There is no lack of consequences associated with the war in Ukraine. There is talk of major geopolitical repercussions, a new arms race, a food crisis. There is one thing, however, that deserves more attention: the implications for China of the sanctions imposed on Russia.
Many analyzes stop at the most obvious consequence: as China did not adhere to the sanctions, new commercial opportunities arise, such as the purchase of Russian oil at better prices. With the departure of Visa and Mastercard from Russia, the Chinese Union Pay gained space, for example.
However, the story does not end there. Led by the United States, the G7 members have pledged measures against anyone who helps Russia circumvent sanctions. That is, China (and other countries) may be punished for not adhering to the policy of others.
Beijing sees this as an unacceptable display of arrogance and has promised retaliation if the idea takes hold. For the Chinese, Washington cannot dictate the terms of the relationship they can have with Moscow. The unipolar world would have been left behind and there would be no more room for the US long hand, which seeks to apply its rules outside its own jurisdiction.
Even if China were to agree to sanctions, China would not be willing to simply adhere to restrictions devised by others, who do so also with the intention of minimizing side effects on themselves. Not all Russian banks have been excluded from the Swift system primarily because, for gas from Moscow to continue reaching Europe, some way to make its payment viable is necessary.
However, despite maintaining the discourse that cooperation with Russia continues to flow normally, Beijing is concerned about the so-called secondary sanctions. Chinese companies and banks would be reluctant to transact with Russians for fear of being hit by sanctions. This week, state-owned Sinopec was reported to have suspended talks about a huge petrochemical investment in the country.
Quietly complying with sanctions seems to be the choice of many Chinese firms fearful of punishment, which can include difficulties in the US market, fines and even imprisonment of directors. Chinese businessmen well remember that Huawei’s chief finance executive (and daughter of the founder) was arrested in Canada in 2018 on the grounds that she helped circumvent US sanctions on Iran.
For companies operating globally, the risk of ignoring sanctions is high. For the regime, however abusive the extraterritorial and unilateral action of the US may seem, for now it has been left to rant in public and, in private, to endorse or recommend the cautious attitude.
The ongoing sanctions serve as a bitter reminder to China, the world’s leading trading power, of Washington’s disproportionate power over finance and international trade. They provide an extra incentive for Beijing to seek to internationalize its currency, invest in local currency trading, the digital yuan and alternatives to the Swift system.
In addition, given the circumstances, authorities reinforce the bet on self-sufficiency in strategic technologies, food and energy security — which has global repercussions, including for agribusiness exporters. Xi Jinping said this month that China cannot rely on the international market for its food security.
It is true that the Chinese economy is ten times bigger than the Russian one and much more integrated into the world. But the arsenal of sanctions tested against Moscow today could be deployed against Beijing tomorrow, albeit in part.
Not surprisingly, China resists joining the West’s punishments. The logic came from a tweet by a Chinese TV journalist: “Will you help me fight your friend so I can focus on you later?”
