February 28, 2014
China and Ukraine agricultural-loan deal poses no problem
Media have been reporting that China is seeking the return of US$3 billion in loans as it cited an unnamed Ukrainian official as saying that China has filed a complaint against Ukraine for reneging on a deal where US$3 billion in loans from China would be repaid in corn exports from Ukraine.
According to the official, Kiev only provided a little over US$150 million of worth of grain to China.
In the fall of 2012 when the original deal was signed, Ukraine''s agriculture minister, Mykola Prysyazhnyuk, said that in return for access to US$3 billion in loans, Kiev would export about three million tonnes of corn to China each year. Although China has in the past used a similar arrangement in oil-for-loans deals, the arrangement with the Ukraine was a first for China. The loan money was supposed to be mostly put back into the agricultural sector, including a US$3 billion irrigation plan for the southern part of Ukraine.
The Foreign Ministry of Ukraine denied the reports that China is seeking a return of the loan money. The news release cited a meeting between Victor Mayko, Ukraine''s Deputy Foreign Minister and Chinese Ambassador Zhang Xiyun. Zhang reportedly "emphasised the absence of claims from official Beijing as to the implementation of this contract and the willingness of the Chinese side to continue its realisation." Zhang also told Mayko that "currently there were no problems between Ukraine and China that could negatively affect further development of the two states interaction."
China''s Foreign Ministry''s spokesperson Hua Chunying told the press that "relevant reports are inconsistent with the facts." However, she also said that China hopes "the Ukrainian side will ensure the effective implementation," not exactly a full vote of confidence. Given the political turmoil in Ukraine, China is likely worried about the continuance of its grain imports from the Ukraine. But by the same token, the Chinese government would likely want to avoid adding to Ukraine''s troubles by asking for $3 billion to be returned. An Eastern European specialist at the Chinese Academy of Social Sciences said that China would never file such a claim in the midst of such political uncertainty.
China''s food security strategy is a constant concern to Beijing and its leadership recently decided to relax its customary emphasis on grain self-sufficiency, allowing for more imports. It was reported that Chinas'' new guidelines for grains would "stabilise" grain production at around 550 million tonnes in 2020, 50 million tonnes less than the 2013 harvest.
A January Xinhua article on self-sufficiency in grain production mainly focused on the "key grain supplies" of wheat and rice, which are used for food, rather than grains like corn and soy that are typically used as animal feed. A leading government official predicted that China''s corn imports in particular would continue to grow.
As China''s grain imports grow, its connection to Ukraine will also increase. Ukraine is one of the world''s leading exporters of grain, and is hoping to increase production in coming years. In 2013, Ukraine exported 18.5 million tonnes of grain, and hopes to more than double that amount, reaching 40 million tonnes by 2020. Ukraine''s plans for its agricultural industry, coupled with China''s need to increase grain imports, will make Kiev an attractive target for increased economic cooperation with Beijing.
Provided that the political situation in Ukraine doesn''t continue to worsen as recent reports are not optimistic. Should the political chaos substantially affect Ukraine''s crop production, it could have a major impact on global food supplies, and on China''s food security.