The Economist - UK (2022-03-19)

52 China TheEconomistMarch19th 2022

totakeadvantageofa distractedWestby

attackingTaiwan,theislanddemocracyof

24mpeoplethatChinaclaimsasitsown.

UnlikeMrPutin,whoseemshappytostage

dramaticchallengestotheglobalorder,Mr

Xiappearsmorecautious.

Onereasoniseconomic.BossesatChi­

na’sstate­ownedcompaniesarewatching

thewarwithunease.Manyhavesubstan­

tialbusinessesnotjustinRussiabutalso

inUkraine. cofco, agovernment­owned

foodgiant,countsUkraineasanimportant

base.ChinaMerchantsGroup,a statefirm,

ownsportterminalsinOdessa,aUkrai­

niancityontheBlackSeacoastthatison

highalertforaRussian attack.In 2020

Kharkiv,acityinnorth­eastern Ukraine,

agreedtobuy 40 coachesforitsmetrosys­

temfromChina’sstate­ownedrailgroup,

crrc. WithKharkiv’smetrostationsnow

fillingwithfamiliesshelteringfromRus­

sianattacks,thecontractisinjeopardy.

Russialikestotoutitsbusinesslinks

withChina.OnFebruary4th,whilevisit­

ingBeijing,MrPutinunveiledanoil­and­

gasdealworth$118bnovermanyyears,her­

aldingit aspartofa “pivottotheEast”.Chi­

nadenouncesWesternsanctionsagainst

Russia.ButitseconomictieswithRussia

willbecomeincreasinglyconstrained.

Oilandgasdominatethetraderelation­

ship.RussiaisChina’sthird­largestsuppli­

erofgas,andChinaboughtnearlyone­

thirdofRussianexportsofcrude oilin

2020.Buttherecentenergydealsbetween

thetwocountrieswillhardlybea quickfix

forRussia’seconomicmisery.Chinaim­

portedonly10bncubicmetresofnatural

gasfromRussiain 2021 viathePowerofSi­

beria,thesolepipelinethatlinksthetwo

countries—farshortofthe175bncubicme­

tresimportedbyEurope.EvenifChinahas

appetite for the fossil­fuel exportscan­

celledbyEurope,therelevantfieldsarenot

linkedto Chinabyapipeline,makingit

hardtoreplacesaleslostelsewhere,note

analystsatGavekal,a researchfirm.

FormostotherRussianproducts,Chi­

nesedemandisminuscule(see chart1).

EuropeandAmericasoldabout$490bnin

goodstoChinalastyear,sixtimeswhat

RussiasellstoChina.Weaponsaretheonly

Russianmanufacturedproductsthathave

strongappeal inChina.AftertheSoviet

Unioncollapsedin1991,acash­strapped

Russiasawbenefitinmaintainingclose

tieswithChina.Itbegansellingitsformer

cold­waradversarytensofbillionsofdol­

lars'worthofsurplusweaponry,including

fighterjets,submarines, helicopters,de­

stroyersandmissiles.

Thosesalesdroppedoffafter2006,in

partbecause Russiaobjectedto Chinese

cloningandinpartbecauseChinawanted

moreadvancedkit, whichtheKremlinwas

lothtosell.ButRussiaswalloweditsmis­

givingswhentheWestimposedsanctions

onRussiatopunishit forseizingCrimeain

2014.ItagreedtosellChinahigher­quality

equipment,includingmissilesystemsand

fighters,onconditionthatChinabuyin

bulktoallowRussiatomakea decentpro­

fitbeforethestuffwasinevitablycopied.

Inthenuclearrealm,thecountrieshave

co­operatedanearly­warningsystem.

Chinamay now demand more rapid

transfersofadvancedRussianequipment,

especially submarine and air­defence

technology.ItmaytakeadvantageofRus­

sia’seconomicplighttopresstheKremlin

towithholdsuchweaponryfromIndiaand

Vietnam.BothofthosecountriesareChi­

na’srivals,buthithertothishasnotde­

terredRussiafromsellingthemarms.

Preparefordescent

Westernsanctionsaremakingitdifficult

for Russia to buy technology. But it is

doubtfulwhetherChinawillmakeupthe

shortfall.Take,forexample,theaviation

industry: Russiaisindesperate needof

geartokeepit working.Americaalonesold

Russiamorethan$880m­worthofaircraft,

enginesandpartsin2021.HopesinMos­

cowthatChinawouldstepinweredashed

onMarch10thwhena Russianaviationof­

ficialtoldlocalmediathatChinesefirms

werenowrefusingtosellaircraftpartsto

thecountry.Theaviationofficialwasthen

firedformakingthedisclosure.

ThedecisionbyChinesefirmstosteer

clearofRussiasuggestsa fearofpenalties

that America might impose on them

should they do business with Russian

firms or individuals being targeted by

Westernsanctions.China’saviationindus­

tryisalmostcompletelyreliantonAmeri­

can technology to produce parts, says

Richard Aboulafiaof Teal, anaerospace

consultingfirm.Otherpotentialtechsup­

pliersinChinaarelikelytosharethisanxi­

etyaboutAmerica’spossibleresponse.

RussiamayhopeforgreaterChinesein­

volvementinitsoilindustryfollowingthe

decisionbyShellandbp, twoWesternoil

majors,topulloutbecauseoftheinvasion.

Chinesefirmswouldbringpowerfulfinan­

cialbacking,buttheywouldnotbeableto

matchtheWesternfirms’technologicalex­

pertise,saysBenCahilloftheCentrefor

Strategic and International Studies, a

think­tankinWashington.Andrelianceon

ChinesecompanieswouldgiveChina“alot

ofleverageoverRussia”,says MrCahill.

“They’llprobablydrivea hardbargain.”

StatemediainChinahavetoutedthe

departureofWesternmultinationalsfrom

Russiaasa businessopportunityforChi­

nesefirms.Forsome,itmaybe.Xiaomi,a

Chinesehandset­maker,alreadyhasnear­

ly40%ofthesmartphonemarketinRus­

sia.It willprobablybenefitfromthehaltto

Apple’s operations there. But Xiaomi’s

salesinthecountrycontributejust3%of

itsglobalsales.TheparlousstateofRus­

sia’s economy could discourage it from

makingnewinvestments.

Chinesestate­ownedgroupsaresaidto

belookingatpossibleacquisitionsasRus­

sianassetpricesfall.Chinesebankscould

bolsterthefinancingofyuan­denominat­

edtradewithRussiausingcips, China's

home­growncross­borderpaymentssys­

tem.ButChinesefirmsaremindfulofthe

risktotheirreputationsinother,moreim­

portantmarketsshouldtheypileintoRus­

sia.AndChineselendersruntheriskofbe­

inghitwithsanctions.

Evenso,China’sCommunistPartydoes

seepoliticalbenefitsathomefromthewar:

ithashelpedfuelnationalistsentimentof

akind theparty likes.Chinese officials

havebeenfanningthiswithanti­American

rhetoric, and by endorsing Mr Putin’s

claimsthatUkraineisa Nazi­infestedpup­

pet of the West. Official media and

nationalistwebsitesdescribeRussiaasa

victimofthesameWesternbullyingthat

Chinahaslongendured.Statetelevision

andChina’sforeignministryhaverepeated

and amplified Russian disinformation,

notablyaroundUkrainianlaboratoriesal­

legedto be sinister Pentagon­controlled

centresforbio­weaponsresearch.Online,

expressionsofsympathyforUkraineare

oftendeletedbycensors.Theyincludea

friendlyinterviewwithUkrainianathletes

attheBeijingParalympics,whichvanished

afterattractingtoomanyviews.

Growing apart

GDP, $trn

2017 prices, at purchasing-power parity

Source: World Bank

2

25

20

15

10

5

0

201510052000951990

Russia

China

Find the limited partner

China’s trading partners, share of total trade

February 2022, %

Source:HaverAnalytics

1

Rest of world 70.5

Russia 2.7

United States 12.7

EU 1.1

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