Countries throughout the world were under increasing pressure to pick sides between Russia and Ukraine during Europe’s greatest military crisis in decades. Western politicians and foreign policy analysts have been vociferous in their condemnation of China, which they regard as overtly aiding Russia. China has avoided using any aggressive rhetoric, instead opting to echo Russian official announcements. It also criticised the US and NATO for mishandling Russian security issues, accusing them of “fanning the flames” of conflict and slammed Western sanctions as harmful to the world economy. Chinese social media appeared to be less timid, with some users turning to war-mongering rhetoric, for which many were subjected to censorship.
Despite the rhetoric of a strong kinship between China and Russia, Beijing has shown little interest in providing Moscow with any actual economic lifelines. At the same time, China has refused to abandon Moscow or yield to US threats of secondary penalties. China does not appreciate being told what to do, and any attempts to coerce it will fail, according to Politburo member Yang Jiechi during his meeting with US National Security Advisor Jake Sullivan. Furthermore, Beijing is a difficult target to punish economically. It is too huge to be eliminated from the global economy, to use a common business expression, as the Trump administration’s trade war has already demonstrated.
China has even curtailed Russia’s flexibility by blocking some financial transactions with it in some situations. Rather than rush to Moscow’s defence, China’s two major state banks, the Bank of China and the Industrial and Commercial Bank of China, ceased activities dealing with Russian goods. China-backed Asian Infrastructure Investment Bank (AIIB) and BRICS bank projects in Russia have been halted, while Beijing has closed its ports to Russian seafood, citing COVID-19 measures. Reports circulated that China had refused to supply spare parts to Russian aircraft, but this was eventually discredited by Russia – the employee who blew the whistle was promptly sacked by Russia’s national aviation agency, Rosaviatsiya.
Xiaomi, Oppo, and Huawei, all Chinese smartphone manufacturers, have cut their shipments to Russia in half, while TikTok has halted operations after Russian state media were blocked. Even Chinese IT behemoths like Huawei, which continues to operate in Russia despite sanctions, cannot be a cure for the Russian market and may face a slowdown in sales. This is because Huawei is significantly reliant on other chip manufacturers, most of whom employ technology developed in the United States. According to Reuters, just 8% of Huawei’s 50,000 5G base stations sold in 2019 were devoid of American technology or components.
Meanwhile, after being left with a near-monopoly following the major evacuation of Western and Japanese automakers, Chinese automakers like as Haval have raised their prices by 50%, claiming logistics delays as the reason. Such a dramatic increase, as Russian business publication Kommersant pointed out, may best be explained by straightforward economic logic: Because the market supply is confined to primarily Russian and Chinese automobiles, competition has dwindled. So much for the official rhetoric of “no bounds” friendship between Russia and China.
Additionally, China’s ability to protect Russia from the economic consequences is limited. Energy and finance are China’s two key possibilities for assisting Russia. Russian banks are ramping up their renminbi (RMB) deposit offers, with Alfabank and VTB leading the way. In March, Russian traders doubled RMB turnover to an all-time high, accounting for one-third of ruble-euro trading, while certain banks witnessed a 1,000 percent daily surge in UnionPay card issuance. Some banks, however, who were hurriedly trying to meet the soaring demand, said they were having “difficult” conversations with the Chinese side.
Indeed, China’s fundamental banking institutions, which handle the majority of China-Russia commerce, would not risk being barred from conducting dollar transactions. As a result, China’s local and provincial banks, which lack a global presence, are likely to continue funding Russia and servicing payments, while the limited breadth of their liquidity assets may hamper larger initiatives. CIPS, the Chinese equivalent of SWIFT, has its own set of constraints. CIPS only permits international banks to join through other Chinese clearing institutions that utilise SWIFT communications.
By 2025, Russia may pump roughly 50 billion cubic metres of gas to China, only one-third of current total deliveries to Europe, if all existing
China-Russia energy projects achieve their full potential. Even when the Power of Siberia 2 pipeline, which has a capacity of 50 billion cubic metres and is expected to be completed in 2028, Russia’s gas shipments to China will be half of what they are now to Europe. As a result, with European demand falling and the quantity of untapped Russian energy increasing, China may be able to exert greater influence over Russia in terms of establishing favourable pricing. Chinese energy behemoths have already expressed interest in acquiring increasing holdings in Russian energy and commodities enterprises, which have been abandoned in solidarity by Western firms.
Despite being asked to mediate a truce between Russia and Ukraine, and Beijing openly proclaiming its determination to do so, China appears to be choosing a low-profile strategy. The pursuit of their own logic and pragmatic objectives has always propelled China-Russia relations, rather than geopolitical instability. On sensitive subjects like Crimea or the South China Sea, no side has ever shown open support for the other. However, China has recently come under international scrutiny, with a never-ending stream of US officials urging Beijing to distance itself from Russia or suffer “consequences.”