China’s Economic Lifeline to Russia Gives Beijing Upper Hand
Chinese President Xi Jinping’s visit to Moscow—and the flurry of trade, energy and infrastructure deals discussed during his trip—has laid bare an increasingly uncomfortable truth for Moscow: In a relationship the Kremlin has long treated with the utmost caution, China is gaining the upper hand.
“They understand they can’t lose this war, and going deeper into the Chinese pocket is the price they’re willing to pay,” said Alexander Gabuev, senior fellow at the Carnegie Endowment for International Peace. “Beijing is the quintessential lifeline that is keeping the economy going and getting weapons to the troops.”
The U.S. said earlier this year that China was considering whether to supply Russia with weapons and ammunition. On Wednesday, U.S. Secretary of State
Antony Blinken
said that, “As we speak today, we have not seen them cross that line.”
The Russian and Chinese economies are largely complementary, with Russian raw materials and energy resources traditionally feeding China’s manufacturing sector. Agricultural trade has increased 41%, Mr. Putin said during the summit.
Overall trade between the two countries jumped nearly 30% last year to $185 billion as Russia redirected its crude oil to China and other Asian countries after Western countries restricted purchases of Russia’s energy products.
Those energy sales to China more than offset the fall off in energy exports to its historic trading partners in Europe—who have been weaning themselves off Russian energy—giving Moscow the revenue it desperately needs to fund its war machine.
That has, however, given China outsize leverage over Russia.
Furthermore, Russia is eager to sell more of its gas to China to replace its traditional customers in Europe. But to do that, it must convince China to begin construction on a second pipeline that would carry Russian gas to the Asian giant. During the summit on Tuesday, Mr. Putin said agreements on the pipeline were moving forward, but Mr. Xi stayed silent on the issue.
SHARE YOUR THOUGHTS
What does Russia stand to gain or lose in its relationship with China? Join the conversation below.
“Before the current crisis, if China became too demanding, there was always an opportunity to redirect some of the Russian oil and gas toward Europe,” said Andrey Kortunov, head of the Kremlin-linked think tank Russian International Affairs Council. “Right now there is no such opportunity so we see a market of a sole customer which changes the rules of engagement.”
During the summit, the two leaders announced an eye-popping $165 billion worth of planned bilateral investment projects. Those investments will continue to redirect Russian energy resources to China and likely raise Beijing’s investment in Russian critical infrastructure, including some of the country’s most prized ports.
The details of the new deals have been kept largely secret.
“Cooperation became more secretive because of the threat of secondary sanctions on Chinese companies,” said Vasily Kashin, director of an international studies center at the Moscow-based HSE University. He added that the Chinese companies with international exposure might shy from new investments in Russia, but that more regional companies might step in to fill the void left by Western companies.
Mr. Putin has broadly encouraged China to replace Western brands and has praised its giant neighbor as an alternative to the West. Moscow is looking to the yuan as a replacement for the dollar.
“Moscow is ready to support Chinese business in replacing enterprises that have left Russia,” the Russian president said on Tuesday.
For Russian consumers, Chinese automobiles are already being produced in a factory formerly used by
Renault SA,
and the director of a former Mercedes Benz Group AG factory has said it would likely follow suit. In January, a third of all car dealerships sold Chinese cars, compared with 22% last year, according to Autostat, a Moscow-based automobile statistics agency.
China has boosted high-tech dual-use exports for civilian or military purposes. In the March to September period, the value of Chinese semiconductor exports to Russia jumped from $200 million in 2021 to over $500 million last year.
China, likewise, sees benefits of its closer ties. Beijing is gaining access to some of Russia’s most advanced weapons, like air defense and early-warning systems, which until a few years ago were reserved solely for India, its longtime top defense client, analysts said.
Much of the influx of Chinese money has entered industries where Russian companies never had a strong presence like automobiles or retail goods as well as sectors that need large injections of cash, like infrastructure.
Photos: Xi and Putin, a Friendship Forged Against the West
For years, Russia looked to closer diplomatic and military cooperation with China as a way of strengthening its own standing against the West. But even so, Moscow was wary of bringing China too close and kept it at arms length from sensitive companies and assets.
After it was announced in 2017 that China’s Poly Group, which has ties to Beijing’s defense industry, had signed an agreement to invest in the refurbishing of a port in Russia’s Far North, the plan was quietly scuttled after local security officials disapproved of it, said two people with knowledge of the decision. Locals in Siberia have also protested against environmental damage caused by Chinese companies there.
Mr. Xi has invited Mr. Putin to China to participate in this year’s Belt and Road summit, where Chinese investment in new Russian projects could be on the table.
The last time Mr. Putin went to a Belt and Road summit, he left without giving any firm concessions to China. This year, it is unclear whether Moscow will accept Chinese money for new projects.
“It seems these old projects may gain some new traction and be reborn with the political will currently in place,” said Mr. Kashin of HSE University.
As the war drags on and Russia economy is eroded by sanctions, “China might turn out to be a tougher partner than Europe in some ways,” said Russian International Affairs Council’s Mr. Kortunov.
—Evan Gershkovich and Georgi Kantchev contributed to this article.
Write to Thomas Grove at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Chinese President Xi Jinping’s visit to Moscow—and the flurry of trade, energy and infrastructure deals discussed during his trip—has laid bare an increasingly uncomfortable truth for Moscow: In a relationship the Kremlin has long treated with the utmost caution, China is gaining the upper hand.
“They understand they can’t lose this war, and going deeper into the Chinese pocket is the price they’re willing to pay,” said Alexander Gabuev, senior fellow at the Carnegie Endowment for International Peace. “Beijing is the quintessential lifeline that is keeping the economy going and getting weapons to the troops.”
The U.S. said earlier this year that China was considering whether to supply Russia with weapons and ammunition. On Wednesday, U.S. Secretary of State
Antony Blinken
said that, “As we speak today, we have not seen them cross that line.”
The Russian and Chinese economies are largely complementary, with Russian raw materials and energy resources traditionally feeding China’s manufacturing sector. Agricultural trade has increased 41%, Mr. Putin said during the summit.
Overall trade between the two countries jumped nearly 30% last year to $185 billion as Russia redirected its crude oil to China and other Asian countries after Western countries restricted purchases of Russia’s energy products.
Those energy sales to China more than offset the fall off in energy exports to its historic trading partners in Europe—who have been weaning themselves off Russian energy—giving Moscow the revenue it desperately needs to fund its war machine.
That has, however, given China outsize leverage over Russia.
Furthermore, Russia is eager to sell more of its gas to China to replace its traditional customers in Europe. But to do that, it must convince China to begin construction on a second pipeline that would carry Russian gas to the Asian giant. During the summit on Tuesday, Mr. Putin said agreements on the pipeline were moving forward, but Mr. Xi stayed silent on the issue.
SHARE YOUR THOUGHTS
What does Russia stand to gain or lose in its relationship with China? Join the conversation below.
“Before the current crisis, if China became too demanding, there was always an opportunity to redirect some of the Russian oil and gas toward Europe,” said Andrey Kortunov, head of the Kremlin-linked think tank Russian International Affairs Council. “Right now there is no such opportunity so we see a market of a sole customer which changes the rules of engagement.”
During the summit, the two leaders announced an eye-popping $165 billion worth of planned bilateral investment projects. Those investments will continue to redirect Russian energy resources to China and likely raise Beijing’s investment in Russian critical infrastructure, including some of the country’s most prized ports.
The details of the new deals have been kept largely secret.
“Cooperation became more secretive because of the threat of secondary sanctions on Chinese companies,” said Vasily Kashin, director of an international studies center at the Moscow-based HSE University. He added that the Chinese companies with international exposure might shy from new investments in Russia, but that more regional companies might step in to fill the void left by Western companies.
Mr. Putin has broadly encouraged China to replace Western brands and has praised its giant neighbor as an alternative to the West. Moscow is looking to the yuan as a replacement for the dollar.
“Moscow is ready to support Chinese business in replacing enterprises that have left Russia,” the Russian president said on Tuesday.
For Russian consumers, Chinese automobiles are already being produced in a factory formerly used by
Renault SA,
and the director of a former Mercedes Benz Group AG factory has said it would likely follow suit. In January, a third of all car dealerships sold Chinese cars, compared with 22% last year, according to Autostat, a Moscow-based automobile statistics agency.
China has boosted high-tech dual-use exports for civilian or military purposes. In the March to September period, the value of Chinese semiconductor exports to Russia jumped from $200 million in 2021 to over $500 million last year.
China, likewise, sees benefits of its closer ties. Beijing is gaining access to some of Russia’s most advanced weapons, like air defense and early-warning systems, which until a few years ago were reserved solely for India, its longtime top defense client, analysts said.
Much of the influx of Chinese money has entered industries where Russian companies never had a strong presence like automobiles or retail goods as well as sectors that need large injections of cash, like infrastructure.
Photos: Xi and Putin, a Friendship Forged Against the West
For years, Russia looked to closer diplomatic and military cooperation with China as a way of strengthening its own standing against the West. But even so, Moscow was wary of bringing China too close and kept it at arms length from sensitive companies and assets.
After it was announced in 2017 that China’s Poly Group, which has ties to Beijing’s defense industry, had signed an agreement to invest in the refurbishing of a port in Russia’s Far North, the plan was quietly scuttled after local security officials disapproved of it, said two people with knowledge of the decision. Locals in Siberia have also protested against environmental damage caused by Chinese companies there.
Mr. Xi has invited Mr. Putin to China to participate in this year’s Belt and Road summit, where Chinese investment in new Russian projects could be on the table.
The last time Mr. Putin went to a Belt and Road summit, he left without giving any firm concessions to China. This year, it is unclear whether Moscow will accept Chinese money for new projects.
“It seems these old projects may gain some new traction and be reborn with the political will currently in place,” said Mr. Kashin of HSE University.
As the war drags on and Russia economy is eroded by sanctions, “China might turn out to be a tougher partner than Europe in some ways,” said Russian International Affairs Council’s Mr. Kortunov.
—Evan Gershkovich and Georgi Kantchev contributed to this article.
Write to Thomas Grove at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
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