China is at its wits end as a plethora of the US and the European Union-led sanctions on Russia has started bearing effect on the Chinese companies’ approach towards the Russian market.
Despite pressure from the Chinese authorities for staying the course Russian market, DiDiChuxing and Hong Kong-based Lenovo-both prominent Chinese companies have announced plans to cease their business in Russia, which has complained that sanctions have deprived it of the access to US $300 billion of its $640 billion in gold and foreign exchange reserves in the US.
Of this reserve, China’s Yuan forms a substantial foreign currency asset. Around 14 percent of Russia’s total foreign currency reserves—around $90 billion belongs to Chinese currency, Yuan, CNBC said in its recent report.
Amidst this development, Semiconductor Manufacturing International Corporation (SMIC), the largest chip maker of China has expressed its inability to continue its business as usual with Moscow. According to South China Morning Post, a Hong Kong-based English language newspaper, Eurasia including Russia accounts for around 12 percent of SMIC’s revenue.
But since SMIC has been singled out by the US in a warning to Chinese tech companies over their chances of attracting sanctions if they continue their business with Russia, it has decided to cut off its engagement with Russia as it doesn’t want to take any risk in its balance sheet.
As per the Foreign Policy Research Institute, a US-based think tank, China can help Russia in averting its financial crisis. China has resources and capacity to extend support to Moscow. But it can do so at the risk of attracting major secondary sanctions, which the US has threatened to slap against countries that enter into any trade with Russia whose attacks on Ukraine have created a huge humanitarian crisis in the East European country.
As per a rough estimate, sanctions on Russia will impact heavily on the Chinese economy which is already in recession with most analysts predicting around 4 percent growth for it in 2022. It is also in the throes of mounting inflation, while imposition of new Covid-19 lockdowns in many parts of the country has further shaken its economy.
In this view, whether China will continue its engagement with Russia is in the realm of speculation. But it should not be forgotten that China is Russia’s top export market after the European Union. According to China’s customs agency, Russia exported $79.3 billion worth of goods in 2021 to China, with oil and gas accounting for 56 per cent of export. On the other hand, China exported over $68 billion of goods to Russia in the same year.
Yet before China, facing the wrath of the US and the EU is not as challenging even if it violates the sanctions regime and helps Russia overcome the financial crisis than avoiding getting sucked in by the US-led order. To counter the US threat of sanctions, the Chinese leadership repeatedly asked the Joe Biden administration to avoid undermining China’s interests. “If the US insists on going its own way, China will take strong countermeasures,” China’s Foreign Minister Wang Yi recently threatened.
This is not the first time China has used language of threat against the US. Since 2014, several times China has warned of taking measures against the US for its actions against Chinese interests. “Many of China’s measures provide for retaliation in an apparent effort to codify and legitimize the Chinese government’s propensity for trade retaliation and brinkmanship and the use of economic coercive measures to advance its economic and political objectives, often arguably in violation of global trade rules and norms,” the US Congressional report published on December 10, 2021 said.
However, China is also well aware of the current geopolitical situation in the Indo-Pacific region. Hence, China will avoid doing anything that could imperil its own interests, especially in the Taiwan Straits. That means, it will not flagrantly violate the US and the EU-led sanctions by coming to the rescue of Russia. But then it will also not go whole hog against Moscow too as even if Russia under the weight of sanctions loses its shine and becomes a poor nation, it will not lose its technological prowess.
For their own strategic interests, China, helmed by clever and seasoned leaders, will see that the US-led financial order is weakened and stemmed. In the ejection of Russia from the US and West-led financial order, China sees a role for Yuan and its financial system. There is a buzz in the Gulf countries that Saudi Arabia is in talks with China to price its oil sales to Beijing in Yuan, the Wall Street Journal has said in its latest report.
Yet there is many a slip ‘twixt the cup and the lip. Much of China’s exposure to the international market is in US dollars. This apart, Beijing has $3.2 trillion in US reserves. As such, China’s direct or indirect support to Russia will not only hit its international reputation, but will also lead to attracting penalties in terms of asset freezes, withdrawal of international companies and others. This is the reason why China is repeatedly speaking against imposition of sanctions on Russia.