Ukraine will nationalize the defense firm and keep China out of the United States

If carried out, the state acquisition would end more than three years of disputes that had placed 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 found itself embroiled in U.S. domestic politics during Donald Trump’s presidency, weakening support for the country in Washington.

Motor Sich’s nationalization shows that Ukraine “stays with the U.S. even at considerable cost,” said Anders Aslund, a Swedish economist and senior member of the Atlantic Council, a think tank in Washington. “This was an excellent step that the US should be very grateful for.”

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

In 2019, President Trump asked Ukrainian President Volodymyr Zelensky to initiate investigations into the trade relations of Hunter Biden, son of then-alleged presidential rival Joe Biden, while the younger Mr. Biden served on the board of directors of a Ukrainian gas company, Burisma Holdings. The phone call between Mr. Trump and Mr. and Mrs. Zelensky led to the first removal of Trump by the House; he was acquitted by the Senate. President Biden and his son denied the misconduct.

Nearly two months after Biden’s inauguration as president, he has yet to speak on the phone with Mr Zelensky. This, said a Ukrainian official, has caused anxiety in Kiev, which sees the US as a vital partner in defending Russia.

“They are trying to please Americans and are trying to get their attention,” said Oleksandr Lemenov, founder of the nonprofit civil society group StateWatch, which is pushing for transparent economic practice in Ukraine and has received funding from the US embassy in Ukraine. others.

Kiev is also considering setting up a body to review foreign investment in strategic companies, an American goal.

Motor Sich, which was a key point of the Soviet Union’s defense industry, supplied engines to Russia’s military helicopter fleet for decades. This came to a halt in 2014, when Ukraine and Russia went to war over Russia’s incursion into eastern Ukraine and its annexation to the Crimean peninsula.

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

The United States pressured Kiev to cancel the deal, particularly motivated by concerns that Chinese property would boost China’s efforts to build a fifth-generation fighter jet and a fleet of heavy helicopters, officials said. Americans and Ukrainians.

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 deal, with Washington and Beijing continuing to put pressure on Kyiv.

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

Danilov said companies considered strategically important would be legally returned to the state and their investors would be compensated. He did not provide any calendar or other details or use the word “nationalize” in his comments.

“This is being done for the national security of the country,” Danilov said.

Chinese Foreign Ministry spokesman Zhao Lijian on Friday demanded that the issue be properly resolved and that Ukraine “take into account the legal rights of Chinese companies and investors.”

A Skyrizon official said the company is preparing to file lawsuits in Ukraine and other countries. “We will vigorously defend and 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 decision to nationalize could lead to a very high price, given the purchase price of $ 3.6 billion.

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

Around this time, the Trump administration placed Skyrizon on a blacklist of sanctions. Ukraine continued the same, freezing Skyrizon’s assets in Ukraine.

U.S. officials have advised Ukraine to establish a similar entity to the U.S. Foreign Investment Committee, which reviews foreign investment in U.S. companies, so that it has a legal basis for denying transactions like the Motor Sich deal, said a US official who took part in talks with Ukraine about it.

The Ukrainian parliament has debated legislation to establish such a body. Separately, Alexander Kornienko, deputy head of Zelensky’s parliamentary faction, said in a recent report that he would present a bill in the coming weeks to deal with Motor Sich.

“Not only the US is telling Ukraine what to do,” a Ukrainian official said. “It is important that the Ukrainian national security keep these companies in local ownership.”

A reaction from China is likely to be costly for Ukraine, which has financial problems. In recent years, China has bought in Ukraine tank engines, destroyer turbines, air refueling tanks and landing craft and has also been one of the leading buyers of Ukrainian agricultural products.

Last week, while Mr. Danilov was announcing 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 painful point for in Kiev.

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