Ukraine war tests Beijing's bonhomie with Moscow

Beijing and Moscow may have become closer in recent years forging a relationship that “has no limits”, aligning together to fight what they view as interference from the west. But today, as Russia is ostracised by the international community and faces a slew of financial sanctions, experts felt that China may not be willing stick its neck out too far for its strategic ally.

According to international media reports, there are growing signs that China may only go that far and no more to bail its ally out. Even as high-level talks between Kyiv and Moscow are set to take place on the Ukraine-Belarus border, China has steadfastly refused to term Russian attack on Ukraine as an “invasion” and has roundly condemned western-led sanctions.

In a show of solidarity, China however has maintained that they do not support the use of sanctions to solve problems.  “China and Russia will continue to carry out normal trade cooperation…,” said Wang Wenbin, a Chinese politician diplomat and the Ministry of Foreign Affairs spokesperson at a recent press conference.

But at the same time, Chinese state-owned financial institutions have been silently “distancing” themselves from Russia’s troubled economy.

An Al Jazeera report suggested that Beijing was doing a “balancing act” by trying to shore up its ties with Moscow without flagrantly violating sanctions. This is largely due to the fact that China too does not want to tip the balance too much and risk losing access to key western export markets and the international financial system dominated by the US dollar.

In fact, media reports have given examples of how state owned Chinese banks have used their Singapore operations to allegedly stop financing deals involving Russian oil and firms and in other instances have put curbs on financing purchases of Russian commodities.

Also read: Ukraine agrees for talks with Russia in Belarus, delegation reaches border

Alicia García Herrero, chief Asia Pacific economist at Natixis in Hong Kong told Al Jazeera that she expected Beijing to comply with US sanctions but they will also continue to support the Russian economy through the Chinese financial system.

According to the Spanish economist, Chinese banks can lend in RMB and they could basically work around the things they cannot do and still do a “ huge number of things”. Further, she added that even European banks could still finance energy imports, which will prompt Chinese banks to do so as well.

“China is trying to have its cake on Ukraine and eat it too,” wrote Asia Society president and former Australian Prime Minister Kevin Rudd in a post on the Asia Society Policy Institute website. He noted that China has lifted import restrictions on Russian wheat and this could offset some of the economic pain of sanctions.

For many of those imposing sanctions, China’s actions amount to support for the invasion.

China-Russia ties: A relationship that has no limits

Just three weeks ago on February 4, the leaders of China and Russia declared that the friendship between their countries “has no limits” and no “forbidden” areas of cooperation, as they met in Beijing on the eve of the Winter Olympics. But that was before Russia’s invasion of Ukraine.

Though China joined Russia in decrying NATO as a Cold War relic and blamed US support for expanding the pact for needlessly aggravating Russian security concerns, in the matter of Ukraine, China’s and Russia’s interests are not aligned.

Ukraine is an important trade partner for China with trade between the two nations—including iron ore, corn, and sunflower oil from Ukraine and consumer goods and machinery from China—totaling $19 billion last year.

Moroever, Ukraine has been an enthusiastic supporter of the Belt and Road Initiative, Xi Jinping’s signature policy push to create a network of new trade and transit links between China and Europe. Hence, by mid-February, China’s top diplomats seemed to back off from the February 4 statement. They stopped their strident defense of Russia and moved into a position emphasising the importance of resolving the Ukraine crisis through diplomatic channels.

In a February 16 call along with French President Emmanuel Macron, Xi advocated a diplomatic solution to the looming crisis. “All parties concerned should adhere to the general direction of political settlement, make full use of multilateral platforms, and seek a comprehensive solution to the Ukrainian issue through dialogue and consultation,” he had said.

Also read: Ukraine’s military is outgunned but can still inflict a great deal of pain on Russian forces

China’s trade relations with Russia

During the February 4 summit, Russia and China had signed multiple trade deals, including sealing a 30-year contract for Russia to supply gas to China via a new pipeline.

China’s trade with Russia rose to $146.9bn in 2021 and though it has scaled up 36 percent year-on-year, that still remains only about one-tenth of the volume of the China’s combined trade with the US and EU.

The United States, European Union, United Kingdom, Japan, Canada and Australia have imposed a string of punitive measures against Moscow, which include expelling some Russian banks from the SWIFT international payments system, blocking Russia’s central bank from using its foreign reserves to support the value of its currency, and banning broadcasts of Russian state media.

Experts felt that China would be cautious about supporting Russia too overtly since it could threaten its access to the international financial system. China would not want to jeopardise its forex exchange reserves globally dominated largely by the US dollar; and it also depends on the SWIFT system. All of which will make China act prudently when it comes to providing financing to Russia.

But so far, China’s moves to distance itself from Moscow seems to be more symbolic rather than effectively causing pain for the Russian economy, said experts. If the US and its allies start imposing more sanctions in the coming days then it would become harder for China to continue to do its balancing act.

Pertinently, western sanctions have not impacted Russia’s lucrative energy industry since that would only negatively affect western countries in the long run. Russia, which is the world’s third-largest oil producer and the second-largest producer of natural gas, provides about 40 percent of Europe’s supply of natural gas. This factor therefore provides room for China to continue to legitimately trade with Russia.

China will only find itself in a sticky situation if the western powers decide to enforce secondary sanctions on Russia. It is then Beijing’s bonhomie with Russia will be put to the test.