Ukraine plans to nationalize a prominent aviation manufacturer and cancel its acquisition by China, after the US opposed the agreement on critical defense technology from Beijing’s hands.
The Ukrainian government’s national safety council last week announced the decision on Motor Sich, a manufacturer of advanced engines. The decision angered China, which required Ukraine to respect the rights of Chinese investors, and the plans must still be passed by the Ukrainian legislature and may be faced by direct Chinese suitors.
If implemented, the takeover of the state will end more than three years of struggle that has put the company and Ukraine in a protracted confrontation between Washington and Beijing.
It could also save relations between the Biden administration and Ukraine, after the government became entangled in US domestic politics during Donald Trump’s presidency, which weakened support for the country in Washington.
The nationalization of Motor Sich shows that Ukraine ‘is even at significant cost to the US’, said Anders Aslund, a Swedish economist and senior fellow at the Atlantic Council, a think tank in Washington. “It was an excellent move that the United States should greatly appreciate.”
The White House and the Department of Foreign Affairs did not respond to requests for comment. U.S. officials in the Biden and Trump governments have said that Ukraine needs to understand China’s ambition to acquire and master key defense technologies and halt purchasing. The Ukrainian government has not responded to requests for comment.
Ukrainian President Volodymyr Zelensky, who was shown in October 2019, became entangled in US domestic politics during the Trump presidency.
Photo:
Efrem Lukatsky / Associated Press
In 2019, President Trump asked Ukrainian President Volodymyr Zelensky to investigate the business dealings of Hunter Biden, son of then-alleged presidential rival Joe Biden, while the younger Mr. Biden has served on the board of directors of a Ukrainian gas company Burisma Holdings. The call between Messrs. Trump and Zelensky led to the first accusation of Mr. Trump through the House; he was acquitted by the Senate. President Biden and his son deny misconduct.
Almost two months after Mr. Biden’s inauguration as president, he has not yet telephoned with Mr. Zelensky did not speak. This, a Ukrainian official said, caused anxiety in Kiev, which the US considers an important partner in resisting Russia.
“They are trying to please the Americans and trying to get their attention,” said Oleksandr Lemenov, founder of the nonprofit civil society group StateWatch, which strives for transparent economic practice in Ukraine and has received funding from the US Embassy. in Ukraine, among others.
Kiev is also investigating the establishment of an institution that assesses foreign investment in strategic enterprises – a US target.
Motor Sich, formerly a hub in the Soviet Union’s defense industry, has been supplying engines to the Russian military fleet for decades. It came to a halt in 2014 when Ukraine and Russia went to war over Russia’s invasion of eastern Ukraine and the annexation of the Crimean peninsula.
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“They are trying to please the Americans and trying to get their attention”
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Ukraine then banned the export of military equipment to Russia, which paralyzed Motor Sich’s business and opened an opening to China, a Motor Sich customer since the 1990s. Beijing Skyrizon Aviation, a private firm, led a group of companies that completed a $ 3.6 billion purchase in 2017 to control Motor Sich from shareholders led by President Vyacheslav Boguslayev.
According to US and Ukrainian officials, the US has pressed Kyiv to annul the agreement, driven in particular by concerns that Chinese ownership would strengthen China’s efforts to build a fifth-generation fighter jet and a fleet of heavy helicopters.
A Ukrainian court froze the Chinese deal in April 2018, and the government’s antimonopoly committee has launched an investigation into possible unfair competition practices. Both actions effectively suspended the agreement, while Washington and Beijing continued to work in Kiev.
Last week, Oleksiy Danilov, the secretary of the National Security and Defense Council of the Ukrainian government, said that Motor Sich “will be returned to the Ukrainian people in the near future, constitutionally to the Ukrainian state.”
Mr. Danilov said businesses that are considered important will be legally returned to the state, and that their investors will be compensated. He did not provide a timetable or other details or use the word ‘nationalize’ in his comments.
“This is being done for the national security of the country,” he said. Danilov said.
Chinese Foreign Ministry spokesman Zhao Lijian demanded on Friday that the issue be resolved properly and that Ukraine “consider the legal rights of Chinese companies and investors”.
A Skyrizon official said the company was ready to file lawsuits in Ukraine and other countries. “We will strongly defend and protect the legal rights of Chinese investors,” he said.
According to US and Ukrainian officials, the US was trying to find a buyer for Motor Sich, but the decision to nationalize could have a big price tag, given the $ 3.6 billion purchase price.
Concerns over the Motor Sich deal continued into the transition between the Trump and Biden administrations. In January, Motor Sich signed a $ 800 million contract with Aviation Industry Corporation of China, a supplier to the Chinese People’s Liberation Army, to build engines for its JL-10 jet.
Around that time, the Trump administration blacklisted Skyrizon for sanctions. Ukraine followed and Skyrizon’s assets in Ukraine froze.
US officials have advised Ukraine to set up an entity similar to the US Foreign Investment Committee, which reviews foreign investment in US companies, to have a legal basis to deny transactions such as the Motor Sich agreement, A US official said talks with Ukraine on the matter.
Ukraine’s parliament has debated legislation to establish such a body. Separately, Alexander Kornienko, the deputy head of Mr. Zelensky’s parliamentary faction said in a recent briefing that he would submit a bill to deal with Motor Sich in the coming weeks.
“It’s not just the US that is telling Ukraine what to do,” a Ukrainian official said. “It is important for Ukrainian national security to own such businesses locally.”
A setback from China is likely to cost Ukraine, which is financially difficult. In recent years, China has purchased tankers, turbines for destroyers, fuel trucks and landing craft from Ukraine and has also been a major buyer of Ukrainian agricultural goods.
When Danilov announced the nationalization of Motor Sich, a delegation of Chinese businessmen met with officials of the Russian-backed government in Crimea, the Ukrainian Black Sea Peninsula, annexed by Russia in 2014, and a lasting sore point for Kiev.
Write to Brett Forrest at [email protected] and Alan Cullison at [email protected]
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