The United States and China met in Italy on March 14th for a lengthy meeting on the Russia-Ukraine conflict. Press accounts make clear that the United States has articulated its concern about any nation serving to undermine the sanctions being imposed on Russia for its unprovoked invasion of Ukraine.
Indeed, the U.S. has indicated it has information suggesting that Russia has asked China for such assistance, although China has denied the U.S. claim.
The relationship between the Russian Federation and China is currently quite close as shown in the meeting between Xi Jining and Vladimir Putin at the start of the Winter Olympics last month.
In a blog post today, Alan Wolff and Nicolas Veron explore reasons why China’s providing assistance to Russia should be increasingly unattractive. The blog post is an excellent review of reasons why China should find it in its own interest to distance itself from the war of aggression by Russia.
The six reasons are laid out in the post as follows:
“First, China in recent decades has displayed a preference for stability. Its primary engagement with the world at large has been as a trading partner and major investor in infrastructure. As the war grinds on, the invasion of Ukraine looks increasingly like a reckless gamble that will disrupt and break many relationships, including trade and financial ones. By supporting Russia, China can only prolong the conflict, actively contributing to continued destabilisation of the international order. A return to stability can only come with an early peaceful resolution in Ukraine.
“Second, China has promoted a geo-economic vision for Eurasia, in which it stands at the eastern end of a trading network that extends all the way to Western Europe. China has invested heavily in its relationships with the countries to its west, including Russia and Ukraine. With the EU now firmly on the side of the Ukrainian government, the new reality is that Ukraine will emerge more closely integrated with the rest of Europe. If China stands on the Russian side in a prolonged conflict, it would undermine its Eurasian vision of the Belt and Road.
“Third, China has a longstanding diplomatic doctrine that emphasises five “principles of mutual coexistence”: mutual respect for sovereignty and territorial integrity; mutual non-aggression; mutual non-interference in each other’s internal affairs; equality and mutual benefit; and peaceful coexistence. A quick Russian operation that delivered a stable puppet government in Ukraine could have allowed China to formulate a narrative in which these principles were upheld, but the evidence of Ukrainian patriotism in a war of resistance renders this impossible. To be seen to be discarding the foundational principles of its diplomacy would be costly for China, not least in its relations with its Asian neighbours.
“Fourth, China wants to reunify Taiwan with the mainland. A quick Russian victory in Ukraine might have provided support for a Chinese strategy of seizing the ‘23rd province’ by force. By contrast, a protracted conflict in which the Ukrainian side achieves impressive feats of resistance is a reality from which China may want to distance itself as much as possible. By propping up Russia, China could solidify the pro-Ukraine camp into a durable coalition that could provide a similarly unified response to any Chinese move against Taiwan.
“Fifth, China is energy-dependent. The oil price inflation resulting from the war in Ukraine is bad news for the Chinese economy – even assuming it can buy more oil and gas from Russia at a discount. Furthermore, the war-induced price increases in commodities such as wheat, which are basic to the well-being of many developing countries, could subtract from the goodwill built up via the Belt and Road Initiative if China’s actions are viewed as prolonging the conflict.
“Sixth, China’s extraordinary growth has been critically supported by access to markets and a continuing flow of international investment. Were China to materially support Russia’s aggression, the pro-Ukraine camp’s sanctions could begin to apply to Chinese interests. Russia’s increasingly murderous attacks against civilians add to the challenge. If China supports Russia, the implied reputational damage may lead to boycotts and lost investment, not to mention moral revulsion among the Chinese population as well. A scenario of significant decoupling of pro-Ukraine countries from China would do direct harm to China’s economic interests.”
A recent Financial Times article looked at the rising costs for China of its close relationship with Russia. The article reviews the serious reputational problems for China from Russia’s brutal war. On the topic of trade costs, the article also notes both its reliance on imported oil, gas, iron ore and wheat and reviews the fact that China is facing the worst harvest in recent memory of wheat requiring increased imports of about 50% more than the average over recent years.
“Among the large economies, China is one of the most exposed to the fallout from the war. As the world’s biggest importer of oil, it has watched crude prices — which were already high — surge 27 per cent since the war began, while Chinese iron ore contracts surged 25 per cent over the first 10 days of the conflict.
“The impact could be even more pronounced on food. Chinese wheat prices and corn futures are also at record highs, perhaps prompting a lecture on Sunday by Xi about the importance of food security to a group of delegates attending the annual session of China’s parliament.”
According to the WTO Trade Profiles 2021, China imported in 2019 $176.321 billion of crude oil, $118.944 billion of iron ores and concentrates and $42.078 of petroleum gases. Page 80. Wheat and corn are not among the top five agricultural imports and so their value in 2019 were each below $4 billion. So the big hit economically in terms of higher costs will be in oil, gas and steel inputs.
The higher costs for imported products may be the smallest of the costs China faces from the potential rupture in relations with the EU, U.S. and other countries, and the other issues identified above. That said, the challenge for China may flow from the leader-to-leader commitments which may make it hard for Xi to accept distancing from Russia and the misinformation being spread by Chinese officials which may prevent a rational evaluation of self-interest by top Chinese leadership. Let’s hope that China is able to understand the costs they are incurring and likely to incur from solidarity with Russia.
Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.
To read the full commentary from Current Thoughts on Trade, please click here.