China biggest economic winner from Ukraine war

August 29, 2022 10:23
Photo: Reuters

In his Moscow workshop, Andrei Ivanov repairs cars, some made in Europe. “After the West imposed sanctions, I found it hard to buy the spare parts I needed. But now I buy them from China. But you must be careful not to buy fakes.”

China has been the biggest economic winner from the war, buying at discounted prices large amounts of Russian oil and gas that would otherwise have been sold to Europe and exporting goods once bought from France and Germany. At the same time, it has skilfully avoided involvement in Russia’s invasion of Ukraine, now in its seventh month.

In July, China imported 7.15 million tonnes of Russian oil, up 7.6 per cent from a year earlier, the third month in a row that Russia was the country’s top oil supplier. In the first seven months of the year, China imported 48.45 million tonnes of oil from Russia, up 4.4 per cent.

Total trade in the first seven months of the year was US$97.7 billion, an increase of 29 per cent over the same period in 2022, according to Chinese customs figures. For the full year, the figure will beat the record annual trade of US$146.87 billion set in 2021.

China has increased imports of Russian oil, minerals and asphalt products and increased exports of mechanical and electrical products, food and new-energy vehicles.

With Samsung of South Korea, Xiaomi is one of the leaders in Russia’s smartphone market. Huawei and ZTE sell telecommunications equipment to Russian companies.

Chinese firms have greatly benefitted from the withdrawal of thousands of Western companies from Russia and the difficulties of East Asian competitors who want to remain in the market but to avoid being sanctioned by the West for doing business there.

An increasing volume of the bilateral trade is conducted in renminbi. Russia has now become the third largest offshore trading centre for the RMB, after Hong Kong and Britain. In July, the RMB was the third most demanded foreign currency in Russia, after the U.S. dollar and the Euro. In July, the Moscow Exchange traded nearly 890 billion Rubles (US$14 billion) in RMB, only slightly behind the volume of Euros trading on the Exchange at 1 trillion Rubles (US$16.5 billion).

A report by the global financial messaging firm Society for Worldwide Interbank Financial Telecommunication (SWIFT) in early August said that Russian firms and banks were involved in almost four per cent of international yuan payments by value in July, up from 1.42 per cent the previous month and zero in February, when Russia invaded Ukraine.

During a virtual meeting with Russian Economic Development Minister Maxim Reshetnikov in early August, Wang Wentao, China's Commerce Minister said the two sides should continue consolidating trade in key commodities and tap into new growth areas such as digital economy, green development, cross-border e-commerce and trade in services.

In political and diplomatic terms, too, China is increasingly close to Russia. In an interview with the Russian state news agency TASS in early August, Zhang Hanhui, Beijing’s ambassador in Moscow, blamed the United States for the Ukraine war.

“As the initiator and main instigator of the Ukrainian crisis, Washington, while imposing unprecedented comprehensive sanctions on Russia, continues to supply arms and military equipment to Ukraine. Their ultimate goal is to exhaust and crush Russia with a protracted war and the cudgel of sanctions,” he said. This echoes Moscow’s justification of the war.

This is diametrically opposed to what the governments of North America and Europe, and the vast majority of their people, believe.

They commonly refer to Russian President Vladimir Putin as “Putler”, comparing him to Adolf Hitler, who invaded neighbouring countries and murdered civilians, including women and children. They see him as responsible for the war and the atrocities it has led to. They believe he should be tried for war crimes.

President Xi Jinping is proud of his friendship with Putin and stays in regular contact with him. The two men plan to attend the G20 Summit in Indonesia in November together.

So far little evidence has emerged of China’s involvement in the invasion. In early August, the Russian embassy in Beijing posted an excerpt from a book by General Yuri Baluyevsky, formerly Russia’s chief of the general staff. “Chinese commercial drones had brought a real revolution to traditional artillery weapons,” he said. “The Mavic quadcopter drone made by China’s DJI has become a true symbol of modern warfare,” he said.

Based in Shenzhen, DJI Technology is the world’s largest maker of commercial drones. It denied the report, saying that all his products were designed for civilian purposes and could not meet military requirements.

After six months of war, Russia has taken crippling losses in men and material. Will it need to buy Chinese weapons, artillery and armoured vehicles to make up for its losses? China’s enemies are waiting to pounce on its involvement in the war and punish it as a result.

Stay out of the war and make a good profit from it – that is the fine line China has to draw.

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A Hong Kong-based writer, teacher and speaker.