Russian bear and Chinese dragon: rivals, allies or profitable partners?
Analysis by Maxim Petrov

ANALYTICS  25 July 2022 - 14:56

"China is sitting, dangling its feet on the Great Wall, and is trying to benefit from the situation," Russia's prominent Sinologist Alexander Gabuyev says. What kind of benefits is he talking about?

China's official position on the conflict in Ukraine has several dimensions. First, Beijing publicly blames the West for what happened, saying that it was "the ambitions of the West and the role of NATO, an alliance that has constantly sought to expand, that led to Russia's actions in Ukraine."

Second, the PRC says it recognizes "the integrity of Ukraine, does not recognize Russia's annexation of Crimea, and does not recognize the DPR and LPR. This is a principled position. China rejects any separatism, for it does not recognize the independence of Taiwan, an island that is a de facto independent state, but at the same time is seen by Beijing as an integral part of the country.

Thus, China's diplomacy gains room for maneuvering. China is telling Russia that the West and the United States are to blame for everything and are behaving badly. They tell the West something different - "we are for the integrity of Ukraine." China tells everyone what they want to hear and this is a convenient position.

But what do they really think? The PRC rather benefits from what is happening. The US has declared China the main challenge in its national security strategy. The Americans would like to shift all their activity to East Asia, to counter China. They are embarrassed by China's growing economy, the second largest on the planet, as well as China's growing military power. Finally, the US would like to protect its ally, Taiwan, from being taken over. But right now all American attention is focused on Ukraine. And while they are dealing with Ukraine, and sending significant resources there to confront Russia, China got a breather.

On the other hand, there are disadvantages for China in everything that is happening. There has been a consolidation of the West under the auspices of the United States. At the same time, China saw relations with Europe as an opportunity to develop its economy and diplomacy. China does not like the fact that Europe is now under the renewed control of its main opponent, America. In addition, the Chinese are worried that the US is restarting its military-industrial complex, and this awakened giant is capable of many things. Nevertheless, in this situation, the benefits for China outweigh the costs.

When thinking about politics and geopolitics, one should keep in mind another dimension of great importance - the economy. China's trade turnover with the United States and the European Union exceeds China's trade turnover with Russia by approximately ten times. In addition, despite all the efforts, China is not yet able to achieve effective import substitution and is very dependent on the technological chains associated with the US and the European Union. Without them, China would be deprived of a number of critical components that ensure its ability to produce goods, and we are talking about key areas.

China is striving for import substitution, but there are still many gaps (modern semiconductors, rocket turbines, some types of high-speed bearings, etc.) and it is not a fact that the Chinese will be able to fill them in the foreseeable future. It is possible that they will not be able to do it in principle, since the production of machines designed for the production of the latest semiconductors is concentrated in the USA, Japan, and the Netherlands, and the Americans are currently trying to create a "semiconductor OPEC" so that these machines do not end up in China.

In addition, the PRC is making tremendous efforts to create a new generation of infrastructure. These are promising investments (public and private) in digital platforms, super high-speed trains, supercomputers, etc. With such measures, Beijing is trying to solve two problems at once - to stimulate economic growth and to move to a new scientific and technological way of life. The problem is that so far China has not achieved full import substitution, and it is not certain that it will, and without cooperation with the West such ambitious programs worth trillions of dollars cannot be implemented.

And finally, China is much more sensitive to mass protests than Russia. In the late 1990s, China saw a rise in the strike movement. The economic downturn in this country could cause major protests of the working class, as well as of the middle strata dissatisfied with the fall in living standards.

It is based on these considerations that Beijing generally complies with US and European sanctions against Russia. It fears that if it fails to comply with them, it may itself become a victim of sanctions, which, as follows, would undermine its economic and political systems. Therefore, Chinese exports to Russia have fallen sharply.

On the other hand, in the areas of trade with Russia that are not prohibited by sanctions, China is achieving growth. China has sharply increased its purchases of Russian oil. Since this oil cannot now enter the European market, the Chinese buy it at a huge discount of 30% (on the Chinese market, Russian oil competes with Iranian oil, which is also sold to China at large discounts).

To summarize: China will comply with sanctions against Russia. At the same time, China wants to fill all the niches left by Western companies leaving Russia. China will try to become partner No. 1 for the Russian economy, preserving and strengthening the partnership of its industry with Russian mining companies, which provide it with cheap raw materials and thus subsidize it. And this goal is quite realistic and achievable.

This will mean a gradual increase in Moscow's dependence on Beijing. The Chinese will try to influence Moscow's foreign policy by directing it in a course that is convenient for them. This is still a long way off today. But as Russia's economic dependence grows, China will increasingly pay attention to Moscow's politically disadvantageous decisions - from the sale of Russian weapons to India, China's rival, to the participation of Russian oil companies in certain developments, say, in the disputed territories of third countries and China. There have already been examples of the latter, and Moscow retreated under pressure from Beijing.

Although China's leaders are unlikely to interfere in Russia's domestic politics, it should be remembered that they benefit from an anti-Western government in Russia and do not benefit from a pro-Western one. After all, in the latter case, the US will finally be able to concentrate its resources in East Asia, directing them to contain China, and Moscow will help Washington.

We cannot know for sure to what extent China will influence Russian policy in the future. But in the event that China's economic influence on Russia (its GDP exceeds Russia's by 10 times) will grow rapidly, it cannot but affect Moscow's course.

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