Russian President Vladimir Putin and Chinese counterpart Xi Jinping share anti-Western rhetoric, but Xi fears sanctions more than Putin. (Photo by Mikhail Metzel/Sputnik/AFP via Getty Images)
Vladimir Putin’s “pivot to Asia” policy has been around for more than a decade and with mixed success. China has been Russia’s main trading partner for 12 years, but the Russian economy remains heavily dependent on the “West”. The invasion of Ukraine only hastened Putin’s desire to befriend China, but the results were once again ambiguous.
On the one hand, Beijing has happily filled the void left by Western sanctions and the corporate exodus, while making politically timely pro-Russian noises. On the other hand, Xi Jinping has failed to rally around Putin in the way he might have hoped after their spectacular clash at the early 2022 Winter Olympics. In fact, that’s when they signed the rather absurd “No Limits” anti-West agreement (worthy of a particularly mediocre James Bond rip-off).
Back then, two weeks before the invasion of Ukraine, the Sino-Russian partnership seemed stronger than ever. Just weeks later, the illusion was shattered when Ukraine revealed the gaping difference between Beijing’s and Moscow’s global ambitions and the limits of their supposedly unconditional love affair. As a result, China has given Putin half-hearted support at best.
Beijing likes to buy cheap oil from Russia
In recent months, the EU, US and other allied nations have announced various embargoes on most Russian oils. China hasn’t.
“China certainly contributes to Russia’s economy. This is nothing new or special. All economies are intertwined and interconnected,” says Klisman Murati, Founder and CEO of Pareto Economics. “But China is also helping Russia in specific ways. It buys discounted cheap Yural oil. Such is India. In fact, the two countries account for half of all Russian oil purchases. China has overtaken Germany as the main buyer of Russian oil.”
It is important to note that to avoid Western sanctions, China has been buying Russian oil in Renminbi, which strengthens the Chinese currency. In addition, this result goes beyond oil in trading. Overall, Sino-Russian trade increased by 29% between January and May 2022 compared to the same period in 2021, testifying to the fact that Chinese goods have replaced many of the goods sanctioned or lost to Western corporate flight.
Chinese companies stay in Russia
According to the Yale School of Management, more than 1,200 multinationals have scaled back or abandoned their business ties with Russia following Putin’s invasion of Ukraine. Its authoritative list of companies, updated weekly, plays a key role in praising and shaming companies that have or have not become politically active in Russia.
From a global point of view, China has the most companies that continue to do business as usual in Russia to this day. More specifically, there are about 41 Chinese companies in Russia, such as China Construction Bank, that have not taken any action in the country.
Of the 200 or so companies that have completely ceased their involvement in Russia or left the country directly, almost every single one is from Europe or North America. None hail from China except for several major Chinese banks like ICBC, which essentially had no choice as ongoing Western sanctions on Russia have effectively locked the country out of the international banking system, meaning major Chinese financial institutions have had to follow suit.
Even if companies from China wanted to withdraw from Russia for ethical reasons, they would face serious socio-political obstacles.
Ride-hailing app Didi, for example, was at the end of a significant backlash from the Chinese public after announcing it would withdraw from the Russian market on March 4. The Chinese took to the internet to accuse the country of yielding to US pressure, a development that shows widespread support for Russia among Chinese people. In fact, Didi was under such pressure that the company actually did a U-turn and said it would continue operating in Russia.
In short, public support for Russia has left Chinese companies little leeway, as has Beijing’s uncritical stance on Putin. The result: For companies like Didi, the safest course of action, while avoiding pro-Russian statements, is the safest course of action lest they be boycotted by Western companies or institutions.
But Putin is standing in China’s way
Just weeks before Russia’s invasion of Ukraine, Putin and Xi released a 5,300-word statement that can be described as nothing short of an anti-Western manifesto, or more specifically, a strong defense of “alternative forms of democracy” through a “no borders” . Friendship between Beijing and Moscow.
A month later, in a phone call with Putin, Xi reiterated his country’s support for Russian sovereignty and security. In short, China has some political support for Russia, according to Murati.
“Most recently, at the recent BRICS summit in June, Xi called Western sanctions ‘armed forces’ against Russia,” he adds. “But China is in a very difficult position ideologically because it regards sovereignty as a vital value, and yet it supports Russia’s invasion of a sovereign state and condemns the West for rolling back Russia’s war. So it’s a pretty confused message.”
Adding to the confusion is the fact that China has for years challenged the US dollar system, which has dominated global finance and trade since World War II. But the invasion of Ukraine thwarted these works.
“Beijing seems willing to see Russia as a source of little more than discounted commodities,” says Maximilian Hess, a London-based political risk and foreign policy analyst. “Putin wants to destroy the international order; China wants it backordered. Putin’s war in Ukraine has proved more of a threat than an opportunity to China’s strategy.
“Even in the first weeks of the war, there were signs that Beijing would not ally with Russia to challenge and undermine the dollar system.”
Indeed, in early March, the mainly Chinese-funded New Development Bank halted all transactions in Russia, despite Russia being a capital member, as did China’s Asian Infrastructure Investment Bank.
“Though China has refused to condemn Russia’s invasion of Ukraine, even backed Moscow at the United Nations and increased trade to replace sanctioned Russian goods, it is not offering Russia the kind of credit or investment it needs to really challenge the dollar system,” says Hess.
To illustrate this point, he cites Beijing’s plans to develop a civilian airliner with Russia that was once worth more than $50 billion. Beijing reportedly suspended talks on the development of a new major petrochemical plant in March. Meanwhile, the similar $10 billion Amur Gas Chemical Complex, 40% owned by China’s state-owned Sinopec, appears to be moving ahead despite being constrained by sanctions that could delay its expected 2024 completion date.
“Shortly before the war, Russia and China agreed on a new gas supply contract and plan to build the Power of Siberia 2 pipeline,” says Hess. “The first such pipeline and a supply deal were agreed in the months following Putin’s first invasion of Ukraine in 2014. Deliveries should be billed in euros, although this too will likely need to be re-checked due to western sanctions.
“Although Mongolian officials have said they still expect the pipeline, which will run partially through their country, to go ahead, no official announcement has been made from Beijing. Chinese investment under the Belt and Road Initiative, meanwhile, has fallen to zero this year.”
What now for China?
Beijing’s goal of overthrowing the dollar system requires long-term thinking and slow calculation. Catastrophic disruptions like the invasion of Ukraine do not speed up this process as global investors flock to safe havens like the US dollar in times of crisis. Therefore, Beijing does not want to invest too much capital in Putin as he is an agent of chaos.
“Furthermore, China cannot risk secondary sanctions from doing business with Russia as the Chinese private sector is very, very risk averse, especially given issues such as high debt burdens, popular frustration and large protests across China – which we don’t see much in the news,” says Morati. “China’s economy is therefore not ready to impose sanctions on their companies.”
Xi and Putin want to pretend they have a friendship without borders. In fact, the war in Ukraine has shown with hilarious speed how impossible this supposed partnership is. China is unwilling to support Russia in any meaningful way lest it incur the wrath of Western sanctions. More importantly, since China’s goal is to recalibrate, not destroy, the international order, it has limited support for Putin’s wrecking ball approach.
Comments are closed.