Sun. Jul 3rd, 2022

ZhōngHuá Mundus – blog post by Alicia García-Herrero, Senior Fellow

The war in Ukraine has shaken Europe’s traditional understanding of China-Russia relations, as ‘difficult’ partners who need to get along. Over the past few weeks, Europeans and the world have watched with surprise how China-Russia relations reached a historical zenith at the opening of the Beijing winter Olympics only weeks before Russia invaded Ukraine.

The “endless cooperation” between Russia and China announced on 4 February 2022 includes concrete projects to be developed in the next few years in the energy space and the Artic, as we discussed in our recent podcast.

Military cooperation is another important area of rapid development. The deal comes against the backdrop of closer trade and investment relations over the last decade, especially since the West imposed sanctions on Russia over the annexation of Crimea in 2014.

It was only months after these sanctions that the construction of a major gas pipeline was agreed between Russia and China as part of Putin’s ambitious to pivot east. This pipeline (Power of Siberia I) is now fully operational contributing to a tripling of Russian gas exports to China.

Russian exports of metals and food into China have also ballooned in these seven years but Chinese imports have grown even faster, leaving Russia with a structural trade deficit against China. Even with this rapid growth, China’s trade with Russia is still a distant second compared with that of the EU as a whole.

Against this backdrop, Russia’s military operations in Ukraine will have a big impact on China-Russia relations. While the “endless cooperation” agreement has just been signed, making it difficult for China to stop its support for Russia, the instability from a full-fledged war could not come at a worse time, as 2022 is the year in which Xi Jinping should be reappointed for his third term, if not indefinitely.

Since the start of the conflict, China has resorted to its long-standing position of neutrality in other countries’ international affairs, but with a distinct reprimanding tone towards the West. China has seconded Russia in criticising the expansion NATO and the imposition of Western sanctions on Russia. When reading this criticism, one should bear in mind not just the situation with Ukraine, but also China’s Taiwan agenda and the concerns for the US-led Indo-Pacific strategy.

The question then is what China has to gain from taking a neutral position on paper, while siding with Russia in practice. The answer is complex.

On the one hand, China is still hoping for the military conflict to end as soon as possible, but with a clear sense of change in global order by which strong powers, like Russia and China make it clear to the US that the world has changed.

On the other hand, Russia’s dependence on China is bound to increase out of the scars of this conflict, in particular sanctions and their potential devastating impact on the Russian economy.

This growing dependence, in principle positive for China, is partially linked to how much China will be willing to offer a helping hand to mitigate the impact of sanctions on the Russian economy. At the same time, China needs to walk a fine line to stay out of the cross-fire. There are already signs of this with skyrocketing commodity prices hitting the Chinese economy and a very poor performance of the Chinese equity market when compared to the rest of Asia.

In the same vein, Chinese sovereign bonds have experienced a sudden sell-off, which is hard to explain without looking at the response of global investors to Ukraine’s invasion.

All in all, it is still too early to know how the future of China-Russia relations will evolve after something as seismic as the war in Ukraine. What is clear is that China’s decision to rescue an increasingly autarkic Russia will only add more pressure to forces pushing for China to become more inward-looking. This is not something that the Chinese leadership should be looking forward to, no matter how worried for their future they may be. Whether this worry stems from US pressure or the structural deceleration of the Chinese economy does not really matter. A strong alliance with an autarkic Russia will not help.

Can China bail out Putin?Blog post by Alicia García-Herrero – Even with help from China, Russia will be unable to mitigate the immediate impact of Western sanctions.

China’s economic support for Russia is not a panaceaOpinion by Alicia García-Herrero – The EU is still Russia’s largest trading partner, actually several times bigger than China.