Vladislav INOZEMTSEV. A Major Pause in Relations Between Russia and China

Before Vladimir Putin could complete the reshuffle in the government and his administration, he headed to China. This visit can hardly be called spontaneous, however: Moscow was the first visit of Chairman Xi when he initially took power in 2013 and again after he stayed on for a third term in 2023, while the dates of the Russia-China exhibitions and forums timed to coincide with Putin’s visit have long been known. Almost half the government and a number of other officials accompanied Putin to Beijing, but this is not surprising either: given the importance of China for Russia, taking part in such a visit is the dream of every bureaucrat.

Still, the Russian and Chinese assurances about a “comprehensive partnership and strategic cooperation” should not be taken too seriously – they have been made before and will continue to be made.

What was discussed in Beijing?

There were two main topics for discussion in narrower and wider formats: first, the situation around Ukraine, the outlook for the protracted conflict and ways out of it; second, a wide range of issues related to economic cooperation and countering sanctions, which have long been put in place against Russia and may well affect China moving forward.

The war being waged by the Kremlin against Ukraine evokes a very ambivalent attitude in Beijing. On the one hand, it puts China in a delicate position, since it cannot openly criticize its ally,while on the other hand, the West’s growing rejection of Putin’s Russia is inevitably beginning to color its attitude toward China, which is objectively becoming an indispensable ally to Moscow.

Beijing has found itself in a position where it is not condemning aggression against a sovereign state but rather unilateral discriminatory measures that were introduced in response to that aggression and that, due to the actions of the Russian leadership, are quickly becoming some of the most serious means of economic pressure the modern world has seen.

At the same time, China continues to yammer that it is acting to resolve the conflict on the basis of respect for international law and the UN Charter and supports the territorial integrity of the Ukrainian state. Taken together, these statements look so contradictory that the perception of Beijing as a responsible player in the international arena is gradually being eroded.

At the same time, the war has been quite beneficial for China and provides it with important lessons to be learned. Beijing can clearly see the shortcomings of the Russian army, built on Soviet models, and analyze its strategic and tactical failures; it can correct ideas about the importance of the navy and unmanned vehicles in modern warfare; and it can assess the West’s attitude toward supporting Ukraine and project it onto Taiwan. Beijing is also becoming aware of the need for large-scale defense production, crucial in a protracted conflict.

Russia as a vassal of China

With Russia’s isolation, Beijing in recent years has received a large vassal, which depends on China to import oil and gas (China is the largest buyer of Russian hydrocarbons, taking 24% of Russian gas exports and 50% of oil and petroleum product exports) and to export technology goods (the Chinese share of Russian imports across many goods has reached 70-90%).

During Putin’s recent visit, the sides apparently discussed the situation in Ukraine at length, yet this provides no grounds to expect new positions to emerge. Moscow and Beijing are united only on the following points: [the West] should not “add fuel to the fire” by supplying weapons to Kyiv; China and Russia should jointly oppose the US line of so-called “dual containment;” and “for a sustainable resolution of the Ukraine crisis it is necessary to eliminate its root causes and adhere to the principle of the indivisibility of security, taking into account the legitimate interests and concerns of all countries in terms of security.”

This position on how to resolve the conflict was announced by Beijing over a year ago and delighted neither Moscow nor Kyiv: the former because it did not mention the territories seized by Russia; the latter because it did not formulate any preconditions for discussing peace terms.

The recent discussions in Beijing touched upon the upcoming conference in Switzerland where the Ukrainian peace plan is to be discussed, even though that looks less and less realistic against the backdrop of Russian advances on the ground in Ukraine. Moscow and Beijing emphasized that they would only welcome a summit at which Russia would also be represented, which prompted the leaders of Brazil and South Africa to back out of going to the conference in Switzerland.

It is entirely possible that China would like to be an effective mediator, since it has influence on Russia – but so far it has not decided to put serious pressure on Moscow to force it to negotiate. Thus, I would call the current situation a strategic pause. In Beijing, Putin is unlikely to have achieved a breakthrough on key areas of military-technical cooperation with the PRC, while Xi likely did not even try to lean on his Russian counterpart to negotiate with Kyiv. During the visit, in fact, more and more radical statements came out of Moscow, and Putin himself spoke about enlarging the “buffer zone” in Ukraine.

The limits of economic cooperation

Economically, there is a feeling that cooperation has reached its limit. In industries where China is particularly strong – electronics and telecommunications, automotive manufacturing, smartphones and computers – its penetration of the Russian market is so deep that there is nowhere to significantly expand (last year China accounted for 92% of Russian car imports and almost 80% of smartphones).

For years, Moscow and Beijing have discussed moving away from the dollar in bilateral trade in favor of rubles and yuan, which is now more than 90% of payments – however, US threats to exclude from dollar transactions Chinese banks that settle payments for trade with Russia are bringing all these efforts to naught. Trade with Moscow is becoming a corpus delicti, regardless of the currency in which payments are made.

In fact, the US threats have already been taken into account: Chinese banks are delaying for weeks and even months payments to Russian companies and the processing of funds received from them. The appearance in Beijing of Central Bank Chair Elvira Nabiullina, along with the heads of the largest state banks, also speaks volumes. Official communications on these negotiations have been vague.
Finally, energy cooperation has reached a satiation point.

Last year marked a record for bilateral trade ($227 billion according to Russian estimates, and $240 billion on Chinese numbers), but no one knows when it will be surpassed: Russia’s imports from China have declined for two months in a row.
As for Chinese investment in Russia, there has been no mention of it: Beijing is faithful to its strategy of not creating industrial competitors on its borders, while the Chinese’ setting up shop at firms where Western investors were “squeezed out” may be fraught with complications for Chinese goods in Europe and the US. Thus, the pause in Russia-China economic cooperation today is no less noticeable than that in their political dealings.

How long might the pause last?

In my view, Beijing has no need to take any definite action right now. The Russia-Ukraine war can only escalate in the coming months: Moscow will seek to expand its offensive, while Kyiv will try to prove to its Western allies that, with the aid coming from them, it is able to effectively resist Russian aggression. Meanwhile, the Kremlin has explicitly stated that it has no one to talk to in Ukraine. According to Putin, it is necessary to communicate with the country’s “legitimate leadership,” in question since Volodymyr Zelensky’s term formally ended this week.

Economically, China will be monitoring the actions of the US, being cautious in supplying Russia with critical components – many experts say that up to 90% of the electronics used by the Russian military-industrial complex today comes from China, and limited supplies may cause problems in two or three months – and turning down any major deals.

There is no doubt that Moscow and Beijing will work to set up a semi-legal nonbank settlement system (there is much talk about the possibility of a blockchain payment system within the BRICS bloc), where Western financial monitoring will have a hard time tracking transactions. How quickly such a system will emerge and how popular it will be is still impossible to even imagine. Meanwhile, negotiations on opening fully functioning branches of Russian banks in China, it seems, have been called off.
The events on the calendar this summer are unlikely to be game-changing: a decision on whether and how to confiscate Russian assets is unlikely to be made either at the conference on support for Ukraine in Germany or the G7 summit in Italy. In addition, the Washington NATO summit is likely to punt on the issue of Ukraine’s membership in the alliance. Therefore – and I am hardly the first to say it – any meaningful moves are likely to come only after the US elections: if Trump wins, events will begin to develop much faster; and in the event of a Biden victory and the status quo holding, decision-makers will have their work cut out for them.

Russia-China relations today are somewhat reminiscent of US-Ukraine relations – even though Moscow, of course, is not as dependent on Beijing as Kyiv is on Washington, many analogies can be drawn. China accounts for 30.3% of Russian export earnings, while if we take into account the fact that the Chinese are beginning to settle through barter or illiquid assets, then it is more than 40%.

China leading the anti-Western coalition

Meanwhile, China is avoiding falling into the same dependence on Russia, which accounts for about 20% of Chinese gas imports and a little less than19% of Chinese oil imports.

Beijing understands perfectly well how important its political support is for Moscow: it is China that is leading the “anti-Western coalition,” in which Russia is the most irresponsible but far from the main player. For that reason, I am convinced that the Chinese are just as capable of putting pressure on Moscow as the Americans are of putting pressure on Kyiv. At the same time, neither Beijing nor Washington is going to do that at this point, largely because they do not understand how they might gain and what new political configuration might emerge if the war ends.

Both Beijing and Washington have repeatedly stated that a settlement should be the product of negotiations between Moscow and Kyiv, yet achieving serious agreements without the participation of China and the US is impossible. Meanwhile, neither great power is pursuing a diplomatic solution, as they are afraid to talk behind the back or on behalf of their junior partners – and this situation looks set to hold until Ukraine and Russia completely exhaust the possibilities of destroying each other.

Today, Russia is China’s biggest geopolitical plaything. During his time in power, Xi Jinping has met with Putin more than 40 times – at least twice as much as with any other head of state.

Relations with Moscow are very convenient for Beijing: almost no uncomfortable questions are raised; Russia’s proposals are becoming more and more favorable for China; and the Kremlin does not have the ability to ram through its demands. China sees Russia as a minesweeper heading in the same direction that Beijing itself, were it less rational and cautious, would go.

Now, apparently, Chinese leaders have decided to let this machine do its own thing for a while and see how it goes: this is how I explain the pause that is taking shape in Russia-China relations and that Putin’s visit to China was unable to break.

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