MY ENEMY’S ENEMY IS MY FRIEND

Since the start of the Russia-Ukraine war, American politicians have been arguing over which of their rivals—China or Russia—is the most dangerous to the US interests.

Some argue that a real and brutal war in Ukraine is urging the US to treat Moscow as its rival number one. Others believe that as dangerous as Vladimir Putin's behaviour may be, China still poses a more comprehensive and serious challenge to the American power.

China has enough economic power, technological sophistication and rapidly growing military potential to challenge the US not only in Asia, but also far beyond. China's ambition is to rewrite global rules in areas ranging from technological standards to the norms of international institutions.

Russian economy, which even before the war was not among the largest in the world, no longer claims to be one under sanctions either. The country's military potential, according to many experts, turned out to be not so threatening. And it is expected that it would be undermined further with the widening political and economic isolation of Russia.

Serious observers do not worry about the emergence of a Russocentric world, according to Foreign Policy.

Nevertheless, Beijing still relies on Moscow as an ally in its confrontation with the US. According to the prominent Chinese columnist Hu Xijin, "with Russia as a partner, China will not be afraid of the US energy blockade, while the supplies of food and many raw materials will be safer”. She believes that Beijing will never cooperate with Washington to force Putin to back down in Ukraine, because the US is in fact asking China to help it fight against the friend of China to focus on fighting against it itself later.

Friendship without borders

In early February, Xi Jinping and Vladimir Putin publicly declared that the friendship between both countries ‘had no boundaries’. A little earlier, Xi had told Putin that "in terms of closeness and effectiveness, this relationship even surpasses relationship under an alliance".

The leaders of China and Russia have clearly demonstrated their ambitions to build what they call a more just and stable world order with the US not a leader any more.

As Russian troops concentrated along Ukraine's borders, Chinese officials continued to express support for Moscow in its demands that NATO pull back from the borders of Russian sphere of interest. They mocked Western warnings of war and accused the US of instigating Russia. Just a day before the outbreak of hostilities, on February 23, the Chinese Foreign Ministry accused Washington of "creating panic".

Even after February 24, Beijing continued to criticise the US and its allies for pressing on Russia. Only a few weeks later, the tone of Chinese statements began to change from firm support for Russia to something neutral like: "Legitimate security interests of any country should be respected". But they still prefer the phrase "conflict between Ukraine and Russia" instead of "invasion" or "war".

China is now positioning itself as an impartial party calling for peace talks and an early end to the war.

Save a friend?

According to the Nobel prize winner, economist Paul Krugman, there are at least three reasons why China will not be able to save Russia's economy.

First, although China is an economic giant, it is unable to supply certain types of goods that Russia needs, such as Western-made aircraft parts and high-tech semiconductor chips.

Secondly, even if China does not join sanctions, it is deeply integrated into the global economy. This means that Chinese banks and companies can impose sanctions on their own. In other words, they will not want to deal with Russia for fear of a negative reaction from consumers and regulators in more significant markets.

Thirdly, China and Russia are very far apart geographically. They share a common border, but most of the Russian economy is west of the Urals, while the Chinese economy is mainly concentrated on the eastern coast of the country. The only practical way to transport cargo across this vast space is via several rail lines, which are already congested.

Xi is not interested in raising risks

However, direct support for Russia is also risky for China. Beijing has already paid a price for not publicly condemning Russian actions in Ukraine, when the war there has been confronted with Chinese claims to Taiwan and other territories.

In the short term, this could damage Beijing's relations with its key trading partners, as it still needs investment and technology for development. There are already signs that the holders of foreign capital, unwilling to take risks, are thinking of leaving China.

It’s not about foreigners only. According to Bloomberg, trade lawyers and risk advisers in China report a surge in enquiries from Chinese clients, who want to make sure they comply with US, EU and other sanctions.

Chinese enquiries related to sales to Russia of goods based on American technology, transactions that involved exports paid for in US dollars. Most Chinese companies have taken steps to avoid sanction violations, including adjusting internal compliance programmes, changing suppliers or terminating contracts.

China's state-run refineries honour existing Russian oil contracts but refuse to sign new ones, despite large discounts. And they do so, according to Reuters, heeding Beijing's tacit call for caution in the wake of tougher Western sanctions against Russia.

Speculation over US sanctions has contributed to a sharp fall in Chinese stocks markets, prompting Foreign Minister Wang Yi to declare that China "is not a party to the crisis and does not want sanctions to affect China".

Beijing also denies military support to Russia, which is another hotspot for the US and could lead to an escalation of tensions between the world's largest economies. It comes at a time when Xi Jinping is trying to minimise the risks as he prepares to extend his reign at the party congress later this year.

"Chinese companies will comply with the US sanctions, but they probably won't talk about it because it will mean bad publicity in the Chinese market. They don't want to look like obedient doers of US demands," believes US-China business law expert Professor Ji Li.

It is no coincidence that there are proposals in China to break off relations with Russia as soon as possible so that China can "save itself from isolation". Such a call was made by Hu Wei, deputy director of a think tank under the Chinese State Council. But this is not a mainstream trend, because Wei’s statement was soon removed from Chinese media.

US threats

Washington warned Beijing sharply and, according to many observers, even in rather blunt terms, threatening with consequences if Chinese actions undermine the US sanctions against Russia. In addition to banning direct economic and military aid to China, the latter was warned against taking advantage of emerging business opportunities due to sanctions, supporting Moscow in evading export controls or conducting tacit financial transactions.

President Joe Biden threatened Xi Jinping in a face-to-face online meeting that "he would put himself in serious danger" if he helped Vladimir Putin, and said the US and its allies had discussed ways to monitor those "who violated any sanctions and where, when and how they violated them".

It's not that simple

While one can threaten China with sanctions, it is yet difficult to force others to join them. Key US allies, including the EU and the UK, do not have the kind of regulatory framework that allows for secondary sanctions against Chinese companies. Moreover, before the war in Ukraine, the EU was often in solidarity with China in not recognising the extraterritorial impact of US sanctions.

Now everyone agrees that the situation is extraordinary and requires unconventional solutions. But there are two problems. First, imposing sanctions on China without sufficient justification risks setting a precedent where sanctions can be imposed on whomever and whenever and on disputes that do not normally require such action. Who or what authority has the right to determine when "trade cooperation" becomes aiding and abetting an unlawful invasion of a sovereign state?

Secondly, an unjustified decision to impose sanctions on a country that formally remains neutral will result in a loss of credibility in the world, and therefore a moral loss of the right to lead. What distinguishes a neutral country from a pseudo-neutral one, putting it at risk of sanctions?

Every time the UN General Assembly votes on the war in Ukraine, dozens of countries opt for neutral status apart from China. Therefore, a country that decides to impose sanctions against Beijing risks jeopardising its relations with these countries as well.

With Beijing keen to play a more active role in global governance, and trying hard to discredit the US-led world order, G7 countries may be reluctant to play along with China.

The world order my way

At the China-EU summit in early April, Xi Jinping said that China wanted peace in Ukraine, but said that it would pursue this goal "on its own". It is clear that China will pursue its own interests rather than siding with one camp or the other. But what might that look like?

On the one hand, China has increased its anti-American and anti-NATO rhetoric both at home and with its Asian partners. Claiming that the NATO expansion has caused conflict in Ukraine, China is careful enough to warn its neighbours that the creation or growth of small or multilateral military groups like Quad could lead to violence in the Indo-Pacific region.

On the other hand, China's reluctance to provide direct material support to Russia in violation of the Western sanctions is a clear recognition of the importance China attaches to its business ties with the West. Beijing seeks to maintain its important economic ties with the US and Europe amid a slowing domestic economic recovery as well as global increases in energy, raw material and food prices.

China is likely to continue to develop trade in non-sanctioned goods and services with Moscow, as well as providing limited support to Russia's shattered financial industry, but in a way that does not trigger another wave of Western sanctions.

Beijing clearly believes that its controversial rhetorical, diplomatic and business approaches to Russia's actions in Ukraine provide it with a good opportunity to protect its own interests.