Finding common strategic ground, "being close" and not afraid of risks, together challenging the US order

Economic complementarity, similar political systems, geographical proximity and strategic goals have brought the Russian and Chinese economies closer together.

Russia-China: Finding strategic common ground, 'close' and not afraid of risks, challenging the US order together. (Source: Reuters)

On February 4, 2022, during the opening ceremony of the Winter Olympics in Beijing, Chinese President Xi Jinping and Russian President Vladimir Putin announced an “unlimited” partnership that “goes beyond an alliance.”

Russia pivots to the East

The joint statement issued afterwards made clear that the bilateral relationship was more enduring than any Cold War alliance and that the partners intended to overturn the current US-led liberal international order.

Twenty days later, Russia launched a special military operation on Ukraine's eastern border. China subsequently suspended or delayed a number of investment projects in Russia. However, more than a year later, China resumed some investment activities.

China’s importance as Russia’s energy partner has increased significantly since Russia launched its special military operation in Ukraine. With Russia facing Western sanctions and Western oil companies shutting down, the Kremlin has expanded its “pivot to the East” policy.

Before that, Russia was deeply involved in the European oil market. Russia exported 155 billion cubic meters of gas per year to Europe in the pre-conflict period. The Nord Stream undersea gas pipeline originating in western Russia supplies gas to Germany, from where it is distributed to the rest of Europe.

These pipelines bypass Ukraine. While this benefits the rest of Europe, it costs Ukraine a huge amount of revenue – transit fees worth $2 billion a year.

Since the start of the military conflict, Russia has cut off supplies from these pipelines to block European support for Ukraine. The loss of access to the European market gives Beijing an opportunity to expand its engagement with Russia, especially in the Russian Far East.

Chinese capital has a new destination

China and Russia share a long-standing, multifaceted and complex relationship. In recent decades, the two countries have grown closer, forming a strategic partnership and challenging the US-led international order, according to analysis by researcher Prithvi Gupta on Orfonline.org .

Highlighting Chinese investments in Russia since the outbreak of the Russia-Ukraine conflict, Researcher Prithvi Gupta highlights Beijing's special interest in Russia's Far East with geostrategic and geoeconomic implications.

Russia’s Far Eastern province of Khabarovsk Krai has long attracted Beijing’s interest. The province is a reservoir of unexplored energy and mineral reserves and an overland energy supply route for China. China also has historical ties to the region dating back to the 19th century.

History shows that in its relations with the Far East, Russia has always prevented China from accessing the region's key resources.

In 2014, when Russia launched its Arctic Development Plan, Moscow did not mention China's involvement or even prioritize China's needs in developing the region.

Today, however, the bilateral dynamics have changed. With the Northern Hemisphere largely shunning Russia, Moscow has turned to China as its partner. Russia has also paved the way for Chinese-funded energy development and exploration projects in the Amur, Siberia, and Russian North regions. The Power of Siberia pipeline, which exports gas to China, is a case in point.

Since the conflict began, China has agreed to add two more branches to the pipeline, Power of Siberia 2 and 3, to transport 28 billion cubic meters and 34 billion cubic meters of gas per year to China, with scheduled completion in 2025 and 2029.

However, Chinese investments in Russia since the Ukraine conflict have not only focused on energy but also included mining and infrastructure development.

In May 2023, Russian Deputy Prime Minister Yury Trutnev announced that more than 90% of foreign direct investment (FDI) in the Far East (about 26 infrastructure projects worth $1.6 billion) was funded by Chinese state-owned companies.

This fact shows that Chinese investment in the region increased by 150% compared to the same period last year. China is also the region's largest trading partner, with a record increase of 45% compared to the same period last year in the period from January to August 2022 ($14.3 billion). The Far East is Russia's most important region in attracting Chinese investment.

Both countries also leverage the Power of Siberia pipeline to further decouple from Western energy supply chains.

Russia is set to become China’s top energy supplier by 2023, up from third place in 2021 after Saudi Arabia and Iran. China is also buying Russian crude at a steep discount. The average price of Russian crude is $73.53 per barrel, 13.7% lower than the average international price of $85.23 per barrel. With Russian oil imports worth $83.7 billion in 2022, Beijing has saved nearly $11 billion.

Furthermore, both countries have used a bilateral currency swap mechanism for this trade to protect payments from Western sanctions.

China's Harbin Bank, China Construction Bank and Agricultural Bank of China have little connection to SWIFT and the USD-dominated international financial system.

In addition to securing energy supplies to Russia’s Far East, Chinese companies are also looking to fill the void left by 1,000 Western multinationals withdrawing after February 2022. Eleven Chinese car companies including Chery, Greatwall and Geely are expected to account for 40% of the Russian market, up from 6% in 2021. Exports of household appliances from China also increased by 40% year-on-year.

The fastest market takeover is taking place in the smartphone sector, where Chinese companies such as Xiaomi and Realme will capture 70% of the market by 2022.

But there is also a counter-trend. Fears of Western sanctions have led major Chinese tech companies like Huawei and DJI to leave Russia, much to Moscow’s displeasure. Even Chinese state banks like ICBC and China Development Bank are reluctant to cut back.

Chinese investment in Russia has increased sharply in various sectors, including energy, infrastructure and transport.

Chinese capital inflows have helped Russia mitigate the adverse effects of a series of restrictive sanctions from the West and provided much-needed support for economic growth.

However, this dependence on China comes with its own challenges and risks. While Chinese investment brings immediate benefits, it also raises concerns about losing control over key sectors of the economy. For example, Russia will likely need to diversify its energy exports to avoid creating dependence.

Source: https://baoquocte.vn/nga-trung-quoc-tim-thay-diem-chung-chien-luoc-than-nhau-khong-ngai-rui-ro-cung-thach-thuc-trat-tu-cua-my-236236.html