By Sam Moffoot

Western Sanctions on Russia

The War in Ukraine has been at the forefront of global priorities since the commencement of Russia’s ‘Special Military Operation’ in late February. Many of the world’s largest economies have imposed sanctions in attempts to deter further Russian aggression and persuade the country to seek peace in the face of economic losses through such sanctions. However, what has become evident and was somewhat expected, is the differing approaches by China and the Western orientated states led by the EU and the U.S. This blog post will explore these differing approaches and the effects of Western sanctions upon the Sino-Russian relationship alongside China’s stance on the situation.

The EU, U.S, UK and Canada have undoubtedly been leading attempts to shift Putin’s ambitions, hitting the Russian economy hard through a range of sanctions. EU implemented sanctions include but are not limited to:

• Excluding some Russian Banks from SWIFT harming their ability to operate globally
• Sanctions upon high profile Russians, including oligarchs, those close to Putin and Putin himself
• Bans on exports of jet fuel and aircraft parts to Russia and imports of Russian coal
• Suspending broadcasting activities of Russian media
• Freezing assets of some Russian Banks, ban on transactions from the Russian Central Banks and restricting cryptocurrency’s ability to avoid sanctions by banning deposits to crypto wallets^[1]
• Ban of on the overflight of EU airspace and access to EU airports by Russian carriers and Russian vessels access to EU ports

The implementation and enforcement of economic sanctions aim to ‘impose severe consequences on Russia for its actions’ and diminish Russian capability to continue aggression and waging war in Ukraine^[2]. The sanctions on individuals have targeted those who bear responsibility for actions that undermine the territorial integrity, sovereignty and independence of Ukraine or benefit from such actions^[3] and seek to influence those within Putin’s closest circles.

Thus far these sanctions have contributed to the contraction of the Russian economy which witnessed the Russian currency fall to an all-time low of 105.27 ruble per U.S dollar^[3] alongside a predicted shrinking of Russia’s economy by 9.7% due to trade restrictions imposed^[4]. Sanctions have also meant that Putin is unable to access over half of foreign currency reserves ($350bn of $605) severely restricting Russia’s ‘War Chest’ and thus the realistic longevity of the campaign^[5]. Putin has managed to reconjure some stability of the Russian economy, with drastic measures from the Kremlin and central bank increasing interest rates to as high as 20% and forcing businesses to convert profits into rubles resulting in the ruble recovering in value. But ultimately these sanctions are signalling their efficacy, with Russia’s inflation rising to its highest in two decades at 17.3% coupled with continually adapting measures taken by the West to prevent the circumnavigation of sanctions such as freezing Russia’s gold reserves ^[6,7].

China’s role in the Russia-Ukraine conflict

With these sanctions coming into effect and enforced by the West, Russia must rely on relationships from elsewhere to ensure they can function effectively within the war and ease the economic downturn that is predicted. One major relationship such sanctions could push Russia to call upon is that of China. The historic close Sino-Russia ties of Xi and Putin has led the two countries to declare a relationship of “no limits” in February 2022 just weeks before the invasion of Ukraine and the two men declared an intention to challenge the Western order based on democracy, freedoms, and human rights^[8].

However, the limits of Sino-Russia relations are being put to the test. To one extent, China has seemingly sided with Russia in the conflict, in a UN General Assembly vote China voted against blaming Russia for the humanitarian crises in Ukraine and calling for a ceasefire. The Western fear is that China could provide Russia alternative routes that have been closed off by sanctions such as providing finances, releasing foreign reserves, or supplying military resources such as aircraft parts. At the 23^rd EU-China bilateral summit, the EU explicitly called upon China to not let this happen and warned China of an ultimatum they may come to face: continuing to court Russia as an authoritarian partner in their ambition for a new world order and establishing a counterweight to NATO may lead them to face losing unfettered access to rich Western markets that greatly contribute to China’s economy. The Chair of the European Parliament Trade Committee, Bernd Lange, stated that  “If China chose to side with Russia and support their war of aggression, it must be clear that two things would happen: there would be an immensely high economic price to pay and they would divide the world into the sort of blocs they have rightly warned for long about”^[8].

China has responded to EU concerns by stating they would strive for peace in “its own way” and hope the EU take an “independent approach”^[9]. But what does this “own way” actually look like?

China’s support for Russia is not as explicit or established as Putin would have expected from a relationship of ‘no limits’, with economic implications worsening Russia’s outlook in and after the ongoing conflict. Firstly, China has continued to allow the Russian ruble to drop against the yuan when measures could be taken to stabilise the currency pair, making Chinese imports more expensive for Russian’s and further implicating the economic relationship such as major manufacturers cutting off supply to Russia due to currency fluctuations. This is further visible in trade flows between Shenzhen and Russia, a key indicator in the countries’ health of trade, which has fallen by 1/3 through uncertainties stemming from the conflict and fear of sanctions.^[10.11] . Secondly, China remained silent on any inclination to release foreign reserves which sit at about $90 billion, despite Russia’s plea for help in this capacity which would facilitate Russia’s campaign when over half of other reserves are frozen^[9]. Regarding the supply of aircraft parts, China has refused to help Russia following warning from the US of repercussions should China defy sanctions, leaving Putin searching for alternative sources elsewhere^[12] . Finally, the AIIB, much like the World Bank has put on hold $1.1 Billion worth of infrastructure loans “in the best interests” of the bank, demonstrating a further disconnect of economic relations between the two nations.^[10]

Albeit, despite negative impacts, these remain at the economic level and are to an extent out of the hands of Governments. At the diplomatic and governmental level, China is continuing its strong rhetoric for support of Russia and has core strategic interests to do so with benefits arising from various outcomes. On one hand, an extended War-time period provides China the opportunity to construct a negative narrative of the West and their attempts to sanction Russia, with the credibility of Western powers deteriorating as the War continues. This propagates tests of their commitment to liberal values, thus China can (and has begun to) create an opposing coalition to the Western world order^[13]. This is already visible in Beijing’s rhetoric describing actions of the West’s “long arm jurisdiction” as ineffective, illegal unilateral sanctions, instead championing an approach that would uphold the principles opposing the building of national security on the basis of insecurity of other countries^[14,15]. On the other hand, China could benefit from a possible further weakening of Russia through the scenario of a negotiated ceasefire following greater Russian losses. Such a scenario could leave Russia weaker in key strategic regions for China, such as Central Asia, causing the regions to become more heavily dependant on China and increasing Beijing’s influence ^[13].

As a result, what may appear in Beijing is the pursuit of a “maximin strategy” – maximising benefits from Russia (cheaper oil, gas and wheat prices & higher influence) while minimising the negative consequences they may face. Xi and the Chinese Communist Party will have to weigh the drawbacks against the benefits from continuing their strategic partnership with Russia. China has already been burdened with a diminishing reputation in Europe and the West through refusing to distance themselves from Putin, and despite the prospect of cheaper imports, Chinese companies are already suffering from indirect consequences caused by Western sanctions by trying to not openly violate them^[16].

Nevertheless, China continues to express their “neutrality” on the Ukraine conflict, supporting Russia rhetorically with China’s vice foreign minister stating that “No matter how the international situation evolves, China will, as always, strengthen strategic coordination with the Russian side to achieve win-win cooperation and jointly safeguard common interests”. Somewhat contrastingly, the Chinese government also attempted to underplay the established “no limits” partnership by expressing a “bottom line” in the form of the UN. Charter^[17]. However, Russia has already crossed this bottom line by disregarding international law and the obligation to respect the sovereignty and territorial integrity of other states whilst also committing War crimes, such as in Bucha and Mariupol, with Ukraine’s civilian death toll estimated to be over 200,000^[18,19]. Resultingly, China’s continual support in light of this breach of the “bottom line” has escalated rising tensions with the West and only serves to diminish their international reputation further.

How could the EU respond?

While the EU has threatened sanctions upon China, should they further their support of Russia, the feasibility of this comes into question. The effects of Sanctions upon Russia are already having effects within the EU, particularly pertaining Oil and Gas prices as Russia acted as the primary supplier of such resources for many European nations. However, economically there is less of a dependent relationship, Russia makes up 4.2% of EU exports and 7.2% of Imports ^[20,21]. Comparing this to China, the EU, and global markets are heavily dependent and as the EU’s biggest trading partner there is a deeper integrated economic relationship making up 11% of EU exports and 23% of exports^[20,21]. Consequently, due to this entrenched commercial relationship and the impracticality of diversifying supply chains, the ability for the EU to sanction China is incomparable to that of Russia and decoupling from such a relationship is unlikely^[22]. Moreover, the effects that sanctions upon China would have upon the global economy and the third world, far outweigh the effects sanctions on Russia have had thus far. The EU would however be supported by the US who hold greater influence upon the Chinese economy and thus pose a greater threat to China should they ignore sanctions on Russia or more explicitly side with the warring nation. Following a call with Xi, US President Biden stated that “China understands that its economic future is much more closely tied to the West than it is to Russia” and that he highlighted the nature with which American businesses have withdrawn from Russia, indicating that China may suffer a similar fate, raising the stakes of China’s continual ‘neutrality’^[23].

To conclude, while EU sanctions had and still have the potential to push the two great authoritarian powers closer, China has not outrightly welcomed its partner with open arms. It seems at this stage in the ongoing conflict China is supporting Russia in rhetoric alone, offering little physical support that could bolster Russia’s campaign and alleviate negative economic impacts affecting both countries. While the war is far from over and developments in the Sino-Russia relationship could take a turn, as it stands China is balancing the line between risking losing the economic relationship with the West (U.S and EU make up 32.5% of China’s exports^[24]) and the political relationship with Russia and as the War continues Xi’s may find he will be forced into making a critical decision between the two.  

Notes:

1. European Council (2022).Timeline – EU restrictive measures against Russia over Ukraine. [Online] Available at: https://www.consilium.europa.eu/en/policies/sanctions/restrictive-measures-against-russia-over-ukraine/sanctions-against-russia-explained/ [Accessed: 17/04/22]
2. European Council (2022). EU sanctions against Russia explained. [Online] Available at: consilium.europa.eu/en/policies/sanctions/restrictive-measures-against-russia-over-ukraine/history-restrictive-measures-against-russia-over-ukraine/ [Accessed: 17/04/22]
3. CBS News (2022) Russia’s ruble worth less than 1 cent after West tightens sanctions [Online] Available at: https://www.cbsnews.com/news/russia-ukraine-ruble-sanctions/ [Accessed: 17/04/22]
4. IfW. (2022). Estimated long-term change in annual gross domestic product (GDP) due to trade restrictions of the United States and its allies with Russia as of 2022, by country. Statista. Statista Inc.. Available at: https://www.statista.com/statistics/1294709/gdp-impact-of-trade-restrictions-with-russia-by-country/ [Accessed: 16/04/22]
5. BBC (2022) Ukraine war: More than 60% of Putin’s war chest frozen, Truss says. [Online] Available at: https://www.bbc.co.uk/news/uk-60997622 [Accessed: 17/04/22]
6. Sweet, K. & Hussein, F. (2022) How sanctions are affecting the Russian economy, PBS News [Online] Available at:https://www.pbs.org/newshour/world/how-sanctions-are-affecting-the-russian-economy [Accessed: 23/04/22]
7. Al Jazeera (2022) US, G7 freeze Russian gold amid Ukraine war: All you need to know [Online] Available at: https://www.aljazeera.com/news/2022/3/25/gold-russia-ukraine-war [Accessed: 23/04/22]
8. Lau, S. (2022) Russia crisis gives EU a grim sense of what’s to come with China, Politico [Online} Available at: https://www.politico.eu/article/china-xi-jinping-has-europe-eu-summit-russia/ [Accessed: 20/04/22]
9. Aljazeera (2022). China resists tougher Russia response at ‘frank’ summit with EU. [Online] Available at: https://www.aljazeera.com/news/2022/4/2/china-resists-tougher-russia-response-at-frank-summit-with-eu [Accessed: 20/04/22]
10. He, L. (2022) 4 ways China is quietly making life harder for Russia, CNN Business [Online] Available at https://edition.cnn.com/2022/03/17/business/china-russia-sanctions-friction-intl-hnk/index.html [Accessed: 20/04/22]
11. Deng, I. (2022) Ukraine war: Trade flows between Shenzhen and Russia thin by nearly a third as freight forwarders bemoan Ukraine uncertainties, South China Morning Post [Online] Available at:https://www.scmp.com/tech/tech-trends/article/3174653/ukraine-war-trade-flows-between-shenzhen-and-russia-thin-nearly [Accessed: 23,04,22]
12. Joshi, G (2022) China Follows Sanctions Refusing Spare Parts For Russian Airlines [Online] Available at: https://simpleflying.com/china-sanctions-refusing-spare-pats-russian-airlnes/ [Accessed: 24/04/22]
13. Oertel, J. (2022) Cold reality: How Europe is adjusting to China’s support for Putin, European Council on Foreign Relations [Online] Available at: https://ecfr.eu/article/cold-reality-how-europe-is-adjusting-to-chinas-support-for-putin/ [Accessed: [24/04/22]
14. Ramzy, A, (2022) China criticizes sanctions against Russia as ineffective and warns of wider damage. The New York Times [Online] Available at: https://www.nytimes.com/2022/02/23/world/europe/china-russia-ukraine-sanctions.html [Accessed: 24/04/22]
15. Euractiv (2022) China’s Xi reiterates opposition to use of economic sanctions, [Online] Available at:https://www.euractiv.com/section/china/news/chinas-xi-reiterates-opposition-to-use-of-economic-sanctions/ [Accessed: 24/04/22]
16. Maull, H (2022) Why China Isn’t Backing Away From Alignment With Russia, The Diplomat [Online] Available at: https://thediplomat.com/2022/04/why-china-isnt-backing-away-from-alignment-with-russia/ [Accessed: 24/04/22]
17. Jiangtao, S. (2022) China hails strong Russia ties ‘no matter’ what, vows to safeguard common interests, South China Morning Post [Online] Available at: https://www.scmp.com/news/china/diplomacy/article/3174812/china-hails-strong-russia-ties-no-matter-what-vows-safeguard [Accessed: 24/04/22]
18. Oliveira, N. (2022) Ukrainian prime minister says Russia committing “terrible war crimes” in Mariupol [Online] Available at:https://www.cbsnews.com/news/ukraine-russia-war-prime-minister-denys-shmyhal-face-the-nation/ [Accessed: 24/04/22]
19. Human Rights Watch (2022) Ukraine: Russian Forces’ Trail of Death in Bucha [Online] Available at:https://www.hrw.org/news/2022/04/21/ukraine-russian-forces-trail-death-bucha [Accessed: 25/04/22]
20. United Nations COMTRADE (2021) European Union Exports by Country [Graph] Available at: https://tradingeconomics.com/european-union/exports-by-country [Accessed: 25/04/22]
21. United Nations COMTRADE (2021) European Union Imports by Country [Graph] Available at: https://tradingeconomics.com/european-union/imports-by-country [Accessed: 25/04/22]
22. Wong, K. (2022) China-EU trade: commercial ties ‘hard to break’ despite disagreement over Ukraine war, South China Morning Post [Online] Available at: https://www.scmp.com/economy/china-economy/article/3174415/china-eu-trade-commercial-ties-hard-break-despite [Accessed: 20/04/22]
23. Euractiv (2022) Biden says Xi knows that China’s future is linked to West [Online] Available at: https://www.euractiv.com/section/china/news/biden-says-xi-knows-that-chinas-future-is-linked-to-west/  [Accessed: 25/04/22]
24. National Bureau of Statistics of China. (February 28, 2022). Distribution of Chinese exports in 2021, by trade partner [Graph]. In Statista. [online] Available at: https://www.statista.com/statistics/270326/main-export-partners-for-china/ [Accessed: 20/04/21]