Source: NYT (2/26/22)
Before Ukraine Invasion, Russia and China Cemented Economic Ties
Facing a wary United States and worried about depending on imports by sea, China is buying more energy and food from its northern neighbor.
By Keith Bradsher and Ana Swanson
Presidents Xi Jinping of China and Vladimir V. Putin of Russia in Moscow in 2019. Food and energy deals are the latest signals of China’s recent economic alignment with Russia. Credit…Evgenia Novozhenina/Reuters
BEIJING — As Russia wreaks havoc in Ukraine, Moscow has a powerful economic ally to help it resist Western sanctions: China.
Chinese purchases of oil from Russia in December surpassed its purchases from Saudi Arabia. Six days before the military campaign began, Russia announced a yearslong deal to sell 100 million tons of coal to China — a contract worth more than $20 billion. And hours before Russia began bombing Ukraine, China agreed to buy Russian wheat despite concerns about plant diseases.
In a throwback to the 1950s, when Mao Zedong worked closely with Joseph Stalin and then Nikita Khrushchev, China is again drawing close to Russia. As the United States and the European Union have become wary of China, Beijing’s leaders have decided that their best geopolitical prospects lie in marrying their vast industrial might with Russia’s formidable natural resources.
Recent food and energy deals are just the latest signals of China’s economic alignment with Russia.
“What happened up to now is only a beginning for both the Russian expansionism by force and the Chinese economic and financial support to Russia,” Shi Yinhong, a professor of international relations at Renmin University in Beijing, said in a text message. “This does not mean that China directly supports in any degree that expansionism — this only means that Beijing strongly feels the necessity to maintain and boost strategic partnership with Moscow.”
The United States and the European Union are hoping that sanctions force Russia to reconsider its policies. But Wang Wenbin, the Chinese foreign ministry’s spokesman, said at a briefing on Friday that China opposed the use of sanctions.
“Sanctions are never an effective way to solve the problems,” he said. “I hope relevant parties will still try to solve the problem through dialogue and consultation.”
At the same time, Russia’s invasion of Ukraine has imposed an awkward diplomatic quandary on China by violating the principle of national sovereignty that the Chinese leaders regard as sacrosanct. While President Xi Jinping of China has not criticized Russia publicly, he could use his country’s economic relationship with its northern neighbor as leverage to persuade the Russians to resolve the crisis quickly.
Mr. Xi and President Vladimir V. Putin of Russia spoke by phone on Friday. An official Chinese statement said afterward that Mr. Xi had expressed support for Russia in negotiating an agreement with Ukraine — a stance that Mr. Putin has also favored, provided that Ukraine accepts his terms.
Until now, much of China’s energy and food imports came across seas patrolled by the U.S. or Indian navies. As China’s leaders have focused lately on the possibility of conflict, with military spending last year growing four times as fast as other government spending, they have emphasized greater reliance on Russia for crucial supplies.
China and Russia share a nearly 2,700-mile border, and in recent years China has become Russia’s largest source of imports and the biggest destination for its exports.
“Given the geopolitical tensions, Russia is a very natural geopolitical partner,” said Andy Mok, a senior research fellow at the Center for China and Globalization in Beijing.
Initial Western sanctions on Russia have focused on limiting technology exports and imposing financial penalties. For now, U.S. officials have avoided targeting consumer goods, agricultural products and energy, to try to avoid harming ordinary people and further fueling inflation.
China is the world’s dominant manufacturer of electronics, machinery and other manufactured goods, and has been supplying them to Russia in exchange for food and energy.
A train carrying coal in Yekaterinburg, Russia, in 2020. China’s imports of Russian coal have more than doubled in the past three years. Credit…Maxim Babenko for The New York Times
The new cornerstone of relations between China and Russia is the Sino-Russian nonaggression pact concluded in Beijing on Feb. 4. Mr. Xi and Mr. Putin reached the deal hours before the opening ceremony of the Beijing Winter Olympics and issued a statement saying the countries’ friendship “has no bounds.”
The pact freed Mr. Putin to move troops and military equipment from Russia’s border with China to its border with Ukraine while ushering in closer economic cooperation.
“The joint statement is strong and has lasting consequences for the new world order,” said Jean-Pierre Cabestan, a research professor of political science at Hong Kong Baptist University.
The Chinese and Russian governments share many values, particularly their antipathy to sanctions the West imposes on human-rights grounds. “The two sides firmly believe that defending democracy and human rights should not be used as a tool to exert pressure on other countries,” their pact on Feb. 4 said.
When the Obama administration imposed sanctions on Russia after its invasion of Ukraine’s Crimea region in 2014, China helped Russia evade them.
It is not clear if China will help Russia evade sanctions put in place this week. On Tuesday, the Biden administration added to previous measures by announcing sanctions against Russia’s two largest financial institutions and sweeping restrictions on advanced technologies that can be exported to Russia. The technological curbs, when taken in concert with allies, would block roughly a fifth of Russian imports, the administration said.
Chinese companies that circumvent those rules could face escalating punishment by the United States, including criminal and civil penalties, said Martin Chorzempa, a senior fellow at the Peterson Institute for International Economics. Those businesses could also be cut off from American technology and the financial system.
ZTE and Huawei, two Chinese firms that were barred from receiving American technological exports, attracted the attention of the U.S. government in part for evading sanctions on Iran.
“The interesting question is: Is China going to comply with this?” Mr. Chorzempa said. China also has a law designed to penalize companies for following extraterritorial sanctions by countries like the United States, he said, all factors that “could put companies in a real bind.”
“If they don’t comply with the U.S., they’re in trouble with the U.S., but if they don’t comply with China, they could also face penalties in China,” he said.
Of course, collecting fines from companies that are unwilling to pay and monitoring whether businesses comply with the rules could be difficult, Mr. Chorzempa added. “It’s already proving difficult to monitor the things that are already controlled, and if you expand that list, that’s going to be a real challenge to verify what’s going to Russia,” he said.
The Biden administration’s export controls apply to goods produced in any country as long as they use U.S. technology — including chip makers like Taiwan Semiconductor Manufacturing Company and the Shanghai-based Semiconductor Manufacturing Industry Corporation.
Both of those companies continue to rely on the United States for certain components and manufacturing technology, said Gabriel Wildau, a managing director at Teneo, a consulting firm. If they continue supplying to Russia, SMIC and other Chinese companies could be cut off from U.S. technology, the same kind of penalty that crippled Huawei.
“If Beijing is viewed as Moscow’s enabler, pressure will rise in the U.S. Congress to extend these restrictions,” Mr. Wildau wrote in a note to clients. Beijing would also face the risk that other major technology exporters, like Japan, South Korea and the Netherlands, “would adopt Washington’s tougher line,” he said.
China’s state-owned banks could also face risks for continuing to lend to Russia. China and Russia have been settling more of their trade using the renminbi and the ruble. Beijing has also been trying to develop the digital use of its currency as an alternative to the dollar, which could help Russia limit the effect of financial sanctions.
But Chinese banks are still deeply reliant on the U.S. dollar. While major Chinese banks already appeared to be pulling back their financing for Russia, Mr. Wildau said, Beijing could choose to support Russia using smaller state-owned banks that don’t do a lot of international business that requires the use of the dollar.
China, Russia, Iran, Venezuela and other countries have all felt the brunt of American financial sanctions, highlighting their need for more trade and investment in currencies other than the dollar, Mr. Mok said.
Even if Chinese entities circumvent U.S. rules, Beijing is unlikely to publicize it. Despite its professed distaste for sanctions, China regularly punishes trading partners that have offended it in some way. It does this through unannounced orders sent to customs officials, to avoid clear violations of international trade rules.
China currently has an unannounced trade embargo against Lithuania, after Lithuania agreed to let Taiwan open an office there. Russia also has frosty relations with Lithuania, a former Soviet republic that has embraced democracy and joined the North Atlantic Treaty Organization.
China quietly halted purchases of barley, coal, wine and several other commodities from Australia for more than a year, and stopped exports of crucial rare earth metals to Japan for two months in 2020 over a territorial dispute.
China’s embrace of Russia on energy, food and financial issues carries risks for Beijing and for Mr. Xi.
The Yangshan port in Shanghai. Customs officials at Chinese ports and airports receive unpublished orders to restrict or halt trade when a country offends Beijing. Credit…Aly Song/Reuters
China is running huge and rapidly rising trade surpluses with the United States and European nations. If China is perceived to be enabling Mr. Putin’s aggressive moves, that could strengthen support in the West for tariffs or other curbs on technology and trade.
Further trade barriers might start to wean Western companies and consumers from their reliance on Chinese factories, which have created tens of millions of jobs in China.
Anticipating such a threat, Mr. Xi has worked hard over the last several years to reduce China’s reliance on other countries by subsidizing companies to make a nearly complete range of industrial goods domestically.
In a speech in 2020, he ordered that China “tighten the dependence of the international industrial chain on our country, so as to develop a strong countermeasure and deterrent ability against external attempts to sever our supply chains.”
Keith Bradsher reported from Beijing, and Ana Swanson from Washington. Claire Fu and Li You contributed research.