Why would China align itself with a rogue authoritarian state like Russia that has openly violated the United Nations (UN) charter with its invasion of a sovereign nation, committed numerous atrocities and promoted global humanitarian suffering by disrupting food distribution and cross-border mass migrations? What is the possible motive for such an entanglement in the long-term when China’s moral compass on the world stage is being called into question? Its plan for a multipolar world order seeks to challenge the current one led by the United States (U.S.) that has unfolded successfully over the past several decades. But how is China’s plan to be understood when its actions belie its stated intentions?
Of concern here is China’s willingness to offer no restraint upon those nations choosing to invade sovereign territory. Is this the world it wants or, better said, the lasting world peace it promises with its plans to overtake the current international order with its own? The typical transactional calculus of geopolitical pundits involves national economic concerns, military prowess and the influence these bear upon international relations. However, long-term, deep-seated negative public and political opinion within the global community will question China’s intentions and could seriously undermine its future place on the world stage. These moral concerns may supercede China’s efforts in securing international cooperation among nations that have materially benefited from loans received through its Belt and Road Initiatives project.
Authoritarianism, whether of the Russian or Chinese persuasion, provides a ruling regime the luxury of directing both domestic and foreign policy without the burden of contrasting opinion and thoughtful debate. Wars are perpetrated with little or no reasonable justification with the support of state-run media and propagandist elements. Alliances are created with like-minded authoritarian regimes with a shared interest which may amount to nothing more than a hatred for an opposing system of governance threatening them by its successes. Vladimir Putin’s particular hatred of the West in just such a manner has brought Russia into a war in which its conduct has earned widespread condemnation even before it is confronted with its outcome. Long after Putin has departed the scene, Russia will be judged for the several crimes it has committed under his leadership with which he sought to gain territorial advantage by force or destabilize global regions by other nefarious hybrid means. For its determined association with Russia, China can now be regarded as complicit in the affairs of an international criminal enterprise. The question at present may be how far down the rabbit hole will Putin take it?
At what point does China determine that being at odds with the West, in particular the U.S., does not balance well with its commitments to Russia’s wellbeing. Indeed Russia’s war effort is critically dependent upon Chinese imports of dual-use products which rose from 32% in 2021 to 89% in 2023. For over a year now, Russia has procured from China small aircraft engines used for the manufacture of its unmanned aerial vehicles (UAVs) that carry offensive ordnance used to target civilian infrastructure in Ukraine. About 60% of foreign parts found in Russian weapons now come through China. Much depends upon Russia’s continuing ability to pay for these imports largely through its oil and gas revenues. The rhetoric and disinformation put out by Putin’s regime regarding the ineffectiveness of Western sanctions has managed to convince some that Russia’s economy remains secure. Military spending by Russia is set to increase to $142 billion, more than 40% of total government expenditure, in 2025 representing 6.2% of Russia’s projected gross domestic product (GDP). Its Ministry of Economic Development has forecasted that GDP will rise 3.9% in 2024, and the economy, powered by a fiscal stimulus committed to its war industry, appears set to provide sufficient funds to sustain its war by paying China and other countries for their support.
Several factors would argue otherwise. While predicting a very favorable 2024 end-of-year GDP, Russia’s finance ministry expected inflation to be slightly less than in 2023 at 7.3% but by September 2024, it reached 9.1% causing Russia’s Central Bank to further hike its key interest rate to 19%. Russia’s reserve funds housed within its National Wealth Fund (NFW) have already been put to use for the war, depleting it by more than 36% from a peak of $210.62 billion two years previously. From July to August 2024 alone, the NWF continued its drop from $142.2 billion to $133.4 billion. A gasoline export ban was introduced by Russia in March 2024 and has now been extended to December, attributable to the extensive bombing campaign by Ukraine targeting Russia’s oil refining infrastructure and to its own mounting military needs. A tight labor market, attributable to losses of Russia’s workforce to military recruitment and to earlier massive emigration, has brought about industrial wage increases while the weakened ruble has increased pricing of imported goods.
In what has been termed a re-Sovietization of the economy, Russia is returning to an old Soviet-style war economy with market controls, financing it by confiscation of private assets and diversion of public funding away from social and health care spending to defence needs. The surprisingly massive losses of ground, air and naval armament, destruction of Russian oil refineries and depots by Ukraine, the impact of further sanctions targeting illegal oil export strategies, confiscation of profits generated by frozen Russian assets in the West, and the possible further seizure of the principal of Russian state assets within the West will further limit Russia’s potential for sustaining its economy. As history has shown not that long ago with the collapse of the Soviet Union, a path to economic ruin is proceeding along a familiar course with China abetting the process.
China’s involvement in providing Russia with materials that can be used for armament production has been witnessed since the onset of the war. The North Atlantic Treaty Organization (NATO) has denounced China for its efforts to provide essential components for Russia’s war machine. Russia itself cannot keep up with the production of microelectronics and optical devices with the sort of losses it is sustaining on the front. With China’s continuing support along these lines, other efforts are being scrutinized by the West that would indicate some escalation in similar behavior. As a report now indicates, a Chinese factory appears to be involved in an actual weapons program for a subsidiary of a U.S.-sanctioned Russian state-owned arms company, producing long-range attack drones for Russia’s war. The matter is under investigation and China’s foreign ministry has to-date denied knowledge of such a violation. However, further confirmation of the undertaking has emerged that has affirmed NATO’s contention that China is now committing itself to this war.
A U.S. probe is also looking at whether China is supporting Russia’s nuclear industry by an arrangement in which it purchases Russian enriched uranium and, in turn, sells its own domestic uranium product to the U.S. This circumvents the December 2023 U.S. import ban upon Russian uranium while allowing Russia still to profit from this energy resource by its continued sale to China. Chinese intentions in this matter are in keeping with its ongoing purchase of Russia’s more profitable energy export – oil. Voluntary restrictions on Russian oil imports were imposed by several nations shortly after Russia’s February 2022 invasion of Ukraine. A formal oil embargo was introduced by the West in December 2022. In February 2023, a price cap of $60 per barrel came into effect for Russian oil sold to nations such as China who were not participating in the embargo. The transport of sanctioned crude oil at prices exceeding the cap continued to China by means of a shadow fleet of tankers that concealed the origin of the oil by engaging in ship-to-ship oil transfers on the open sea.
The matter is not a secret and further measures have been introduced by the U.S. to curtail the practice with sanctions targeting more than 390 individuals and entities, most notably within China. Likewise, additional efforts by the U.S., European Union (EU), United Kingdom and Japan have been directed toward disrupting networks involved in procuring technologies for Russia’s war. These again include China in addition to Hong Kong, Turkey, United Arab Emirates, among others. Several Chinese and Hong Kong technological companies have been identified in this roundup alongside Chinese banks involved in financing the affair.
At the May 2024 meeting of the European Round Table for Industry, 54% of the chief executives of major European companies felt that relations between the EU and China would worsen over the coming three years, contrasting with the 7% who forecasted improvement. The EU, with its estimated nominal GDP of $19.35 trillion, represents almost 17% of the global economy and has been China’s largest export market while China has remained its third largest market for imported goods. Russia’s nominal GDP, on the other hand, is estimated to be only $2.0 trillion with a current war economy dominated by defence spending and largely financed by fossil fuel export. The price cap on Russian oil export, introduced in late 2022 in an attempt to reduce revenue, is now followed by a continued tightening of enforcement strategies along with sanctions imposed on those entities within China and elsewhere promoting the oil export business. Russia’s oil industry has also been hit at its source by the targeting of refineries and depots by Ukrainian drones causing at times a loss in capacity of upwards of a million barrels per day.
After a two-decade long period of prosperity dominated by industrialization and urbanization, China is beset with formidable economic challenges – high youth unemployment, increased government debt, a troubled real estate market, an aging society coupled to a declining birthrate and slowed growth. These grievances have been highlighted in the wake of Xi Jinping’s mishandling of the COVID pandemic and a serious decline in property construction in the past few years causing a drastic drop in private-sector investment. During the past two years, domestic consumption slowed considerably, forcing Chinese companies to export their excess products, increasing China’s trade surpluses and promoting deflation. This practice forced foreign governments to impose tariffs on Chinese goods to protect their own economies. Even members of the China-dominated multilateral economic forum, BRICS (Brazil, Russia, India, China, South Africa), have initiated anti-dumping efforts to restrain the practice which China itself is not acknowledging.
Yet the Chinese government has been intent on furthering production, particularly within its electric vehicle, battery and solar cell industries. The defence budget will undergo a further 7.2% expansion in 2024, rising more quickly than revenue generation, giving the indication that the military is being prioritized over that of investments in household development. Such denial of public need, specifically household income, will further lessen domestic consumer confidence and worsen the outlook for a needed consumption-led growth within the country. Moreover, China is showing no regard for the state-of-affairs in the economies of other nations as it continues its own policies, however ill-advised, for what it believes will benefit its own.
A shift to a domestic consumption-led economy, however, would bring a sizeable reduction in tax revenue, much of it currently coming from value-added taxation on manufactured goods and business taxes, and not from individual taxation and domestic consumption. The solution would require substantial tax reform, but this appears not in the game plan for a government intent on continued growth at the expense of sustainable global trade relations. China’s household spending accounts for less than 40% of the GDP, 20% less than the global average. To recover domestic consumption back to its pre-pandemic trending would require spending upwards of $1 trillion – an unlikely outcome for a government given its historically poor track record on consumer stimulus. The lack of cooperation with foreign markets regarding production will give birth to further protective trade policies by the G-7 and other nations.
Because of Putin’s overreach, Russia’s economic outlook in just the near future appears bleak. The nation has been depleted of its potential with the sudden decline of its youth population through military losses and emigration, all in the context of a declining birthrate, an economy robbed of commercial (nonmilitary) incentives, a ruined social structure and a culture of pervasive corruption at all levels. China, for its part in supporting an illegal war, may be adding unnecessarily to its own domestic grievances while it maintains a strategic interest in Russia as a partner in its perception of a new world order. But what will that partner come to be as it continues a war that extracts not only its finances but its soul. How much is China willing to bet its own future on this rapidly changing landscape?
As China regards its options with Taiwan and relations with other nations in its vicinity, and as it observes events unfolding in eastern Europe, it is itself being scrutinized by the global community. Are present circumstances aligning in a way in which China sees itself as the dominant player in a new world order? Russia’s invasion of Ukraine has become a reckoning upon its own future but also for that of China for its willingness to play the enabler of an ill-fated war. One of China’s recognized Russia experts, Feng Yujan, raised concern regarding the waning of Russian influence geopolitically and in the global economy as it faces defeat. Will China emerge from under Russia’s dark veil only to be seen in a worsening light as a nation not to be trusted?
Copyright @Kost Elisevich, MD, PhD 2024. All rights reserved. Any illegal reproduction of this content will result in immediate legal action.
