by Balinder Singh 28 July 2023
Introduction
The historical relationship between China and Russia, ranging from allies to adversaries, and how they have grown closer in recent decades, forming a strategic partnership challenging the US-led international order. It highlights the declaration of a strong partnership between Chinese President Xi Jinping and Russian President Vladimir Putin during the Winter Olympics on February 4, 2022, aiming to upend the current international order. However, shortly after the partnership announcement, Russia’s military operation in Ukraine led to China suspending or delaying some investment projects in Russia. Despite the initial impact of the Ukraine conflict on Chinese investments in Russia. China has since resumed some investment activity. These investments during and after the Ukraine war and analyze their geostrategic and geoeconomic implications for both countries and the broader global context.
China-Russia Economic Relations
During a visit to Beijing, Russia’s Prime Minister, Mikhail Mishustin, and Chinese officials signed bilateral agreements to deepen investment in trade services, promote agricultural exports, and enhance sports cooperation between the two nations. This visit is significant as Mishustin is the highest-ranking Russian official to visit China since the war in Ukraine began. Despite China claiming to be a neutral mediator in the conflict, its relationship with Russia has grown stronger since the invasion of Ukraine. The G7 leaders’ call for Russia and China to be more transparent about their nuclear arsenals has further highlighted the geopolitical divide between China and Russia on one side and the US and its allies on the other. Mishustin assured China’s leader, Xi Jinping, that both countries would resist attempts by other nations to impose their will through sanctions. The trade between Russia and China has seen a substantial increase since the start of the invasion, with bilateral trade expected to reach $200 billion in the current year, up from $190 billion in the previous year. Additionally, Russian energy shipments to China are projected to increase by 40% this year, indicating a strengthening economic relationship between the two countries (The Economic Times, May 24, 2023).
Key sectors of investment and trade between China and Russia
Trade between China and Russia has seen a significant increase in the first three months of the current year, reaching $53.8 billion, a nearly 40% rise compared to the same period in 2022. China’s customs authorities have recently added Russia’s Vladivostok to its list of transit ports, providing the Chinese with access to the city for the first time in 163 years since it was ceded from the Qing dynasty. The friendship between China and Russia, described as no limits has grown stronger since the start of the Ukraine war, with Russia relying on China for economic and political support. China’s President Xi Jinping considers Russian President Vladimir Putin an ally against the US-led global order and has suggested that the Ukraine conflict was partly provoked by the expansion of NATO. China has criticized plans for NATO to open a liaison office in Japan, expressing concerns about the alliance extending its influence into the Asia-Pacific region. China’s special representative for Eurasian affairs, Li Hui, has visited Russia and Ukraine to promote Beijing’s mediation efforts, although some Western countries view these efforts as futile due to China’s close relationship with Russia (Wang, 2023).
China’s Expanding Investments in Russia
China and Russia due to an easing of trade tensions and mutual assurances on border disputes. Since 2014, both countries have reached agreements in various sectors such as trade, energy, finance, technology, and aerospace, while also increasing diplomatic and defense cooperation. The bilateral trade has expanded, with China accounting for a significant portion of Russia’s trade (18%), while Russia represents a smaller share (2%) of China’s trade. Russia provides strategic exports to China, including energy, fertilizer, and metals, while China increasingly relies on Russia for crude oil, natural gas, and coal.
After Russia’s 2022 invasion of Ukraine, China lifted import restrictions on Russian wheat, indicating a potential deepening of bilateral ties in response to Russia’s limited access to global markets. Additionally, disruptions in Ukraine’s agricultural exports could impact China’s access to crucial food products, leading China to seek alternative suppliers and potentially crowd out other countries seeking scarce food and energy resources. Overall, the geopolitical developments and global shortages may further strengthen the economic relationship between Russia and China (USNI News, May 26, 2022).
Projections for China-Russia economic relations amidst geopolitical complexities
China’s interest in Russia’s far eastern Khabarovsk Krai province has grown due to its unexplored energy and mineral reserves and its potential as a land-based energy supply route to China. The historical links between China and the region, as well as geopolitical developments, have changed the dynamics of the bilateral relationship. As Russia faces alienation from the Global North, it has increasingly turned to China as its most steadfast contemporary partner. Moscow seeks to boost its economy by providing China with access to its oil and gas reserves and facilitating China-financed development and energy exploration in various regions of Russia, including Amur, Siberia, and the North. One notable example of this collaboration is the Power of Siberia pipeline, which exports gas to China and is set to be expanded with the addition of two more branches, Power of Siberia 2 and 3, further increasing gas supply to China. Beyond energy, Chinese investments in Russia since the Ukraine war also extend to other sectors, such as mining and infrastructure development. The growing economic cooperation between the two countries indicates a deepening of their bilateral ties and collaboration in various strategic areas (Ener data, March 23, 2023).
Global geopolitical tensions and their impact on international investments
How both China and Russia have utilized bilateral currency swaps to conduct trade, protecting their payments from Western sanctions. Chinese banks like Harbin Bank, China Construction Bank, and Agricultural Bank of China, less reliant on the SWIFT and US dollar-dominated international financial system, are facilitating trade in bilateral currencies. Additionally, with the exit of many Western multinational companies from Russia after February 2022, Chinese companies have stepped in to fill the void. Eleven Chinese automobile companies are projected to capture a significant share (40%) of the Russian market, up from 6% in 2021. Household appliance exports from China to Russia also saw a substantial 40% year-on-year increase in 2022. Chinese smartphone companies like Xiaomi and Realme have dominated the Russian market, accounting for 70% of the sector. However, there are also contradictory trends. The fear of Western sanctions has led major Chinese tech companies like Huawei and DJI to withdraw from Russia, disappointing Moscow. Even Chinese state banks, such as ICBC and China Development Bank, have scaled back their operations in the country. China-Russia economic relations, with both countries finding ways to bolster trade and investment while navigating the impact of international sanctions and geopolitical tensions (ALARABIYA news, March 10, 2023).
Escalating tensions between Russia and Western countries
Chinese investments in Russia’s Far East region, particularly in infrastructural projects. Russian Deputy Prime Minister Yury Trutnev stated that over 90% of Foreign Direct Investment (FDI) in the Far East, totaling 26 projects worth $1.6 billion, were being financed by Chinese state companies, representing a 150% year-on-year increase in Chinese investments. China has also become the Far East’s largest trading partner, with a record year-on-year increase of 45% in trade between January to August 2022, reaching $14.3 billion. The Far East region is of strategic importance for Russia in attracting Chinese investments. Additionally, both countries have utilized the Power of Siberia pipeline to reduce dependence on Western energy supply chains. Russia has become China’s top energy provider in 2023, surpassing Saudi Arabia and Iran. China is buying Russian crude due to its lower prices, saving approximately $11 billion on energy imports in 2022. Russia and China, with significant Chinese investments in Russia’s Far East and the strategic utilization of energy resources to enhance their bilateral relationship (Russia Briefing, December 13, 2022).
Conclusion
While Chinese investments provide immediate benefits, there are concerns about potential long-term risks. Russia’s increasing reliance on China could lead to a loss of sovereignty and control over key sectors of its economy. To mitigate these risks, it is essential for Russia to diversify its energy exports and avoid creating irreversible geoeconomic and strategic dependencies on China. positive effects of Chinese investments on Russia’s economy but also underlines the importance of cautious management to avoid over-reliance and maintain economic sovereignty. Chinese investment in Russia spans various sectors like energy, infrastructure, and transport. This influx of Chinese capital has been beneficial for Russia as it helps counter the impact of Western sanctions and supports the country’s economic growth. However, this growing dependency on China also brings along challenges and risks.
References
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Ener data. (March 23, 2023) Russia announces progress with China on the Power of Siberia 2 gas pipeline. Available online: Available online: https://www.enerdata.net/publications/daily-energy-news/russia-announces-progress-china-power-siberia-2-gas-pipeline.html. (accessed on 27 July 2023).
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