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Home»Finance»Russia-Ukraine War: China’s Vanishing Neutrality
Finance

Russia-Ukraine War: China’s Vanishing Neutrality

February 24, 2024No Comments10 Mins Read
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Russia-Ukraine War: China’s Vanishing Neutrality
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“In the Ukraine War, China Is the Only Winner.” This observation served as the title of an article published in May 2023 by The National Interest. Although that sentiment is not a widely held consensus in Europe, it well summarizes an idea circulating across the Atlantic on the benefits that China can derive from the war in Ukraine: Both a diversion to attract U.S. attention and means to the European front (far from Taiwan and the South China Sea ), and a chance to obtain raw materials at unbeatable prices from a Russia that absolutely must find the means to finance its war. The Atlantic Council has framed this as an “economic lifeline” between China and Russia.

Even if Russia lost the war, with all the possible consequences for Vladimir Putin’s power, China could seize the opportunity to have a permanently weakened Russia on its borders. The situation appears sufficiently profitable, regardless of the outcome, that China has officially refrained from deterring Russia.

That said, even the “limitless” partnership between China and Russia, announced in early February 2022, ultimately found limits following Russia’s invasion of Ukraine on February 24, 2022.

Shortly after the invasion, a Chinese spokesperson skillfully dodged questions from journalists wanting to know whether China’s government had been warned of the Russian invasion of Ukraine, refusing to speak of an “invasion” and explaining that Russia did not have to ask for “permission” (which was not the question asked). But China has also taken good note of the extent of Western sanctions against Russia, and, unlike its bellicose neighbor, it does not yet seem ready to cut itself off from its main customers and outlets, particularly in the context of an economy that is teetering on its foundations. 

China also quickly gave guarantees to the West that its support for Russia would not cross certain lines. For example, China decided in September 2022 to stop deliveries of truck engines for Kamaz. In August 2023, China also decided to suspend, at least officially, exports of commercial and recreational drones to Russia and Ukraine. But a New York Times investigation seems to indicate that this decision concerned Ukraine much more than Russia. 

There is apparently a difference between what China says and what China does.

China’s Economic Support for Russia

As the conflict becomes bogged down, considering that the world economy has now adapted to the new energy landscape, the redistribution of oil and gas flows, China could maintain some low profile support for Russia without compromising itself with its European clients. China does not seem opposed to transforming Eastern Europe into a focal point not only for the meager European forces, but also for part of the U.S. forces.

Indeed, in the event of a Russian victory in Ukraine – or even a simple status quo, similar to that which prevailed from 2014 to 2022 in Donbas – the countries bordering Russia (the Baltic countries, Finland,  and even countries farther afield like Romania) would probably require a strengthening of the U.S. presence on their soil. This is the only guarantee recognized today as dissuading Russia from pushing its possible advantage further. However, anything that is likely to ultimately weaken the U.S. “pivot” toward the Pacific and reduce the volume of American forces there is good for China.

See also  Russian Army is Bigger Now Than Start of Ukraine War, Says U.S. General

From the Chinese point of view, these regional considerations could explain the increasing visibility of trade between China and Russia. $240 billion worth of goods were exchanged in 2023, increasing by 26.3 percent over the previous year. Chinese exports to Russia jumped 47 percent in one year and nearly 65 percent ​​compared to 2021. Russia thus moved from 10th to 6th place among China’s economic partners in terms of trade values between 2022 and 2023. 

Among these exchanges of oil, cars, smartphones, and so on, are there exports that are more problematic with regard to Western sanctions (in which China does not participate)? In July 2023, Politico published a detailed investigation into possible deliveries of military equipment (helmets and bulletproof vests among others) by Chinese companies to “customers” strongly suspected of coming from Russia. But the reality of trade between China and Russia goes well beyond bulletproof vests.

Electronic Components and Machine Tools

The subject of possible Chinese munitions supplied to Russia is closely monitored, particularly during “war captures,” when Ukrainian troops seize stocks of Russian munitions. There have been many doubts, for example, about munitions that, although of Chinese origin, do not appear to have been supplied by China in the context of this conflict. 

But the United States continues to suspect China of selling arms to Russia, with regular reminders of American vigilance on this subject. As a Defense Department press report put it in February 2023: “White House officials said there are ‘indications’ that China is contemplating supplying Russia with weapons. There is no indication Chinese leaders have decided to arm Russia, but they haven’t taken it off the table.” The White House recently spoke out on this subject again. 

Behind diplomatic politeness, the American media have repeatedly relayed much more explicit analyses by the U.S. intelligence services. If it is now common knowledge that North Korea supplies Russia with ammunition by the trainload, military aid from China would represent a change of scale, not only because of the stocks China can provide, but also because of its ability to manufacture them in continuous flows.

Ukrainian soldiers have not found shells that were obviously “made in China.” But there are signs of subtler support. Ukraine noted that among the debris of Russian missiles found throughout Ukraine, there are more and more Chinese components found in the on-board electronics. 

Following the December 2023 strikes on Kyiv, the Ukrainians noted that almost all of the rockets used were manufactured in the second half of 2023. The question, therefore, arises of how Moscow is circumventing sanctions to obtain the components necessary for the manufacture of these missiles, knowing that Russia is not currently capable of manufacturing most of them itself. 

See also  China’s Markets Throw Off Gloom for Now as Xi Offers Lifeline

In 2023, China became the leading supplier of “computer numerical control” machine tools to Russia, equipment essential for the manufacturing of many components and spare parts used by the Russian military-industrial complex. According to a report from American intelligence from July 2023, China directly supplies Russian defense manufacturers with essential components and spare parts. Russian imports from China of industrial ball bearings – very important in the manufacturing of vehicles – have, for example, increased significantly since 2022 (up 345 percent), as have similar import transiting through Kyrgyzstan (up 2,500 percent). Very recently, soldiers mentioned equipment (apparently tires and tents) supplied by China in videos stamped by the Russian Ministry of Defense .

Construction Equipment and Armored Vehicles

However, it is not in the field of ammunition, electronics, or spare parts that the reality of military support from China to Russia has become more tangible, but in a more prosaic area: vehicles. 

There are recent precedents in this trade, since China has openly supplied armored vehicles to Chechnya. Although Chechen leader Ramzan Kadyrov boasted of equipping national forces deployed in Ukraine with them, the vehicles in question have never been observed on the front. This contract, the terms of which are not known, could have been concluded before the outbreak of the invasion of Ukraine. 

On the other hand, the Russian fortifications of the Surovikin line could not have been built as efficiently and quickly without the massive use of Chinese construction equipment, imports of which increased dramatically during the months of construction of this defensive obstacle.

Things became even clearer at the beginning of February 2024, when, according to a report from the Russian Defense Ministry, Chinese Defense Minister Dong Jun explicitly confirmed China’s support to Russia during a bilateral meeting. Please note, however, that this public declaration was not relayed by the Chinese side. 

Added to these “political” elements, a contract was recently signed between Russia and China for Chinese all-terrain military vehicles. The deal was touted on the Russian side by Putin himself in early November 2023. But some questioned whether these vehicles participated directly in hostilities. Now we know the answer: Not only have these vehicles been deployed on the front, including in armed versions, but they have also clearly already been used (and lost) in combat. Although these are light, unarmored, and unarmed vehicles in their genuine version, we are talking about direct military aid. China contributed militarily to the Russian war effort in Ukraine, without arousing the slightest reaction from the West. 

But these approximately 2,000 light vehicles could be insignificant compared to aid that is much more discreet, but probably much more important: loans granted by Chinese banks still present in Russia.

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Chinese Money Helps Russian Finances

In late December 2023, the United States announced upcoming sanctions against foreign banks that allegedly helped finance the Russian war in Ukraine, directly or indirectly. Without access to international financial markets (where interest rates would be prohibitive for Russia, due to its disastrous rating), Russia and Russian companies can only borrow on their domestic market. This is why Russia continues to imagine all possible legal obstacles so that the last Western banks present cannot easily disengage from Russia. 

If certain European banks are in the crosshairs of the United States, such as the Austrian bank Raiffeisein, it is China that is explicitly targeted by the sanctions. Indeed, Chinese loans to Russia have grown considerably in two years. Loans granted by the Industrial and Commercial Bank of China (ICBC) and the Bank of China in Russia amounted to nearly $9 billion in Russia between February 2022 and March 2023, compared to $2.2 billion before this date. That’s a four-fold increase since the war began.

China is also strongly pushing for the use of its currency, the renminbi, in Russia. Before the invasion of Ukraine, the share of the renminbi in export payments represented less than 1 percent; this has now risen to more than 16 percent. Within the National Welfare Fund, the Russian “nest egg,” Russia carried out a massive sale of currencies it considers “toxic” – euros, dollars, and yen – and has since held the majority of renminbi as usable liquidity. Russia is currently in the top three renminbi users outside China; before March 2022, Russia was not in the top 15. From September 2022, the two main Russian banks, Sberbank and VTB, denominated part of their loans in renminbi, with direct connections to Chinese banking networks. 

However, amid a drastic drop in oil and gas revenues (down 22 percent in 2023), Russia needs cash more than ever to finance the unprecedented increase in its defense and security spending. It nevertheless seems that U.S. pressure is starting to have effects, with China having, for example, very recently announced that it would restrict access to credit for Russian customers by Chinese state banks. It remains to be seen whether the official declarations will be followed by real effects, or whether China, disinclined to act under duress, will seize the opportunity to strengthen its direct military support, which recent declarations from the Chinese defense minister would suggest.

As Markus Garlauskas, Joseph Webster, and Emma C. Verges pointed out in their article on the Atlantic Council website, as long as China’s support for Russia continues, the chances for Ukraine to regain control of its territory will remain limited. It is essential that the various Western governments not only realize the extent of Chinese support, but also understand that Ukraine’s victory could depend on the ability and willingness to lessen this support, which is increasingly both more important and less discreet.

Chinas Neutrality RussiaUkraine Vanishing War
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