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TematicheCina e Indo-PacificoChina’s trade with Ukraine and the ongoing war

China’s trade with Ukraine and the ongoing war

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The Russian invasion of Ukraine is wreaking havoc on Ukraine’s economy with its physical destruction and human suffering. Global supply chains in vital sectors, including military arms sales, food, and electronics, will be affected. A significant share of those ramifications will fall on China, Russia’s most vital ally. Ukraine will face difficult decisions in its relationship with China as it begins to rebuild its infrastructure and economy, and part of that calculation will undoubtedly be determined by China’s willingness to cooperate with and support Russia while the Moscow’s Army murders innocent men, women, and children in Ukraine.

In 2020, Ukraine ranked 55th in terms of GDP, 46th in terms of total exports, and 47th in terms of total imports from China, while at the same time iron ore, grain, and seed oils were the top three exports sent to Beijing in 2020, totalling $7.26 billion in terms of bilateral trade. Over the past 25 years, Ukraine’s exports to China have increased at an annualised pace of 12.2 percent. Unlike many other countries, Ukraine’s imports from and exports to China have been rather balanced, with the notable aspect that Ukraine’s inclusion in the top 20 of global arms exporters is owing to a single trading relationship: the Chinese military market. According to SIPRI, behind Russia, which accounted for 77% of China’s total arms purchases between 2016 and 2020, the next greatest sources of weaponry for China were France (9.7%) and Ukraine (6.3%). In turn, that sum represents 36% of Ukraine’s overall weapons exports, equating to $80-90 million in annual arms sales to China. In other words, China is Ukraine’s top arms customer. Ukraine’s role in the Soviet Union’s military weapons regime was to support existing systems rather than to manufacture new ones. As a result, Ukraine had everything China required to preserve and modernise its vast inventory of Russian weapons systems. But, as a result of Russia’s bombing of Ukrainian cities, military production capabilities are likely to be decimated. In the short term, China can rely on other suppliers, but in the long run, it can reverse-engineer and manufacture the parts itself. However, this is a lengthy procedure that may leave China’s military arsenal vulnerable in the meanwhile. 

A similar occurrence might happen for agricultural resources. Nine months ago, the prospects for increasing Ukrainian wheat exports to China appeared promising. According to Argus Media, “a new memorandum… between the Ukraine grain Association (UGA) and China’s association of small and medium-sized enterprises (CASME) has improved the possibilities for increasing Ukrainian wheat exports to China”, which has also “diversified its supply chain” for agricultural items as a result of tensions in its relationship with Australia, according to the report. Shipments of barley from Ukraine to China increased from 1 million in 2020 to 2.8 million tonnes in 2021, accounting for “more than two-thirds” of China’s barley imports. In light of this,
Ukraine had high hopes that its grain exports to China would expand by two to three times. It’s unclear what will happen to that part of the partnership. China produces 93% of its own wheat, but the remaining 7% is vital to the country’s food security. China is using everything it has, and after a poor winter wheat harvest, it has banned the sale of wheat for animal feed. Meanwhile, Ukraine’s capacity to maintain current levels of wheat shipments to China remains a question mark. Many staple grains have already been restricted from export, and the remaining products are subject to tight export licencing (like wheat).

The first investment forum organised by the Ukrainian government after Volodymyr Zelenskyy’s election to the presidency, held in Mariupol on October 29, 2019, brought in “hundreds of millions of dollars in investments and loans” for the Black Sea port city. A $50 million investment by China National Cereals Oils and Foodstuffs Corporation (COFCO) “to implement an investment project at Mariupol Sea Port” was among the important projects highlighted. According to the Chinese investment project, “three and a half times the handling of agricultural cargo.” In partnership with Ukrainian Sea Ports and private companies, the agreement calls for “the development of the port’s berth infrastructure, the construction of a grain terminal in the back of Berth No. 3 and a single handling facility for food, three and a half times the handling of agricultural shipments,” according to the Chinese investment project. The agreement involves “the development of the port’s berth infrastructure, the construction of a grain terminal in the back of Berth No. 3 and a single handling facility for food” in collaboration with Ukrainian Sea Ports and private firms. To put it another way, China intended to buy a lot more grain and food from Ukraine and ship it through Mariupol, which proved to be one of the important logistics centres for the export of agricultural products, ensuring Ukraine’s status as a logistics nexus in the global supply chain. For the time being, such prospects have vanished. Surprisingly, only two companies in Ukraine supply over half of the neon needed in the fabrication of semiconductor chips worldwide. Since the Russian invasion began, both of those companies, Ingas in Mariupol and Cryoin in Odesa, further west along the Black Sea coast, have discontinued operations. China could be harmed in a number of ways as a result of the supply disruption. First, Chinese enterprises will be compelled to either locate alternative overseas suppliers or use neon gas produced in China for the fabrication of chips created in China. 

Will the Ukrainian government and its manufacturers be willing to continue producing orders for China, should Ukraine be able to rebuild to a level of viability that allows it to continue exporting military equipment, neon, wheat, iron ore, corn, seed oils, and beyond? More crucially, if China maintains its deep and ever-widening economic relationship with Russia, how will this play from a Ukrainian perspective? Although a peace

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