This study by the International Trade Research Center, Trade+ analyzes the current state of bilateral trade in goods and services between Ukraine and China, as well as investigates ways to increase and diversify Ukrainian exports to China.

China is one of the markets in focus identified by the Export Strategy of Ukraine for 2017-2021 and plays a significant role in Ukraine’s international trade. In 2018, exports of goods from Ukraine to China amounted to 2.2 billion USD, while imports reached 7.6 billion USD. At the same time, Ukrainian exports to China are highly concentrated and non-diversified, and the Chinese market remains closed for many products from Ukraine.

The total “undertrade” of Ukrainian exports to China (the difference between the potential exports, estimated with the gravity model, and actual export volumes) was evaluated at about 647 million USD in 2017, which is almost 30% of Ukraine’s actual exports to China in the same year. Therefore, the potential for intensification of trade relations between Ukraine and China is rather significant.

The study also identifies a list of 108 products (at HS4 level) the most promising for boosting exports to China. Methodologically, the promising products in terms of exports from Ukraine to China are identified according to several requirements:  1) positive revealed comparative advantages (RSA) in this product in Ukraine and negative RSA in China; 2) significant potential for increasing exports to Chinese market based on the assessment of the gap between current and potential export volumes, or undertrade. The estimated undertrade for a broad list of promising product groups is 132 million USD, which is 11.5 times higher than the actual exports of these goods to China (11.5 million USD). This is due to the fact that Ukraine did not supply about 65% of these goods to China in 2017 at all.

Ukraine’s involvement in China’s Belt and Road (BRI) investment initiative suggests additional opportunities for the intensification of economic cooperation and bilateral trade with China. The analysis of the impact of the BRI on trade between China and Ukraine indicates potential economic benefits for Ukraine from the implementation of the BRI. In particular, it was estimated that a 15% reduction in the transportation costs of Ukrainian exporters as a result of the BRI could increase Ukraine’s real GDP per capita by 0.5%.