The loss of Ukraine is the gain of China

The conflict in Ukraine will have major strategic consequences for Chinese foreign policy in the Indo-Pacific region. This will deepen the Russian-Chinese economic cooperation, which will make both countries more resilient to Western economic pressures.

Long-term instability in Europe will make it more difficult for Ukraine to expand its Pacific presence over the next few years, with significant financial and military resources from the United States to support it.

Author: Vasily Kashin, Higher School of Economics (Moscow)

The conflict has proved that the West is not capable of imposing sanctions on a large economy without compromising its own stability. The war has also demonstrated the effectiveness of Russian nuclear resistance, making even a limited Western intervention unimaginable.

China will be the main beneficiary of the Ukraine crisis

However, this is not reflected in China’s political rhetoric, which has been carefully calculated to avoid a major collapse with the European Union and other developed countries while maintaining close cooperation with Russia.

China’s official position is consistent with a statement made by Chinese Foreign Minister Wang Yi during the outbreak of war in February 2022: China is concerned about the violence and wants to stop it. It maintains that the territorial integrity and security interests of all parties need to be respected. China also feels that NATO expansion is partly responsible for the crisis.

On the economic front, China has seized the major strategic opportunities offered by the war. In the first four months of 2022, trade between Russia and China grew by 25.9 percent. Russia’s exports to China rose 37.8 percent to .8 30.85 billion. The physical volume of natural gas exports has also increased by 15 per cent.

China is set to move to the European Union as Russia’s main economic partner. Chinese Ambassador to Russia Zhang Hanhui has called on Chinese businessmen to “fill the remaining gaps” in the Russian market through Western business. Russia has contributed to the federal budget surplus between January and April 2022, despite the war of cooperation with China. This seems to be Russia’s strategy to maintain financial and economic stability as it continues to put pressure on Ukraine.

By 2023, most or all bilateral trade is expected to be conducted in renminbi. Chinese companies and brands will likely dominate a large part of the Russian consumer market and become Russia’s main industrial and technological partner. Renminbi also has a growing trend towards a large part of Russian trade with third countries.

With the expected expansion of logistical infrastructure, China will get a major source of strategic products. China will be able to collect these products at significant discounts as Russia will be isolated from many other markets and China will use its own currency. This would significantly reduce the West’s ability to leverage economic pressure points against China.

Some of China’s top global companies are apparently reducing their presence in Russia because the second embargo could affect their operations in the international market. But in many cases cooperation will be limited or surpass second tier corporations with no global exposure. Such companies would still be strong enough to operate in the Russian market. In the West, like in Iran, their activities will be serviced by specialized banks without any exposure.

Strategically, this transformation – combined with profound internal changes in Russia’s political economy – will make Russia largely immune to economic warfare. For the foreseeable future, the West will have no choice but to use expensive military options to stop Russia in Europe. Instead, it would provide a major strategic opportunity for China in the Pacific.

It is very difficult for China to assess the military lessons of the war very quickly and on the basis of available information. A feature of the Ukrainian conflict is an unprecedented level of propaganda and misinformation from all sides.

But two clear lessons have been learned from the war so far. First, the United States and NATO allies will always try to avoid a direct military confrontation with a major nuclear power. Even if a force is fighting a full scale battle at their doorstep. Second, the economic war against Russia has created significant problems for the Western economy, with increasing inflationary pressures and declining growth rates. Any comparative move against China, a ten times bigger economy, would destroy much of the world economy. This makes any such move extremely unlikely.

Vasily Kashin is director of the Center for Comprehensive European and International Studies at the Moscow Higher School of Economics.

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