In recent months, China has been dominating media headlines in connection with exchange rate disputes with the United States and possible participation of China in the bailout of some eurozone nations. China seems to be proving the truth behind the Chinese proverb that says that 'the saving man becomes the free man'. Developed and developing countries alike are turning to the biggest saver in the world in hope to get a share of financing out of large foreign currency reserves that China accumulated over the past years. Faced with the hard reality that capital markets remain closed and that European and American banks have scaled down their lending programmes in the aftermath of the sovereign debt crisis, more Ukrainian companies are also starting to look east.

Ukraine and China have always maintained good diplomatic relations. However, when we look behind the pleasantries of the diplomatic protocol language, for a number of years the Chinese government and Chinese investors were not particularly active in Ukraine for a number of reasons. On the one hand, for several years, especially in the period between 2005 and 2010, Ukrainian foreign policy was focused almost entirely on the issues of European- Atlantic integration of Ukraine, clearly to the detriment of the oriental vector of the national foreign policy. Ukrainian political instability and complex legal environment served as disincentives for any kind of investors, let alone the Chinese. On the other hand, China itself did not demonstrate particular interest in Ukraine or the Eastern European region, having been more active in Africa and other parts of the world that are rich in natural resources to support its economic growth.

Sino-Ukrainian contacts became more active in the last year of the previous Ukrainian government, headed by Prime Minister Yulia Tymoshenko and intensified after the arrival of the new president in 2010. During the state visit of President Viktor Yanukovych to China in 2010, leaders of both countries agreed that China, through the Export- Import Bank of China and other companies, will provide financing and technical support for several large-scale infrastructure projects in Ukraine, such as the construction of a high-speed railway line between Kyiv and Boryspil International Airport, the main gateway airport into the country, and a power station in Crimea. Also in 2010, China Development Bank has agreed to finance modernisation of several mines in eastern regions of Ukraine. It is expected that China will provide technical support and financing for projects in the extraction of hydrocarbons on the Ukrainian part of the Black Sea continental shelf, construction of the beltway road around Ukrainian capital and agriculture.

The principle distinctive feature of financing that comes from China is that very often loans are provided not only in hard cash, but also in non-monetary form, such as equipment, technologies, goods and services. This gives China a competitive edge, particularly in complex infrastructure projects. Loans from China are also attractive in terms of relatively low interest rates as compared to interest rates offered elsewhere. Chinese loans also tend to be more lenient in terms of covenants and other strings that are normally attached to financing from international financial institutions or foreign commercial banks. At the same time, it is important to remember that China agrees to provide financing not simply as a gesture of good will, but in a pursuit of rather pragmatic goals. China views provision of financing as an opportunity to promote its own manufacturers and sometimes even its own workforce. All of the projects currently financed by Chinese financial institutions in Ukraine involve an element of supply of Chinese equipment and technology, from locomotives to power generation equipment and drilling rigs, etc. Despite clear benefits of such 'allinclusive' approach in some projects, it may somewhat limit Ukrainian borrowers' choice of the best value-for-money options available on the market. It is also worth mentioning that in some industries, particularly, in metallurgy and chemical industries, Ukraine and China are direct competitors. It is therefore unlikely that Chinese financial institutions will be willing to finance Ukrainian competitors of Chinese companies.

In recent years, Ukraine has been actively promoting itself in the east, in an effort to attract more investment from China in its economy that is still recovering from the heavy blow after the financial crisis in 2008-2009. In recent months, as the second wave of the financial crisis begins to unravel, more and more Ukrainian businesses, from big agricultural groups to natural resources extraction companies and even Ukrainian banks are exploring opportunities for them in the east and in China in particular. It is apparent that Ukraine and the investment opportunities that it offers are largely unknown for the vast majority of Chinese investors.

However, with some ground work done and good Ukrainian lawyers to guide through the peculiarities of Ukrainian law, it should be possible to turn the tide. In the coming months and years, it remains to be seen how successfully Ukrainian companies will be able to spark interest in their businesses and to operate in a new territory that is quite different from their home turf or to what they have become used to when dealing with European and American investors. It also remains to be seen whether Chinese investors will be able to spot and master their business opportunities in Ukraine. There will not be a waterfall of Chinese money, but I think there is some room for optimism that in the next few years, Ukrainian economy will get a steady stream of Chinese investment albeit on Chinese special terms.

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