China and Russia: Calculated relations
Russia’s war against Ukraine boosts Sino-Russian relations while raising questions about American responses.
In a nutshell
- China’s economic ties with Russia have grown but remain calculated
- U.S. actions have indirectly facilitated Russian oil and gas exports
- China balances support for Russia with maintaining economic stability
This report examining economic realities between China and Russia is the second in a two-part series on the mechanics of Sino-Russian relations. The first, focusing on their financial challenges and strategies, is available here.
Russia’s war of terror against Ukraine has placed Moscow’s enablers and Sino-Russian relations squarely in the limelight. American leaders, including Secretary of State Antony Blinken, have become increasingly insistent that China is an important facilitator of the Russian war effort. The argument is that without economic and other support from Beijing, Russia would simply not be able to continue its campaign. Is this really the case – or is the United States deflecting attention from its own failure to confront Russia?
Judging by public statements from Moscow and Beijing, Secretary Blinken is clearly justified in his critique. Meeting in Beijing shortly before Russia launched its full-scale invasion, President Xi Jinping and President Vladimir Putin touted their “limitless friendship.” This friendship seems more than mere rhetoric: Considering the ensuing boom in mutual trade, it would also seem to be based on serious commitment.
In 2023, Sino-Russian trade turnover reached a new record of $240 billion, up more than 64 percent since 2021. And it is of course true that China has refused to join both in Western-led sanctions and in international condemnations of Russia. Close consideration of this state of affairs reveals that Sino-Russian relations are in fact unintentionally boosted by U.S. actions.
China does not believe in giving gifts without strings attached.
The point of departure for any discussion of Sino-Russian relations must be that China does not believe in friendships or alliances. Its overriding interest will always be to enhance the power and prosperity of the Middle Kingdom. Ever since veteran analyst Bobo Lo published his 2008 book “Axis of Convenience,” analysts have known that in its relations to Moscow, Beijing will be doggedly focused on its own bottom line. Although it has a strategic interest in supporting Russia against the U.S., it has always been clear that there are limits to how far that support will go. As its war against Ukraine drags on, the Kremlin has been forced to learn the hard way that China does not believe in giving gifts without strings attached.
Despite mutual assurances of their friendship, and despite increasing Russian bluster about a “pivot to Asia,” up until the full-scale invasion the Russian economy was geared toward trade with the West. Western companies were happy to invest in Russia and Western governments were equally happy to allow Moscow to use its proceeds from oil and gas exports to modernize the country’s economy, including its military-industrial complex.
China took years to warm to Russia
In the meantime, Sino-Russian relations simmered on the back burner. While countries in the West were busy enhancing their relations with Russia, Chinese companies remained skeptical about the wisdom of getting involved with the Kremlin. As Europe was ratcheting up its energy dependence on Russia, Chinese purchases of Russian oil and gas were only slowly taking off.
The Eastern Siberia–Pacific Ocean pipeline (ESPO), the key route for Russian oil to Asian markets, became fully operational only in 2012. The Power of Siberia pipeline that takes Russian natural gas to northeastern China began pumping only in December 2019. Both projects were subject to delays that stood in sharp contrast to the speed with which China built a network of pipelines to import gas from Central Asia. And, despite Russia’s keenness, a second Power of Siberia pipeline has yet to advance beyond the drawing board.
Despite much talk about linkage between the Belt and Road Initiative (BRI) launched by President Xi in September 2013 and the Russia-led Eurasian Economic Union (EAEU) initiated in 2015, there has been little coordination between the two flagship projects.
In fact, beyond a lack of coordination, Russia has also caused massive damage to the BRI, whose northern route was supposed to link China with Europe via Russia, Ukraine and Belarus. That route is now dead and the commercial viability of the southern route across the Caspian Sea is in doubt. In strategic terms, Beijing must also be concerned by Russia empowering North Korea and by how its actions are placing Taiwan into focus.
Despite Beijing’s skepticism, sanctions create an opportunity
When Western governments imposed sanctions on Russia, and many Western companies scrambled to avoid being sanctioned, the Chinese government swiftly picked up the slack. Much as previous Russian imports from the West had been paid for by exports of oil and gas, the current boom in imports from China is being paid for by the same. Beijing is opportunistically using Moscow’s moment of need to secure cheap fuels while putting China’s manufacturing overcapacity to use.
Following the opening of the ESPO pipeline, Russian exports of crude oil to China increased more than sixfold, from 12.8 million tons in 2010 to 86.2 million tons in 2022. China’s share of total Russian crude oil exports had in consequence increased from 6 to 36 percent. The imposition of Western sanctions further boosted this trajectory. In 2023, with exports reaching 107 million tons, Russia bypassed Saudi Arabia to become the top supplier of crude to China.
The hydrocarbon bonanza led not only to an increase in the volume of Sino-Russian trade, but sanctions also caused a fundamental restructuring of that trade. Having long been dominated by low-grade, labor-intensive consumer goods, Chinese exports to Russia became increasingly high-value and technology intensive. In 2023, more than half of these exports were in the categories of equipment and machinery, vehicles, and electronics, including goods that could not be obtained from anywhere else.
In a May interview with the BBC, Secretary Blinken admitted that there were no signs of China providing Russia with actual weapons but insisted that it was providing important dual-use technologies: “Those are being used to help Russia on what’s an extraordinary crash-course effort to make more munitions, tanks, armored vehicles, missiles.” He added that about 70 percent of the machine tools and 90 percent of the microelectronics that Russia now imports come from China. While there is no reason to doubt the veracity of these statements, they lack crucial context. The broader picture reveals a considerably different message.
Gap between U.S. talk and actions
Given that crude oil has long made up the lion’s share of Russian export earnings, the most important goal in sanctioning Russia was to block that revenue stream. This is where the U.S. penchant for blame shifting comes into focus. While it is true that China, like India, pounced on the opportunity to purchase Russian oil at favorable prices, it is the U.S. itself that has facilitated this trade.
The administration of President Joe Biden could have imposed tough sanctions on Russian exports of crude, but since this would have driven up the price of gasoline in the U.S., it stopped at a meek price cap. It also could have prevented the American service company SLB (formerly Schlumberger) from remaining active in Russia, helping Russian oil companies maintain output from declining brownfields. And it could have applied pressure on the European Union to prevent Greek shipping magnates from helping Russia build a shadow fleet of sanctions-busting tankers. It did none of these things.
Through its inaction, in addition to helping Russia maintain its revenues from crude oil exports, the Biden administration also facilitated an increase in Russian exports of natural gas. Throughout 2023, a spike in U.S. exports of liquefied natural gas (LNG) caused European gas prices to drop by 83 percent from the peak in 2022 when the war provoked an energy crisis. Yet in January 2024, the Biden administration imposed a “pause” on those exports due to climate change considerations, providing Russia with an opportunity to boost exports of LNG. This came in addition to Europe still importing substantial volumes of Russian gas via pipelines through Ukraine – the EU still relies on Russia for 20 percent of its gas imports.
China, meanwhile, has not only held back from providing support to Russia in the technologically daunting challenge of developing new oil fields; it has also turned a cold shoulder to increasingly desperate Russian pleas to go ahead with a Power of Siberia II pipeline that would pump gas to China from fields in Altai and Yamal. These facts line up rather poorly with the image of China as the main supporter of Russia.
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In a U.S. Congressional hearing on how American technology is fueling the Russian war effort, held in February 2024, Senator Richard Blumenthal also confirmed that a vast amount of components found in Russian weapons recovered in Ukraine were made by U.S. companies. This is exactly what Ukraine has long been maintaining and it again aligns poorly with accusations against China.
The reason why it has been possible for U.S. and other Western officials to remain in denial of their role in facilitating Russian terror against Ukraine is that the bulk of this trade is being conducted via intermediaries in Central Asia, notably Kazakhstan and Kyrgyzstan. Since the launch of the full-scale invasion in Ukraine, many Western countries have registered spectacular growth in their exports to these countries. Much of these recorded exports never even show up at the alleged destination, being shipped instead directly to Russia.
It is true that China has also been using this path for sensitive exports. It currently ships almost $5 billion in goods to Kyrgyzstan and Kazakhstan every month, up from $1.5 billion before the invasion. Much of the sensitive goods that arrive in Russia via this route have not been made in China, suggesting that U.S. suppliers are working with producers in third countries like Malaysia and Taiwan, and with Chinese middlemen, to funnel trade via Central Asia.
The importance of these observations goes far beyond highlighting Western hypocrisy and scapegoating. The main point is that while some Western partners have been only too happy to continue their dealings with Russia, and while many remain hopeful that business as usual may soon be restored, China has a history of reluctance that may yet turn into outright aversion. Beijing has good reason to view Russia as a liability rather than an asset. The war in Ukraine is taking a serious toll on the global economy, which hurts the Chinese bottom line.
Scenarios
While Beijing remains keen on having Russia as a partner against the U.S., onward developments will be marked by a delicate balancing act, between two extreme scenarios. The most likely outcome is somewhere in between.
Least likely: A Chinese lurch toward the West
At one end, it is possible that President Xi decides that he has finally had enough of Russia and moves to mend relations with Europe and the U.S. by supporting sanctions on Moscow. European signals that a tougher Chinese stance on Russia would be rewarded with more accommodating policies on trade and investment could serve as a sweetener, tempting Beijing away from its support for Russia. But, as a sharp reduction in Sino-Russian trade would swiftly bring Russia to collapse and therefore decimate China’s energy procurement strategy, it cannot be considered likely.
Somewhat likely: Beijing gives full support to Russia
At the other end, it is also possible that the specter of a Russian collapse provoked by military defeat in Ukraine is taken so seriously that Beijing does move to provide more substantial military support. Current rumors that China is hosting a secret Russian project to produce long-range drones for use against Ukraine might signal a pending change in policy. Yet, as a major commitment to military support would erase all recent gains in mending commercial relations with Europe, it must also be viewed as unlikely.
Most likely: Opportunistic engagement continues
The most likely path forward is one of arms-length engagement, where Russian hydrocarbons are traded for Chinese high-value goods that include dual-use technologies. In August, for example, China’s exports of transport equipment to Russia reached an all-time high, up by 1,100 percent from before the full-scale invasion, as its carmakers make up a significant share of the Russian market. Meanwhile, the fear of sanctions has caused China to scale back its support for Russian LNG projects on the Yamal Peninsula. Huawei has curtailed its presence and large Chinese banks no longer accept payments from Russian banks, even in Chinese renminbi. However, there is talk about setting up barter schemes, and Chinese “burner banks” have arisen as a stop-gap solution.
The endgame will depend on the onward course of the Ukraine war, meaning it is basically in the hands of the West. If it looks like a ceasefire is in the making, Beijing may be tempted to increase pressure on Russia, in exchange for economic benefits. If it looks like Russia may be about to suffer a serious military defeat, which may cause regime collapse and state failure, Beijing may believe it has to intervene with military support.
Yet, as Ukraine is not likely to accept a deal, and as the U.S. escalation management is not likely to accept a Russian defeat but will prevent either side from winning on the battlefield, the Chinese arms-length approach is bound to continue. This will shift a large part of the responsibility for Russia’s continued war of aggression on Ukraine back to the U.S.
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