Days after the Russians and Chinese confirmed the signing of a contract for a joint venture to build next-generation helicopters, it has also been revealed that investors from China with strong ties to the Beijing government and armed forces have made progress with their plans to acquire a controlling stake in Ukrainian aerospace giant Motor Sich.
Despite there being an investigation into the attempted takeover by the Ukrainian State Security Service, or SBU, and a court ruling in April 2018 that froze funds and delayed the acquisition, a trade minister in Ukraine confirmed on Feb. 21 that the Chinese will acquire a stake in the company after all.
The Zaporizhia-based company is one of the world’s largest and most important manufacturers of helicopter engines and parts for civilian and military aircraft. Motor Sich is also considered, by many, to be strategically vital to the Ukrainian state.
Russian-Chinese helicopter deal
On Feb. 19, Russia’s state-owned defense manufacturing conglomerate Rostec announced that their deal with the Chinese, years in the making, would be inked 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. We have spent four years in intense talks on this project,” Rostec’s Viktor Kladov said, quoted by Russian state media.
The Chinese acquisition of a stake in Motor Sich, and the vital technology it will acquire, could be important to its joint project with Russia.
According to Rostec, the new Russian-Chinese helicopter will be powered by turboshaft engines that are based on one developed by the Ukrainian companies Motor Sich and Ivchenko-Progress. The Russians and Chinese will also develop new engines for their helicopter.
Previously, some Chinese aviation analysts heaped praise on Motor Sich hardware and suggested that China should prioritize the acquisition of more Motor Sich engines for the Chinese military. They also boasted, in Chinese-language media, about how the Motor Sich engines can be modified and reverse-engineered to better fit the PLA’s needs.
Together, China and Russia say they will build a new cargo and troop-carrying helicopter that they claim will be more powerful than the American equivalent and perfected for round-the-clock operations in hot climates, difficult weather conditions and highland areas.
Experts have said that the Chinese want up to 200 of the new helicopters before 2040. It’s not immediately clear how many the Russians want.
Chinese want Motor Sich
In order to bring its armed forces up to scratch, China has looked abroad, with an increasing amount of its focus on getting its hands on Ukrainian military technology.
China has said it wants to buy and build the Ukrainian Antonov An-225s – the world’s largest cargo plane. It reportedly had a contract with Antonov to ship plane parts to state-owned factories in Chengdu and Shaanxi for assembly, but the current status of that deal is no longer clear.
In 1998, the Varyag, an unfinished aircraft carrier that was started during the Soviet era, was sold by Ukraine to Chinese businesspeople to be used as a floating hotel and casino. Today it’s China’s first aircraft carrier: the Liaoning.
These days, China is eyeing Motor Sich so that it, in partnership with Russia on some projects, can build a fleet of modern, next-generation helicopters.
The Chinese company that has been courting Motor Sich, Beijing Skyrizon Aviation, is believed by some to be a proxy for the PLA’s strategic, aerospace acquisitions and is at least partly state-owned.
But it’s also at least partly-owned by the mysterious Chinese businessman Wang Jing, who has alleged ties to China’s ruling communist party as well as Russia. In 2013, before the Russian invasion of Crimea, Wang Jing touted plans to build a deep-water port near the Russian naval base at Sevastopol, although not much seems to have happened on the project since.
Since 2015, Beijing Skyrizon Aviation has been sending hundreds of its specialists to different aerospace companies and technology institutes in Ukraine, especially ones in Kharkiv and Zaporizhia. In September 2017, they made their move to acquire a majority stake in Motor Sich.
Motor Sich’s owners have told reporters that 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.
In late April 2018, amid an outcry from pro-NATO lawmakers in Ukraine, the SBU launched an investigation, called the Chinese takeover attempt an “enemy sabotage plot,” and requested that the courts halt the takeover and freeze the funds, which they did.
In May 2018, after the courts had intervened, meetings were held in Kyiv between the Chinese Ambassador to Ukraine, Du Wei, Deputy Prime Minister Stepan Kubiv and Deputy Minister of Economic Development and Trade Yuriy Brovchenko, according to Interfax news. Company executives from Beijing Skyrizon Aviation also attended those meetings.
According to Brovchenko, who spoke to the Interfax news agency after the meetings, the purpose was to present China’s position and begin finding a solution to the impasse.
“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,” Brovchenko said at the time.
“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 added.
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,” said Vasyl Hrytsak, the head of the SBU, in a short comment to the Kyiv Post on Oct. 8 at a security conference in London. “It’s in the hands of the courts now,” he added at the time.
No comment on new deal
Behind the scenes, and despite the concerns of many Ukrainians and similarly-minded allies, some Kyiv lawmakers and the Chinese appear to have reached a quiet compromise.
On Feb. 21, Deputy Minister Brovchenko, who took part in the May 2018 talks with Kubiv, Ambassador Du Wei and officials from Beijing Skyrizon Aviation, announced that the Motor Sich deal, or some variation of it, was still going ahead.
In an interview with the Delo.ua website the deputy minister, when asked about the blocked Chinese attempt to buy a 56 percent stake in Motor Sich, suggested that the situation was being resolved and the investors from Beijing would still be brought on board.
“Chinese investors will have a certain stake,” he said, not elaborating on what the size of the stake would now be, or if it had already been confirmed. Brovchenko added that the state would work with the Chinese, who would have an important role in taking the company forward, “namely, in the development of aircraft construction and the production of helicopters,” he added.
He also said the state could take on a role, alongside the Chinese, in running Motor Sich. “I think that work is under way on the possible participation of the state in the operation of Motor Sich,” he said.
On Feb. 26, Motor Sich declined to comment or give an interview to the Kyiv Post. A secretary for the company’s public relations director refused to transfer any calls, instead requesting written questions that she said may or may not be responded to, as they pertained to stock transfers or acquisitions.
An employee in the company director’s office would not give her name and told the Kyiv Post “I am not going to tell you anything.”
The Kyiv Post has emailed questions to Motor Sich and requested an interview. Multiple, previous emailed requests for comment and attempts to arrange an interview have been unsuccessful.
The Chinese Embassy in Kyiv had not responded to an emailed request for comment by the time this story was published. Beijing Skyrizon Aviation could not be reached for comment.
Allies worry about China
China and Russia have a deepening, strategic relationship. China is Russia’s number one trade partner, with bilateral trade reaching an all-time high this January: more than $100 billion in that month alone.
Last year, Russian President Putin and Chinese Premier Xi Jinping formalized what is effectively a military alliance and pledged to greatly improve their cooperation on the international stage. They also agreed to at least $1 billion in new, joint investments abroad, affirming they would together face challenges of “strategic stability” together.
Some of Ukraine’s Western and Asian allies are very concerned with Chinese moves on Ukrainian aerospace. They have been vocal in their opposition, but it’s not yet clear if the Ukrainians are listening.
The Americans and the Japanese are especially worried about more Ukrainian aerospace technology falling into Chinese hands.
Last summer, as reported by the Kyiv Post, senior Pentagon officials were in the Ukrainian capital to deliver a warning to Ukraine that China wants to reverse-engineer and produce Ukrainian hardware on a large-scale.
Hanna Hopko, a member of parliament and the head of Ukraine’s Committee on Foreign Affairs, has also been outspoken about the potential deal, saying it’s damaging to Ukraine and its NATO allies.
“It’s extraordinary that we would allow a strategic partner of Moscow to acquire such sensitive and unique technology,” she said in June 2018.
Japan is also paying attention to Ukrainian-Chinese relations, especially if it could benefit the regional ambitions of the People’s Liberation Army.
Masaru Tanaka, an expert from the Bank of Japan who now advises the Ukrainian government through the Japan International Cooperation Agency, or JICA, said Japan has serious concerns over Chinese interest in Ukrainian aerospace technology. If the Chinese takeover of Motor Sich is to be pushed forward, despite the Ukrainian courts temporarily halting it, it must be stopped, Tanaka said in Oct. 2018.
“Chinese entities are acquiring and buying sensitive technology from Ukraine that threatens Japan,” he told the Kyiv Post. “We must stop the deal… the G7 must stop the deal.”
Additional reporting by Igor Kossov.
