China Russia: 4 Ways China Quietly Complicates Russia’s Life

By Carol H. Rider Last updated Mar 18, 2022

Now, as the Russian economy is hit by sanctions from around the world, it is increasingly clear that China’s willingness and ability to help its northern neighbor may be limited. Beijing has refused to condemn Russia’s attack on Ukraine but wants to avoid being impacted by the sanctions it has repeatedly denounced as an ineffective way to resolve the crisis.

“China is not a party to the [Ukraine] crisis and does not want sanctions to affect China,” Foreign Minister Wang Yi said in a phone call with his Spanish counterpart on Tuesday.

Beijing also gave its full backing on Wednesday to remarks made earlier this week by China’s ambassador to Ukraine. “China will never attack Ukraine. We will help it, especially economically,” Fan Xianrong said in a press release from the Lviv regional government.

Fears that Chinese companies could face US sanctions over their ties to Russia have contributed to an epic sell-off in Chinese stocks The last days. That crisis was reversed on Wednesday when Beijing vowed to pursue policies aimed at stimulating its sagging economy and maintaining financial market stability.

U.S. officials told CNN on Monday they have information suggesting China has expressed some openness to providing Russia with requested military and financial assistance. China called it “disinformation”.

Analysts say that China is trying to find “a delicate balance” between supporting Russia rhetorically but not further antagonizing the United States.

Beijing and Moscow share a strategic interest in challenging the West. However, Chinese banks cannot afford to lose access to US dollars, and many Chinese industries cannot afford to be deprived of American technology.

While China is Russia’s biggest trading partner, Beijing has other priorities. Trade between the two countries accounted for only 2% of China’s total trade volume. The European Union and the United States have much larger shares, according to Chinese customs statistics last year.

Here are some steps Beijing has taken in recent weeks to distance itself from isolated and crumbling Russian economy.

Drop the ruble

China’s currency, the yuan, does not trade completely freely, instead moving within bands set by People’s Bank of China (PBOC) officials. Last week, they doubled the size of the ruble trading range, allowing the Russian currency to fall faster.

The ruble has already lost more than 20% its value against the dollar and the euro since the start of the war in Ukraine. By letting the Russian currency fall against the yuan, Beijing is doing Moscow a disservice.

Russians will have to pay more in rubles for Chinese imports such as smartphones and cars. Chinese phone brands like Xiaomi and Huawei are hugely popular in Russia and rivaled Apple (AAPL) and Samsung (SSNLF) for market leadership before the war.

Chinese automakers, such as Great Wall Motor and Geely Auto, occupy 7% of the Russian market, selling more than 115,000 vehicles last year. Great Wall Motor has stopped supplying new cars to dealers in Russia due to fluctuating exchange rates.

Widening the trading band would allow the yuan to follow the ruble’s wild swings, so that Chinese companies can “better grasp the magnitude or trend of future exchange rate fluctuations and reduce currency risks by using hedging methods, such as derivatives,” said China Business Network reported last week.

Currently, around $25 billion of Sino-Russian trade is conducted in yuan, Chinese state media reported.

Sitting in the reserves

The biggest help China could offer Russia is the $90 billion in reserves Moscow holds in yuan, Alicia García-Herrero, chief Asia-Pacific economist at Natixis, wrote in a statement. research report released on Tuesday.

The sanctions froze about $315 billion of Russia’s reserves – about half of the total – as Western countries banned dealing with Russia’s central bank.

Russian Finance Minister Anton Siluanov said this week that the country wanted to use yuan reserves after Moscow was barred from accessing US dollars and euros, according to Russian state media.

The PBOC has not yet commented on its position on these reservations.

If China allowed Moscow to convert its yuan reserves into US dollars or euros, “it would clearly help Russia’s current stalemate,” García-Herrero noted. However, “the reputational risk of potentially breaching Western sanctions would be a huge step for the PBOC to take and therefore makes it highly unlikely,” she said.

“The long-term gains of a rapprochement with Russia may not match the impact of Western investors’ sudden disinterest in China,” she added.

aircraft parts retainer

The sanctions imposed by the United States and the European Union mean that the world’s two main aircraft manufacturers, Boeing (BA) and Airbus (EADSF), are no longer able to supply spare parts or provide maintenance support to Russian airlines. The same goes for jet engine manufacturers.

That means Russian airlines could run out of parts within weeks or fly planes without equipment being replaced as often as recommended for safe operation.

Why China won't put its economy on the line to save Putin

Earlier this month, a senior Russian official said China had refused to send plane parts to Russia as Moscow sought alternative supplies.

Valery Kudinov, head of aircraft airworthiness at the Russian air transport agency, was quoted by Russian state news agency Tass as saying that Russia would look for opportunities to source parts from countries like Turkey and India after a failed attempt to get them from China.

“As far as I know… China refused,” Kudinov reportedly said.

In response to CNN’s request for comment, the Chinese Foreign Ministry reiterated Beijing’s decision opposition to the sanctions adding that China and Russia will maintain “normal economic and trade cooperation”.

China and Russia set up a civil aviation joint venture in 2017 to build a new long-haul jumbo jet, seeking to compete with the Boeing and Airbus duopoly. Production of the CR929 began, but disagreements over suppliers caused delays. The aircraft was originally scheduled to be offered to customers in 2024. But Russia postponed the schedule to 2028-2029.

Infrastructure investment freeze

The World Bank halted all of its programs in Russia and Belarus following the invasion of Ukraine. It had not approved any new loans or investments in Russia since 2014, and none in Belarus since 2020.

Perhaps more surprisingly, the Beijing-based Asian Infrastructure Investment Bank’s decision to do the same. In a statement released earlier this month, it said it was suspending all Russian and Belarus-related activities “as the war in Ukraine unfolds.” The move was “in the best interest” of the bank, he added.

Frustrated by a relative lack of influence at the World Bank (based in Washington, DC) and the Asian Development Bank (where Japan is a major force), China launched the AIIB in 2016. In addition to hosting the headquarters, China provides the bank’s president and holds 26.5% of the vote. India and Russia have 7.6% and 6% respectively.

The AIIB’s decision to suspend operations in Russia means that $1.1 billion in approved or proposed loans aimed at improving the country’s road and rail networks are now suspended.

— CNN’s Beijing bureau and Hannah Ritchie in Sydney contributed to this story.