Ukraine: $8 billion Chinese Investment Reopens Door to E.U.

December 6, 2013 05:52 AM

8412048532 85e9f04ceaUkrainian President Viktor Yanukovych walked away from an Association Agreement with the European Union last week, prompting riots in the streets. The majority of Ukrainian people would like to be part of the E.U., but it puts Yanukovych in a tough spot. What Ukraine really needs is infrastructure and cash flow. The Association Agreement, which was six years in the making, included an economic aid package amounting to roughly 1 billion dollars, a figure Yanukovych called "humiliating" saying the aid would not begin to cover the losses from its trade pact with Russia.

Recent talks with China however have Yanukovych feeling optimistic and has given his administration a fiscal shot in the arm to the tune of $8 billion in investment commitments. The incoming investment from China will help insulate Ukraine against the strong-arm tactics that Moscow wields economically, and has Ukraine back on the phone with the E.U., making it clear that it remains committed to European integration and ideals.

The E.U. too said it would keep its doors open. Following a conversation between President Yanukovych and European Commission President Jose Manuel Barroso on Monday, the two sides pledged to work together to forge ahead on this historic agreement.

China has already issued loans totaling $10 billion to buttress Ukraine's economy, and earlier this year the two nations signed an agricultural deal, which involves China making a huge commitment to Ukraine's farming sector over the next 50 years. As part of the arrangement, China will lease large tracts of farmland and upgrade Ukrainian infrastructure in the process. Eventually, China and Ukraine will jointly farm almost three million hectares of land - an area the size of Belgium or Massachusetts.

"The documents signed today expand our economic cooperation. We have not yet calculated how much this will make up in terms of money, but we made some calculations earlier and saw that it is about some $8 billion in investments coming to the Ukrainian economy," President Yanukovych said, adding that more investment documents are in their final stages of preparation and expected to be signed soon.

Ukraine is among the top exporters of nitrogen fertilizer and the move toward China as an agricultural investment backer would benefit farmers by loosening Ukraine's ties with Moscow, allowing stable trade flow via the European Union. Putin would much rather have Ukraine join its Customs Union but at this point, with Chinese dollars in hand, talks have resumed with E.U. officials, and the bridge out of the Soviet bloc now has another plank.

Stronger ties between Ukraine and China will support Yanukovych's plans to bolster the Ukrainian economy and encourage agriculture while at the same time, alleviating Russia's stranglehold on commerce.

Photo credit: World Economic Forum / / CC BY-NC-SA

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