Chinese investors have filed for international arbitration against the Ukrainian government, demanding $3.5 billion (22.8 billion yuan) in damages after repeatedly blocking investment and cooperation between Chinese companies and Ukrainian engine and aero-engine giant Motor Sich.
According to a press release from DCH Group, Beijing Tianjiao’s partner in Ukraine, cited by UPA on December 5, the Chinese investors in Motor Sich have informed the Ukrainian government of their intention to initiate international arbitration against Ukraine under the agreement between the Ukrainian government and the Chinese government on investment promotion and mutual protection.
According to a press release issued by DCH Group on November 17, 2012, as early as September 4, 2012, the Chinese investors in Madasic filed a notice of investment dispute with the Ukrainian Ministry of Justice, arguing that the Ukrainian government had “misappropriated the Chinese investment” and violated the rights of the Chinese investors under the framework of the 1992 Sino-Ukrainian Investment Agreement.
As a result, the Chinese investors decided to hire three international law firms, including WilmerHale, DLA Piper and Bird & Bird, to file a $3.5 billion claim against the Ukrainian government for the investment dispute. The Ukrainian firm Arzinger will act as counsel for Ukrainian law in the international arbitration.
In the face of resistance from Ukraine and the U.S., the road for Chinese companies to invest in Madasic is a rocky one. The only aero-engine factory in Ukraine was built in 1907. As a major defense enterprise of the former Soviet Union, Madasic manufactures engines for military aircraft, cruise missiles, and helicopters, and the company also designed the engines for the world’s largest transport aircraft, the An-225.
After the end of the Cold War, Madasic was a long-time supplier of helicopter engines to the Russian military. However, the company’s business was severely damaged when Ukraine outlawed military sales to Russia after the 2014 conflict, causing profits to drop from $1.1 billion to $480 million.
Back in 2017, the Chinese offered to buy Madacic, but Ukrainian security services stepped in to block the deal, while freezing Madacic’s product inventory. Former U.S. National Security Advisor Bolton stepped in to block the Chinese takeover again in August 2019, traveling to Ukraine after the G7 summit, where one of the meetings addressed the Madasic issue. Bolton tried to push the Antitrust Commission to veto the Chinese takeover.
Last December 15, President of Madacic Boguslaev said that he had sold his shares in the company to a Chinese company. The Chinese company promised to invest $250 million in the company within 2 years. According to Udinese news agency, the Chinese company acquired more than 50% of Madacic’s shares, but is still under investigation by the U.S. Antimonopoly Committee.
Two days later, Beijing Xinwei Technology Group Co., Ltd. issued a clarification announcement, saying that after the company’s verification, the antimonopoly application is still under review by the Anti-Monopoly Committee of Ukraine and has not yet been finally approved. The recent media reports that the Ukrainian antimonopoly authorities had approved the acquisition of Madacic by Chinese investors were not true.
Subsequently, according to DCH Group, the dispute between the two parties has continued to this day. On October 28 this year, DCH issued a statement saying that the company had applied to the Ukrainian Antimonopoly Committee on behalf of Tianjiao for the third time to obtain permission to acquire shares in Madasic. “Prior to that, the Antimonopoly Committee of Ukraine had twice returned similar applications from DCH and Tianjiao without substantive consideration.”
DCH says it has submitted its application to the commission for the third time, the first two times “without substantive consideration.”
Some analysts believe that Ukraine’s cancellation of the acquisition deal was due to pressure from the United States. In August, U.S. Secretary of State Mike Pompeo expressed concern to Ukrainian President Zelensky about China’s planned acquisition of Madacic.
Ukraine’s “112” news network reported that Oleksandr Yaroslavsky, chairman of the DCH Group, issued an open letter to the Ukrainian president and prime minister on November 26, saying, “As a person who is sincerely loyal to the country, we have to be able to make a decision on the purchase of Madasic. A citizen of Ukraine, a businessman who is concerned about the country’s economic growth, I consider it my duty to prevent future negative developments that could seriously damage our financial situation and international reputation.”
Russian political and economist Dudchak commented that Kiev’s move to call off the acquisition could mean the destruction of a promising and opportunistic company. He said that it is impossible for a company such as Madasich not to attract the interest of investors, but the Ukrainian authorities do not see the light of hope that foreign investment can bring to help their national economy and increase industrial efficiency, and are trying to please the United States at the expense of Ukrainian companies.
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