Ukraine’s Losses Are China’s Gains – Analysis – Eurasia Review

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By Vasily Kashin*

The conflict in Ukraine will have major strategic consequences for Chinese foreign policy in the Indo-Pacific. It will promote the deepening of Russian-Chinese economic cooperation which will make the two countries more resistant to Western economic pressure. Long-term instability in Europe will make it more difficult for the United States to strengthen its presence in the Pacific for years to come, as significant American financial and military resources are mobilized to support Ukraine.

The conflict has demonstrated that the West is not capable of impose penalties on a large economy without undermining its own stability. The war also demonstrated the effectiveness of Russian nuclear deterrence, making even limited Western intervention unthinkable.

China will be the main beneficiary of the Ukrainian crisis. But this is not reflected in China political rhetoric which has been carefully calculated to avoid any major spillovers with the European Union and other developed countries, while maintaining close cooperation with Russia.

The official Chinese position remained consistent with the statement made by Chinese Foreign Minister Wang Yi in February 2022 at the start of the war: China is concerned about the violence and wants it to end. He argues that the territorial integrity and security interests of all parties must be respected. China also argues that NATO enlargement is partly responsible for the crisis.

On the economic level, China has taken over the main strategic opportunities provided by the war. In the first four months of 2022, trade between Russia and China increased by 25.9%. Russian exports to China increased by 37.8% to $30.85 billion. The physical volume of natural gas exports also jumped 15%.

China is poised to supplant the European Union as Russia’s main economic partner. Chinese Ambassador to Russia Zhang Hanhui called on Chinese businessmen to “fill the gap” left in the Russian market by outgoing Western companies. Cooperation with China contributed to Russia’s federal budget surplus between January and April 2022 despite the war. Maintaining this financial and economic stability appears to be Russia’s strategy as it continues to push in Ukraine.

By 2023, most or all bilateral trade is expected to be conducted in renminbi. Chinese companies and brands are likely to dominate large segments of the Russian consumer market and become Russia’s main industrial and technological partners. There is also a growing trend that much of Russia’s trade is conducted with third countries in renminbi.

With the expected expansion of logistics infrastructure, China will obtain a major source of strategic raw materials. China will be able to source these products at deep discounts because Russia will be isolated from many other markets and China will use its own currency. This will significantly reduce the West’s ability to take advantage of economic pressure points against China.

Some of China’s biggest global companies are visibly reducing their presence in Russia as secondary sanctions could affect their operations in international markets. But cooperation in many areas will be overtaken by second-tier companies with limited or no global exposure. These companies will always be strong enough to operate in the Russian market. Their operations will be serviced by specialized banks with no exposure to the West, such as in Iran.

Strategically, this transition – coupled with deep internal shifts in the Russian political economy – will make Russia largely immune to economic warfare. For the foreseeable future, the West will have no other means of deterring Russia in Europe than expensive military options. This in turn will provide major strategic opportunities for China in the Pacific.

The military lessons of the war for China are too early and too difficult to assess based on the available data. One of the hallmarks of the Ukrainian conflict is an unprecedented scale of propaganda and disinformation from all sides.

But two clear lessons have emerged from the war so far. First, US and NATO allies will always try to avoid a direct military confrontation with a major nuclear power. Even if a power is waging a full-scale war on its doorstep. Second, the economic war against Russia has caused significant problems for Western economies, including mounting inflationary pressures and declining growth rates. Any comparable action against China, an economy ten times larger, will devastate much of the global economy. This makes such an action extremely unlikely.

*About the author: Vasily Kashin is director of the Center for Advanced European and International Studies at the Moscow Higher School of Economics.

Source: This article was published by East Asia Forum

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