The tension between Russia and NATO over Ukraine worries many countries, including those outside the Euro-Atlantic region. For example, what is happening is being closely followed in the People’s Republic of China, which has already unequivocally expressed its support for Russia. At the same time, China will certainly remain on the sidelines of the political-military aspect of this crisis, but could play an important role in its possible economic consequences.
At the end of January, during his conversation with US Secretary of State Anthony Blinken, Chinese Foreign Minister Wang Yi urged US authorities to take Russian security concerns seriously and take them into account. “Regional security cannot be ensured by strengthening and even expanding military alliances,” the Minister said, calling Russia’s concerns rational.
China is closely following the Ukrainian issue, since, like Russia, it has a difficult relationship with the West, especially with the United States of America. The anti-Chinese issue, which was set by former President Donald Trump, has also been taken up again by current President Joe Biden. In the United States, China and Russia are officially defined as “major challenges” for the White House, which means that pressure on Russia will surely be followed by pressure on China.
Moreover, China still has an unresolved problem with Taiwan. Just like Ukraine, Taipei has been receiving ever more US weapons lately. The way in which NATO handles the situation with Ukraine will tell China much about what to expect in case of an escalation around Taiwan or in the South China Sea.
It has to be said that Ukraine is a country in which China has its own interests. For example, China’s global New Silk Road initiative (One Belt One Road) includes the Ukrainian trading port of Chornomors’k. China consistently remains Ukraine’s largest trading partner and Ukraine is the largest supplier of wheat to China. By 2025, both countries plan to increase bilateral trade from 15.7 billion to 20 billion US dollars per year. China has also invested in various Ukrainian infrastructure projects, including a new metro line in Kiev.
Despite claims in Russia and even in Ukraine that neither side is interested in escalating the conflict, the West continues to report a constant military threat.
The United States, Great Britain and EU authorities are proactively working on new sanctions against Russia. It has been promised that they will be imposed if Russia starts hostilities. There is no guarantee, however, that they will not be introduced for some other reason, or for no reason at all.
Earlier, the Chairman of the US Senate Foreign Affairs Committee, Robert “Bob” Menendez (of the New Jersey Democratic Party), said that some of the sanctions discussed in the Senate against Russia – because of the situation in Ukraine – could be introduced even if the invasion constantly announced in the West did not take place.
The United States is not talking about specific measures but, judging by the initiatives of lawmakers in Congress, they may severely affect the economy not only of Russia, but of the whole world. Possible restrictions concern the banking and financial sector, as well as the dollar conversion, which could lead to a decline in Russia’s stock market. Restrictions may include a ban on the export of raw materials and weapons, which will severely affect the Russian economy. The controversial ban on the export of US high-tech products to Russia could also leave the country’s citizens without certain models of smartphones, tablets and TV sets. Experts warn that the threat will have various consequences, ranging from rising food and clothing prices to disruptions in pension payments due to the collapse of the rouble and the Russian market.
Considering the close ties between Russia and China, sanctions will also become a problem for China. In recent years, Russia and China have continued to develop relations under the Treaty of Good Neighbourliness, Friendship and Cooperation of July 19, 2001 and cover many areas, including military cooperation. Chinese President Xi Jinping spoke with Russian President Putin more than any other foreign leader last year. The Russian President himself has called the relations between the two countries a model of cooperation in the 21st century. The latest momentum for an even greater rapprochement of Russian-Chinese positions were the events of 2014, when the West began imposing its first sanctions against Russia due to the return of Crimea to Russia (ceded, at the time, at Khrushchev’s whim) and the escalation of the conflict to the east of Ukraine.
At the time, Western restrictions on Russia did not bother China much, but economic relations have deepened since then. The countries cooperate in aerospace technology, the oil and gas industry, chemistry and the aviation industry. Chinese State-owned companies are investing in Russian energy assets. At the same time, there is a dynamic development of Chinese-Russian cooperation in the field of e-commerce. In 2021 the volume of trade between Russia and China increased to a record 146.88 billion US dollars. Exports to Russia increased in 12 months to 67.56 billion US dollars and the movement of goods in the opposite direction to 79.32 billion US dollars.
Kenneth Curtis, former vice-President of Goldman Sachs Asia, said: “It may seem that China has a wait-and-see attitude, but the rapprochement between China and Russia has accelerated and their trade has doubled over the last five years”. All this means that, unlike in 2014, potential new sanctions against Russia could cause many problems to China as well.
According to a report by the Foreign Policy Research Institute (FPRI) in Philadelphia “China’s compliance with US sanctions against Iran and the Democratic People’s Republic of Korea (DPRK) was a relatively easy decision because both Iran and DPRK have limited economies. Therefore, the cost of complying with sanctions is not that great. Russia is a different story. It is much bigger and is involved in the economy internationally”.
The impact that possible sanctions will have on Russia will depend on China. Since Russia imports and exports more goods from China than from any other country, any restrictions on the Russian banking and financial system (in particular, the disconnection from the Society for Worldwide Interbank Financial Telecommunication) will affect bilateral trade. China shall therefore decide whether to comply with the new sanctions to its own detriment, or seek alternative ways to interact with Russian partners.
The FPRI report maintains that “if the West succeeds in inflicting significant damage on Russia with sanctions, in case of a crisis in the Asian region, it can use the same leverage against China. But if China helps Russia mitigate the consequences of these sanctions, the United States will lose an important tool of economic pressure on China”.
Counteracting sanctions could be a sharp transition of Russian-Chinese trade to alternative payment systems. The Russian Ambassador to China, Andrej Ivanovič Denisov, told TASS: “We will switch to national currencies; we will not change completely. Probably these sanctions will somewhat speed up the process”. In his opinion, various twists and turns in sanction cases will not hinder the development of Russian-Chinese economic and trade relations in any way.
Both Russia and China have spent a lot of money on developing their payment systems, but so far there has been no chance to test them in a real crisis. If this mechanism works, it can also be used in trade with third countries, circumventing US sanctions.
This also applies to possible export restrictions. The United States has also announced a possible restriction on the supply of semiconductors to Russia. This could prevent Russia from having access to the most advanced equipment sold by the United States, but most of these devices are assembled in China or manufactured by Chinese companies. Any US export controls on these models would also leave Chinese companies wondering whether to comply with US export restrictions or find a way to circumvent them.
“China’s government could forcefully reject export controls. In that case, the United States shall choose between turning a blind eye to this gap or stepping up and starting to punish Chinese companies for violations”, FPRI expert Chris Miller said, noting that otherwise China would be made look like a country that produces technology and sells it only with US permission.
Miller also stated that China could help set up shell companies through which it would continue to supply smartphones to Russia. China will therefore protect manufacturers and assemblers from US sanctions. Although, even in this case, the United States will be able to respond to such actions.
Be that as it may, neither China nor Russia is interested in escalating the crisis in Ukraine, as both countries have their own interests in the region. Nevertheless, if the West really decides on the promised sanctions against Russia, it will be difficult for China to maintain neutrality, at least when it comes to observing economic interaction with Russia.
As can be seen, the Ukrainian crisis has several facets and global interactions that go well beyond the improvised scenario for media, as well as platitudes.