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Foreign Minister Wang Yi said China wishes to avoid being damaged by US sanctions over Russia’s war, in one of Beijing’s most clear statements yet on American sanctions that are contributing to a historic market selloff.
Investors are concerned that Chinese businesses would face US penalties after American officials stated Russia requested military and financial support from Beijing. According to persons familiar with the situation, the US notified European partners in late February that Russia had requested weaponized drones from China as it began its invasion of Ukraine.
On Monday, China dismissed the early claims as “disinformation,” while Russia denied asking Beijing for assistance, claiming that it has sufficient resources to win the conflict. Neither side has yet commented to the revelation on weaponized drones sold by China to countries such as Saudi Arabia, Pakistan, and the United Arab Emirates.
China has always opposed unilateral sanctions imposed outside of the United Nations, a position Wang repeated on Monday. Compliance with American penalties is considered as a violation of Beijing’s sovereignty by Beijing, which has recently faced US sanctions over human rights issues in regions such as Xinjiang and Hong Kong. In keeping with this, China has pledged to maintain normal trade relations with Russia.
Even when the US has directly targeted Beijing, China has eschewed taking retaliatory steps that might harm its own economy. During the height of the trade war, China threatened but never implemented a “untrustworthy enterprises” list, and even state-run banks have complied with US sanctions against Hong Kong. It also postponed enacting an anti-sanctions law on the financial hub after businesses expressed concern.
‘Third Way’
According to analysts at the US research firm Rhodium Group, China is likely to encourage its big banks to comply with American sanctions and “tread carefully in assisting Moscow in navigating export controls on key technologies” as long as the US can credibly threaten secondary sanctions, according to a March 3 report.
“Beijing would definitely prefer to take a third path somewhere between the binary choices of helping Russia or refusing to do so,” they said. “The challenge for Beijing is that continued economic and financial involvement with Russia will be difficult to conceal under the current sanctions architecture.”
Although China and Russia are unified against the US alliance structure and control of the global financial system, gaps in the relationship have surfaced since Vladimir Putin’s invasion of Ukraine. Beijing authorities have expressed worry about civilian losses, defended Ukraine’s sovereignty, and increased diplomacy with European states while calling for peace negotiations.
Benefits Are Limited
From a political standpoint, President Xi Jinping has little to gain from a protracted battle that continues to roil financial and commodity markets. His administration has prioritised stability ahead of a twice-decade party congress later this year, where he is anticipated to clinch a record-breaking third term in office.
China also requires good relations with the US and its partners in order to accomplish its economic goals, especially as growth slows to its slowest rate in more than three decades. In 2020, the United States and the European Union together accounted for more than a quarter of China’s entire trade, compared to 2.5 percent for Russia.
“It remains doubtful whether China is willing to support Russia that firmly, given the pecuniary incentives of doing so,” said Charles Dunst, an associate at the Asia Group, a business advisory group. “Beijing would probably prefer to remain virtually neutral while officially supporting Russia, and then push China into a peace-maker role in some multilateral agreement if the situation calms down.”
