A cold war is once again looming on our planet following the events in Ukraine. As relations sour between Moscow and other major powers, China is likely to fill up any shortfall in the flow of trade and natural resources from Russia to the West. The Hong Kong Economic Journal’s EJ Tactics column explains how this will be the case.
A growing number of people in eastern Ukraine appear to be joining protests “voluntarily” to demand independence for the region or to make it a part of Russia. Observers have a sense of deja vu, given Russia’s annexation of Crimea last month.
It is widely expected that the eastern part of Ukraine will sooner or later be seized by Russia, since there isn’t any other route to link the strategically located and resources-rich Crimea Peninsula.
However, Russian leader Vladimir Putin isn’t sending troops to his target turf but moving certain pre-arranged pro-Russia activists. It is foreseeable that Russia will not halt its ambition any time soon, which could result in further deterioration in Russia-US and Russia-EU ties.
A Russian newspaper said in an editorial article last month that the economic losses caused by the political unease in Ukraine can be fully replaced by China.
The article noted that Russia may need foreign funds to substitute for the gap left by Western investors, giving a chance to Chinese investors.
As of the end of 2012, China had invested US$27.92 billion in Russia, ranking the fourth. The top three investors were Cyprus (US$76.74 billion), the Netherlands (US$61.49 billion) and Luxembourg (US$42.74 billion).
It is not difficult for China to move up into to the top three spots should Western European countries reduce their investment in Russia.
In fact, one can observe a strong complementary relationship between Chinese and Russian economies. China needs Russia’s natural resources while Russia taps China’s cheap manufacturing. Russia-China ties have been getting closer in recent years. Tightened sanctions by the United States over Russia can actually give a big boost to Moscow’s economic cooperation with Beijing.
Strategically, China and Russia can join hands to confront the US-Japan alliance, especially in sovereignty issues, while forging deals on military technology.
Meanwhile, China UnionPay is likely to benefit from a recent suspension of services to Bank Rossiya and three other Russian banks by international payment solution companies Visa Inc. and Master Inc.
More Russian tourism groups may choose China over other European countries for travel, bolstering domestic demand in the mainland.
A prolonged row in Ukraine may also lead to a disintegration of its military industry. If it is forced into a fire sale, that could provide great buying opportunities for China, helping it further to ride out the US and Europe ban on military exports to the Asian giant.
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