HOW WILL CHINA RESPOND TO THE - RUSSIA UKRAINE CRISIS? Chris Miller - EURASIA PROGRAM
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EURASIA PROGRAM HOW WILL CHINA RESPOND TO THE RUSSIA-UKRAINE CRISIS? Chris Miller
Produced by the Foreign Policy Research Institute exclusively for the U.S. European Command, Russia Strategic Initiative. January 2022 Author: Chris Miller Project leadership team: Chris Miller, Maia Otarashvili Editing: Indra Ekmanis Design: Natalia Kopytnik © 2022 by the Foreign Policy Research Institute PO Number: PUR1166292
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How Will China Respond to the
Russia-Ukraine Crisis?
Chris Miller
CONTENTS Introduction ......................................................................... 2 China’s Response to Potential Western Sanctions .............................................................. 4 Assessing China’s Response........................................... 14
INTRODUCTION
How will China respond to a potential its bilateral relationship with Russia on
issues like energy. China’s response to
Russian military escalation against
the 2014 war, however, was generally
Ukraine? Relations between Russia and
to avoid taking sides. China accepted a
China have intensified in recent years,
narrative that placed blame on the West
with Vladimir Putin and Xi Jinping holding
for causing the crisis, with top diplomats
regular summits and the two countries’
citing Western “foreign interference for
militaries participating in joint exercises
causing the crisis,” but didn’t approve
and cooperating in some defense
of Russia’s seizure of Crimea or its
industrial efforts. Ties between Moscow
military actions in the Donbas.3 China
and Beijing are now closer than any time
abstained from voting on the key United
since the days of Stalin and Mao, driven
Nations resolutions regarding Crimea, for
by a shared perception that the United
example, and it still declines to recognize
States is each country’s primary foreign
Crimea as Russian territory. Similarly,
policy challenge. One top Russian official
it verbally rejected US and European
told media in December 2021 that the
sanctions on Russia though it let Chinese
relationship now “exceeds an alliance.”1
firms, including the country’s big state-
Chinese state media, meanwhile, have
owned banks, abide by these sanctions
vocally backed Russia in arguing that
to avoid being cut off from US financial
the current crisis stems from the US
markets and the international banking
“using NATO as a tool to cannibalize and
system.
squeeze Russia’s strategic space.”2
Compared to 2014, however, China may
The 2014 war in Ukraine and annexation
find it more difficult to avoid involvement
of Crimea was an important factor driving
in an escalating crisis. Leaders in Beijing
Russia and China closer to each other,
and around the world will see the US
as Russia sought to reduce post-Crimea
response to any military escalation against
international isolation and as Beijing
Ukraine as sending signals about whether
realized it could drive a hard bargain in
1 Anton Troianovski and Steven Lee Meyers, “Putin and Xi Show United Front Amid Rising Tensions with U.S.,” The New
York Times, Dec. 15, 2021, https://www.nytimes.com/2021/12/15/world/asia/china-russia-summit-xi-putin.html
2 Global Times, Dec. 27, 2021, https://twitter.com/globaltimesnews/status/1475531946998603777
3 Somini Sengupta, “Russia Vetoes UN Resolution on Crimea,” The New York Times, March 15, 2014, https://
www.nytimes.com/2014/03/16/world/europe/russia-vetoes-un-resolution-on-crimea.html
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FOREIGN POLICY RESEARCH INSTITUTE
President of Russia Vladimir Putin and President of China Xi Jinping visit the Moscow Zoo, June 2019.
(kremlin.ru)
the US could effectively respond to future even though China has no core issues at
crises in the Taiwan Strait or East or South stake in Ukraine itself. China is most likely
China Seas. The success or failure of US to be implicated in the crisis by potential
efforts to impose meaningful costs on Western sanctions on Russia, which in
Russia if it escalates will be seen as a test contrast to 2014 will impose substantially
of whether the US could do something more pressure on Beijing to take sides.
similar in Asia. Moreover, after repeated China’s decision either to adhere to new
summits between Chinese President Xi Western sanctions or to help Russia avoid
Jinping and Russian President Vladimir them will shape escalation pathways and
Putin, including Xi’s description of Putin determine the magnitude of economic
as his “best friend,” China’s approach to and political isolation that sanctions
Russia amid a crisis will also be interpreted impose.
as sending signals about China’s own
capabilities and influence.
Because of this, China will not see a new
phase of war between Russia and Ukraine
as a peripheral issue in its foreign policy,
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FOREIGN POLICY RESEARCH INSTITUTE
CHINA’S RESPONSE TO POTENTIAL
WESTERN SANCTIONS
Western leaders have signaled that,
capacity to replace New York or London.
China didn’t have the advanced oil drilling
if Russia escalates militarily against
equipment placed under sanction and no
Ukraine, the US, EU, and UK will respond
significant Chinese-made goods were
with a new round of sanctions intended
impacted by new export controls.
to impose substantial costs on Russia.
In 2014, after some initial disagreement Because of this, the US and EU imposed
within the transatlantic alliance, the US sanctions without having to consider
and European Union imposed multiple seriously whether and how China might
sets of sanctions on Russia: 1. banning react. Russia had to respond to sanctions
firms from doing business in occupied knowing there was little chance it could
Crimea; 2. restricting the ability of major count on substantial Chinese help. China
Russian companies like Rosneft and played no significant role in Western
Sberbank from accessing Western capital decision making about sanctions and
markets; 3. limiting the transfer of certain had only a small impact in helping Russia
types of oil and gas drilling technology to respond to sanctions in the years that
Russia; and 4. tightening export controls followed.
to military-linked firms, causing severe
If Russia again escalates militarily
delays to certain space and aviation
against Ukraine, it is not yet clear what
programs.4
sanctions the US and EU would mobilize
In 2014, China played no significant role in in response, but many of the options
these sanctions, either in terms of shaping being discussed would implicate China
Western decision making or Russia’s directly. Moreover, because the Russia-
response. This was largely because China economic relationship is larger and
China didn’t have a major position in the deeper than in 2014, it would be more
economic sectors targeted. There wasn’t difficult and costly for China to follow
substantial Chinese investment in Crimea Western sanctions. As a result, China is
nor did Chinese capital markets have the far more likely to play an important role in
4 Steve Holland, “U.S. Could Hit Russia Phone, Aircraft Part Imports if it Invades Ukraine,” Reuters, Decem-
ber 21, 2021, https://www.reuters.com/world/europe/exclusive-us-could-hit-russia-smartphone-aircraft-part-
imports-if-it-invades-2021-12-21/
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FOREIGN POLICY RESEARCH INSTITUTE
Soldiers of China’s People’s Liberation Army march during
5 the Victory Day Parade in Red Square in
Moscow, Russia, June 24, 2020. (Sergey Pyatako/Reuters)
FOREIGN POLICY RESEARCH INSTITUTEcrisis escalation pathways, because unlike Russia’s access to the SWIFT interbank
in 2014, it won’t be possible to “abstain” communication network, which handles
from making a choice about sanctions. most international payments; or by
In case of tough sanctions, China will be otherwise trying to sever Russian firms’
forced to choose. The decisions Beijing access to international financial markets.
makes will either undermine sanctions or In 2014, the US and EU already imposed
intensify their impact, in turn shaping the some limited restrictions on major Russian
Kremlin’s perceptions of whether Russia firms’ ability to raise capital, though these
can weather the economic cost. could be tightened and expanded to
include more companies. The other types
According to media reports, the West
of financial sanctions listed above have
is considering several categories of
been used against small economies, like
sanctions that could be enacted on Russia
Iran and North Korea, but never against a
in case of escalation. Some of these, like
country like Russia, with a large economy
sanctioning Russian oligarchs or Russian
that is deeply integrated into international
sovereign debt, would be mostly symbolic,
financial markets. The last time a major
imposing little economic cost and having
economy was severed from international
little chance of shaping Russia’s political
payments in peacetime was when the
calculus. Other measures would be more
US imposed sanctions on Japan before
impactful — and therefore more likely
World War II.
to implicate China. Three such sets of
sanctions deserve special consideration: When the West imposed sanctions
tough sanctions on the Russian financial on certain Russian firms’ access to
sector; sanctions that put major Russian capital markets — though took no steps
state-owned firms out of business; and limiting their ability to make international
export controls that prohibit the transfer payments — China had little capacity
of civilian products to Russia. Each of to replace Western capital markets,
these would require Chinese compliance because China’s own capital markets are
to have maximum impact on Russia. mostly closed to foreigners. Russian firms
couldn’t simply transfer their fundraising
from London to Shanghai. The measures
1. Financial and Banking that China did take to help Russian firms
Sanctions raise money after 2014 was largely
symbolic. In October 2014, right after
tough sanctions were imposed, Chinese
It has been publicly reported that in case of Premier Li Keqiang visited President Putin
Russian military escalation, the US could in Moscow and issued vague promises of
impose tough financial sector sanctions investment, spurring news headlines like
by cutting off international banks’ ability “Russia Signs Deals with China to Help
to convert rubles to dollars; by severing Weather Sanctions,” though the actual
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FOREIGN POLICY RESEARCH INSTITUTE(Adobe Stock)
scale of investment remained limited.5 At If the West were to impose strict sanctions
the same time, the Chinese and Russian on Russia’s ability to make international
central banks opened a currency swap payments today, the ruble would
line, enabling Beijing to lend renminbi, crash and Russia would have to use a
the Chinese currency, to Russia. This substantial portion of its roughly $500
enabled additional headlines about billion in foreign exchange reserves to try
financial cooperation, though it doesn’t to stabilize the currency and fund imports.
seem to have been used in a meaningful Because Russia imports and exports more
way.6 The only meaningful steps that goods from China than any other country,
China took in the years after 2014 was to China would be most impacted by any
allow state-owned and state-backed firms efforts to halt international payments.
to invest more in Russian energy assets, China would therefore have to take a
though this occurred well after the peak stand on whether or not it would abide by
of political tension in 2014-2015. such sanctions.
5 “Russia Signs Deals with China to Help Weather Sanctions,” CNBC, Oct. 13, 2014, https://www.cnbc.
com/2014/10/13/russia-signs-deals-with-china-to-help-weather-sanctions.html
6 Andrey Ostroukh, “Russia and China Open Currency Swap Line,” Wall Street Journal, Oct. 13, 2014,
https://www.wsj.com/articles/russia-and-china-open-currency-swap-line-1413207546
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FOREIGN POLICY RESEARCH INSTITUTE(Adobe Stock)
Moreover, Beijing would realize that it has conditions. China could help Russia by
an important interest in the success or swiftly transitioning bilateral trade to
failure of Western sanctions on Russia. If other payments systems, moving trade
they succeed in imposing severe costs on currently denominated in dollars or euros
Russia, Western sanctions threats against to rubles or renminbi, and by providing
China — which could be used in case of generous loans in renminbi to the Russian
crisis in Asia — would be more credible. If government, central bank, and major
China helped Russia mitigate the impact Russian financial institutions, which could
of these sanctions, the US would lose an then be used to buy goods from China.
important tool and its ability to constrain Such a move would be costly for China, as
China using economic means would be some of these loans might not get repaid.
reduced. China would therefore have These efforts would also substantially
much at stake in the success or failure of increase US-China tension. However, if
sanctions. such a move worked at stabilizing Russia-
China trade, these financial mechanisms
Both China and Russia have invested
could also be used by third countries
in their own payment systems that can
to transact with Russia while avoiding
help them make payments without the
US financial sanctions. If so, this would
SWIFT system, though these systems
demonstrate China’s financial power and
haven’t been tested in real world crisis
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FOREIGN POLICY RESEARCH INSTITUTE(Rusal)
the declining efficacy of US sanctions. Russia’s biggest companies, many of
The alternative would be to tolerate which do substantial business with China.
major disruptions to China-Russia trade Thus far, big Russian firms are mostly only
while watching the US demonstrate subject to limits on their access to capital
sanctions efficacy, neither of which would markets, but they could be targeted with
be palatable to Beijing. tougher sanctions that make it illegal for
American individuals or companies to
do business with them, which in practice
2. Sanctions on Major Russian severs them from the international
Firms financial system. If so, any listed Russian
companies’ international operations
would be heavily disrupted, creating risks
In addition to broad, strict sanctions for China but also opening opportunities
on Russia’s financial system and the for China to help such firms recalibrate
country’s ability to transact internationally, and therefore undermine the efficacy of
the US and Europe could impose tough US sanctions.
sanctions on specific Russian firms. To
In 2018, a set of poorly structured
impact the Kremlin’s decision making,
US sanctions on Russian aluminum
sanctions would have to target some of
company Rusal briefly made it illegal for
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FOREIGN POLICY RESEARCH INSTITUTEmany companies to transact with Rusal, Russian companies’ ability to do business
causing Rusal’s share price to collapse in the long-term, this would not only
and sparking major disruptions to harm Russia, it would suggest that similar
international aluminum markets. The US, measures could also be used against
which was surprised by the severity of the some Chinese companies in the future.
sanctions, eventually withdrew them after Either way, China wouldn’t have the
negotiations with Rusal.7 The sanctions opportunity to sit on the sidelines.
were highly disruptive for Rusal because
China could respond to such sanctions by
they made it difficult for the company to
helping Russian firms avoid their impact.
deal with international banks and forced
For example, Chinese state-owned
many customers to cancel contracts. In the
banks or the Chinese government could
future, the US could impose comparable
provide loans to impacted Russian firms.
sanctions on almost any Russian firm.
Chinese banks could also volunteer to
Outside of the gas and oil sector — which
process international payments for them.
Europe and the US depend on to keep
Depending on how US sanctions were
energy prices stable, and are therefore
structured, this could put Chinese firms in
unlikely to be targeted by sanctions —
violation of US law, but China might wager
Russia has major companies in the metals
that the US would decline to enforce
and mining sector, for example, that have
the law against China if doing so meant
deep international interconnections and
embroiling itself in a financial contest
would therefore be highly vulnerable to
with China and Russia simultaneously.
US sanctions.
If China was able to help major Russian
If the US were to reprise its 2018 firms do business despite strict US
sanctions on Rusal and expand them to financial sanctions, this would undermine
other Russian firms, this would impose the efficacy of any future US sanction
two serious costs on China. First, China program. China would demonstrate its
would suffer from the disruptions to financial power and would have financial
commodity markets that this would tools that could be redeployed in future
cause. Depending on which Russian firms crises.
were sanctioned, international markets
for aluminum, nickel, copper, palladium,
and other products could be disrupted,
causing substantial price increases. If US
sanctions proved effective at disrupting
7 “Rusal Shares Plunge over 40 Percent on U.S. Sanctions,” Reuters, April 8, 2018, https://www.reuters.
com/article/us-usa-russia-sanctions-rusal-stocks/rusal-shares-plunge-over-40-percent-on-u-s-sanctions-
idUSKBN1HG04H; William Spiegelberger, “Anatomy of a Muddle: U.S. Sanctions Against Rusal and Oleg
Deripaska,” Foreign Policy Research Institute, April 29, 2019, https://www.fpri.org/article/2019/04/anatomy-
of-a-muddle-u-s-sanctions-against-rusal-and-oleg-deripaska/
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FOREIGN POLICY RESEARCH INSTITUTE(Adobe Stock)
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FOREIGN POLICY RESEARCH INSTITUTE3. Export Controls If the US imposes export controls on
smartphones or other products, Chinese
In addition to sanctions on the Russian companies would have to decide whether
financial system or on individual Russian to abide by these export controls or violate
firms, media reports suggest that the them. China’s government could choose
US is also considering imposing strict to vocally reject the export controls. If so,
export controls on Russia, including on the US would have to choose between
smartphones and aircraft parts. Over letting Chinese firms ignore them —
the past several years, the US has thereby opening wide loopholes — or
imposed strict export controls, notably initiating a major escalation of the export
on semiconductor technology, to target control campaign by trying to punish
Chinese companies like Huawei, SMIC, Chinese firms for violations. Alternatively,
and Hikvision. The scope of these export the Chinese government could facilitate
controls and their ability to freeze the the preparation of shell companies that
activities of major global firms like Huawei could manage smartphone trade with
has surprised many observers, including Russia. This could potentially shield
in China. In a sign of the power of these smartphone producers and assemblers
sanctions, Beijing has not retaliated from being liable for export controls,
despite the US having targeted several of though the US could still try to enforce
its biggest companies. controls against these intermediaries.
The US has long imposed certain export If China were to enforce US export
controls on Russia, though in the past they controls against Russia, this would be a
have mostly targeted military or dual-use profound sign of weakness, implying that
goods. Now, according to media reports, Chinese companies producing goods in
the US is considering a substantial China can only sell to third countries with
increase in the scale of export controls US permission. If China were to reject US
to include important civilian products export controls, however, the US would
like smartphones. Such restrictions, if face the unappetizing choice of launching
imposed, would implicate China directly, a major new pressure campaign against
especially because most smartphones China even while dealing with the fallout
are assembled in China and many from a potential escalation of the Russia-
smartphones bought by Russians are Ukraine war.
produced by Chinese firms like Xiaomi.
However, almost all phones include US
components, notably in their advanced
semiconductors, and are therefore
impacted by US export controls.
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FOREIGN POLICY RESEARCH INSTITUTEPeople stand under a giant screen broadcasting news footage of Chinese President Xi Jinping attending a
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video conference call with Russian President Vladimir Putin, in Beijing. (TINGSHU WANG / REUTERS)
FOREIGN POLICY RESEARCH INSTITUTEASSESSING CHINA’S RESPONSE
US financial sanctions have been
official reduced to making purchases in
cash since she can’t open an account.
a longstanding irritant in US-China
relations. The US has accused Chinese If Russia escalates its military pressure on
companies of violating sanctions on North Ukraine and the US and Europe respond
Korea and Iran, for example. Sizeable with strict sanctions and export controls,
Chinese companies like Macao-based as officials have publicly threatened,
bank Banco Delta Asia and Chinese China would face a much more difficult
telecom firm ZTE have faced penalties choice. China’s general adherence to US
and restrictions on their businesses sanctions on Iran and North Korea (despite
for violating sanctions regimes. When noted exceptions) was a comparatively
pressured by the US, Beijing has easy decision because Iran and North
generally let Chinese companies follow Korea have small economies. The cost
US sanctions regulations to avoid US fines of compliance is therefore small. Russia
and legal proceedings. This has brought is far larger and far more internationally
embarrassment to China in the past by connected. Because of this, comparably
demonstrating its weakness vis-à-vis US tough US sanctions would be substantially
sanctions. For example, China declined to more disruptive to China’s economy.
retaliate after US export controls forced Because China is deeply intertwined with
Huawei to sell its advanced smartphone Russia in terms of trade and, to a lesser
business. Similarly, Chinese state-owned extent, finance, it would be unable to sit
banks have enforced US financial on the sidelines. Beijing would either
sanctions imposed on Hong Kong leader have to reject US sanctions and export
Carrie Lam, who has publicly complained controls, help enforce them, or do some
that she can’t open a bank account.8 mix of both. Either way, China would be
China’s leaders have evidently decided forced to choose.
that it is better to keep its banks plugged
Most experts believe that China is unlikely
into the international financial system and
to take sides in a potential Russian
suffer the embarrassment of having a key
8 Laura He, “Hong Kong Leader Carrie Lam is Getting Paid in Cash Because Banks Won’t Deal with Her,”
CNN, Nov. 30, 2020, https://www.cnn.com/2020/11/30/business/hong-kong-carrie-lam-cash-intl-hnk/index.
html
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FOREIGN POLICY RESEARCH INSTITUTE(Adobe Stock)
military escalation against Ukraine.9 If China adheres to US sanctions against
In a political and military sense, this is Russia, Beijing’s economic heft will seem
probably accurate. However, if the US less significant and America’s financial
imposes tough sanctions, China won’t power will be enhanced. This raises the
be able to avoid tough choices. The stakes for Beijing, which in a crisis might
structure of US and European sanctions conclude it has no choice but to stand
in 2014 didn’t impose such a dramatic set up to America’s extraterritorial sanction
of decisions on Beijing. In 2014, almost power. If so, Russia would find a valuable
all China-Russian trade was untouched friend amid the crisis — and the West
by sanctions and most China-Russia could find itself embroiled in a two-front
financial flows were also uninterrupted. financial war.
This time, if the West carries through on
its most severe threats, the impact on
China could be profound, in terms of
economics, but also in terms of reputation.
9 Kristin Huang, “China ‘Unlikely to Take Sides’ in a Russia-Ukraine Conflict,” South China Morning Post,
Dec. 7, 2021, https://www.scmp.com/news/china/diplomacy/article/3158785/china-unlikely-take-sides-rus-
sia-ukraine-conflict
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FOREIGN POLICY RESEARCH INSTITUTEABOUT THE AUTHOR
Dr. Chris Miller is Eurasia Director at the Foreign Policy Research Institute. He is the author
of three books on Russian politics, foreign policy, and history, including We Shall Be Masters:
Russian Pivots to East Asia from Peter the Great to Putin (2021); Putinomics: Power and
Money in Resurgent Russia (2018); and The Struggle to Save the Soviet Economy: Mikhail
Gorbachev and the Collapse of the USSR (2016). He is co-editor of The Russian Way of War
in Syria: Implications for the West (2020). He is a frequent contributor to outlets such as
The Wall Street Journal, The New York Times, Foreign Policy, Foreign Affairs, and others.
16
FOREIGN POLICY RESEARCH INSTITUTEFOREIGN POLICY RESEARCH INSTITUTE
The Foreign Policy Research
Institute is dedicated to producing
the highest quality scholarship
and nonpartisan policy analysis
focused on crucial foreign policy
and national security challenges facing the
United States. We educate those who make
and influence policy, as well as the public at
large, through the lens of history, geography,
and culture.
Foreign Policy Research Institute
1528 Walnut Street, Suite 610
Philadelphia, PA 19102
215-732-3774 www.fpri.org
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