The Ukraine war is also a “turning point” for China. Politically, the “friend of Russia” maneuvered into the sidelines. Economically, the risks are great.
Beijing – The conflict over the Russian invasion of Ukraine is exacerbating economic uncertainties for China.
The sanctions and skyrocketing energy prices are also affecting Russia’s “strategic partner”, which is not only in a political dilemma. Economically, too, it is a tightrope act for the second largest economy. China’s cooperation with the US and the EU is far more important than with Russia, which is economically as big as Belgium and the Netherlands combined.
“It will be a difficult balancing act for China,” says Max Zenglein from the China Institute Merics in Berlin. Since China is very international, there is a lot at stake: “China will be careful that the relationship with Russia does not endanger its long-term interests,” believes the expert. “The war also creates confusing challenges for the Chinese economy, from which it cannot isolate itself.”
The sanctions, which largely exclude Russia from the Swift international banking communications network, are having “a very negative impact” on Russia-China trade, particularly for Russian oil and gas imports, notes Beijing People’s University professor Shi Yinhong. In addition, energy prices have skyrocketed – to the detriment of China, which is one of the world’s largest energy importers and is already under economic pressure.
Although China rejects the sanctions against Russia, the professor believes it will abide by them so as not to alienate the West or become the target of sanctions itself. “China’s banks have a close relationship with the world financial system, which is very important for China,” says Shi Yinhong. China will not take any risks for its own banking system, even if it wants to help Russia to overcome difficulties – “as much as possible”.
Chinese banks in Singapore were among the first to stop issuing letters of credit, according to Jörg Wuttke, President of the European Chamber of Commerce in China. “You couldn’t see how the banks behaved in compliance with the sanctions and shut everything down so quickly,” says Wuttke. “Behind it is the fear of the Americans,” a senior Chinese source told him. China will not circumvent the sanctions: “Like good students, the Chinese will do everything possible to ensure that their companies know exactly what they are doing when they get involved with the Russians.”
“Now China has to shop elsewhere”
The Chinese will also face other setbacks. Not only do they suffer from rising prices for imports of energy, but also of grain. Trade with Ukraine, where China owns entire fields of wheat, is important. But nothing can be imported from there because the ports are blocked. “Now China has to shop elsewhere, and shopping elsewhere is always expensive,” says Wuttke. China can only benefit from Russia’s auto industry, where Western manufacturers are withdrawing and China could now perhaps export more cars.
One of the winners of the conflict could also be the Chinese interbank system CIPS (Cross-Borger Interbank Payment System), which China created in 2015 for its New Silk Road initiative – also to promote the use of the yuan as an international currency and to reduce dependence on the dollar . But it doesn’t have the capacity to replace Swift.
Only 76 banks participate directly, mostly offshoots of Chinese banks abroad. The 672 indirectly involved banks, including institutes from Russia and international names, mostly work unchanged within this mechanism via Swift. Both systems complement each other rather than compete.
Politically, China is doing the impossible to stay out of the conflict and continue to stand shoulder to shoulder with Russia against rival US. Beijing neither condemned nor condoned the invasion. It abstained from condemning Russia in the UN Security Council and the General Assembly. At the same time, China expresses sharp criticism of the USA and the eastward expansion of NATO and repeatedly emphasizes Russia’s security interests.
China is thus further isolating itself. Zenglein assumes that the trade relations already “characterized by increasing geopolitical rivalries” will become even more difficult. The West is also moving closer together towards China. Similarly, EU Chamber President Wuttke sees a “turning point”. Americans and Europeans have been “in the same bed” since the Ukraine war, he says. “And the Americans will then get very cuddly and say: Guys, by the way, what about the containment of China? And who then wants to say no?” says Wuttke. “The Russians have managed to completely change our China policy in Europe.” dpa
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