Ukraine-Russia crisis: Will China be Putin’s economic lifeline?

China could be an economic lifeline for Russia as it faces growing isolation and opprobrium on the international stage over its invasion of Ukraine.

As much of the international community rolls out sanctions against Moscow, Beijing has emerged as a key player with the potential to mitigate the economic damage and undermine the pressure campaign.

On Thursday, Chinese customs authorities announced the lifting of import restrictions on Russian wheat, which makes up more than one-quarter of the global supply.

Although the trade deal was sealed during talks between Russian President Vladimir Putin and Chinese President Xi Jinping in early February, the timing of the announcement – on the day Putin launched a full-scale military assault on its neighbour – was interpreted in some quarters as a deliberate attempt to undermine efforts to hold Moscow accountable.

Australian Prime Minister Scott Morrison on Friday described the move as “simply unacceptable”, accusing Beijing of throwing a “lifeline to Russia in the middle of a period when they are invading another country”.

“That’s a signal of support,” Alicia García Herrero, chief economist for Asia Pacific at Natixis in Hong Kong, told Al Jazeera, referring to the easing of trade restrictions. “The other thing that China has done is to really make very clear that sanctions are ineffective and are not warranted.”

“The fact that they are going to undermine this pushback is already implicit, if not explicit, in the Ministry of Foreign Affairs’ press conference yesterday,” García Herrero added.

On Thursday, Chinese Foreign Ministry spokeswoman Hua Chunying declined to characterise Russia’s actions as an “invasion” and accused the United States of “fueling the flame” of the crisis. Hua also said “what you are seeing today is not what we have wished to see”, and expressed hope Russia and Ukraine would “go back to dialogue and negotiation”.

Friendship with ‘no limits’

Beijing and Moscow, which share a disdain for what they view as foreign meddling, have forged close ties amid increasingly acrimonious relations with the US and its European and Asian allies.

After Xi’s meeting with Putin in Beijing earlier this month, the two leaders announced that the friendship between their countries had “no limits” and there would be no “forbidden” areas of cooperation.

Qinduo Xu, a senior fellow at Pangoal Institution in Beijing, said China would continue business with Russia “as usual” out of adherence to its long-stated opposition to unilateral sanctions.

“But then, even if it works together with the US to apply pressure on Moscow, what can it get? Xinjiang cotton will remain a problem; so-called forced labour-related economic restrictions on Chinese firms will remain unchanged,” Xu told Al Jazeera, referring to alleged human rights abuses against ethnic minority Uighurs in China’s westernmost Xinjiang region.

“Most of all, Washington is unlikely to change course against China in its strategic competition. So I tend to see China continuing with its business with Russia, not to mitigate sanctions on Moscow, but as a matter of principle that it doesn’t follow unilateral sanctions.”

After easing restrictions on wheat, China could soften the blow of any economic pain inflicted on Moscow by increasing its share of energy imports. Russia is the world’s third-largest oil producer and the second-largest producer of natural gas.

INTERACTIVE- Oil and Gas pipelines across Russia and Ukraine(Al Jazeera)

 

In February, Russia sealed a 30-year contract to supply gas to China through a new pipeline, part of a growing energy partnership between the sides.

“Russia’s exports to China are predominantly made up of energy resources and minerals,” Xu said. “The signing of the contract of the second China-Russia pipeline during Putin’s China visit is in that direction. I expect the trend will continue and be likely enhanced in particular, if the sanctions affect Russia’s energy supply to European countries.”

However, Russia would be unable to divert much of its energy supplies out of Europe in the short term, limiting its ability to find new markets quickly, according to García Herrero.

“You just can’t simply expect that to be substituted,” she said.

President Joe Biden speaks about the Russian invasion of Ukraine in the East Room of the White HouseUS President Joe Biden has unveiled a raft of sanctions against Russia [Alex Brandon/AP Photo]

The US, the United Kingdom, the European Union and Japan have unveiled a raft of sanctions targeting a range of individuals and entities, including Russian state banks, the national airline and elites believed to be close to Putin, although not the Russian leader himself. South Korea and Taiwan have signalled they intend to coordinate with other countries on punitive measures, including export controls.

The measures announced so far have not targeted Russia’s lucrative energy sector or the country’s access to the SWIFT payments system, both of which would impose severe costs on Moscow but at the risk of high collateral damage in the form of skyrocketing oil and gas prices. Europe is especially dependent on Russian natural gas, which makes up 41 percent of the continent’s supply.

Xu said he expected Beijing and Moscow to boost cooperation on ways to reduce their exposure to international financial system.

“They also talked about creating mechanisms, which are some kind of framework beside SWIFT to deal with sanctions,” he said. “But there’s so far no clear progress in establishing such a mechanism. Obviously, it’s not an easy job.”

García Herrero said the sanctions announced so far were so minor that Beijing would see no reason to miss a “juicy” opportunity to thumb its nose at the West.

“They are just so limited, I don’t think China needs to even bypass them,” she said. “I don’t think China will bypass those sanctions, they will just find other ways to support Russia.”

“So far, I think, Biden and the West look very weak, the sanctions are limited.”

The cost of Beijing’s support, however, could rise dramatically if stronger measures were introduced down the track, García Herrero said.

“If we go full-in on sanctions, the cost is humongous for China,” she said.

“It’s very easy to get entangled in this situation for China unless they show restraint, which they are not because they think this is an easy goal, but it might not be so easy.”

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