Investors with strong ties to the Chinese government and armed forces are planning to acquire a controlling stake in Ukrainian engine manufacturer Motor Sich.
“Motor Sich” is one of the world’s largest manufacturers of helicopter and aircraft engines both for civilian and military needs. It is considered vital both strategically and economically to the state security of Ukraine.
Previous attempts to a takeover by Chinese investors already occurred in April 2018 but were postponed by a court ruling that froze funds of Motor Sich until the conclusion of the investigation by the State Security Service of Ukraine (SSU or SBU). However, on February 21, Trade Minister of Ukraine confirmed that Chinese will nevertheless become major shareholders of Motor Sich.
Chinese investors are known to have interest in Ukrainian manufacturers. The technology Motor Sich possesses may prove to be invaluable for the Chinese industry to create its own modern helicopters and aircrafts. But even more importantly – the acquisition of Motor Sich may be a threat to Ukrainian security because of the Chinese cooperation with Russia.
Chinese interest in Motor Sich
Since 1991 Chinese made several efforts to obtain post-Soviet Ukrainian military technology that is essential to modernize the Chinese military.
In 1998 the unfinished aircraft carrier Varyag was sold by Ukraine to Chinese private business partners allegedly to be used only as a floating hotel and casino. It was later finished, modernized and renamed Liaoning to serve as the first Chinese aircraft carrier. In November of 2012 first carrier touch-and-go training exercises were performed on Liaoning by Chinese jet fighters.
Afterward, China expressed interest in acquiring Ukrainian Antonov An-225s – the world’s largest cargo plane. Chinese representatives supposedly signed a contract with Antonov to deliver plane parts to state-owned factories in China for further assembly. The current status of that deal remains unclear.
The Chinese aviation analysts consistently praised Motor Sich engines and suggested that China should prioritize the acquisition of Motor Sich hardware. They also boasted, though only in Chinese-language media, about how the Motor Sich engines can be reverse-engineered to better fit the needs of the Chinese military.
In September 2017 Motor Sich was approached by the Chinese company Beijing Skyrizon Aviation that is allegedly partly owned by the Chinese government and serves as a proxy for the Chinese military. Since 2015 this company has been sending hundreds of its specialists to different aerospace companies and technology institutes in Ukraine. Beijing Skyrizon Aviation is also at least partly-owned by the enigmatic Chinese businessman Wang Jing, a person with strong connections both in China’s communist party and Russia’s ruling elite. It is known that back in 2013 Wang Jing had plans to build a deep-water port near the Russian naval base at Sevastopol, but after the Russian annexation of Crimea, no progress occurred on this project.
According to the Motor Sich’s owners, only 15 percent of the company was being sold to the Chinese investors for $100 million, although court documents cited at the time have shown that Beijing Skyrizon had allegedly used a shell company in the British Virgin Islands to purchase a 56 percent stake for $100 million.
The possibility of such a takeover produced a loud outcry from pro-NATO lawmakers in Ukraine. In April 2018 State Security Service of Ukraine (SSU) initiated an investigation and labeled the Chinese takeover attempt an “enemy sabotage plot”. By the request of SSU Ukrainian court frozen funds and prevented the Chinese acquisition of the shares.
To find a solution to this impasse meetings were held in May 2018 between the Chinese Ambassador to Ukraine, Du Wei, Deputy Prime Minister Stepan Kubiv and Deputy Minister of Economic Development and Trade, Yuriy Brovchenko. Executives from Beijing Skyrizon Aviation were also present during those meetings.
“At the meeting, the parties voiced full mutual understanding of the processes that are taking place today in China and Ukraine, including the situation around PJSC Motor Sich, and expressed mutual interest in a prompt settlement, taking into account the bilateral interest in cooperation… I think that in the near future the situation around Motor Sich will be resolved, including taking into account the interests of Ukrainian-Chinese cooperation in the aviation industry,” Brovchenko commented back in 2018.
But in October 2018 the case was still tied up in the Ukrainian courts, according to Ukraine’s highest-ranking security official.
“We stopped this takeover on the grounds of national security. It’s in the hands of the courts now,” proudly announced Vasyl Hrytsak, the head of the SSU, in a short comment to the Kyiv Post on October 8.
But despite these claims on February 21, Deputy Minister Brovchenko announced that the Motor Sich deal is still proceeding in accordance with the previously reached agreement with Beijing Skyrizon Aviation.
“Chinese investors will have a certain stake,” Deputy Minister Brovchenko said in an interview with the Delo.ua website. Although Brovchenko has not confirmed the number of shares purchased by Chinese company he also added that Ukraine will continue to work with China and the Chinese partners will have an important role in taking the company forward, “namely, in the development of aircraft construction and the production of helicopters”.
He also confirmed that the Ukrainian government may involve itself in running Motor Sich alongside with the Chinese. “I think that work is underway on the possible participation of the state in the operation of Motor Sich,” Brovchenko said.
All attempts to arrange an interview or receive comments in some other forms proved to be unsuccessful. On February 26 The Kyiv Post has emailed questions to Motor Sich and requested an interview. The only response The Kyiv Post received was from the unnamed employee in the Motor Sich director’s office. “I am not going to tell you anything,” the anonymous employee said.
Chinese Embassy in Kiev also declined to comment on the situation and Beijing Skyrizon Aviation could not be reached at all.
The international concern
A possible deal between Motor Sich and Beijing Skyrizon Aviation was ill-received by Ukrainian allies in the West.
Washington vocally expressed their opposition to the deal. According to USA officials “…Chinese investment in Ukraine is a double-edged sword with financial benefits often offset by potentially calamitous results for Ukrainian industries.”
Senior Pentagon officials during their visit to Kiev in summer of 2018 expressed concern that China may reverse-engineer and reproduces Ukrainian hardware on a large-scale thus strengthening their military and pushing Ukraine from the market.
The possible damage this deal may cause to Ukraine-NATO relations was vocalized by Hanna Hopko, a member of parliament and the head of Ukraine’s Committee on Foreign Affairs.
“It’s extraordinary that we would allow a strategic partner of Moscow to acquire such sensitive and unique technology,” she said in June 2018.
Aside from NATO’s concern Japan is also worried about the possibility of Chinese acquiring the famous engine manufacturer.
Ukrainian government advisor from Japan International Cooperation Agency Masaru Tanaka said that Japan has serious concerns over Chinese interest in Ukrainian aerospace technology. Back in October of 2018 Tanaka said that Chinese takeover of Motor Sich must be stopped.
“Chinese entities are acquiring and buying sensitive technology from Ukraine that threatens Japan …We must stop the deal… the G7 must stop the deal,” advisor and bank expert Tanaka stated in his interview to The Kyiv Post.
Russia steps in
It is known that China and Russia have a deepening, strategic relationship. China is Russia’s number one trade partner, with bilateral trade reaching 4.6 trillion USD in 2018. Both partners are known for their ambitions and ongoing political and economic conflict with NATO countries. This is why deepening cooperation between Russian and Chinese military is expected.
In 2018 Russian President Vladimir Putin and Chinese Premier, Xi Jinping formalized what is effectively a military alliance and vowed to improve their international cooperation, affirming they would together face challenges of “strategic stability” together. It was also agreed that 1 billion USD of joint Chinese-Russian investments will be allocated abroad.
On February 19 Russian state-owned conglomerate Rostec announced that they will sign the contract with the Chinese before the end of April.
“We have prepared and will sign in the coming two months a contract of the century with China on the joint development, production, and sales of a new generation heavy-lift helicopter,” announce Rostec’s representative Viktor Kladov.
The joint development will include new Russian-Chinese cargo and troop-carrying helicopter perfected for round-the-clock operations in harsh climates, highland areas and bad weather conditions. China and Russia are eager to announce that this result of their joint development and manufacturing will be even more advanced than NATO’s counterparts. But the most important is the fact that this new vehicle will be powered by turboshaft engines, the very same engines created by Motor Sich and Ivchenko-Progress.
This is why the takeover of Motor Sich is vital for the joint Chinese-Russian project.
According to the experts, Chinese is planning to have no less than two hundred of the new helicopters before 2040. It’s not yet known how many helicopters will be delivered to Russia; however, a possibility that Motor Sich may be arming Ukraine’s aggressive neighbor is becoming a bitter fact of life.