COMMENT: Beijing performing a delicate balancing act in its support for Moscow

COMMENT: Beijing performing a delicate balancing act in its support for Moscow
Beijing is trying to perform a delicate balancing act between supporting Russia's defiance of the West to get a new inclusive security deal and bringing down Western sanctions on itself for that support. / WIKI
By Ben Aris in Berlin March 11, 2022

China’s support for Russia’s military campaign in Ukraine is largely rhetorical and Beijing won’t endanger its own relations with the West to support the Kremlin’s act of aggression on its neighbour, the consultancy Teneo said in a note on March 10.

“Though official diplomatic statements remain supportive of Russia, Beijing appears increasingly unlikely to provide much concrete support for Moscow's efforts to evade western sanctions,” Teneo said in a note to clients.

Chinese companies are coming under the spotlight and Beijing does not want to risk bringing down western sanctions on its own businesses if it too obviously supports Russia’s war, Teneo analysts believe.

“In Washington, support is rising for secondary sanctions against Chinese groups that defy Western sanctions, and Chinese technology companies are highly exposed to such actions,” Teneo said.

Beijing hopes that public statements criticising the West will be sufficient to uphold its relationship with Russia, even without much material support.

On the other hand and to Beijing’s benefit, there are an increasing number of calls for the West to ask China to intervene in the conflict between Russia and Ukraine as one of the few countries with any clout with the Kremlin. European Union's top diplomat Josep Borrell has already said that China is the logical choice to lead peace talks.

“Boris Johnson has declared that Putin must fail. Faced with Russia’s hideous military campaign, it is easy to sympathise with the sentiment – until it comes to defining success and failure. Cornering Putin carries its own dangers. A wiser course would be to encourage a third party, China, to play a mediating role rather than the West sliding into a new Cold War against the two leading autocratic powers,” former Financial Times editor Lionel Barber said in an opinion piece for the Spectator on March 10.

The Communist Party is also working to generate Chinese public support of the leadership's pro-Russia tilt. State media is promoting pro-Russian viewpoints, while pro-Western posts on social media have been censored. A leaked document appeared to contain explicit instructions to editors of the state-owned Beijing News to delete pro-Western comments on the publication's official Weibo account.

Russia was left further isolated after both India and China chose to abstain on an emergency UN Security Council vote on February 25 to condemn the launch of the Kremlin’s attack on Ukraine the day before. China also abstained in the more general UN General Assembly vote on a resolution to condemn Russia’s unprovoked attack on Ukraine a week later, that was overwhelmingly supported by the international community. China and Russia have no veto in UNGA voting.

The Kremlin had been hoping for a more decisive show of support by Beijing in the two votes and the abstentions were widely seen as a Chinese decision to remain on the fence and further isolated Russia from the rest of the world.

“Two weeks ago we noted that Beijing was struggling to balance support for its strategic partnership with Moscow with a desire to avoid further damage to relations with the West. Since then, Beijing's approach to balancing these conflicting objectives has come into clearer focus,” Teneo said. “On the one hand, China's official diplomatic statements continue to avoid direct criticism of Russia's invasion and to echo Moscow's criticisms of Nato expansion and Western sanctions. Domestically, the Communist Party is censoring criticisms of Russia online, while state media amplifies Russian grievances. On the other hand, Beijing appears increasingly unlikely to provide substantial material support for the Russian invasion or to help Moscow evade Western sanctions.”

Moscow also has to find a delicate balance going forward. As Christof Ruehl, Senior Research Scholar at the Columbia University in New York, told bne IntelliNews in a podcast on March 10, China will be one of the few sources of hard currency earnings if the sanction regime remains on Moscow in the long term and will be its access point to the international commodity markets if the West attempts to cut Russia off from the global energy markets. However, Chinese banks have already shown a reluctance to work with Russian banks under sanction, afraid of receiving secondary sanctions themselves.

“We previously outlined the risks to China if Beijing helped Russia entities avoid Western sanctions, and since then those risks have increased. On 7 March, a bipartisan group in the US House of Representatives introduced the Direct Investigations on China, Take Action to Oppose Russia (DICTATOR) Act, which would require the US State Department to issue a report on whether China is helping Russia evade sanctions and take action to block such efforts,” Teneo reports.

In the Senate, Marco Rubio is working on legislation that would sanction Chinese banks that use China's renminbi-based Cross-Border International Payments System (CIPS) to avoid financial sanctions, Teneo added.

Others in Congress have publicly called on the Biden administration to apply secondary sanctions against Chinese companies that assist Russia.

“Indeed, no new US legislation is required for the Biden administration to impose crippling penalties on China. On 8 March, US Commerce Secretary Gina Raimondo directly threatened to block Chinese technology companies from buying key US equipment if Washington discovered that those companies were selling products to Russia. Raimondo directly referenced Shanghai-based Semiconductor Manufacturing International Corp (SMIC),” Teneo said.

Amongst the most crippling of the proposed sanctions now being mooted is a ban on the sale of technology to Russia. As bne IntelliNews reported, Russia has missed out on several revolutions in the machine building space and remains heavily reliant on the imports of western technology as it attempts to modernise its economy. While Russia has increased the amount of imports of machine tools from China, it remains almost entirely dependent on the US and Germany for imports of the best technology used in a wide range of industries. The US government is moving to ensure that Russia does not have access to that technology by using China as a middleman.

Teneo suggests that there are already signs that China is complying with Western sanctions and limiting ties and trade with China. For example, Chinese companies have reportedly refused orders for aircraft parts from Russian airlines. Western plane manufacturers have ended leasing deals for Russian airlines and the majority of the planes in their fleets are western-made and on lease deals. The move could ground the majority of Russia’s commercial aviation, leading the Kremlin to threaten to nationalise the planes. However, as the planes need to be regularly serviced and those facilities are largely based in Germany, even if the planes are nationalised without access to spare parts they will be unusable within a matter of months, say experts.

“Though details are sketchy, this refusal [to supply aeroplane parts] appears to represent compliance with the US Commerce Department's newly issued export controls, known as foreign direct product rules. These rules ban sales of civil aircraft parts, among other products, and cover sales from both US companies and non-US companies that manufacture products using US-origin hardware or software,” Teneo said.

Other reports suggest that even Chinese companies not directly exposed to sanctions are cutting ties with Russian companies, as are hundreds of western companies at the insistence of their compliance departments that are afraid of sanction risks, but also on principle.

Chinese smartphone makers including Huawei and Xiaomi have also reportedly cut back on shipments to Russia, despite the fact that US sanctions have explicitly exempted smartphone technology in an effort to spare the Russian people the worst effects of sanctions. Western companies like Apple have also stopped exports of their phones to Russia on general principle, not because of any ban on sales. “These moves appear to reflect concerns about reputational risk as well as the dramatic decline in the ruble's exchange rate,” Teneo said.

“China's leadership appears to believe that while supporting Russia is burdensome in the short term, the bilateral partnership remains indispensable in the long term, given rising anti-China sentiment in the West. A similar strategic logic has guided Beijing's approach to North Korea for many years. While China's support for Pyongyang is often a source of embarrassment, North Korea's role as a buffer between Chinese territory and US troops in South Korea is ultimately too important to sacrifice,” Teneo said.

To a large extent Beijing is using Russia’s showdown with the West to fight a proxy war ahead of the anticipated clash between Beijing and Washington and is watching developments closely. Like Russia, China has long threatened to retake Taiwan using military means and tensions in the South China sea are high. It is possible that Beijing will annex Taiwan in much the same way that Russia annexed the Crimea peninsula. That is also a reason that the US has come down on Russia so hard, as Washington needs to signal to Beijing that any attempt to take Taiwan will also trigger catastrophic sanctions and a united global reaction to head any such move off.

For its part, Beijing is trying to find a balance between public criticism of western sanctions and validation of Russia's security concerns, without wrecking its commercial ties with the West, Teneo argues, even if China provides Moscow with little material support in the conflict or as sanctions relief after the active phases of the military operations are over.

On March 7, Foreign Minister Wang Yi said as cited by Teneo: "No matter how perilous the international landscape, we will maintain our strategic focus and promote the development of a comprehensive China-Russia partnership.”