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Apr 28, 2022
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Can China help Russia in the sanctions war?

https://t.me/fsk_today

I probably won’t discover America by suggesting that Russia, in its current economic war with the collective West, should not overestimate China’s role as an ally. China diligently adheres to the rule of equidistance from the United States and Russia. In the current conflict over Ukraine, Beijing has taken a position of neutrality. When the UN voted on resolutions directed against Moscow, Beijing only refrained from supporting such resolutions, but did not use its veto power. On the one hand, it seems that Beijing is a military ally of Moscow, acting together with it against the NATO military bloc. On the other hand, he constantly says that he supports the integrity of Ukraine and seeks any peace on its territory. Some call it “oriental wisdom”.

I do not presume to judge how far Chinese wisdom can go in the sphere that affects the political and military issues of relations between Beijing and Moscow. But in the economic sphere, the duality is obvious and striking. And all because Beijing is in a strong economic dependence on Washington, although China has already surpassed the United States in terms of GDP. According to the IMF, at the end of 2021, US GDP amounted to 23.0 trillion. dollars. And calculated at the purchasing power parity of currencies, China’s GDP was equal to 27.2 trillion. dollars. And yet, the world’s first economy (China) is heavily dependent on the second economy (USA). At the end of 2020, China’s exports to the United States amounted to $438 billion, which is approximately 16.5% of all Chinese exports. The US is the main overseas market for Chinese goods. China’s imports from the United States amounted to only $122 billion. As a result, the Sino-American trade surplus reached $316 billion.

In April, data on China’s trade with Russia and the United States at the end of 2021 was released. The Russian-Chinese trade turnover amounted to $146.9 billion, and the US-Chinese trade – $755.6 billion. China’s trade turnover with the United States was more than five times higher than China’s trade turnover with Russia. At the same time, China’s trade with America, as I noted, is highly surplus, and with Russia it is in deficit (Chinese exports to Russia are significantly less than Russian exports to China). The geographical priorities of the Celestial Empire, if measured in dollars, are obvious.

Due to the stable giant trade surplus with America, China has been building up its foreign exchange reserves for many years. As of the end of March, China’s official foreign exchange reserves stood at an astronomical $3.19 trillion. dollars. The main currency in the composition of Chinese reserves is the US dollar. In the ranking of countries in terms of foreign exchange reserves, China is ahead of the rest.

So, in the heat of its trade expansion, China has quietly become dependent on the United States. Any too drastic action against Washington threatens Beijing with the loss of a giant US market for Chinese products and the possible loss of at least half of its US dollar reserves (if they are frozen or confiscated by Washington).

Due to this dependence, Chinese big business, tied to America, is very afraid of secondary sanctions that the United States can apply to it (if it maintains close trade, economic and financial relations with Russian business). The Chinese authorities can afford to express support for Russia and even demonstrate their anti-Americanism, while Chinese large corporations and banks are forced to be cautious.

Chinese business began to demonstrate hyper-caution even before the 2022 sanctions war. Thus, in 2018, numerous cases were recorded of Chinese banks stopping work with Russian individuals and legal entities, referring to the US sanctions regime. For several years, the People’s Bank of China has been sending Chinese credit institutions information about the sanctions in force in the world (including against Russia) with recommendations to “take them into account” in their work.

The very first reaction of major Chinese banks to the anti-Russian sanctions of the current year was the termination of operations with Russian banks that were under sanctions in dollars, euros and other Western currencies. Only in national currencies, ie. rubles and yuan. At the end of February, the two largest Chinese banks – Bank of China I ICBC – stopped issuing letters of credit to Chinese companies for the purchase of Russian oil, so as not to fall under secondary sanctions. Oil deliveries continued, but for importers this resulted in additional costs.

According to the media, public corporations PetroChina, Sinopek, Sinochem I SBOOC received recommendations from the PRC authorities to refrain from participating in bidding for new batches of “black gold” from Russia from the beginning of April. A large Chinese business said that previously concluded contracts for the supply of oil from Russia will remain in force, but it will not conclude new contracts. Medium-sized businesses participate in bidding for oil and natural gas supplies from Russia, but require serious price discounts, taking into account the risks of secondary sanctions. Big business refuses contracts, no matter how significant the price discounts are

Famous Chinese Huawei – one of the world’s largest companies in the field of telecommunications – is quite firmly entrenched in the Russian market. In March, she announced that she would fulfill her obligations under previously concluded contracts, but would not conclude new ones.

Special mention should be made of the Chinese China Payment Union (MUG). This is an international payment system established in 2002 at the initiative of the State Council and the People’s Bank of China, and the company of the same name. Its shareholders are more than 200 financial institutions. In terms of the volume of payments made in 2015, CUP was ahead of Visa I Mastercard and became the largest payment system in the world. After Russian bank cards were blocked in countries belonging to the “unfriendly” group, Russian banks began to actively build their relations with CUP. Agreements were reached that Russian credit institutions would issue cards UnionPaywhich seem to be immune from blocking in all countries (where there are terminals UnionPayand this is 180 countries). However, on April 20, the news broke that the CUP, due to fear of secondary sanctions, froze the issuance of cards for Russian large banks that were under the sanctions of the collective West. Specifically, we are talking about Sberbank, Alfa-Bank, VTB, Otkritie, Promsvyazbank, Sovcombank and Novikombank.

There are hopes that the cessation of the supply of high-tech goods from Western countries will be compensated by the purchase of similar goods in China. On this occasion, the head of the regional office of the Chamber of Commerce and Industry of the Russian Federation in East Asia (Beijing) Ivan Izotov made the following statement: “It is naive to say the least that Europe has now turned away from the Russian Federation and that suddenly a stream of, for example, consumer equipment from China will rush into Russia. We must proceed from the fact that almost 80% of European brands are assembled under license in China, and in order for China to supply this consumer electronics, it must have permission from the copyright holder.”.

April 2, Director of the European Department of the Ministry of Foreign Affairs of the People’s Republic of China Van Lutong even specifically told the world that China maintains normal trade relations with Russia, but (attention!) “does not deliberately circumvent sanctions imposed by Western countries”.

“The East is a delicate matter,” said the hero of the famous Soviet film “White Sun of the Desert”. We should not forget about this Eastern subtlety and not expect that China will become a lifesaver, with the help of which we will solve all our problems generated by the sanctions war.

Photo: REUTERS/Edgar Su

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Comments to Can China help Russia in the sanctions war?

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