Alexander Gabuev
The war in Ukraine has cut Russia off from much of the Western world. Barraged by sanctions, denounced in international media, and ostracized from global cultural events, Russians are feeling increasingly alone. But the Kremlin can rely on at least one major pillar of support: China. Russian President Vladimir Putin’s decision to invade Ukraine has forced Russia to turn to its fellow Eurasian giant, hat in hand.
In the twentieth century, the Soviet Union viewed China—at least until the Sino-Soviet split of the 1960s—as a poorer cousin, a country to be steered and helped along in its fitful progress toward respectability. Decades later, the tables have turned decisively. China has for some time boasted a more robust and dynamic economy, greater technological prowess, and more global political and economic clout than Russia. That asymmetry is destined to become only more pronounced in the coming years as Putin’s regime depends on Beijing for its survival. China will likely gobble up more of Russia’s overall trade. It will become an essential market for Russian exports (notably natural resources) while Russian consumers will increasingly rely on Chinese goods. And it will take advantage of Russia’s predicament to assert the renminbi as both a dominant regional and major international currency.
To keep China happy, Russian leaders will have little choice but to accept unfavorable terms in commercial negotiations, to support Chinese positions in international forums such as the United Nations, and even to curtail Moscow’s relations with other countries, such as India and Vietnam. In the writing of many Western analysts, China and Russia often appear as a pair, two great authoritarian powers seeking to revise the international order. But theirs is not a relationship of equals. The Kremlin’s dependence on China will turn Russia into a useful instrument in a larger game for Zhongnanhai, a tremendous asset in Beijing’s competition with Washington.
Before the unprovoked Russian attack on Ukraine on February 24, Chinese diplomats and intelligence officers had tried to make sense of the large buildup of Russian troops on the border with Ukraine and to assess U.S. warnings that a war was in the offing. Beijing was decidedly skeptical of the alarms that Washington sounded, assuming, like many European governments, that the costs of the invasion for Russia would far outweigh any potential benefits. Despite speculation that Putin at least partially informed Chinese President Xi Jinping of his plan ahead of time, the outbreak of the war appeared to startle China and presented it with a difficult quandary: What position should it take? If China backed Russia, it could expose itself to sanctions and lose access to Western technology and markets, an unpalatable prospect. But if China decried Putin’s actions, it could jeopardize its ties to Russia.
Beijing sees its relationship with Moscow as being of paramount importance for several reasons. The two countries share a sprawling 4,200 kilometer border. Their economic relationship is perfectly complementary: Russia is rich in natural resources but needs technology and investments, while China can offer technology and investments but needs natural resources. Russia is also a key source of sophisticated arms for China, a flow of weapons that has grown in the last decade. As authoritarian states, both countries support each other inside international institutions, chief among them the UN Security Council. They refrain from criticizing each other on human rights issues and take similar approaches on many global issues, such as setting standards for the governance of the Internet, which both countries think should be more tightly controlled at the national level. Xi and Putin have a close relationship, sharing an at once nostalgic and resentful desire to return their countries to prior states of grandeur. The bilateral relationship is animated by a sense of grievance and purpose—directed chiefly at the United States, which China and Russia accuse of seeking to deny them their rightful standing in the world—a sentiment that has grown only more powerful as the Chinese and Russian political systems have become beholden to the personalist rule of Xi and Putin.
These considerations shaped China’s predictable response to the February invasion of Ukraine. Beijing turned to its tried and true approach during previous crises sparked by the Kremlin’s adventurism, such as the 2008 war in Georgia, the 2014 annexation of Crimea, and Russia’s interference in the 2016 U.S. presidential election. China doggedly straddled the fence. With Ukrainian and Western interlocutors, Chinese officials noted that their government supported the sovereignty and territorial integrity of Ukraine and sought a swift end to the war. With Russian counterparts, Chinese officials stressed that close relations with Russia remain unperturbed, that Beijing opposed the West’s unilateral sanctions, and that it accepted the Russian position that the expansion of NATO and Washington’s zeal to push U.S.-led military alliances around the world had precipitated the conflict.
Western attempts to get China off this fence have so far failed. Chinese leaders do not think that they have much to gain from taking a stance critical of Russia’s actions. They know perfectly well that the root causes of disagreements between their country and the West, as led by the United States, will not disappear if Beijing sides with Ukraine. China also fears the potential collapse of Putin’s regime under the weight of unprecedented economic sanctions, an outcome that would be clearly counter to Chinese interests. China sees a Russia hostile to the West as an asset, and a new regime in Moscow with pro-Western leanings would be a strategic nightmare. Chinese leaders are also aware that they are unlikely to change Russian thinking about Ukraine; Putin believes the war is essential for securing his country and his own legacy. Additionally, China does not have the capabilities or experience to play a meaningful role in negotiations in the war. As a result, Xi and his foreign policy team have not even attempted to assist in mediation.
SITTING PRETTY
China is threading a needle, refusing to pressure Russia but also trying to avoid possible economic consequences imposed by the West. It has chosen to follow the strictures of the sanctions and U.S. export controls religiously—at least for now. Many Chinese companies have frozen their projects in Russia or are suspending their operations. Similarly, Chinese state-owned energy behemoths have been reluctant to snap up the Russian assets (now available at steep discounts) of Western companies, such as BP and Shell, fearing exposure to future U.S. sanctions.
But China’s compliance with the sanctions doesn’t mean that Beijing is not supporting Moscow economically. If anything, its support is stronger. China has taken advantage of the economic disruption of the war, positioning itself as an alternative market for Russian goods that used to be sold in European markets. It has fully exploited opportunities to buy Russian commodities on the cheap through short-term arrangements that do not risk sanction violations.
Since February, China has increased its purchases of Russian hydrocarbons. As Europe cuts its dependence on Russian energy and other mineral resources, the Kremlin has few options but to redirect its exports to Asia—mostly to China, a natural choice because of geography, existing land-based pipelines in addition to sea trade, and its ability to provide payment instruments in yuan as an alternative to those tied to U.S. dollars, euros, Japanese yen, Swiss francs, or British pounds. This trend is already underway. Over the last seven months, Russian exports to China have grown by 48.8 percent to $61.45 billion, reflecting not only a spike in global commodity prices but also increased shipments of Russian oil.
Since 2014, Chinese goods have been gradually replacing European ones in the Russian market, and in 2016, China for the first time overtook Germany as Russia’s major source of industrial tools. The combined effect of rising logistical costs and sanctions will limit the availability of many European goods in Russia, so Russian consumers and businesses will ultimately switch to more Chinese alternatives. In fact, in the past seven months, imports from China to Russia have grown 5.2 percent to $36.3 billion. As China becomes Russia’s main trading partner for both exports and imports for Russia, more of this activity will be conducted in renminbi. The Chinese currency will become the de facto reserve currency for Russia even without being fully convertible, increasing Moscow’s dependence on Beijing. This shift is already well underway, as evidenced by the exponential growth in the volume of renminbi trade in the Moscow stock exchange, which has, for the first time, overtaken euro trade.
Such dealings with China will be costly for Russia. China won’t be able to make up for Russia’s losses in European markets. Moreover, Moscow’s dependence on Beijing will grant China tremendous leverage, and it will be able to extract concessions from Russia that previously would have been seen as absurdly one-sided. For instance, in current negotiations over a new pipeline that will connect gas fields in Western Siberia to the Chinese market, Beijing will be able to enforce a price formula that benefits Chinese customers, makes the renminbi the contract currency, and limits its legal obligation to buy only the bare minimum of the pipeline’s capacity. Additional gas purchases are thus subject to Beijing’s desire (or lack thereof) to buy. Moscow is likely to agree to these conditions—it has no alternative—providing Beijing not only with cheap gas but with future leverage in its negotiations with suppliers of liquefied natural gas, such as Qatar and the United States.
Just a year ago, such conditions would have been unacceptable to the Kremlin. But now Russia’s options are evaporating, giving China the upper hand. Russian officials are not blind to this dynamic, but war has forced a grudging pragmatism on the Kremlin. As long as China provides a cash flow that can keep the regime afloat and sustain its confrontation with the West, the Kremlin will accept Chinese demands. For China, the main challenge will be managing the risk of U.S. retaliatory measures, such as secondary sanctions on potential Chinese transactions with sanctioned Russian entities or violations of export control regimes. But Chinese leaders are hopeful that they will escape provoking their U.S. counterparts if their business with Russia doesn’t explicitly violate sanctions. The United States, they reason, is unlikely to start a trade war with the second biggest global economy amid a looming recession in the vain pursuit of trying to break Putin’s war machine.
ADVANTAGE BEIJING
In Moscow, reality is kicking in. Even before the war in Ukraine, the Sino-Russian relationship had been increasingly one-sided. Many Russian officials, including in the highest echelons of power, feared that getting closer to China—without simultaneously improving relations with Western countries and making the Russian economy more competitive—would end up restricting Russia’s strategic autonomy. But ties with China nevertheless grew steadily. Before Putin’s annexation of Crimea in 2014, China accounted for around ten percent of Russia’s total trade; by the end of 2021, China accounted for 18 percent. That figure is only likely to climb in the wake of the war in Ukraine. It’s not unrealistic to imagine a near future when China controls over half of Russia’s trade flows and has become a major source of technology in important areas such as telecommunications, transport, and energy production. In such a scenario, Beijing would have tremendous leverage over Russia that it wouldn’t be shy to use. For example, in the future China could ask Russia to abandon its defense ties with India and Vietnam or to be vocal in its support for China’s territorial disputes in the South China Sea and its claim over Taiwan.
The schism with the West will not be repaired as long as Putin is in the Kremlin and probably even beyond his rule. Russia is turning into a giant Eurasian Iran: fairly isolated, with a smaller and more technologically backward economy thanks to its hostilities to the West but still too big and too important to be considered irrelevant. China will be Russia’s biggest external partner, a major buyer of exports, a major source of imports, and a major diplomatic partner (particularly as India continues to drift away from Russia toward democracies in the Indo-Pacific and Europe). The aging ruling elite in the Kremlin, myopically fixated on Washington, will be even more eager to serve as China’s handmaidens as it rises to become the archrival of the United States.
China will benefit greatly. Beijing is unlikely to bail Moscow out or significantly help modernize the Russian economy. China will, however, do enough to sustain a friendly regime in the Kremlin—and advance Chinese national interests—by purchasing Russian natural resources at knockdown prices, expanding the market for Chinese technology, promoting Chinese technological standards, and making the renminbi the default regional currency of northern Eurasia. Given its growing leverage, Beijing will be able to extract from Moscow something that was unthinkable a year ago: access to the most sophisticated Russian weapons and their designs, preferential access to the Russian Arctic, the accommodation of Chinese security interests in Central Asia, and Russia’s support—as a permanent member of the UN Security Council—for China’s positions in all regional and global issues, most notably in territorial disputes between China and its neighbors. In effect, the Kremlin will have protected itself from Western pressure at the expense of losing a very high degree of its strategic autonomy. This state of affairs is likely to persist potentially beyond Putin’s rule. China could overreach by pushing Russia too hard and too fast, which might result in a nationalistic backlash and put pressure on Putin to resist Chinese demands. But a real change in the relationship would require a willingness on the Kremlin’s part to fully free itself from China’s firm embrace and Western openness to reengage with Russia. And for the foreseeable future, neither of those developments seems likely.
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