less than $4 million by the end of 2018. Even allowing for the possibility that some Chinese investments are channeled through other jurisdictions, inflows to Ukraine and Moldova are insignificant relative to those reported by other post-Soviet states. Two of them, the small and poor Central Asian countries of Kyrgyzstan and Tajikistan, had drawn $1.4 billion and $1.8 billion, respectively, in Chinese FDI by the end of 2018.
Belarus has fared somewhat better in its pursuit of Chinese money, although its efforts have also fallen short of expectations. BelGee, a car manufacturer and joint venture of Belarus’s BelAZ and China’s Geely established in 2013, never reached its planned capacity and had to suspend production in mid-2020. Another joint project, the Great Stone Industrial Park, had attracted more than half a billion dollars in Chinese investment by the beginning of 2020. It looks impressive by the modest standards of the region, but pales in comparison to the seventy-plus such sites run by China around the world.
Following the launch of the Belt and Road Initiative one might have expected a better situation in infrastructure development, given the region’s favorable geographical position. But here, too, as with China’s investments in manufacturing, the results have been quite modest, especially considering all the loud pronouncements.
Numerous transportation projects in Ukraine, from a new bridge over the Dnieper River to a fourth subway line in Kyiv, never materialized despite prolonged negotiations and repeated pledges from stakeholders. The country’s transit potential was severely undermined when Russia annexed Crimea and war broke out in eastern Ukraine in 2014, triggering severe travel and transport restrictions between Ukraine and Russia.
Moldova’s authorities tried several times to negotiate a revamp of the country’s dilapidated road network with Chinese companies, with project costs totaling hundreds of millions of dollars. Political infighting in Chisinau, however, tanked the talks on each occasion.
Only Belarus has managed to secure a significant role in the Belt and Road Initiative, whose main rail route passes through the country. Rail shipments account for a small share of China–Europe trade, but their volume has been growing exponentially thanks to Chinese state subsidies. From a very low base, China–Europe rail transit through Belarus increased 130-fold in 2011–2018. It moved 330,000 TEUs (twenty-foot equivalent units) in 2018, providing Minsk with revenue from rail services, warehousing, and customs.
The upside of China’s weak presence in the region has been that the three countries are not heavily indebted to Beijing. Ukraine and Moldova rely mainly on Western financing, which has proven to be cheaper and easier to obtain. The situation is more complicated for Belarus due to its strained relations with the West. Minsk has borrowed more than $3.6 billion from China since 2012, but the actual sum is likely to be higher given the enthusiasm with which Belarusian state enterprises have accepted Chinese “tied” loans, which added to the state’s debt burden.
There is admittedly one respect in which the region is of interest to Beijing: defense cooperation, in which China has engaged with Ukraine and Belarus since the 1990s.
Ukraine remains one of the main suppliers of arms to China, outranked only by Russia and France, while China is Ukraine’s top market for arms exports. Ukraine’s defense industry has long benefited from Russia’s reluctance to sell advanced weaponry to China, and was ready to provide China with any Soviet-designed arms it wanted.
Since 2014, Ukraine has found it tougher to engage in defense cooperation with China. Many Ukrainian defense enterprises have lost access to component parts formerly supplied by Russian partners, and Moscow has begun selling more advanced arms to China, after concluding that Beijing would sooner rather than later be able to develop its own defense technologies.
China has also tried to take advantage of Ukraine’s financial difficulties to enhance its grip on the country’s defense industry. It acquired a controlling stake in the aircraft engine producer Motor Sich and held talks with Antonov, which manufactures the world’s largest transport aircraft, the An-225. Yet Kyiv, facing U.S. pressure, refused to cede effective control of the two enterprises to Beijing, despite years of negotiations, and their grave financial problems notwithstanding.
Belarus lacks the diversified defense industry that Ukraine inherited from the Soviet Union. Nonetheless, it also eagerly cooperated with China using the few technologies in its possession. Minsk’s greatest success was the joint production of the Polonez multiple rocket launcher, assembled in Belarus from 2015 and exported to some other post-Soviet states.
Still, the height of China’s defense cooperation with the region has passed. China has either mastered or developed alternatives to most of the technologies that Ukraine and Belarus inherited from the USSR. Ukraine is increasingly under pressure from the United States to curtail defense cooperation with China, while Belarus is unlikely to move beyond high-profile yet symbolic activities like joint exercises and military personnel exchanges.
Geopolitics has seen the least of Chinese involvement in the region. Beijing has consistently refused to become involved in the three countries’ geopolitical crises. China has ignored any opportunities seemingly presented by Moldova’s foreign policy shifts, Russia’s conflict with Ukraine, and Belarus’s ongoing political crisis. Thus, Beijing has denied each of the three countries the option of aligning with China as part of their geopolitical balancing acts.
China’s leaders likely welcome their Moldovan and Ukrainian counterparts’ talk of how their countries, like China, prize the principle of territorial integrity, and Belarusian President Alexander Lukashenko’s complaints about how the West instrumentalizes human rights. Yet Beijing seems certain that winning the three countries’ support on these issues is not so valuable as to justify China’s meaningful involvement in their problems. China is set to continue to respond to the region’s crises with routine, sterile statements to the effect that all conflicts must be resolved peacefully while taking into account the interests of all sides.
Beijing understands that it has fewer instruments of influence in the region than either Russia or the West, but does not find this state of affairs worrying or in need of a correction. China’s indifference to the region’s geopolitical battles is not a passing phenomenon. Rather, it follows from Beijing’s hard-headed analysis of its own interests and of the three countries’ economic and political prospects.
Ukraine, Belarus, and Moldova, it appears, are building their international standing on their ability to exploit Moscow’s differences with the West and these two rivals’ persistent view that influence in the lands situated between the Russian Federation and the European Union is important and worth fighting for. Unafflicted by the historical and geopolitical hang-ups that encourage this kind of thinking, China has no trouble recognizing that the three countries have little to offer it.
The resulting failures of Ukraine, Belarus, and Moldova in their cooperation with China speak to the bleak prospects the three countries will have if Russia and the West ever abandon their view of the region as geopolitically important. More immediately, they give reason to doubt that Ukraine, Belarus, and Moldova will become new flashpoints in Russia’s relations with China or in China’s interactions with the West. For Beijing, even a victory in the competition for dominance in the region would not justify the effort. Thus, the game is simply not worth playing.
This publication is part of the Sino-Russian Entente project carried out with the support of the UK Foreign and Commonwealth Office.
Carnegie does not take institutional positions on public policy issues; the views represented herein are those of the author(s) and do not necessarily reflect the views of Carnegie, its staff, or its trustees.
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