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U.S. Aims to Block Chinese Acquisition of Ukrainian Aerospace Company

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U.S. Aims to Block Chinese Acquisition of Ukrainian Aerospace Company

WASHINGTON—U.S. national-security adviser John Bolton is seeking to scuttle the pending Chinese acquisition of a Ukrainian aerospace company on grounds that it will give Beijing vital defense technology, according to senior U.S. administration officials familiar with the matter.

Mr. Bolton’s personal interest and involvement in the deal, acknowledged by the senior administration officials, underscores the growing importance of this case to the U.S. national-security establishment.

The company, Motor Sich, is one of the world’s foremost manufacturers of helicopter and airplane engines, and for years has supplied engines for the bulk of the Russian military-helicopter fleet. A sale to a group of companies, including Beijing Skyrizon Aviation, controlled by Chinese businessman Wang Jing, is pending.

Staffers at the National Security Council and the U.S. Embassy in Kiev are working to schedule a meeting between Mr. Bolton and the aerospace firm’s chief executive next week in Kiev, where Mr. Bolton plans to attend a security conference, a senior administration official said.

“We are going to have a conversation with the Ukrainians about China’s ambitions and what our view is of what China’s up to,” said another senior administration official. “This is all part of the national-security strategy and the national-defense strategy. It’s a strategic competition with China.”

Ukraine is a strategic U.S. ally in the region, and was the recipient of $250 million in U.S. military aid this year. Donald Winter, a former secretary of the Navy, was appointed this year as the Pentagon’s senior defense-industry adviser on Ukraine.

A visitor looks at an aircraft engine made by Ukraine’s Motor Sich manufacturer at an international weapons exhibition in Kiev, Ukraine. The company is one of the world’s foremost manufacturers of helicopter and airplane engines.


Photo:

Efrem Lukatsky/Associated Press

The Motor Sich deal is widely seen by U.S. officials as another move by China to expand its military capability in lockstep with its growing economic interests overseas. Those concerns were amplified when China said last month that it planned to expand military cooperation with Russia to thwart what it called a growing threat from the U.S.

“For China, aircraft engines are the biggest problem in upgrading their air might,” said Vasily Kashin, a senior research fellow in the Institute of Far Eastern Studies of the Russian Academy of Sciences. “Helicopter engines are a weak spot.”

According to U.S. government and private-sector aviation officials, the Chinese are particularly wanting in their ability to produce heavy-lift aircraft, a problem that Motor Sich’s engineers could alleviate.

“We would just as soon keep the Chinese from mastering that technology,” the second senior administration official said.

The Chinese Embassy in Washington didn’t immediately respond to a request for comment.

Oleksandr Danyliuk,

the secretary of Ukraine’s National Security and Defense Council, declined to comment.

Chinese businessman Wang Jing, second from left, pushed projects of strategic interest to Beijing, including a deep-water port in Crimea and a canal spanning Nicaragua.


Photo:

mario lopez/European Pressphoto Agency

Mr. Wang, the chief executive of Beijing Skyrizon Aviation, declined to comment on the deal, citing various uncertainties with the purchase. In a statement, he said only that he hoped for the continuous advancement of the project.

Mr. Wang made a fortune in telecommunications, and has subsequently pushed projects of strategic interest to Beijing, including a deep-water port in Crimea and a canal spanning Nicaragua, neither of which has come to fruition.

Beijing Skyrizon Aviation has built a Motor Sich factory in Chongqing, China, that currently sits inactive, according to a Motor Sich official.

Aerospace is one of 10 component sectors of “Buy China,” a strategic government plan to upgrade the quality of the country’s manufacturing. The acquisition of Motor Sich would boost China’s military buildup and civilian aviation capacity, which Washington has taken pains to retard in a near-total Western embargo on selling military goods to China, in place for the last 30 years.

When Russia and Ukraine went to war in 2014, Motor Sich military exports to its neighbor were outlawed, crippling the business. Sometime after that, Mr. Wang approached Motor Sich CEO

Vyacheslav Boguslayev

with an offer to rescue the company, according to a person who participated in the deal.

The Security Service of Ukraine raided the Motor Sich plant on national-security grounds in April 2018, and a Ukrainian court froze the transaction. The Antimonopoly Committee of Ukraine opened an investigation into the pending purchase for unfair competitive practices.

Mr. Boguslayev cried foul. “There are no international sanctions that would prohibit Ukrainian companies from such partnerships with China,” he said in a statement to The Wall Street Journal.

Petro Poroshenko,

then Ukraine’s president, resolved to allow the deal, only after Mr. Wang agreed to donate 25% of the company to Ukroboronprom, Ukraine’s state defense conglomerate, according to the Antimonopoly Committee.

Aivaras Abromavicius, the current head of the supervisory board of Ukroboronprom, declined to comment.

The Motor Sich deal now sits with the National Security and Defense Council, whose secretary, Mr. Danyliuk, is responsible for issuing a recommendation to President

Volodymyr Zelensky,

who was elected in April and is the ultimate arbiter.

A helicopter made by Motor Sich is seen at the manufacturer’s helipad in Ukraine. For years the most-valued company on Ukraine’s stock exchange, the company recently reduced shifts on its production floor, signaling cash-flow problems.


Photo:

Dmytro Smolyenko/Zuma Press

While U.S. officials have warned Kiev that the Chinese may abscond with Motor Sich’s most valuable assets, hollowing out the company, some Ukrainian officials despair of alternatives to Chinese investment in a critical, teetering manufacturer.

For years the most-valued company on Ukraine’s stock exchange, Motor Sich employs roughly 20,000 people. Last week, the company reduced shifts on its production floor, signaling cash-flow problems.

Mr. Bolton’s personal interest in the deal may alter the company’s calculus. Among various possible solutions, the U.S. government is courting private-sector investors, according to one of the U.S. officials.

One such U.S. company met with agencies in Washington this week, including with the Overseas Private Investment Corporation, or OPIC, which marshals private and public capital to advance U.S. foreign-policy goals, this person said.

On Oct. 1, OPIC will morph into the U.S. International Development Finance Corp., which was conceived, in part, to combat China’s Belt and Road, an international infrastructure and financial-development initiative to advance Beijing’s geopolitical ambitions. The Motor Sich deal has been discussed as a test case for the agency, this official said.

An unwinding of the deal would undoubtedly trigger consequences for Ukraine, a financially troubled country with a longstanding relationship with China.

In recent years, China has purchased tank engines, turbines for destroyers, aerial refueling tankers and landing craft from Ukraine. China has been a Motor Sich client since the 1990s. According to the Ukrainian embassy in Beijing, trade between the two countries amounted to $10.1 billion in 2018.

At the same time, a Motor Sich sale to China would doom Ukraine’s efforts to join the North Atlantic Treaty Organization and the European Union—as neither body would countenance admitting a member beholden to Chinese defense interests, said Denys Gurak, a former deputy general director with the Ukroboronprom defense conglomerate.

“Ukraine would be strategically deprived of integrating itself into the Western defense context,” Mr. Gurak said. “This is the type of event that influences processes on a global scale.”

In March, a representative from Rostec, Russia’s state incubator for high-tech industrial civilian and military products, announced a pending joint venture with the Chinese to manufacture a heavy-lift helicopter with the ability to transport armored vehicles and artillery.

“It always puzzled me why, when the Americans had such influence in Ukraine, they never intervened in the Motor Sich purchase,” Mr. Kashin said.

Write to Brett Forrest at brett.forrest@wsj.com

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