China Offers $100 Million as Inducement to Approve Investment in Motor Sich, US Looks to Block
On August 19, China’s Skyrizon Aircraft and Xinwei Technology Group offered a $100 million grant for the development of Ukraine’s aircraft manufacturing industry on the condition that the Antimonopoly Committee of Ukraine approved the consortium’s attempt to acquire a stake exceeding 50% in Motor Sich — a major domestic supplier of helicopter engines, with a growing export business in China’s military-industrial sector. Separate reports indicate that the Chinese firms and Ukroboronprom have already reached an agreement (presumably pending regulatory approval) for joint control of Motor Sich. Per the agreement, Skryizon and Xinwei will maintain an unspecified stake exceeding 50%, and Ukroboronprom would effectively be gifted a stake exceeding 25%.
On August 23, it emerged that the U.S. National Security Council, at the initiative of National Security Advisor John Bolton, was exploring ways to block the deal. Skyrizon is controlled by Wang Jing, who has previously participated in other projects similarly infused with strategic motivations, including efforts to build an interoceanic canal in Nicaragua. (The company is also suspected of having ownership links to the People’s Liberation Army.)
In 2017, Skyrizon’s and Xinwei’s prior attempt to acquire a 57% stake in Motor Sich was blocked by Ukraine’s State Security Service (SBU). Beyond concerns associated with the strategic and military value of Motor Sich to Ukraine (and more broadly), the process was mired by allegations of non-transparency. Indeed, the two Chinese investors publicly claimed to seek a 15% stake for $100 million, rather than the controlling equity bid that was later reported.
In Ukrainian media, concerns have been raised about the national security implications of the deal’s benefit, not only to China, but also to Russia’s military-industrial capability. Until 2014, Motor Sich was a key supplier of helicopter engines to the Russian military, with China reportedly replacing Russia as the company’s largest market after conflict broke out. Although Motor Sich has denied the allegations, reports as recently as July 2019 indicate that it continues its military-technical cooperation with Moscow in some unspecified capacity, and also conducts financial activities in support of pro-Russian separatists in eastern Ukraine. Critics of the deal believe that it could benefit Russia given Moscow’s and Beijing’s increasing geopolitical alignment.