13:28 PM Wednesday, November 14, 2018
For Ukraine, Chinese Money Could Help Today but Hurt Tomorrow
China uses debt traps for political leverage, influences elections, bribes officials and seizes property if bills aren't paid on time. Is this the kind of friend that Ukraine needs right now?
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By Jack Laurenson

KYIV – When Sri Lanka couldn't service their debts on Chinese loans for the construction of a new port, China simply took control of the port.

A new investigation in today's New York Times rings out as a warning shot for Ukraine, where Chinese state-backed banks and companies are making significant and aggressive moves on the country.

New York Times journalists have revealed how China Harbour Engineering, or CHE – one of Beijing's largest state-owned enterprises – took control of a vital national port when Sri Lanka began defaulting on debt repayments for its construction.

At the same time, CHE also made millions of dollars worth of payments to the political campaign of the presidential candidate who made the project possible, subverting the country's political process and influencing the elections.

When other international partners like India weren't able to foot the $307 million bill for a new port, China was quick to offer a loan – but only if CHE had the construction contract. When Sri Lanka couldn't pay it back quickly enough, the government was forced to hand over the port and 15,000 acres of surrounding land.

Analysts quoted in the New York Times suggest that the port in question has little value other than strategical. They expect that the People's Liberation Army will soon begin using it.

Documents further show that during the port's build, CHE also made payments of $7.6 million to the political campaign of the president who signed the deal – directly intervening in another country's election.

The port and elections in Sri Lanka stand out as a vivid example of how China uses loans and “aid” to gain influence around the world. Critics of China's One Belt One Road initiative say that it amounts to little more than a debt trap for developing countries and also fuels corruption and autocracy.

Chinese Dragon Moves on Ukraine

In Ukraine, China's growing interest in the country's Black Sea ports has, so far, raised very few red flags.

Few politicians here have expressed concern that China Harbour Engineering (CHE) swept away all competition to win the multi-million dollar tenders for upgrades and dredging at the ports of Yuzhny and Chornomorsk.

That China regards Ukraine's ports as a strategically vital part of their relentless march on Europe is no secret: they need Ukrainian food and access to the world's wealthiest consumer market.

But China's Beijing-backed businesses, proxies for China's communist government, are also pushing deep into Ukraine in other areas too. The city of Kyiv has signed a $2 billion deal with the Chinese to build a new metro line – China wants to loan 85 percent of the construction costs, creating a potentially dangerous debt trap for the capital.

Other companies will foot the bill for energy projects, roads and highways as more state-backed enterprises move into the agribusiness sector. At the same time, Beijing Skyrizon Aviation and the Chinese Ambassador lobby ministers in Kyiv to “quickly resolve” their attempted takeover of aerospace giant Motor Sich – one of the world's largest manufacturers of military aircraft engines and parts.

The broader picture is one of a relentless Chinese push into Europe. Countries in Africa, South America and Asia have long known that with Chinese money comes political and ideological influence – but $318 billion in European investments from Chinese interests have begun to cement Beijing's presence and voice on the continent. In countries like Greece and the Czech Republic, sympathetic attitudes toward the Chinese Communist Party have been fossilised.

And as allies in North America and Europe place conditions like judicial and political reform on their continued support for Ukraine, they're quickly losing ground to a competitor from the far east.

“China pitches their investments and loans to Ukraine as benevolent and business-focused,” one Swedish banking executive told the UBJ. “But it's also highly political and is about exporting Chinese influence.”

“Ukraine is being sold to the Chinese,” says a Ukrainian executive in the agribusiness sector. “Politicians have taken the keys away from Russia and are handing them straight to China.”

It's true that Chinese money flowing into Ukraine will have some short-term, positive effects for many Ukrainians today. Ministers are acting out of economic necessity when it comes to investing in vital state infrastructure like ports, roads and railways. But has the real cost and potential risk of this relationship been properly considered? Hopefully it won't be shown that Ukraine failed to identify another wolf when it presented itself in sheep's clothing.

Jack Laurenson is a British journalist and award-winning magazine editor with years of experience in Asia, particularly in India, Cambodia, Myanmar and Vietnam. Since early 2017, he has been based in Kyiv where he is managing editor of the Ukraine Business Journal. For comments or story ideas please contact the author at:

Posted June 26, 2018.

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