Ukraine will nationalize the defense company, keeping China in a head for the USA

If achieved, the takeover would end more than three years of fighting that has put the company and Ukraine in an expanding confrontation between Washington and Beijing.

It could also save relations between the Biden administration and Ukraine after the government became involved in US domestic policy during Donald Trump’s presidency, weakening support for the Washington country.

Motor Sich’s nationalization shows that Ukraine “remains with the United States even at considerable cost,” said Anders Aslund, a Swedish economist and senior member of the Atlantic Council, a Washington think tank. “This was an excellent step that the United States should appreciate very much.”

The White House and the State Department did not respond to requests for comment. US officials in the Biden and Trump administrations have said that Ukraine needs to understand China’s ambition to acquire and master vital defense technologies and stop the acquisition. The Ukrainian government did not respond to requests for comment.

In 2019, President Trump called on Ukrainian President Volodymyr Zelensky to launch investigations into the business relationships of Hunter Biden, the son of his alleged presidential rival Joe Biden, while the young Mr. Biden served on the board of a gas from Ukraine, Burisma Holdings. The phone call between Mr. Trump and Mr. Zelensky led to the first indictment of Mr. Trump by the House; was acquitted by the Senate. President Biden and his son have denied the wrongdoing.

Almost two months after Mr Biden’s inauguration as President, he has not yet spoken to Mr Zelensky. This, said a Ukrainian official, has caused anxiety in Kiev, which sees the US as a vital partner in rising up in front of Russia.

“It’s trying to please Americans and it’s trying to get their attention,” said Oleksandr Lemenov, founder of the nonprofit civil society group StateWatch, which lobbies for transparent economic practice in Ukraine and has received funding from the US Embassy in Ukraine. , among others.

Kiev is also looking to set up a body to review foreign investment in strategic enterprises – an American goal.

Motor Sich, once a key element in the Soviet Union’s defense industry, has supplied engines to Russia’s military helicopter fleet for decades. This stopped in 2014, when Ukraine and Russia went to war for Russia’s incursion into eastern Ukraine and the annexation of the Crimean peninsula.

Ukraine then banned the export of military equipment to Russia, paralyzing the Motor Sich business and offering an opening to China, a Motor Sich customer since the 1990s. Beijing Skyrizon Aviation, a private company, led a group of companies that in 2017 completed a $ 3.6 billion acquisition to control Motor Sich from shareholders led by Vyacheslav Boguslayev.

The United States has pressured Kiev to cancel the deal, citing concerns that Chinese ownership would boost China’s efforts to build a fifth-generation fighter jet and a fleet of heavy helicopters, according to U.S. and Ukrainian officials.

A Ukrainian court froze the Chinese transaction in April 2018, and the government’s antitrust committee opened an investigation into possible unfair competitive practices. Both actions effectively suspended the agreement, with Washington and Beijing continuing to lobby Kiev.

Then last week, Oleksiy Danilov, secretary of the Ukrainian government’s National Security and Defense Council, said that Motor Sich would be “returned in the near future to the Ukrainian people, in the constitutionally owned property of the Ukrainian state.”

Mr Danilov said that companies considered to be strategically important would be legally returned to the state and their investors would be compensated. He did not provide a timetable or other details, nor did he use the word “nationalize” in his comments.

“This is being done for the country’s national security,” Mr Danilov said.

Chinese Foreign Ministry spokesman Zhao Lijian on Friday called for the issue to be properly resolved and for Ukraine to “take into account the legal rights of Chinese enterprises and investors.”

A Skyrizon official said the company was preparing to initiate lawsuits in Ukraine and other countries. “We will defend and firmly protect the legal rights of Chinese investors,” he said.

The US has tried to find a buyer for Motor Sich, according to US and Ukrainian officials, but the nationalization decision could come at a high price, given the $ 3.6 billion purchase price.

Concern over the Motor Sich transaction persisted in the transition between the Trump and Biden administrations. In January, Motor Sich signed an $ 800 million contract with China’s Aviation Industry Corporation, a supplier to China’s People’s Liberation Army, to build engines for its JL-10 fighter jets.

At the time, the Trump administration placed Skyrizon on a blacklist of sanctions. Ukraine followed suit, freezing Skyrizon’s assets in Ukraine.

U.S. officials have advised Ukraine to set up a similar entity to the U.S. Foreign Investment Committee, which looks at foreign investment in U.S. firms, to have a legal basis for refusing transactions such as the Motor Sich deal, a U.S. official who spoke said. with Ukraine in this regard.

The Ukrainian Parliament resumed debates on legislation for the establishment of such a body. Separately, Alexander Kornienko, deputy head of Mr Zelensky’s parliamentary faction, said in a recent briefing that he would introduce a bill in the coming weeks to deal with Motor Sich.

“It’s not just the United States that is telling Ukraine what to do,” a Ukrainian official said. “It is important for Ukraine’s national security to maintain such locally owned companies.”

It is possible that a reaction from China will prove costly for Ukraine, which is financially troubled. In recent years, China has purchased tank engines, destroyer turbines, refueling tanks and landing craft from Ukraine and has also been a major buyer of Ukrainian agricultural goods.

Last week, as Mr Danilov announced the nationalization of Motor Sich, a delegation of Chinese businessmen met with Russian-backed government officials in Crimea, the Ukrainian Black Sea peninsula annexed by Russia in 2014 and a lasting pain point for Kiev.

Write to Brett Forrest at [email protected] and Alan Cullison at [email protected]