Picture courtesy of Russian Presidential Press and Information Office, CC BY 4.0
Chinese companies’ quiet compliance 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 limits its political objectives vis-à-vis Russia. This forced compromise will further strengthen Beijing’s resolve to reduce critical economic dependencies and build resilience against possible future sanctions.
In response to the Russian invasion of Ukraine, the United States and the EU together with their allies and partners took several rounds sweeping sanctions against Russia. The sanctions are unprecedented in their scope. For example, they target Russia’s aviation, defence, finance, navy and high-tech sectors. Moreover, the West companies left the Russian market en massetheir return becoming increasingly unlikely as the invasion progresses.
China’s potential willingness and ability to throw Russia an economic lifeline questioned the effectiveness of these far-reaching measures. The two countries have forged increasingly close ties in recent years and collaborate in the areas ranging from science and technology to defense and climate change. In addition, the two countries have already taken several measures 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.
However, the United States and the EU are betting on China’s continued economic dependence and the power of secondary sanctions to dissuade him from coming to the aid of Moscow. Despite years of efforts to become more self-sufficient, especially in key industries, China continues to strongly presses on access to Western markets, technology and the US dollar to achieve its broader economic and strategic objectives. Well aware of this lever of influence, WE and EU The leaders have repeatedly threatened Beijing with harsh sanctions if it helps Moscow defeat Western sanctions, apparently successfully.
Rhetoric versus reality
China’s position on the Russian invasion of Ukraine has been unclear from the start. Beijing has called for apeaceful resolution of the crisisbut refused to condemn Russia’s military aggression. Moreover, Chinese leaders have strongly and repeatedly criticized unilateral sanctions and that of the West”long arm jurisdictionagainst 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 entities are quietly complying with Western sanctions against Russia for fear of costly secondary sanctions.
One of the earliest examples of China’s compliance comes from the Russian aircraft industry. Shortly after the invasion began, Russian airlines tried to source aircraft parts from China as market-dominant companies Airbus and Boeing had cut supplies. However, Chinese suppliers refused to supply the requested components to Russia in order to avoid sanctions violations. The political sensitivity of this decision was illustrated by the promptness dismissal of a Russian official who has publicly spoken of China’s rejection.
The Russian high-tech sector, a favorite target of Western sanctions, offers further proof of this. Chinese tech giant Huawei, which owns a significant presence in Russia, temporarily on leave staff in its Moscow office and suspended all new contracts with Russian operators for the supply of network equipment. This decision is crucial because the other two major global network equipment suppliers, Nokia and Ericsson, have already left the Russian market. In another notable step, China suddenly interrupted his cooperation with the Russian Academy of Sciences, prompting Russia to seek closer scientific ties with India.
Finally, the Russian financial and banking sector presents the same pattern. Chinese credit card processor Union Pay recently refused to work with sanctioned Russian banks like Sberbank but refused to publicly link the decision to 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 is that of the Chinese state banks, which restrict funding for Russian commodities already at the end of February, apparently due to concerns about secondary sanctions.
Three preliminary conclusions can be drawn from the quiet compliance of Chinese entities with Western sanctions against Russia:
First, the threat of secondary US and EU sanctions is effective – at least for now. The prospect of severe sanctions in the event of sanctions violations has had a visible influence on the choices of Chinese companies and even public entities vis-à-vis the Russian market. This is due to the continued importance of Western markets for Chinese entities, but possibly also the experience of companies like Huawei who have already felt the chilling effects of US sanctions.
Second, China is biding its time. Unlike many Western companies that have left the Russian market for good, Chinese entities have mostly suspended operations. Moreover, their decisions have rarely been publicly linked to Western sanctions. Therefore, it is likely that if the situation allows, they will continue and perhaps even expand their business in Russia, capitalizing on some of the voids left by Western companies. This would also be consistent with the The plans of the Chinese leaders 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 independent. The need for Chinese entities to comply with sanctions due to persistent asymmetrical dependencies inevitably impacts Beijing’s strategic choices vis-à-vis Moscow. This experience will only fuel China’s efforts to reduce dependencies in critical sectors and make the Chinese economy more resilient in the face of possible future sanctions. However, it remains to be seen whether accelerating this process is feasible and, if so, at what cost.
About the Author
Sophie Charlotte Fischer is a Senior Researcher in the Swiss and Euro-Atlantic Security Team of the Center for Security Studies (CSS) at ETH Zurich.
For more information on the issues and events shaping our world, please visit the CSS website.