From Varyag To Liaoning CV-16: The Untold Saga Of A 16-Year Journey

It was in late April 1970 that the PLA Navy (PLAN) had formed a team led by Admiral Liu Huaqing (who later became the PLAN Chief from 1982 till 1988 and was also a CMC member from 1988 to 1997) to explore ways of acquiring aircraft carriers. The Admiral later proposed that China build its own aircraft carrier, but Beijing throughout the 1970s and 1980s was wary of the idea, since such a project would raise the international community’s suspicions over China’s territorial ambitions.



In any case, China at that time lacked the finances required for undertaking a mammoth R & D effort for developing such a warship and all its on-board sub-systems from scratch. Buying a ready-made vessel was a far more viable option, since this would help China save at least 15 years of cost-prohibitive R & D effort. Thus, when Ukraine officially invited China to bid for buying the Varyag in early 1992, the PLAN sent a delegation that included Maj Gen Zheng Ming, the then chief of the PLAN’s Naval Armament Department. On-site inspections at the Nikolayev South Shipyard in the Black Sea revealed that everything on-board the Varyag was completely new, and its eight turbo-pressurised boilers and four high-pressure steam-turbines (each costing US$20 million) were perfectly grease-sealed. The delegation recommended to the Central Military Commission (CMC) that the Varyag be procured, but Beijing was averse to this idea and declined the Ukrainian offer. For, with the USSR’s breakup and the Tiananmen Square crackdown of 1989 fresh in foreign minds, China’s then-President-cum-CMC Chairman Jiang Zemin was pursuing a US-friendly diplomatic line (such opposition lasted until May 7, 1999, when the US bombed the Chinese Embassy in Belgrade, Yugoslavia).

 

It was only in April 1996 that the PLAN first approached 45-year-old Hong Kong-based businessman Xu Zengping, a former PLA basketball player of the Guangzhou Military Region and the owner of Chinluck Holdings (a Hong Kong-based company with interests in trading, catering, culture, entertainment, and property, among others) for help in procuring the Varyag without the official involvement of Beijing. In addition, two Hong Kong-based tycoons had been asked to help, but they declined to be part of this deal. Xu had by then made a name for himself by organising cross-border cultural events, and had also arranged for military troupes from the PLA, Russia and Australia to put on shows in Hong Kong in the 1990s. The PLAN officials, however, warned Xu of two major impediments: the PLAN was severely underfunded and there was no approval from Beijing for this endeavour. Despite such risks, Xu eventually decided to go ahead. Thus was born thee plan to procure the Varyag and it was hatched by one of the top PLAN leaders and was carried out in secret and in defiance of national policy at the time. The PLAN’s Vice Admiral He Pengfei and the then chief of PLAN’s military intelligence directorate Ji Shengde, were the backroom drivers of the covert deal.  



Xu and Vice Admiral He met Xu six times before Xu finally agreed in March 1997 to be his proxy. Ji, the real boss behind the deal, came on board in late 1998 to coordinate operations behind-the-scenes. For executing the deal, Xu set up offices in Beijing and Kiev in mid-1997. The Kiev office was staffed by shipbuilding experts from stated-owned, Shanghai-based China State Shipbuilding Corp (CSSC) and the PLA’s Commission on Science, Technology, and Industry for National Defence (COSTIND), some of whom had been sent by Beijing to Ukraine since 1992 to study the possibility of buying the Varyag. The Beijing office, on the other hand, was headed by retired senior Senior Colonel Xiao Yun, who had earlier left his position as deputy head of the PLAN’s Naval Aviation Armament Department, and was now tasked to issue instructions to the Kiev office.



Like Vice Admiral He and Ji, Senior Colonel Xiao is also a ‘princeling’ (his late father, Gen Xiao Hua, was one of the Communist Party of China’s revolutionary founders). Senior Colonel Zhong Jiafei, who was a senior project agency head of the CMC’s Arms Trading Company (ATC), was the middleman between Vice Admiral He and Xu (Zhong retired as deputy head of the PLA General Armaments Department’s foreign affairs bureau in the previous decade). ATC had been created on September 26, 1989, by the CMC’s then vice-chairman, Admiral Liu Huaqing (ATC is now owned by state-owned China North Industries Group Corp, or NORINCO). In addition, one Hong Kong-based business friend lent Xu HK$230 million in 1997 without any guarantee or collateral for initiating the process of buying the Varyag. In addition, a company headed by Admiral Liu’s daughter Helen Liu Chaoying became the major funding vehicle for the deal. In the 1990s, Helen was a senior executive of the state-owned China Aerospace International Holding Ltd (CASIL), a subsidiary of the state-owned space applications satellite developer China Aerospace Science & Technology Corp. Hongkong SAR-listed CASIL helped Xu put up the US$50 million demanded by Ukraine as a deposit in an international bank. CASIL’s two interim annual reports in 2007 and 2009 had stated that the company loaned HK$330 million in 1997 at 15% annual interest for two years to Chinluck Properties—Xu’s Hong Kong-based company. Chinluck used a 41,800 square metre block of land on Peng Chau as collateral for the loan. But subsequently, relations between CASIL and Chinluck soured. In June 2004, Chinluck sued CASIL, claiming that the latter only loaned it HK$251 million. The two parties settled the suit in 2007. Xu said it took 14 years but he finally repaid the HK$251 million debt in June 2011 with interest, and regained ownership of the Peng Chau-based property.  



By early 1997, Ukraine wasn’t willing to sell the Varyag for refurbishment and re-use as a naval vessel to the PLAN, since it then was concerned about upsetting the US and the European Union. So Xu convinced Kiev that his objective was to convert the vessel into the world’s largest floating hotel-cum-casino. Consequently, in August 1997, Xu set up a Macau-based shell company, Agencia Turistica e Diversoes Chong Lot at a cost of HK$6 million. In early January 1998, Xu flew to Ukraine for contract negotiations, and he first set foot on the Varyag on the snowy and chilly day of January 28. A bargain-basement price of $20 million for not only the Varyag, but also for its design and engineering blueprints, was eventually agreed to. However, in mid-February, Ukraine decided to sell the Varyag through an open auction, since other parties from Australia, Japan, South Korea and the US were interested in purchasing the vessel as well, albeit these parties getting just three days to present their bids. This sudden change worked to Xu’s advantage and he emerged as the sole bidder to present a fully compliant bid. On March 19, 1998, Xu’s bid was declared as the winner and on the following day, Xu began ferrying the 40 tonnes of aircraft carrier design/engineering documentation and some critical manufactured sub-systems and components in eight truck-loads (that also included products like the UDAV-1M 254mm RBU-12000 ten-tube ASW mortar and its KT-153M launcher, plus a few sample mortar rounds) back to China. The consignment also included detailed documentation for building and operating an aircraft carrier deck simulator of the type that existed at (now called Novofedorivka) in the Crimea, plus those related to carrier-based fixed-wing aircraft/helicopter operations, design data on the Su-33 carrier-based H-MRCA, and the training syllabus for carrier-based flight-crew and aircraft/helicopter maintenance crew complements. The final payment tranche, including a $10 million late-charge, was made to Kiev on April 30, 1999. 



Ukraine had earlier made it clear that it had no responsibility to ferry the Varyag from the Black Sea through to the Atlantic and onwards to its new homeport of Dalian in China’s Liaoning province. Consequently, Xu enlisted the services of The Netherlands-based International Transport Contractors to tow it all the way and on June 14, 1999, four months after the final payment, the Varyag’s all-Chinese crew and the ITC’s Sable Cape tugboat weighed anchor. It was plain sailing until they reached the Bosphorus Strait, Turkey's maritime boundary between Asia and Europe. By then, US-China relations had taken a downturn following the May 7 bombing of China’s Embassy in Belgrade during NATO’s air campaign throughout Yugoslavia. Consequently, Turkey, a NATO member-state and an ally of the US, refused permission to tow the Varyag through the Bosphorus Strait. The towing team waited a month, but Turkey was adamant and the Varyag had to be towed back to Nikolayev, where it languished for another 15 months before the tide turned in Xu’s favour. In April, 2000, when President Jiang Zemin visited Ankara, he promised to increase Chinese tourist arrivals in Turkey and to open up China’s markets to Turkish goods. In addition, Xu posted US$1 million performance guarantee bond with Turkey for the towing operation. All these did the trick. On August 25, 2001, Ankara granted permission to have the Varyag towed through to the Mediterranean Sea. Turkish authorities closed the Bosphorus Strait on November 1 to let the Varyag and its escort of 11 towboats and 15 emergency vessels through. But sea-storms snapped the cables connecting the Varyag to the towboats. At one stage, the Varyag drifted unsecured for four days in the Aegean Sea near Skyros Island before the tugs were able to rein it back in. Subsequently, the Varyag inched its way across the Mediterranean Sea, through the Strait of Gibraltar, and out into the Atlantic Ocean. It rounded Africa’s Cape of Good Hope, navigated the Strait of Malacca and on March 3, 2002, five tugboats towed it into Dalian.   



It was gratifying but bittersweet for Xu, who was left with a bill for port and towage costs. For, the US$20 million was just the Varyag’s auction price, and he had to foot the bill for another US$120 million for the deal from 1996 to 1999. The total cost of acquiring the Varyag had eventually worked out to more than US$30 million: $25 million to the Ukrainian government for the hull, nearly $500,000 in transit fees, and some $5 million for the towing. To raise this amount up-front, Xu had to sell his palatial home in Hongkong SAR (The Peak at 37, Deep Water Bay Road) in 1999 and mortgage his 280,000 square feet property on Peng Chau. Xu was saddled with the costs because many of the PLAN officials who had first approached him to take on the mission had either died or were in jail, and were therefore unavailable for lobbying on his behalf within the PLAN HQ or the CMC. For instance, Ji Shengde was sacked and given a suspended death sentence in 2000 for his role in a Fujian smuggling scandal. As delays and costs mounted, Xu had to liquidate more of his personal assets and also had to neglect his own businesses. He had to borrow from his acquaintances, including HK$230 million from one friend. He subsequently spent 18 years paying back the debt in full, with interest, with the last payment clearing in 2014. Xu had requested China’s State Council for years to be financially compensated, but Beijing ended up paying him only the $20 million auction price, and insisting that Xu would be compensated for other costs only if he provided expense receipts for project start-up and mobilisation costs, ferrying costs, and costs incurred for the meals, beverages, gifts and stacks of US dollar bills that were used by Xu and his team to buy over the involved Ukrainian parties/officials.



TRISHUL: From Varyag To Liaoning CV-16: The Untold Saga Of A 16-Year Journey

·The Varyag is moved in late April, 2009 from its pier to a dry dock about 2 miles distant.


· At the Wuhan Naval Research Institute/711 Institute or the China Ship Design Institute, the PLAN in 2009 embarks on building a full-scale deck and island mock-up of the Varyag next to Lake Huangjia near Wuhan.
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A new air base located at Xingcheng, 28km southwest of Huludao on the shore of the Bohai Sea and 300km north of Qingdao, is constructed between April 2009 and June 2010 to house two ski-jumps each inclined with a 12-degree up curve) and barrier arrested (STOBAR) facility, and 24 carrier-based H-MRCAs, and also serve as the PLAN’s premier naval aviation training facility.  

 

The first J-15 bolter trial on the Liaoning takes place on November 20, 2012.

·Installation of weapons suites on board the Varyag takes place in April 2011.