Will China help Russia deal with economic sanctions?
That's the big question since Russia invaded Ukraine last week. The two countries have forged close ties in recent years, with Chinese leader Xi Jinping calling Russian President Vladimir Putin his "best and closest friend" in 2019. During Putin's visit to Beijing last month, the two states declared that their friendship had "no boundaries".
Earlier Russia had started its war in Ukraine, and was hit with unprecedented sanctions from Western countries. Now, China's ability to help its neighbor is being tested. Experts say Beijing has limited options.
"China's leaders are going too hard on Ukraine," said Craig Singleton, senior China fellow at the Foundation for the Defense of Democracies, a DC-based think tank.
Beijing is in no rush to help Russia after its economy was slammed by sanctions from around the world. On Wednesday, Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, said the country would not participate in the sanctions, but did not offer any relief.
Earlier this week, China's foreign minister spoke with his Ukrainian counterpart, saying that China was "very sad to see the conflict" and that "its fundamental position on the Ukraine issue is open, transparent and consistent."
And the Asian Infrastructure Investment Bank, a development bank backed by Beijing, said on Thursday it was suspending all its activities in Russia as "the war in Ukraine unfolds."
"China's complex message shows that Beijing will continue to blame Washington and its allies for provoking Russia," Singleton said.
However, "such a move would do little to further antagonize the United States because of Beijing's desire to avoid a complete breakdown in US-China relations," he said.
Close but relatively small business relationship
Before Russia's invasion of Ukraine, Putin had deepened his country's ties with China.
During his recent visit to China, the two countries signed 15 deals, including new contracts with Russian energy giants Gazprom and Rosneft. China also agreed to lift all import restrictions on Russian wheat and barley.
According to official figures, 16% of China's oil imports last year came from Russia. This makes Russia the second largest supplier to China after Saudi Arabia. About 5% of China's natural gas also came from Russia last year.
Russia, meanwhile, buys about 70% of its semiconductors from China, according to the Peterson Institute for International Economics. It also imports computers, smart phones and car parts from China. For example, Xiaomi is one of the most popular smartphone brands in Russia.
China has also signed up Russian banks on its cross-border Interbank Payment System (CIPS), a clearing and settlement system seen as a potential alternative to SWIFT, the Belgium-based secure messaging service that serves hundreds of financial institutions around the world. connects institutions.
China and Russia have strategic interests in challenging the West. But the invasion of Ukraine has put friendship to the test.
Friendship test
"So far there is no indication that China considers Russia fit to violate Western sanctions," said Neil Thomas, China analyst at Eurasia Group. Beijing too.
"The lifting of import restrictions on Russian wheat by Beijing was agreed before the invasion and does not indicate Chinese support," he said.
While Russia needs China for trade, Beijing has other priorities. The world's second-largest economy is Russia's No. 1 trading partner, accounting for 16% of the value of its foreign trade, according to CNN Business calculations based on 2020 data from the World Trade Organization and Chinese customs data.
But Russia means little to China: trade between the two countries accounts for just 2% of China's total trade. The European Union and the United States hold very high shares.
Chinese banks and companies also fear secondary sanctions on dealing with Russian counterparts.
"Most Chinese banks cannot afford to lose access to the US dollar and many Chinese industries cannot afford to lose access to US technology," Thomas said.
According to Singleton, these Chinese entities "could very quickly find themselves under Western scrutiny if they are perceived in any meaningful way as aiding Russian efforts to evade US-led sanctions."
"Acknowledging that China's economy and industrial output have been under enormous pressure in recent months, Chinese policymakers will seek to strike a delicate balance between supporting Russia rhetorically but opposing Western regulators," he said. without," he said.
There have been reports this week that two of China's biggest banks - ICBC and Bank of China - have restricted financing to purchase Russian goods for fear of potentially violating sanctions.
Reuters also reported on Tuesday that China's coal imports from Russia had stalled because buyers could not secure money from state banks worried about international sanctions.
ICBC and Bank of China did not respond to a request for comment from CNN Business.
Significant practical constraints
Even if China wants to support Russia in areas not subject to sanctions - such as energy - Beijing could face severe sanctions, experts said.
"The financial sanctions imposed on Russia by the West place significant practical constraints on China's dealings with Russia, even where they directly address them," Mark Williams, chief Asian economist at Capital Economics, said in a research note on Wednesday. Do not prohibit." ,
Some commentators have suggested that China's CIPS could be used as an alternative by Russia, now that seven Russian banks have been delisted from SWIFT.
But CIPS is very small in size. It has only 75 direct participating banks, compared to over 11,000 member institutions in SWIFT. About 300 Russian financial institutions are in SWIFT, while only two dozen Russian banks are affiliated with CIPS.
The yuan is also not freely convertible, and is used less frequently than other major currencies in international trade. According to SWIFT, it accounted for 3% of payments globally in January, compared to 40% in dollars. Even the Sino-Russia trade has been dominated by the dollar and the euro.
Williams said, “In practice, because CIPS is limited to payments in [yuan], it is currently only used for transactions with China. Banks elsewhere are unlikely to replace CIPS as a SWIFT workaround.” Whereas Russia is an international pariah."
Nor can China replace the United States in providing key technology for Russia's needs.
Last week, the Biden administration announced a slew of measures to restrict tech exports or foreign goods manufactured with American technology in Russia.
Russia mostly imports low-end computer chips from China, which are used in cars and home appliances. Both Russia and China depend on the United States for the high-end chips needed for advanced weapon systems.
"China alone cannot supply Russia's all-important needs for the military," a senior US administration official told Reuters at a media briefing last week. "China has no production of the most advanced technology nodes. So both Russia and China depend on other supplier countries, and of course, on US technology, to meet their needs."
This could prompt Chinese tech companies - especially large ones - to be even more careful in potential deals with Russia.
"Some of the smaller Chinese companies that are not dependent on US inputs can meet some of the demand for Russian-approved US technology," said Thomas of the Eurasia Group. "But the big Chinese tech firms will be cautious to avoid the fate of Huawei, which has been stunted by the US government by cutting off its access to advanced semiconductors," he said.