About the author: David Dollar is a senior fellow at the John L. Thornton China Center at the Brookings Institution.
Economic and political factors are pulling China in completely opposite directions when it comes to the West’s economic sanctions against Russia in response to the country’s invasion of Ukraine. These opposite trends can be seen in China’s rhetorical support for Russia combined with cautious “self-sanctions” from Chinese banks and firms that so far avoid doing business with Russia.
Economically, Russia is simply not that important to China, which is about ten times larger in gross domestic product. China has a few significant imports from Russia, but they can be replaced. In 2021, 16% of China’s oil imports came from Russia, slightly behind Saudi Arabia. The largest importer of oil, China, has worked hard to diversify its sources, importing significant quantities from Iraq, Angola, Brazil, Oman and the United Arab Emirates. Iran and Venezuela are potential replacements if Russian oil is taken off the market. China is now too second largest importer of natural gas and received 40% of its imports from Australia last year along with 11% each from Qatar, Malaysia and the United States. The United States exported twice as much gas to China as Russia did. Overall, Russia is a small market for China with a total trade of approx $ 150 billion in 2021. Compare that to nearly $ 600 billion each for the United States and the European Union; add in Japan and China’s trade with the West is 10 times larger than its Russia trade. So if China is to choose between doing business with the West or with Russia, the economy dictates that it must stick to the West.
However, geostrategic considerations go the other way. China’s relationship with the United States is the worst they have been in 50 years. Relations with the EU have also deteriorated. The Biden administration is trying to build a coalition of democracies to counter China. Communist Party leaders are increasingly convinced that the United States will never accept China’s progress, and they oppose US control of the world’s financial system. So rhetorical are they opponents of Western sanctions. They blame NATO and the United States as the cause of the Ukraine war. They even spread clear disinformation, for example about (non-existent) bioweapons laboratories in Ukraine. Chinese leaders see Putin as an opponent of the US-led international order. It is easy to dismiss this group as an “authoritarian axis”, but it misses the point that there is widespread sympathy in developing countries for China’s view that the United States is abusing its position as the dominant economic power. Major democracies such as India, Brazil and Indonesia have not condemned Russia.
Ukraine war could lead to major disturbance in the economic relations between the United States and China. China is trying to take a middle ground with rhetorical support for Russia, but implicit support for Western sanctions, as its major banks and firms want to remain engaged in the global economy. It would be easy to miscalculate in this situation. If the US, for example, sanctioned a large Chinese bank because of transactions with Russia, China would probably retaliate, and this could easily escalate to more severe reciprocal sanctions. Alternatively, the pressure on Russia could be sharpened in a way that undermines Russia’s war capability and threatens regime change. The prospect of a clear victory for the West over Putin may draw the Chinese to a stronger and more overt support that calls for sanctions against China. Or in the other direction, Putin can largely win by occupying Ukraine and inserting a puppet government. In that case, Western sanctions are likely to remain for years. China may choose to prioritize its economic relations with Russia and developing countries and accept decoupling with the West.
It is difficult to predict what would happen economically in scenarios with major shifts in the global system, but it seems likely that China would be a big loser. What China gets from Russia is easy to replace – oil, gas, some other minerals and a small amount of food. One important exception is advanced military equipment that China cannot get from others. Locking in relations with Russia would secure supplies of raw materials which China could easily come from elsewhere. What China gets from the West, on the other hand, is impossible to replace. It consists largely of technology in various forms: advanced equipment such as aircraft, high-end semiconductors, and software, to name a few. China gets these high-tech goods directly, plus the joint production and information exchange is building China’s own technical capacity to ultimately produce them itself. The phenomenon of convergence, which has fueled much of China’s growth over the last 40 years, is occurring among open economies. If China cuts off from the West at this intermediate stage of development, it is likely to pay a high price in the form of slower productivity growth and thus slower increases in living standards.
China faces the difficult choice, at least implicitly, of supporting sanctions against Russia versus an open breach with the West that would certainly set back its economic convergence with the United States. The world will be better off if China continues to limit its support for Russia’s brutal invasion of Ukraine. China will too.
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