Russian economy becomes heavily reliant on China
Expert opinion on Caliber.Az

ANALYTICS  22 October 2023 - 14:54

With the outbreak of the conflict in Ukraine, the Russian economy has become increasingly dependent on the Chinese economy. China is gradually replacing Western countries that have partially severed economic relations with Russia. Trade turnover between China and Russia this year could reach $200 billion. The influence of China is diverse and develops along many lines.

Export of Russian energy resources to China

China has become one of the largest buyers of Russian oil. In addition, Russia is counting on the construction of the Power of Siberia-2 gas pipeline to China, but Beijing is still cool about it. It seems that Beijing intends to strictly dictate its terms on fuel prices, taking advantage of Russia's growing dependence on the Chinese market. President of the Russian Institute of Energy and Finance, Marcel Salikhov, points out that 40% of Russian energy exports go to China, compared to 20% before February 24, 2022.

At the same time, China (as well as India) is very cautious about these purchases, not wanting to become unilaterally dependent on Russian oil. According to Salikhov, both countries do not want to take too large a share of Russia's supplies. Therefore, Russian oil competes with Iranian and Saudi oil in their markets.

Chinese technology is becoming a key

“Economically, dependence on China is most pronounced precisely when it comes to Chinese technologies. Back in 2016, China replaced Germany as the main supplier of technology to Russia, and since 2022 it has become the only one,” says sinologist Temur Umarov, a researcher at the Carnegie Berlin Center for the Study of Russia and Eurasia.

Deliveries of Chinese goods

Since the start of the conflict in Ukraine, Russia has been able to redirect some of its trade ties eastward—primarily to China (but also to India and Türkiye). From here, machine tools, cars and other goods needed by Russian industry began to be supplied to the country.

Import of Western goods through China, bypassing sanctions

After February 24, Russia began to develop parallel imports - bringing sanctioned Western goods into the country. It is through China that perhaps the main route for parallel imports runs.

The Chinese yuan is firmly entrenched in Russia

With China becoming Moscow's main trading partner, Russian companies have few options for storing foreign exchange reserves or making international payments. China is benefiting from this situation. It subsidizes its economy with cheap Russian fuel, which cannot be sold in the West and is sold in China much cheaper. At the same time, Beijing demands that settlements with it be carried out only in yuan and only through China, i.e. Russian companies are required to store their yuan in Chinese banks and buy Chinese goods with them. All together this is a huge subsidy for the Chinese economy.

Growing political influence

Beijing is becoming a force without which stabilization of the economic situation in Russia is impossible. This allows it to expand his political influence on Russian politics.

According to leading Russian sinologist Alexander Gabuev, China is interested in maintaining the current situation in Ukraine. As long as the West sluggishly funds Ukraine, allowing it neither to win nor to lose, this means it (the West) is deeply immersed in the conflict. If President Biden's administration also becomes involved in the growing confrontation between Israel and Iran, and begins to act equally sluggishly, then bottles of the best champagne will be opened in Beijing.

In the current situation, the collective West, especially the United States, cannot afford to focus on the confrontation with China, the new rising superpower and its main competitor. This state of affairs allows the Chinese leadership, as Gabuev puts it, “to sit on the Chinese wall with their legs dangling, extracting benefits.” The PRC simultaneously received the weakening of the West, which was unable to solve the Ukrainian problem and concentrate resources against Beijing, and the benefits from the fact that Russia began to subsidize the Chinese economy.

China is interested in this situation continuing indefinitely. In addition, he is afraid of a change of leadership in Moscow and the return of pro-Western groups. Therefore, Beijing will use its growing influence over Russia, firstly, to help the current leaders in the Kremlin, and, secondly, to ensure that the current situation in Ukraine persists for as long as possible.

This does not mean that China intends to supply weapons to Moscow, although supplies of dual-use goods are possible. Xi Jinping is too afraid of losing the giant markets of the US and Western Europe, because in this case, the Chinese economy will collapse. This threatens the uprisings of the very active Chinese working class. The spectre of the Beijing Independent Workers Union (IPLU), a formidable organization that rapidly grew in power and threatened to seize factories and overthrow the Communist Party during the Tiananmen Square massacre in 1989, still haunts the PRC leadership even after the organization was destroyed. An economic downturn would look especially alarming against the backdrop of strikes in modern China.

China's trade turnover with the United States and Europe is approaching $2 trillion, exceeding trade turnover with Russia by 10 times. At present, China cannot risk new sanctions and the loss of European and American markets. In addition, China keeps its foreign exchange reserves in dollars and gold (about 3.4 trillion dollars), and, of course, is not interested in their depreciation and loss of the American market.

For these reasons, it is still impossible to talk about the existence of a full-fledged military-political bloc between Moscow and Beijing. There are no economic conditions for this - a more or less self-sufficient sphere of economic cooperation. It is the emergence of such a sphere that usually creates the economic conditions for the outbreak of a world imperialist war. Today it doesn't exist. Therefore, it is rather necessary to say that China is using rapprochement with Russia to extract economic benefits and geopolitical weakening of the West. But this does not exclude the possibility of the emergence of a military-political bloc in the future.

Caliber.Az