Image courtesy of The Russian Presidential Press and Information Office, CC BY 4.0 <https://creativecommons.org/licenses/by/4.0>, via Wikimedia Commons
The quiet compliance of Chinese companies with Western sanctions against Russia highlights a critical dilemma for Beijing: China’s continued dependence on the United States and Europe in strategic sectors of the economy restrains its political objectives vis-à-vis Russia. This forced trade-off will further strengthen Beijing’s resolve to reduce critical economic dependencies and to bolster its resilience against potential future sanctions.
In response to the Russian invasion of Ukraine, the United States and the EU together with allies and partners have levied multiple rounds of sweeping sanctions against Russia. The sanctions are unparalleled in their scope. For example, they take aim at the Russian aviation, defense, financial, maritime and high-tech sectors. In addition, Western companies have left the Russian market en masse, with their return becoming increasingly unlikely as the invasion grinds on.
China’s potential willingness and ability to throw Russia an economic lifeline has called the effectiveness of these far-reaching measures into question. The two countries have forged increasingly close ties in recent years and collaborate in areas ranging from science and technology to defense and climate change. Moreover, both countries have already taken several steps to “de-dollarize” their economies. Beijing and Moscow are bound by their shared disdain for the American-led liberal order, overlapping economic and security interests, and an authoritarian style of government.
The US and EU, however, bank on China’s continued economic dependency and the power of secondary sanctions to deter it from coming to Moscow’s rescue. Despite years-long efforts to become more self-sufficient, especially in key industries, China still relies heavily on access to Western markets, technology, and the US dollar to achieve its economic and broader strategic goals. Well aware of this lever of influence, US and EU leaders have repeatedly threatened Beijing with harsh penalties should it help Moscow to bust Western sanctions–seemingly with success.
Rhetoric vs. Reality
China’s position on the Russian invasion of Ukraine has been murky from the start. Beijing has called for a “peaceful settlement of the crisis” but has refused to condemn Russia’s military aggression. Moreover, the Chinese leadership sharply and repeatedly criticized the unilateral sanctions and the West’s “long-arm jurisdiction” against Russia. However, two months into the war in Ukraine, there is a growing disconnect between Beijing’s political rhetoric and economic realities. It is becoming increasingly clear that Chinese companies and even state-owned entities quietly comply with the West’s sanctions on Russia over concerns of costly secondary sanctions.
One early example for China’s compliance comes from the Russian aviation industry. Soon after the invasion had begun, Russian airlines tried to procure aircraft parts from China as the dominant companies on the market, Airbus and Boeing, had curbed their supplies. However, Chinese suppliers reportedly refused to provide the requested components to Russia in a bid to avoid penalties for sanctions violation. The political sensitivity of this decision was illustrated by the prompt firing of a Russian official who publicly spoke out about China’s rejection.
The Russian high-tech sector, a prime target of Western sanctions, offers further evidence. The Chinese tech behemoth Huawei, which has a significant presence in Russia, temporarily furloughed the staff of its Moscow office and suspended all new contracts with Russian operators for the supply of network equipment. This move is crucial as the two other leading global suppliers of network equipment, Nokia and Ericsson, already exited the Russian market. In another noteworthy step, China suddenly paused its cooperation with the Russian Academy of Science, prompting Russia to seek closer scientific ties with India.
Finally, Russia’s finance and banking sector exhibits the same pattern. China’s credit card processor Union Pay recently declined to work with sanctioned Russian banks like Sberbank but refused to publicly link the decision to the Western sanctions. Union Pay’s decision deprived Russia of a possible alternative to the American companies Visa and Mastercard, which had stopped serving Russian customers in March. Another interesting example are Chinese state-owned banks, which restricted the financing for Russian raw materials already in late February, ostensibly due to concerns over secondary sanctions.
Three preliminary conclusions can be drawn from the quiet compliance of Chinese entities with Western sanctions against Russia:
First, the US’ and EU’s threat of secondary sanctions is effective – at least for now. The prospect of harsh penalties for sanctions violations has had a visible influence on the choices of Chinese companies and even state-owned entities with respect to the Russian market. This is due to the continued importance of Western markets for Chinese entities but possibly also due to the experiences of companies like Huawei that have already felt the crippling effects of US sanctions.
Second, China bides its time. In contrast to many Western companies that left the Russian market for good, Chinese entities have mostly paused their operations. Moreover, their decisions have rarely been publicly linked to the Western sanctions. Hence, it is likely that if the situation allows, they will continue and possibly even expand their Russia business, capitalizing on some of the gaps left behind by Western firms. This would also be in line with the Chinese leadership’s plans to further deepen its strategic ties with the Kremlin, despite Putin’s war against Ukraine.
Third, Western sanctions against Russia will further strengthen China’s resolve to become more self-reliant. The need for Chinese entities to comply with the sanctions due to persisting asymmetric dependencies inevitably impacts Beijing’s strategic choices vis-à-vis Moscow. This experience will only fuel China’s efforts to curb dependencies in critical sectors and to make the Chinese economy more resilient against potential future sanctions. However, whether an acceleration of this process is feasible and, if so, at what cost, remains to be seen.
About the Author
Sophie-Charlotte Fischer is a Senior Researcher in the Swiss and Euro-Atlantic Security Team at the Center for Security Studies (CSS) at ETH Zurich.
For more information on issues and events that shape our world, please visit the CSS website.