Since the EU and the US announced their first wave of sanctions against Russia over its invasion of Ukraine, the conditions of Russia’s otherwise relatively stable, albeit fragile, economy has been deteriorating rapidly. As a result, Moscow’s war rhetoric has shifted dramatically, from unambiguous confidence in a broadcasted pre-war show of solidarity and a defiant tone with nuclear threats upon receiving the first sanctions two weeks ago, to today’s mode of desperation.
The US and its Western allies are warning China not to jeopardize the sanctions by aiding Russian President Vladimir Putin, but hoping that China will refrain from doing so would prove futile.
China has been showing the world its ambitions to reshape the global order, turning the US and its allies from China-friendly partners to alert competitors, to say the least. Having the West-alienating Russia on board would certainly divert some pressure from China.
Beijing is using the invasion of Ukraine as a decoy to carry out its own agenda (eg, capturing Taiwan by force). Thus, there is no incentive for China to broker a Russian withdrawal from Ukraine.
On the contrary, China would likely try to keep the war in Ukraine going as long as possible. In a ruling directing Russia to immediately halt its military operation in Ukraine released on Thursday by the 15-member International Court of Justice, China and Russia cast the only dissenting votes.
Although the Ukraine war as a tool comes in handy for China, it is not free. How much is China willing to pay, and is the country even capable of paying for it?
Russia’s wish list for aid sent to China includes requests for financial, economic and military support.
Financial assistance is the most urgent and straightforward of Russia’s needs. As part of its preparations for invasion, Russia allowed its foreign reserves to balloon to US$640 billion, enough to cover 30 months of its import needs. With half of the reserves frozen by the West, and one-third of the remainder kept in gold, the sale of which is likely to be sanctioned in the coming days, Russia’s disposable reserves could only cover less than 10 months of imports.
With its financial sector largely excluded from the SWIFT international banking system, Russia’s international transaction ability and options are limited — and here is where the expected China aid might kick in.
Russia has nearly 15 percent of its foreign reserves, about US$80 billion, in yuan-denominated assets in China. Beijing would likely facilitate Moscow’s international transaction needs through its own global payment system, the Cross-Border Interbank Payment System (CIPS), which the Bank of China launched in 2015 to promote yuan-dominated international transactions.
China would also likely exploit Russia’s desperation by acquiring its gold reserves at discounted prices, in secret if an embargo is imposed on Russia’s gold trade.
The problem is that CIPS covers only 1,300 financial institutions worldwide, and the yuan was used in only 3 percent of international transactions last year, raising questions about the system’s ability to meet Russia’s financial needs.
Moreover, becoming too dependent on CIPS would leave Russia in a vulnerable situation not much different from its previous reliance on the US-dollar-denominated SWIFT. Would Russia be unhappy again in the long run?
When it comes to economic aid, China does not have much to offer either.
Although Russia-China trade has grown 20 to 30 percent annually in the past few years, reaching US$150 billion last year, it is still only a small fraction of China’s US$5 trillion foreign trade activity as of 2020. A dramatic increase in China-Russia trade is unlikely, even accounting for China’s increased import of Russian coal and oil.
On the other hand, Russia-China trade already makes up more than one-quarter of Russia’s foreign trade volume. Further boosting trade with China would put Russia at the mercy of China’s goodwill. This is obviously against Russia’s national interest.
The embargo on Russia would make technology-based goods and services, and capital investment, as well as personnel exchanges in a variety of fields, in great demand in the country.
Regarding technology, China itself still relies heavily on West-supplied technologies, and has been embargoed on a wide range of products (eg, microchips). Ironically, even Russia has been keeping its top technology out of reach of China.
For investment, China has been struggling to stop foreign money from fleeing the country’s increasingly unfriendly business environment. Russia’s deteriorating economy would certainly make Chinese venture capital think twice before jumping in.
On exchanges, being culturally poorly preserved, scientifically less rigorous, and administratively more bureaucratic and corrupt, China has little to offer even if a China-Russia personnel exchange channel is established.
Both countries are under pressure from international sanctions, albeit of different magnitudes, which would inevitably lead to shrinking exports, ballooning unemployment and eroding consumer confidence. China would compete with, instead of help, Russia to keep its own economy afloat.
Russia has seen heavy military losses since launching the invasion. On top of outdated weaponry and the poor quality of its equipment, as seen in various media reports and online posts, many of its military setbacks can be attributed to lack of logistics and coordination planning.
China does not fare much better than Russia in these regards. Its lagging logistic support has been on display in recent India-China border conflicts, and has been in this state since its involvement in the Korean War in the 1950s.
China’s military is also notorious for corruption, and the head of defense firm China North Industries Group Corp (中國北方工業集團) was last year arrested to face corruption charges.
It would be a miracle if under this leadership the quality of China’s military equipment turns out to be reasonably satisfactory and acceptable by Russia for use in its war in Ukraine.
Regarding high-end weaponry, China itself has a shortage of top-notch technology such as jet engine designs and manufacturing capabilities, and has been repeatedly caught by Russia stealing its military technology. The usefulness of any military aid from China is highly questionable.
However, the determinant of the fate of Putin’s Ukraine adventure is his military’s morale. That Putin has to resort to bringing up to 40,000 foreign fighters from the Middle East to fight in Ukraine is a clear indication that Russia’s military service personnel are either too weak for the task or too resentful to continue in Ukraine.
China, with its own low morale problem to resolve, is incapable of injecting vigor into Russia’s Ukraine operation.
China’s poor ability to aid Russia does not mean that Beijing’s help is harmless. Any gesture of support for Russia would help sustain Putin’s determination to defy international condemnation, while weakening the West’s resolve to stand up to aggression. If both countries are to get away with what they intend to do this time, they would certainly come back with an even more frightening threat up their sleeves.
China has chosen to risk its already fragile trustworthiness to join the club of aggressors. So be it. After all, expulsion of both from international organizations might prove to be the most effective insulation for the world against further harm inflicted by the pair.
Daniel Jia is founder of the consulting firm DJ LLC Integral Services in Spain.
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