At the Guangzhou Trade Fair last autumn, Fu Yingjie signed a contract worth US$483,000 to sell 8,000 rice cookers to Ukraine. The buyer made a down payment and Fu agreed to ship the goods at Spring Festival this year.
But four months have passed and the cookers are still sleeping in the warehouse of his company, Yalesi Electrical Appliances of Zhongshan. Fu does not know what to do. If he does not ship, he will incur a heavy financial penalty; if he does, the goods may be lost and he will never be paid.
Fu is not alone. Hundreds of Chinese companies are facing the same dilemma of whether to continue trading with Ukraine, four months since President Viktor Yanukovich was overthrown and a conflict between the government and its Russian speakers intensified.
The first Chinese casualties of the crisis were two dozen investment projects agreed with Ukrainian firms under the Yanukovich presidency. Now the damage has spread to trade.
China is Ukraine’s second biggest trading partner, after Russia. In 2013, bilateral trade was US$11.12 billion, an increase of 7.3 percent over 2012. China’s exports were US$7.85 billion, up 7.1 percent, and imports US$3.27 billion, up 7.9 percent. That is a sharp increase from the US$7.73 million in bilateral trade in 2010.
China exports electrical machinery, light industrial goods, textiles and garments and imports armaments, mineral products and edible oils and fat.
But the figure will fall dramatically this year. Of the 2,944 companies in Zhejiang who trade with Ukraine, 1,525 have temporarily ceased exports. In the first quarter of this year, Zhejiang’s exports to Ukraine were 2.46 billion yuan, a drop of 28.5 percent on the same 2013 period.
Another company in Zhongshan, Yilaide Electrical Appliances, made the opposite decision. In the first four months of this year, it made 15 shipments of rice cookers to Ukraine; all arrived safely, but the purchaser has delayed payments totaling US$1.33 million.
Galanz is one of Guangdong’s largest exporters of electrical appliances. In the first four months, its exports of rice cookers to Ukraine were worth US$234,206, down 10.1 percent on the same 2013 period. It is demanding full payment from Ukranian buyers before shipment.
Chinese exporters face two problems. One is that they have goods ordered but not delivered which are sitting in their warehouses; the other is a sharp drop in orders, such as during the spring Guangzhou Fair. Ukrainian firms agreed to pay US$50,000 as down payment on their orders and the rest in installments.
The Ukrainian currency, the hryvnia, was stable at eight to the US dollar from 2009 to the end of last year but has lost one third of its value since then. This has forced the central bank to tighten foreign currency controls and reduce the availability of US dollars in the banks; this money is needed to buy imports.
The Ministry of Commerce regards Ukraine as an important market. Zhang Li, deputy director of strategy and research at the ministry’s research department, said that while there were many uncertain factors, Chinese firms will not easily give up this market and were working to minimize the risk.
One way to do this is use the China Export & Credit Insurance Corporation (Sinosure), a state-owned firm under the State-owned Assets Supervision and Administration Commission that offers coverage against political, commercial and credit risks. It offers its services to small and medium-scale enterprises as well as large state firms.
Ukraine has a lot to offer. In terms of land area, it is the second largest country in Europe and the world’s third largest grain exporter. It has more than 70 kinds of mineral resources, including coal reserves that are the eighth largest in the world. It also has manganese, clay, graphite and iron ore.
At the end of last year, it had a population of 45.4 million, making it the largest consumer market in Eastern Europe, as well as a well-educated workforce and developed aerospace, arms and high-technology industries.
The largest number of Chinese, close to 3,000, work in the Sedmoi (“seven-kilometer”) market which is 7 km north of the Black Sea port of Odessa. The largest market in the post-Soviet area, it covers an area of 170 hectares and employs 60,000. It sells almost everything, much of it counterfeit, including shoes, trainers, underwear, mobile phones, household appliances, toys, perfumes and books and attracts more than 100,000 shoppers a day.
The market opened in 1989, two years before the collapse of the Soviet Union. From 2002, Chinese traders began to arrive and now control its wholesale sector.
Odessa, the largest international port of Ukraine, has an annual turnover of 30 million tons, half of it from China. Chinese products dominate the market; they are sold all over Ukraine and in neighboring countries.
The Chinese are individual traders from Zhejiang, Fujian, Jiangsu and Guangdong and do wholesale and tourism business and run restaurants.
The writer is a Hong Kong-based journalist and author
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