Ukraine – China: investment horizons

Ukraine – China: investment horizons

Inna Demchenko, head of the Pravex Bank retail chain and Alexey Oleynikov, managing partner at InVenture are about current trends and prospects of investment cooperation between Ukraine and China

China's economy is growing rapidly, and world experts expect China to overtake the United States in terms of GDP per capita by 2032. All of this only increases the interest of Ukrainian business in cooperation with Chinese investors. Moreover, China has been a capital net exporter for several years now, since the volume of investments abroad exceeds foreign direct investment in China.

Investing in foreign business enables China to strengthen its own economy, as well as strengthen its influence in other countries. On one hand, the Chinese growth strategy of Going Global encourages investment in foreign markets, so companies are expanding their presence actively and are investigating investment opportunities in a number of sectors. But, on the other hand, the Chinese authorities are already worried about the outflow of capital from the country and are beginning to tighten oversight of the investment flows, which leads to the reduction in total investment amount from the country’s side. Potential investors began to take a more cautious approach to the selection of countries/facilities for financing, carefully assessing economic and geopolitical risks.

China's investment statistics divide investment flows into financial investments, construction investments, as well as investments that fell short after entering a commercial agreement (bad investments).

From 2005 through 2019, the CGIT contains more than 1,600 investments worth $1.2 trillion. It includes 1,700 construction projects worth more than $800 billion. There are 300 troubled transactions valued at close to $400 billion, in which investment or construction was impaired or failed after a commercial agreement was finalized. $9 billion or 1% of total Chinese outward investment has been invested in the Ukrainian economy during 2005-2019.

Chinese Outward Investment Flow in 2005-2019

Period

CGIT ($ Billion)

MOFCOM Headline ($ Billion)

CGIT Growth (Percentage)

MOFCOM Growth (Percentage)

2005

10,2

12,3

н.д.

н.д.

2006

20,3

21,2

+99

+72

2007

30,1

26,5

+48

+25

2008

56,3

55,9

+87

+111

2009

56,1

56,5

-1

+1

2010

66,0

68,8

+18

+22

2011

70,3

74,7

+7

+9

2012

78,5

87,8

+12

+18

2013

80,8

107,8

+3

+23

2014

102,5

123,1

+27

+14

2015

117,9

145,7

+15

+18

2016

158,2

198,2

+34

+36

2017

175,6

158,3

+11

-20

2018

115,2

143,0

-34

-10

2019

68,4

124.3

-41

-4

ВСЕГО

1 206,4

1 398,9

n/a

n/a

* Source: The China Global Investment Tracker, China’s Ministry of Commerce (MOFCOM)

Chinese Outward Investment Flow in 2005-2019 by Sectors

Sector

Investment, $ bln

Construction, $ bln

Troubled, $ bln

Energy and Power

392,1

335,4

139,6

Metals

147,5

35,9

70,1

Transport

129,9

249,9

53,2

Real Estate

102,3

90,7

21,0

Agriculture

83,5

16,5

12,4

Finance

80,8

N/A

41,4

Technology

61,2

16,6

28,6

Entertainment

43,7

2,7

6,8

Tourism

42,8

8,7

7,5

Logistics

34,6

5,3

1,8

Health

22,4

3,4

0,5

Chemicals

12,6

20,8

2,0

Other

52,1

43,6

5,9

Total

1 206,4

829,2

390,7

* Source: The China Global Investment Tracker

Prospects and potential of capital outflow from China

Over the course of several years, the direct investment that China channeled to the US economy has been growing steadily and reached a record $ 46 billion in 2016, providing more than 140,000 jobs for Americans, but investment has decreased by almost 10 times by the end of 2018. Against the backdrop of the trade war between China and the United States lasting several years, Chinese investors may utterly have a need to look for new cooperation platforms.

At the end of 2019, Donald Trump agreed to sign a trade deal, which should put an end to the confrontation between the largest giant economies and determine the rules for trade relations with China. Many journalists have already called this agreement "China's surrender", since the Chinese side has agreed to change its trade surplus in favor of the United States by hundreds of billions of dollars, and also accepted all the duties put on their goods. Despite the signing of the trade deal, the penetration of Chinese goods into American markets is still blocked, especially at the local level.

Nevertheless, this state of affairs does not preclude the emergence of interest among Chinese investors in the search for new markets and investment opportunities.

Ukraine attracts China primarily by its proximity to European markets, the ability to begin directly the assembly/production of goods in a large number of factories that are located on the territory of our country.

The main fields of activity in Ukraine that are of interest to Chinese investors include: renewable energy, transport and logistics, agricultural sector, construction.

Successful major investment deals in the Ukrainian economy of Chinese investors

Year

Chinese Investor

Amount of investment

Ukrainian Party

Sector

Investment project

Investment status

2019

China Energy Engineering

$150 mln

 

Power economy

Chinese company should set up a garbage disposal plant near Kyiv

Implementation phase

2019

Skyrizon

$100 mln

Motor Sich

Transport sector

The Chinese acquired Motor Sich enterprise

The deal went through

2019

4 unidentified companies

$200 mln

Chortkiv-West

Food industry

Corn mill

Implementation phase

2019

Bohai Commodity Exchange

n/a

PFTS Stock Exchange

Stock Exchange

Chinese company bought 49,9% of stock shares.

The deal went through

2019

SkyWell

n/a

 

Industrial sector

SkyWEell company plans to set up a plant for the production of electrobuses in Ukraine.

Implementation phase

2019

Power China

$115 mln

 

Power economy

Chinese company in conjunction with the Norwegian Scatec Solar are building a solar power station in Mykolaiv region

Implementation phase

2018

Sinomach

$210 mln

DTEK

Power economy

DTEK and a Chinese company agreed to build jointly a 200 MW power plant.

Implementation phase

2018

Xinjiang Beiken Energy Engineering

$120 mln

UkrGas

Power economy

UkrGas and the Chinese signed a contract for joint drilling operations.

Implementation phase

2018

China Energy Engineering

$250 mln

Metropoliya

Power economy

 

n/a

2018

Power Construction Corp

$340 mln

NTB

Power economy

The Chinese, together with a Norwegian company, plan to build wind farms in the south of Kherson region

Implementation phase

2018

Dongfang Electric

$340 mln

Donbasenergo

Power economy

Most likely, this is a joint reconstruction of a TPP in Slovyansk with DonbassEnergo

Implementation phase

2018

CNEEC

$500 mln

Ukrgasbank

Power economy

Chinese investors transferred Ukrgasbank a loan of $ 500 million for the construction of the Dniester hydroelectric station

The project has been implemented

2017

Xinjiang Communications Construction

$100 mln

 

Transport sector

Most likely, it is a contract for the construction of roads in Ukraine.

The project has been implemented

2017

Fanda

$50 mln

 

Agribusiness

Vegetable processing plant

Implementation phase

2017

China Road Brige Corporation

300 mln

 

Infrastructure

The bridge in Kremenchuk

Implementation phase (slim chances)

2017

 Xinijang Communications Construction Group

$38,5 mln

 

Infrastructure

Chinese company acted as a contractor of M12 road repair

Implementation phase

2017

Sinohydro Corporation

$42 mln

 

Infrastructure

The Chinese act as the contractor of the repair of the bypass road in Zhytomyr

Implementation phase

2017

Guangdong Vanvard New Electric Co

n/a

Bosch

Industrial sector

It is planned to create a joint gas event

Implementation phase

2017

Unidentified Chinese company

 

Digital Future

IT

Chinese company bought out a part of shares in YouAppi project

The deal went through

2017

Bohai Commodity Exchange

$3 mln

Ukrainian Bank for Reconstruction and Development

Banking sector

China Exchange acquired Ukrainian Bank for Reconstruction and Development

The deal went through

2016

China National Building Material

$180 mln

Activ Solar

Power economy

Chinese company bought a number of solar power plants in the south of Ukraine from Klyuyev brothers.

The deal went through

2016

Cofco Corporation

$75 mln

 

Agribusiness

Chinese company launched terminal for transshipment of grain and oil crops

The project has been implemented

2016

Beijjing Skyrizon Aviation Industry Investment Co Ltd

   

Industrial sector

The Chinese have opened a joint venture with Motor Sich in China. In addition, a Chinese company has invested $ 100 million in Ukraine’s industry, they may invest $ 150 million more.

Implementation phase

2015

CNBM

n/a

Activ Solar

Alternative energy

Solar power plants

Implementation phase

2014

Fanda

$58 mln

 

Agribusiness

 

Implementation phase

2013

Minmetals

$250 mln

Donetsksteel

Metal production

Chinese company funded the construction of a mining camp at the Pokrovs’ke mine

n/a

2013

Beijjing Interoceacin Canal

$3 mln

 

Infrastructure

Megaport in Crimea

The project has not been implemented

2012

Chinese Export-Import Bank

$372 mln ($52 mln gained)

 

Infrastructure

Air express to Boryspil airport

The project has not been implemented

2012

Chinese state-owned corporation CCEC

$500 mln

Ukreximbank and State Food and Grain Corporation of Ukraine

Agribusiness (loans)

The Chinese provided SFGCU with a loan, which was lodged in Ukreximbank

The project has not been implemented

2011

Sinomach

$2370 mln

 

Transport sector

The company signed a contract for the construction of "Air Express" to Boryspil airport

The project has not been implemented

2011

Sinomach

$250 mln

 

Agribusiness

Details unknown

n/a

2011

Sinomach

$1160 mln

 

Power economy

Details unknown

n/a

2011

Sinomach

$1500 mln

 

Power economy

The Chinese signed a contract for the construction of a gas power station in Crimea

The project has not been implemented

2011

Sinohydro

$1440 mln

 

Power economy

There is no exact information. It could be a finishing constructing of Kaniv PSPS or the construction of a PSPS in Crimea. Or it is about a project which details were not disclosed.

The project has not been implemented (Kaniv PSPS and PSPS in Crimea have not been constructed)

2008

Sinoma

$210 mln

Lafarge

Real estate sector

A Chinese cement manufacturing company invested in Lafarge Ukraine (crushed stone production)

The deal went through

* Source: InVenture Investment Deals Database

Investment opportunities for Chinese investors in Ukraine

InVenture is ready to offer full support to Chinese investors in finding entry into promising investment projects in Ukraine.

There may be highlighted some priorities that may spark interest:

  1. Agricultural companies in the field of farming (growing grain and oil crops)
  2. Livestock enterprises
  3. Port terminals, elevators and logistics complexes
  4. Enterprises in the field of agro-processing

Potential Agricultural (Farming) Targets for Acquisition in Ukraine

Region

Land bank, ha

Soil Bonitet

Agricultural machinery

Elevators and warehouses, tons

Price, $

Price for the land usage, $ per ha

$50 mln +

Khmelnitsky, Chernivtsi

62 000

45-65

+

237 000

138 000 000

1 250

Kharkov, Poltava, Cherkassy

40 000

50-65

+

166 000

60 000 000

1 150

Chernihiv

43 000

50-60

+

105 000

68 000 000

1100

$10 mln +

Chernihiv

8 000

45-65

+

65 000

20 000 000

1 300

Chernihiv

9 500

55-70

+

9 500

18 600 000

1 500

Chernihiv

15 000

55-60

+

63 000

35 000 000

1 000

Kirovograd

12 300

55-65

+

30 000

21 000 000

1 150

Rivne

9 300

35-60

-

-

9 300 000

1 000

Chernihiv

7 300

45-60

+

14 500

10 500 000

1 200

Zhytomyr, Vinnitsa, Khmelnitsky, Ternopol

18 000

40-70

+

50 000

35 000 000

1 200

Kirovograd

8 600

55-60

+

10 000

14 000 000

1 100

Nikolaev

9 000

45-55

+

71 000

12 000 000

700

Nikolaev

13 000

45-55

+

42 000

23 000 000

-

Zhytomyr

7 600

45-55

+

-

6 000 000

700

$1 mln +

Kiev

4 200

65-70

+

10 000

8 000 000

1 350

Kiev

3 000

40-70

-

-

3 000 000

1 000

Cherkassy

2 500

45-60

+

-

4 000 000

900

Odessa

2 000

50-60

+

-

1 500 000

500

Zhytomyr

2 500

40-50

+

-

4 300 000

700

Zhytomyr

2 000

40-50

-

-

1 700 000

800

Khmelnitsky

1 030

65-70

-

-

1 400 000

1 200

Kiev

800

45-65

+

-

1 200 000

900

Lvov

670

65-70

+

-

1 600 000

1 500

* Source: InVenture Agriculture Targets Database

There is also great investment opportunity in the field of meat processing in Ukraine for Chinese investors - large modern meat processing plant with export-orientated production (pork, cattle, poultry).

The meat processing plant is engaged in the manufacture and sale of pork meat, cattle, poultry and meat products: sausages, semi-finished meat products, canned goods.

The company has a full production cycle: from slaughtering cattle, carving, meat and various meat products manufacture, to sales through its own retail chain.

The meat processing plant’s production capacity and access to the region’s raw material base allows us to consider the asset as an attractive investment offer from the point of view of developing an export-oriented enterprise to meet the increased demand for pork in China, as well as exporting meat and meat products of cattle and chicken.

Meat processing facilities:

Name of the Department

Production capacity, per day

Maximum production capacity, per day 
(when investing in reconstruction)

Slaughter department (pigs)

52,8 t / 480 heads

330 t / 3 000 heads

Slaughter department (cattle)

4 t / 10 heads

540 t / 1 500 heads

Slaughter department (chickens)

45,6 t / 15200 heads

-

Sausage making department

1,44 t

15 t

Canning department

3,84 t

7,9 t

Meat boning department

30,24 t

47,5 t

Productive capacity of refrigerating rooms

no data

170 t

Productive capacity of cooling rooms

no data

110 t

Capacity of frozen meat storage rooms

no data

4200 t

Capacity of chilled meat storage rooms

no data

200 t

Additional information will be provided by request: +38 067 713 65 71 / E-mail: ao@inventure.ua

Prospects for investment cooperation between Ukraine and China

In July 2019, Chinese businessmen met with the President of Ukraine, at which they agreed to implement a number of joint projects with a potential of about $ 10 billion. The projects were to be coordinated by the National Investment Council. Nevertheless, we do not see significant real steps in the development of Sino-Ukrainian relations up to this day, moreover, we observe the absence of a clear strategy for working in this direction – there is no Ukrainian ambassador to China, the head of the inter-parliamentary friendship group is not appointed, etc.

It is known that the President of Ukraine, Volodymyr Zelensky planned to visit Southeast Asia in 2020, it is possible that during the visit questions of prospects for Ukrainian-Chinese cooperation will be also considered.

Chinese, as well as other foreign investors, are turned off by the negative experience of investing in Ukrainian business, the inability to withdraw funds/exit the project without financial losses, features of tax legislation, corruption, the specifics of our worldview, lack of government guarantees, lack of qualified specialists. Therefore, comprehensive programs are needed to improve the investment climate of Ukraine and the country's image in the court of foreigners.

And Ukrainian entrepreneurs who would like to attract Chinese investors often lack the knowledge to make a good offer. There are no entry points for contacting potential investors, as well as due to the lack of government support programs that could help them in this.

In this regard, it is necessary to adopt positive experience of those entrepreneurs who have managed to establish cooperation with Chinese investors.

You can also contact the investment company InVenture, which has extensive experience working with Chinese investors and will support to cooperate between Chinese investors and Ukrainian companies.

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