Collateral damage

Chinese ire over jet engine firm’s nationalisation


He’s nationalised Motor Sich

The UK government has frozen more than £18 billion ($21 billion) of assets belonging to 1,271 Russians since Vladimir Putin’s invasion of Ukraine, according to the latest review from the Office of Financial Sanctions Implementation, which was published this week in Britain.

The freeze is a potent reminder for many billionaires that political upheaval can pose a threat to cross-border wealth, including that of some of the Chinese tycoons who have invested heavily overseas, perhaps. These broader fears were on the agenda this week too after the Ukrainian government said it had invoked wartime laws to take control of several companies, including aerospace firm Motor Sich, which is 56%-owned by Chinese firm Skyrizon.

Skyrizon reacted angrily to the nationalisation, lambasting Ukraine for “looting China’s foreign assets”. In a statement posted on WeChat, Skyrizon’s founder Wang Jing vowed to take “all legal means” to protect the interests of his investors, whom he said had held a majority stake in Motor Sich since 2014.

Wang’s attempts to complete a full takeover of Motor Sich had struggled for a while. The company ranks as one of the world’s biggest jet engine makers and one of the few with end-to-end manufacturing capability. Motor Sich’s chairman Vyacheslav Boguslayev decided to sell Skyrizon a majority stake in the company after Moscow’s annexation of Crimea. But the China deal stoked concerns in Ukraine, as well as from Washington. Wang has struggled to shrug off allegations that he is closely linked with the People’s Liberation Army, for instance. His companies have engaged in projects deemed strategically important to the Chinese government, ranging from the proposed construction of a Nicaraguan canal to an ambitious satellite programme.

Skyrizon’s attempted takeover of Motor Sich had been frozen by the Ukrainian government since early 2021, with the Chinese firm seeking $3.5 billion in compensation claims.

The Russian offensive in Ukraine since February dealt a further blow to the deal and Boguslayev was arrested last month on charges of collaborating with Russia.

Between 2017 and 2019, Chinese investors and the Ukrainian government had signed a series of cooperation agreements linked to the Motor Sich takeover, the Global Times claims. This week’s nationalisation of the engine maker will result in major financial losses for these investors, the newspaper reckons, noting that the Ukrainian government is yet to explain how it will handle the Chinese investment in Motor Sich.

The setback comes at a time when Chinese aerospace giant Comac is courting buyers for its C919, an aircraft that is being celebrated as China’s first domestically-produced large jet. At an airshow in Zhuhai this month, COMAC said it has received 300 new orders for the C919 from seven domestic aircraft leasing firms, including ICBC Leasing.

The turbulence around the Skyrizon deal with Motor Sich casts a light on some of the vulnerability in China’s ambition to create a genuine rival to Airbus and Boeing, however. China is still to make full breakthroughs in a number of the critical technologies that would enable production of a genuinely ‘indigenous’ engine (which the Chinese have described as “the heart” of the aerospace industry).

Only a few companies in countries including the US, Russia, the UK and France have the capabilities to develop and mass-produce high-quality aircraft engines, which was part of the rationale for Skyrizon’s attempted takeover of Motor Sich (there were parallels here with a much older deal in which the Chinese purchased a Ukrainian warship as a way of learning how to build aircraft carriers).

Back in the present day, the C919 operates with LEAP engines, which are made by CFM International, a US-French venture co-owned by General Electric and France’s Safran. That gives a slightly different spin to some of the media celebration about the new aircraft’s launch. State media outlets have been happy to talk up the C919 as China’s “first homemade passenger jet” but also as a “paragon of global cooperation,” for instance.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.