Analysis

ANALYSIS - Russia-Ukraine war: Opportunity or threat for China?

In the short term, Russia's growing dependency on China and uncertain relations between Russia and western countries creates opportunities for Beijing

Yunis Sharifli   | 23.03.2022
ANALYSIS - Russia-Ukraine war: Opportunity or threat for China?

The writer is a Junior Research Fellow at the Caucasian Center for International Relations and Strategic Studies (QAFSAM).

ISTANBUL

There is a range of debates on how the war between Russia and Ukraine affects China's short and medium-term position. Some experts see war as an opportunity, but others see it as a threat to China's political and economic status in the international system.

War creates both political and economic opportunities for China. First, the war destroys the possibility of the rapprochement of Russia and western countries in the medium term. This situation creates a better condition for the future of the Sino-Russian strategic partnership and increases the leverage of China over Russia.

Second, Russia's attack on Ukraine diverts the US attention from the Indo-Pacific to Europe. This situation may help China strengthen its position in East and South-East Asia in terms of military and economic performance. Finally, war gives China a chance to observe how the US and EU countries react to military operations in another country which is an essential experience for China's future policies for Taiwan.


Economic opportunities for Beijing

There are also different economic opportunities for Beijing. Sanctions on Russia and the withdrawal of western countries' companies, such as BP, may increase the dependency of Russia on China's capital and technology. It is difficult for Russia to explore and realize new projects in Siberia and the Arctic region without western countries' investment. In this condition, Russian companies and the inner circle of President Putin, such as Igor Sechin and Gennady Timchenko, will promote new projects with China, especially in the energy sector. For example, Gazprom's announcement that it had secured a contract to develop a natural-gas pipeline for China demonstrates that fresh transactions with China are already being actively pursued. Sanctions on Russia and the promotion of new contracts with China can strengthen China's lobbying power in the domestic policy of Russia and strengthen China's position in the process of negotiating energy prices.

Chip sanctions on Russia also create new opportunities for Chinese companies to increase their market share in Russia. At the moment, nearly a third of Russia's chip imports come from China. Moreover, any possible withdrawal of companies that supply telecom equipment to Russia may strengthen Chinese companies' position, such as Huawei, in Russia.

Finally, strained relations between the West and Russia can accelerate the de-dollarization process. Due to sanctions, prominent Russian banks are banished from the main global payments system SWIFT. In this situation, Beijing and Moscow may promote using the yuan in bilateral trade. Promoting the de-dollarization and supporting the yuan can help China internationalize the yuan, increase its financial and economic presence in the international system and create a cushion against economic downfall due to sanctions.

Threats for China

There are also different threats for China. To begin with, China's new energy accords with Russia, as well as its attitude on Russia's security concerns, have increased the sense of a threat to the Russia-China axis. Growing threat perception about Sino-Russian relations would negatively affect China's relations with western countries.

Furthermore, unlike in 2014, Russia's invasion of Ukraine did not divide western countries, but rather forged a united front against Moscow. Consolidation of transatlantic relations would be a big concern for China in the long run, according to the rising "China Threat" perspective. Because, following Russia, Western countries will be able to impose unified sanctions on China and step up their containment operations against Beijing.

China may also face different economic threats. Since three separate routes pass through Russian territory, Russia plays an essential role in the Belt and Road Initiative (BRI). The New Eurasian Land Bridge is critical for railway connectivity between China and the European Union. Sanctions against the financial industry, as well as growing uncertainty about Russia's internal policy, will have an impact on foreign companies' decisions. They may advocate for Russia's use as a primary transit country to be phased out. China's land-based connectivity with the EU may be jeopardized as a result of Russia's invasion of Ukraine.

Advantages in short-term, challenges in long run

The war not only harmed Russia's transit potential, but also damaged Ukraine's transit hub potential. Ukraine's geography creates opportunities for China to improve its connectivity and trade relations with Central European and Balkan countries. However, Ukrainian Railways terminated all ties with JSC Russian Railways due to the war. This situation increases China's dependency on maritime routes and damages Sino-EU land-based trade in the short and medium-term in the era of growing Sino-American competition.

War also causes an increase in energy and agricultural products prices. Increasing prices, despite China's new wheat and energy deals with Russia, have a detrimental influence on China's economic growth by reducing consumer purchasing power. Prices affect not only Chinese citizens, but also the purchasing power of other nations, which has an indirect impact on China's exports. Both of these problems have the potential to stifle China's economic growth and derail its dual-currency policy.

Finally, instability in Ukraine may damage the chip production of Chinese companies because Ukraine provides 70% of neon gas to the world, which is a crucial ingredient for the production of semiconductors. Any disruption in the supply chain would influence China's chip industry.

In the short term, Russia's growing dependency on China and uncertain relations between Russia and western countries create opportunities for Beijing. However, in the medium term, disruption in the supply chain, increasing energy prices, and instability in the northern railway corridor will affect China's economic relations with the EU negatively and decelerate the progress of BRI. In the long run, the primary challenge to China will be the political strengthening of transatlantic connections and growing skepticism of the China-Russia axis, as the US increases its containment efforts through the QUAD and AUKUS.

*Opinions expressed in this article are the author's own and do not necessarily reflect the editorial policy of the Anadolu Agency.

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