Follow the Money

Connecting China and Russia

Background

On February 24, 2022, Russia invaded Ukraine. In a swift and unilateral response, national governments moved to cut Russia’s support both diplomatically and monetarily. Despite gaining the title of ‘world’s most sanctioned nation,’ the Russian ruble has remained surprisingly stable. China’s support of Russia makes political and economic punishment difficult for the international community to enforce.

Discussion

Communist China’s diplomatic relations with Russia date back to the days of the Soviet Union when the founder of the new People’s Republic, Chairman Mao, took his first international trip to visit Joseph Stalin in 1949. Fifty-two years later, Xi and Putin signed the Treaty of Friendship, agreeing to ‘good neighborly-ness and cooperation’ between the countries. On February 4th of 2022, both countries released a joint statement of their “no limits” kinship fit for a “new era” of global order.

China and Russia are uniquely tied by both their economic products as well as their needs. China, one of the fastest growing economies on the planet, needs fuel to power its ever-expanding population and production. Conveniently for the Chinese Communist Party (CCP), Russia is one of the biggest exporters of crude and refined oil in the world. In 2020, Russia's crude petroleum exports were worth $74.4 Billion, as seen below.



Most of Russia's crude oil went directly to China, the largest importer by a wide margin. In 2020, China imported $150 Billion worth of crude oil, $23.8 Billion of which from Russia. The only country China imported more oil from was Saudi Arabia, an ally of Russia, with $24.7 Billion.



In comparison, Russia has been heavily reliant on imported semiconductors since 2014, and sanctions have not helped with shortages. Semiconductors and other technological components are vital for computers, missiles, and even dishwashers to work properly. It was only in 2021 that the Russian Ministry of Industry and Trade announced the country would build up the domestic semiconductor industry, and so far efforts have lagged far behind in performance. To offset shortages, Russia has turned to its partner China, which is the world's largest exporter of semiconductors and other electronics. As seen below, China exports over $1.26 Trillion a year in machinery, and $35.8 Billion in semiconductors alone.



Although Russia relies heavily on China exports, at $68.8 Billion a year, there is one country that imports more machinery than anyone else. In 2020, America was importing $691 Billion in electronics, $209 Billion of which was from China. As seen below, the United States is the largest importer of machinery by a wide margin, followed by countries like China themselves.



Although this economic story is about Russia and China, the United States has a deep stake in their relationship. America and Russia have been in a sanction war for years after the Crimea invasion, but the administration has tread lightly on topics that involve the CCP. Russia's invasion of Ukraine changed that policy, creating a uniquely harsh response without concern for Chinese affairs in the region. However, that action has had lasting consequences, driving Russia and China closer in their partnership and mutual codependency. The wedge between the West and the East continues to grow, but it is unknown how this will affect economic relationships between China and the United States in the future, and whether China's pivot to the East will come faster than planned.

Conclusions

Russia miscalculated the extent of the international backlash it would receive due to its invasion of Ukraine; however, the codependency of China and the Kremlin ensured the security that Russia needed to stabilize its economic and political turmoil. Although America and other European countries would like to completely cut off Russia and sanction the country to a standstill, the codependency between Russia and China kept the country afloat. Due to the United State's dependence on Chinese imports, it is difficult for America to make a stand against China and enforce true economic isolation on Russia. Although Russian isolation would be possible in a vacuum, Chinese involvement and integration into the international economy prevent the total destruction EU and American analysts predicted. It remains to be seen if China will continue its support, or will shy away from the harsh penalties its friendship with Russia will impart.