Since 2014, when Western nations imposed sanctions on Russia in response to its illegal annexation of Crimea, the Kremlin has claimed that Russian companies are looking to China in search of opportunity. That pivot eastward has taken on greater urgency since Moscow’s full-scale invasion of Ukraine in February 2022. Last year, two bridges opened across the Amur River, which marks the border between Russia and China. And at a meeting in March 2023, Russian President Vladimir Putin and Chinese President Xi Jinping pledged to deepen economic cooperation as part of their “no limits” partnership.
But just how big a helping hand has China really offered Russia since the outbreak of the war in Ukraine? Assessing the reality of Russia’s eastward economic turn is not easy. Last year the Kremlin classified its trade data, making it difficult to track China’s support for Russia. Combing through Chinese customs data is now the only way to find out what is (or is not) being traded.
These data do not capture smuggling and may be incomplete, but they are reliable enough to provide the big picture: China appears to be wary of increasing trade with Russia. And contrary to conventional wisdom, Moscow does not have much to offer Beijing. China does not buy Russian oil and gas at a large discount, and it wants a diverse array of energy providers. Russia’s much-vaunted pivot toward China, in other words, is probably not as successful as Putin and Xi claim.
PAPER PIVOT
In 2022, Western sanctions mostly targeted Russian imports of Western products, including parts for cars, planes, and machinery, reflecting Europe’s reluctance to break its addiction to Russian energy. Russia also lost access to advanced semiconductors, which rely on U.S. technology. This caused a headache for the Kremlin: Russia needs high-end microchips to build the missiles it uses in Ukraine. Western countries know that Russia will always find buyers for discounted hydrocarbon exports, but locating alternative suppliers for imports of advanced technology is trickier—and Chinese firms are not rushing to fill the gap left by the withdrawal of Western firms.
On paper, the Chinese-Russian trade relationship appears to be gaining steam. The U.S. dollar value of China’s exports to Russia rose by a solid 12.8 percent in 2022, boosted in part by exchange rate movements: last year, the yuan depreciated against both the dollar and the ruble, increasing the competitiveness of Chinese exports to Russia. But this seemingly robust growth in Chinese shipments across the Amur was not exceptional. Most of China’s top 20 trading partners recorded growth of ten percent or more in their imports from China last year. The value of Chinese exports to Australia and India—hardly Chinese allies—jumped by around 20 percent in 2022, for example.
The dollar value of China’s exports to Russia paints a more modest picture of the trading relationship. In 2022, Chinese firms shipped $76 billion worth of goods to Russia, roughly the value of their shipments to Indonesia, Taiwan, and Australia. That represented only two percent of China’s total exports—on a par with Chinese shipments to Thailand, whose economy is a quarter the size of Russia’s. Nor was 2022 an outlier: since 2014, China’s exports to Russia have grown by only around 40 percent in nominal terms, compared with more than 200 percent for China’s exports to India, Vietnam, and Singapore.
This raises the question of why Russia is not an attractive market for Chinese firms. Some of the answers are obvious. The Russian economy recorded a recession last year. Growth will at best stagnate this year, and projections suggest that Russia’s GDP will not recover to its prewar level until 2027. The Kremlin’s decision in 2022 to dispense with international norms protecting intellectual property is another disincentive. Beijing may not be known for respecting Western intellectual property at home, but Chinese companies still want their know-how to be protected when they are doing business abroad. In addition, Beijing has yet to order its state-owned enterprises to enter the Russian market. And given that the Russian population has traditionally been suspicious of China, Chinese companies know that they may not be welcomed with open arms.
But the main reason Chinese firms are so reluctant to do business across the Amur may have more to do with Washington than with Moscow. Chinese businesses worry that the United States could impose secondary sanctions that would target firms from any country that do business with Russian companies. So far, Washington has only imposed such measures on deals with Russia’s military sector. If the United States were to expand these measures to other economic sectors, all companies around the world would be forced to choose between the U.S. and Russian markets. For most firms, sticking with the United States would be a no-brainer. As a result, Chinese companies have little incentive to invest time and money in developing relationships with Russian businesses that they might soon need to abandon.
Perhaps more concerning for the Kremlin, Chinese firms that are doing business across the Amur are not making up for the departure of Western suppliers from the Russian market: Chinese businesses mostly send basic mobile phones, transport equipment, and computers. Chinese companies are not shipping advanced technology to Russia: according to Chinese customs data, Chinese semiconductor exports to Russia remained flat overall in 2022. Again, the United States may be to blame: like Russia, China has lost access to advanced semiconductors as a result of a raft of U.S. export controls that were introduced in late 2022. The chips that China can manufacture are mostly basic and probably of limited use to Russia.
The United States made a bet when it simultaneously curbed the ability of both Russia and China to import sophisticated semiconductors in 2022. Washington hoped that instead of cooperating to circumvent these measures, Beijing and Moscow would compete to obtain high-end chips—and for the most part, that bet has paid off. Russia appears to be smuggling some semiconductors from Turkey, and possibly Kazakhstan, Serbia, and the United Arab Emirates. But Russia probably cannot secure enough semiconductors to meet the demands of its large economy, undercutting Moscow’s ability to create a technology ecosystem from scratch and build supply chains for advanced products. Over time, this will weigh heavily on Russia’s economic outlook.
NOT SO SPECIAL
On the other side of the trade balance, the rise in Russian exports to China appears more impressive: the value of Russian shipments to China increased by 43 percent in 2022. But again, the reality may not be so rosy. The war-induced rise in commodity prices explains part of the increase. Crude oil, gas, and coal make up the bulk of Russia’s exports to China. In 2022, the price of these commodities shot up. As a result, many commodity producers recorded steep jumps in their exports to China: Canada’s climbed 39 percent in 2022, for instance. Russia’s exports soared as well. And contrary to popular belief, China does not appear to buy Russian commodities at a discount.
Again, the absolute size of Russia’s exports to China suggests a more modest reality. Russia’s exports to China remain low, at $114 billion last year. That figure represents just four percent of Chinese imports—on a par with China’s shipments from Malaysia, whose economy is one-sixth the size of Russia’s. Of course, some smuggling is taking place, with Russian oil increasingly being transported under the radar by a growing fleet of Russian ships. But China is probably not hiding most of its imports of Russian crude. It has no need to do so; the United States and its allies have not imposed an embargo on Russian oil exports, mostly for fear of driving up crude prices and inciting a backlash against sanctions in the global South.
Looking ahead, Russia’s energy exports to China may have reached a plateau. Beijing has always been careful to maintain a diverse mix of energy suppliers. Shipping insiders believe that China caps oil imports at around two million barrels per day from any country—a level that Saudi Arabia reached long ago and that Russia probably hit in late 2022. The Chinese leadership may prove especially careful with Russia in this regard, given that Putin showed in 2022 that he had no qualms about turning off the gas tap to Europe. Capacity constraints will also limit Russian hydrocarbon exports to China. Only a few Chinese refiners are equipped to refine Russian crude, which is rich in highly toxic mercury.
The picture is similar for gas. Shipments through the Power of Siberia pipeline, the main conduit for Russian gas deliveries to China, cannot grow much until upgrades are completed in 2025. Putin has long pushed for the construction of a new pipeline connecting Russia to China, Power of Siberia 2. He had high hopes that Xi’s visit to Moscow in March 2023 would seal the deal. Yet Xi seems in no hurry to oblige, and for good reason: China has already agreed to build a pipeline linking the Russian island of Sakhalin to mainland China. If Power of Siberia 2 were to be built as well, Russia would supply around half of China’s gas imports, making Beijing just as dependent on Russian gas as Europe used to be.
A LOPSIDED FRIENDSHIP
A look at Chinese customs data makes it clear that China retains the upper hand in its economic relationship with Russia and that Beijing appears in no rush to provide an economic lifeline to the Kremlin. In the future, Chinese businesses could still come to Russia’s rescue by beefing up their investments there. So far, there is no indication that they are preparing to do so, but investment decisions typically take three to five years to materialize. It is unlikely that Chinese firms will fill the entire void left by departing Western businesses, however. Companies from countries that Russia now considers “unfriendly”—which used to bring innovation to Moscow—made up 90 percent of foreign direct investment to Russia over the past decade. Today, that share is probably close to zero (although Russia’s classification of foreign investment data makes it hard to give a precise figure).
At the Beijing Olympic Games in 2022, only a few weeks before Moscow launched its invasion of Ukraine, the Russian and Chinese leaders claimed that their friendship knew “no limits.” More than a year later, Xi and Putin have only confirmed the adage that some things are easier said than done. Putin’s grand expectations have yet to be met. And contrary to official declarations, Russia’s enthusiastic pivot to China has not been reciprocated.
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