Will China be afraid of Western sanctions?


The New York Times

The next set of anti-Russian sanctions will only complicate Russian-Chinese trade and economic cooperation to some extent, but will not be able to cancel it

On June 12, the US significantly expanded sanctions against Russia, imposing new restrictions on financial infrastructure, including Moscow Exchange, the National Clearing Center, as well as cloud services and information technology, and LNG projects. The Kremlin called the restrictions illegal.

Chinese official agencies also reacted in a similar way. The fact is that with the same package of sanctions Washington has increased the risks of secondary sanctions for foreign financial institutions and companies that «provide assistance to the Russian defense industry».

China urges the US to immediately stop imposing illegal sanctions and instead play a constructive role in restoring peace, Chinese Foreign Ministry spokesman Lin Jian said at a briefing last Thursday. «We call on the US to immediately stop the excessive imposition of illegal unilateral sanctions and instead play a constructive role in the ceasefire and restoration of peace», the diplomat said. He once again reminded the PRC’s principled position: trade and economic cooperation between Russia and the PRC does not tolerate interference, it cannot be a tool to contain China. In short, stay out of it, it’s none of your business.

That’s true, but the Americans don’t seem to be stopped by these warnings. With the latest package, the US imposed restrictions on networks and chains that Washington claims help Russia evade sanctions. They included companies and individuals from Belarus, Bulgaria, Kazakhstan, China, Kyrgyzstan, Serbia, South Africa, Turkey, the UAE and the British Virgin Islands.

The United Kingdom acted almost synchronously, which introduced restrictive measures against companies from a number of third countries, including China, Israel, Singapore and the UAE. Seven Chinese organizations were added to the sanctions lists. The US has also threatened to impose sanctions against foreign banks for transactions with Russian financial organizations, including Sberbank and VTB. The latter has opened a branch in China and is trying to develop its business there. However, this branch now seems to be under sanctions as well.

So what to do now? As we remember, the volume of Sino-Russian trade grows by about a third annually and, despite the imposed sanctions, has reached $240 billion. Most of the settlements are now made in national currencies. Nevertheless, the development of exchange, especially at the level of small and medium-sized businesses, requires effective payment mechanisms independent of the will of a third force. It is the growing sanctions that are currently restraining more active growth of trade turnover between Russia and China, although there are other reasons as well.

It is clear that Chinese companies are actively working with the whole world, and Western markets are the most attractive for them due to the volume and solvent demand. Sometimes Chinese counterparties are not ready to expose themselves to the risks of secondary sanctions in exchange for benefits from trade with Russia. Therefore, they either have to refuse direct cooperation or look for ways to circumvent sanctions.

This is roughly what will happen after the latest restrictions are imposed. They will affect mutual trade, but will not stop it. China has a huge number of companies seeking to sell their goods, including those that may be more interested in the Russian market. Zhou Lijun, chairman of the Union of Chinese Entrepreneurs in Russia, said at SPIEF-2024 that the Chinese and Russian sides will find ways to solve all the problems that arise.

In principle, the US is not inventing anything new. They are following the path they have already followed with regard to Iran. At the same time, Iran has gradually adapted to the many sanctions and restrictions imposed, including disconnection from international settlement systems, blocking of accounts, etc. For smooth mutual settlements in trade between the two countries, China and Iran have set up special banks to handle only such transactions. Apparently, this will also be the case in Sino-Russian trade.

Of course, under these conditions, those Chinese companies that came to the Russian market on a long-term basis and seek to localize their business in Russia as much as possible, build stable cooperation chains and do not depend on the intervention of a third force will benefit the most.

Nevertheless, with the imposition of sanctions on Moscow Exchange and other financial institutions, settlements in dollars and euros will be difficult in the short term. Large Chinese financial structures are likely to avoid dealing with sub-sanctioned organizations. They will set up small branches to do so. Foreign exchange costs and payment processing times may increase, and there may be a shortage of dollars and euros. All this will further push the growth of settlements in national currencies.

However, if we look at the problem more broadly, we should recognize that Western sanctions against Russia are beneficial to China. They not only allow China to occupy the vacated markets, but also to dominate them. Generally speaking, the Russian direction is favorable for Chinese business, and it will look for ways to circumvent sanctions and solve emerging problems.

In addition, there is an understanding in China that by imposing sanctions and supporting Ukraine, the US is thinking only about their material and political benefit. This, by the way, was recently stated by the official representative of the Ministry of Foreign Affairs of China Lin Jian, who cited the statements of US Senator Lindsey Graham (included by Rosfinmonitoring in the list of terrorists and extremists), who said that the United States can not afford to lose in the conflict in Ukraine, because in this case they will not get Ukrainian natural resources, the value of which is estimated at 10–12 trillion dollars. According to Graham, Ukraine is «sitting on a gold mine» and can be considered «the richest country in all of Europe». However, in his opinion, if Kiev loses the conflict, all its resources will allegedly go to Russia and China.

«This shows the real thinking of the US on the issue of Ukraine. It is obvious that some people in the States talk about rules and doctrines, but they have only profit and business on their minds», the Chinese diplomat said, commenting on Graham’s remarks. For the same reason, China cannot let Russia lose.

It is logical to assume that China will not miss its advantage as far as trade relations with Russia are concerned. And no sanctions can change this situation. China is too big to be easily forced to give up its interest. Sanctions are also beneficial to China because they allow it to occupy the market niches that Russia and other sub-sanctioned countries, including in Europe, are leaving.

As practice shows, China is establishing mutually beneficial economic relations with all countries under US sanctions, including Venezuela, Iran and North Korea. In addition, it pushes such countries to closer political and military contacts with the PRC. As a result, a kind of alliance is being created that is oriented toward China, strengthening its position in the confrontation with the West.