Mousetrap credit: Why Ukraine should be careful with the "Chinese games"

Author : Oleksiy Kushch

09:40, 21 February 2018

Mousetrap credit: Why Ukraine should be careful with the "Chinese games"

Author : Oleksiy Kushch

The main aim of our officials is to attract loans, successfully take them without further paying back

09:40, 21 February 2018

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Each country has its own political backgrounds. It is good to see how the transfer of power takes place in the US or the UK, and the irreconcilable political opponents shake their hands. It is their political culture. You cannot avoid genetics.

Ukraine has its own political traditions. Every power takes Chinese loans before its political bankruptcy. Or at least will try to take them, because the Chinese have become more circumspect after some “one-offs leave.”

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Just a few days ago, the peak of the bureaucratic dementia was recorded. One Chinese delegation has visited Kyiv, and it inspired the speechwriters of Ukraine’s high officials to say "China is in focus for Ukrainian exports." It sounded really strange.

The unstable psyche of the Ukrainians, who are tired with the waves of inflation and devaluation, is shocked with the numbers of loans that Ukraine is ready to receive from China. Our officials persistently call these loans investments – $ 7 billion of credits.

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The trump cards were voiced:

  • Construction of a bridge in Kremenchug and damaged by the grain traders Odesa-Mykolaiv road (for some reason the Chinese have to repair);
  • Construction of the first stage of the Great Ring road in Kyiv on concession terms;
  • Construction of the Podilsko-Voskresensky Bridge in Kyiv;
  • Construction of the subway to Troieschyna;
  • Updating of the engines of barges and tugs of the Danube Shipping Company.

It is not difficult to see that all these projects belong to the infrastructure sector and none of them is a real business project (except for the replacement of engines), unlike the Belarusian-Chinese projects on creation of technology parks and customs terminals. In addition, none of them will generate any serious financial flow and create additional value in the near future. Paying back loans would be done at the expense of the existing liquid flow of budget revenues.

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One well-known Panamanian owner has already tried to use the Chinese money for buying an electric train for Boryspil. The money allocated for this project "Air Express" have really vanished into the air.

Chinese lending models are designed to bring benefits directly to China. A very small living space is given to the second party. The Chinese pay out the loans for the obligation to either buy their products (for example, solar panels) or under an obligation to supply them with raw materials, for example, corn. Loans for infrastructure development are also allocated under the obligation to attract Chinese contractors. And if the Chinese give money to replace engines on the Ukrainian barge, it means that the Chinese engines will be placed (plus long-term Chinese customer service).

Among other things, quite reasonable projects were discussed at the meeting, for example, Ukraine's participation in the "New Silk Road". It was also reported about the preparation of the visit of the Ukrainian government delegation to the exhibition China International Import Expo 2018. Let us hope that this time, any embarrassing situations would happen. In May 2017 the first vice prime minister and minister of economy Stepan Kubiv visited China and "One belt, one way" forum, and announced that the first aircraft engine assembled in the framework of cooperation between Motor Sich and Beijing Skyrizon Aviation Industry Investment Co.Ltd could be demonstrated at the end of the year. A months later, this project was investigated by our law enforcers; the investigators accused the owners of Motor Sich of an attempt to take the plant to China, and the court even arrested the shares of the enterprise.

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As the statistics shows, in January-November 2017, the volume of Ukrainian exports to China amounted to 1.982 billion dollars, while Chinese imports in our country exceeded $ 5 billion, the negative balance reached more than $ 3 billion. That is, our economy annually sponsors Chinese workers and engineers for $ 3 billion, continuing to beg for loans from the IMF and Chinese.  The dynamics are also disappointing: Chinese imports grew by 20.6% compared to 2016, and our exports increased only by 17.5%. Thus, this trade imbalance will only deepen. In addition, the absolute increase will be beneficial for the Chinese, even if the relative rates are equal.

The structure of the trade balance between countries is even more horrific. Only 5% of our exports to China are the consumer and industrial goods with a high level of added value. Almost 95% are raw materials and semi-finished products: $ 462 million - vegetable oils, $ 417 million - grain, $ 675 million - ore, $ 31 million - timber.

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Chinese imports to Ukraine has a different structure: raw materials and semi-finished products account for only 11%, while industrial and consumer goods - 89 %. These are high-value goods like organic chemistry - $ 168 million, plastics and polymers - $ 254 million, clothing, fabrics, shoes - $ 338 million, reactors, boilers, machines - $ 965 million, electric cars - 1.3 billion dollars, and toys - 154 million dollars.

Taking into account such commodity structure, when we give them grain, ore, wood and sunflower oil, and they give us electrical engineering, boilers, reactors, and toys, the trustful electorate might believe that China would save us. Our trade and economic department even set out in its export strategy a plan for reaching a mark of $ 10 billion in trade between China and Ukraine. Well, guys, I think you are too excited. The yield of corn and sunflower is not everlasting, and the Carpathians look like the bald patch of an old grandfather. Taking into account the already achieved proportions, a trade turnover of $ 10 billion will mean that we will have to buy Chinese goods for $ 7 billion.

Ukrainian officials in their "contacts" with Chinese partners resemble the characters of the famous American comic book "Shmoo". Shmoo is a fictional cartoon creature. According to the Wikipedia, Shmoo reproduces asexually, "are delicious to eat, and are eager to be eaten." If a human looks at one hungrily, it will happily immolate itself — either by jumping into a frying pan, after which they taste like chicken or into a broiling pan, after which they taste like steak. When roasted they taste like pork, and when baked they taste like catfish. (Raw, they taste like oysters on the half-shell.)

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Why did Ukrainian officials become Shmoo for Chinese partners and really want to be "eaten" – this is a rhetorical question. The Chinese, unlike Europeans and Americans, do not bother with any humanitarian "nonsense" a la "anti-corruption court" and learned how to work closely with African and Asian rotten elites. However, they have not learned how to work with the "Ukrainian" elites – they take money, but do not do anything.

But the problem is not with officials, but with the consequences of their actions for the whole country. The Chinese economy is extremely toxic for trading partners because the Chinese are the "Shaolin" of trade protectionism for their companies. Even such a powerful economy as the American one could not withstand this toxicity: when the Chinese began to deal with the Apple's smartphones, the United States realized that they would face an economic disaster soon.

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China has a good experience in using indirect methods of the competition. When the Barack Obama administration decided to join the international trade agreement on the Trans-Pacific Partnership (TTP), the Americans expected that protecting their intellectual property and opening new markets would lead to an additional GDP growth of 0.5% per year. But China (which is not a TTP participant) have quickly comprehended that by realizing its projects in such TTP countries as Vietnam or Malaysia, it is possible to very quickly open a duty-free window to the US market. As a result, Americans have lost a million workers instead of increasing the number of the workplaces, mainly in the manufacturing sector of the economy. In this connection, the first decree of Trump was about the US withdrawal from the TTP.

As the experience of Belarus-China cooperation shows, the most profitable format of cooperation is the creation of joint cluster technologies that combine production, science, and education, as well as the creation of fast and efficient transport and logistics systems to ensure the movement of Chinese goods to the EU market. But in order to move in this direction, it is necessary to ensure continuity of decisions, protection of titles of property and neutralize the corruption factor, at least in the sphere of the Chinese projects. All these conditions are impossible for the current authorities in Ukraine.

And it turns out that the main aim of our officials is to attract loans, successfully take them without further paying back, as well as lobbying of commodity export channels for several domestic financial-industrial groups. That is why they are ready to fill the domestic market with the Chinese "toys."

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