Why China won't put its economy on the line to rescue Putin
Russia has one obvious ally to turn to as geopolitical sparks fly with the West over Ukraine.
But don't expect China
to offer much more than supportive words to its northern neighbor
should the United States and Europe follow through with threats to slam
Russia's economy if Moscow launches an invasion of Ukraine. Beijing's
diplomatic and military ties with Moscow may be strong, but its economic
allegiances are a lot more complex.
Russian
President Vladimir Putin met his Chinese counterpart Xi Jinping on
Friday as the Beijing Winter Olympics kicked off. The Kremlin described
the meeting as warm and constructive, and the leaders agreed to deepen
their cooperation, according to an account published by Chinese state
news agency Xinhua. Russian oil giant Rosneft said it had agreed to
boost supplies to China over the next decade.
"Working
together, we can achieve stable economic growth ... and stand together
against today's risks and challenges," Putin wrote in an op-ed published Thursday by Xinhua.
Those risks may be formidable should Russia invade Ukraine. Moscow has denied that it has any intention of doing so.
But US lawmakers are threatening to impose what they call the "mother of all sanctions" on Russia should it cross a red line. European leaders are also preparing punishments that would go way beyond the curbs imposed on Russia when it annexed Crimea in 2014.
China — which has its own tensions with the West — has already expressed diplomatic support for its ally. In
a joint statement issued Friday after their meeting, Xi and Putin said
both sides opposed "further enlargement of NATO." Russia fears Ukraine
may join the alliance.
"Xi
almost certainly believes there is a strategic interest in supporting
Russia," said Craig Singleton, senior China fellow at the DC-based
Foundation for Defense of Democracies. He pointed out that China
"remains at permanent loggerheads" with the United States.
There
is already some evidence that tensions with the West have deepened
cooperation between China and Russia, according to Alexander Gabuev,
senior fellow and chair of Russia in the Asia‑Pacific Program at
Carnegie Moscow Center. He cited arms deals, the joint development of
weapons, and an "increased number of joint drills" between the two
powers.
But
it's not clear how far that would extend to deeper economic cooperation
in the face of harsh sanctions. Russia depends deeply on China for
trade, but that's not the case the other way round. And the Chinese
economy is already in a shaky spot, giving less incentive to Xi to tie
his country's fortunes to Moscow's in the event of a military crisis.
"It
would be a 'win' for Putin if Xi simply hews closely to China's stated
desire for a diplomatic resolution to the crisis, as it implies that
Putin's grievances are legitimate," Singleton said. "Beyond that though,
China may be hard pressed to truly deepen its economic ties with
Russia, at least any time soon."
Russia needs China for trade. China has other priorities
China
is Russia's No. 1 trading partner, accounting for 16% of the value of
its foreign trade, according to CNN Business calculations based on 2020
figures from the World Trade Organization and Chinese customs data. But for China, Russia matters a lot less:
Trade between the two countries made up just 2% of China's total trade
volume. The European Union and the United States have much larger
shares.
"Beijing
needs to be very cautious about wading into a conflict between NATO and
Russia over the Ukraine," said Alex Capri, a research fellow at the
Hinrich Foundation. "China's current economic ties with Russia,
including its energy needs, don't warrant Beijing risking further
alienation and backlash from Washington and its allies. This could come
back to haunt Beijing later."
Western authorities know the stakes are high for China, too. Last month, US Secretary of State Antony Blinken warned Beijing that an invasion of Ukraine would create "global security and economic risks" that could also hurt China.
China's
economy is already struggling, which could make it harder for Beijing
to deepen ties with Moscow — or even deliver on promises it has already
made, such as a recent agreement to boost China-Russia trade to $200 billion by 2024, roughly $50 billion a year more than it does now.
The International Monetary Fund
expects China's economy to grow by just 4.8% this year, down from 8% in
2021. A real estate crisis and subdued consumer spending are dragging
the rate of growth down.
Singleton
said that an escalating crisis in Ukraine would "almost certainly
shock" energy and metals markets, thus weighing heavily on the global
economy. That kind of emergency, coupled with China's strict zero-Covid
policy, "could hasten China's already rapid economic slowdown."
There are limits to Beijing's help
A
strong relationship with China would likely only mitigate rather than
neutralize the impact of Western sanctions on Russia, according to Capri
of the Hinrich Foundation.
And there are some problems that China can't really help with at all, he added.
Take the "nuclear option"
that could upend the Russian economy, for example. The West could
remove the country from SWIFT, a high security network that connects
thousands of financial institutions around the world. That could cut
Russia off from the global banking system.
The
Chinese yuan is "nowhere close to being sufficiently internationalized
to compete with the US dollar," Capri said, noting that the dollar plays
a critical role in both SWIFT and also the trading of commodities such
as oil and gas, the "lifeblood of Russia's economy."
Analysts
at Eurasia Group wrote in a report last week that Beijing could
redouble efforts to build a yuan-denominated payment system, which might
allow it to do business more freely with countries that have been
sanctioned by the West without using dollars or euros.
Even
so, they wrote, companies in both China and Russia "still prefer to
denominate trade in freely convertible currencies," meaning that any
efforts to reduce Western influence would be "more aspirational than
substantive."
Recent
history isn't in Russia's favor. After Russia invaded and annexed
Crimea in 2014, the country pivoted to China for support as it was
slapped with economic sanctions.
And even though Beijing publicly opposed those punishments and promised to boost economic ties, its efforts weren't enough to offset Russia's problems.
Trade between Russia and China in 2015 fell 29% from the year before, according to official statistics from China. Chinese direct investment into Russia also suffered.
And
Russian bankers complained that Chinese banks were reluctant to do
business with them so as to avoid violating the sanctions, according to a
2015 op-ed written by Yuri Soloviev, the deputy president of VTB Bank, a major Russian financial institution.
"China
is the senior partner in the bilateral relationship," wrote the Eurasia
Group analysts in their recent report, pointing out that the economy is
about nine times larger than Russia's. "It is likely that Beijing wants
to shape Moscow's calculus to its advantage."
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