Vladimir Putin and Xi Jinping placed their growing economic ties at the heart of talks in the Kremlin on Tuesday, highlighting Moscow’s dependence on Beijing after its economy was largely severed from the west.
The Russian president hailed China’s economic model as “much more effective” than that of other countries, a recognition of the lifeline Beijing has extended since Moscow’s invasion of Ukraine last year – with bilateral trade reaching a record $190 billion in 2022.
“The sanctions have exacerbated the already asymmetrical relationship between Russia and China,” said Maria Shagina, a senior research fellow at the International Institute for Strategic Studies. “It’s hard to hide the fact that Russia is now a junior partner.”
Moscow sees its economic reliance on China as crucial to its prospects of winning the war, a person close to the Kremlin said. While China’s help in weathering the effects of US sanctions is irreplaceable, Russia’s wealth of natural resources will secure Beijing’s continued support, the person added.
[ Japanese and Chinese leaders visit rival capitals in Ukraine warOpens in new window ]
The most hotly anticipated topic for discussion on Tuesday was the planned Power of Siberia 2 gas pipeline, which would give Russia a vital new way to reroute exports from reserves no longer being sent to Europe.
“The logic of events dictates that we fully become a Chinese resource colony,” the person said. “Our servers will be from Huawei. We will be China’s major suppliers of everything. They will get gas from Power of Siberia. By the end of 2023 the yuan [renminbi] will be our main trade currency.”
Western sanctions left Moscow with a $34 billion budget deficit in the first two months of this year alone as it increased military spending.
Last year, China’s imports of Russian energy – which make up more than 40 per cent of the Kremlin’s budget revenue – grew from $52.8 billion to $81.3 billion. Russia was China’s second-largest supplier of crude oil and coal, according to the Center on Global Energy Policy (CGEP) at Columbia School of International and Public Affairs.
With imports of microchips, 5G equipment and heavy industrial machinery now subject to US export controls, Russia has turned to Chinese manufacturers
In January, Russia overtook Qatar, Turkmenistan and Australia to become China’s biggest gas supplier, delivering 2.7 billion cubic metres that month, according to Chinese customs data.
In Washington, the view is that Moscow and Beijing are “trying to check” the United States’ global influence. John Kirby, a spokesman for the US National Security Council, said on Monday: “It’s a bit of a marriage of convenience, I’d say, less than it is of affection.”
Russia’s urgent need to find buyers for its energy could play into China’s hands again during this visit, just as it did in 2014 when Moscow faced sanctions over its annexation of Crimea. Back then, Russia and China signed a deal for the Power of Siberia pipeline, offering Beijing a low-cost supply of gas. The project came on stream in 2019.
“For the Chinese side, this could be a good opportunity,” said Moritz Rudolf, a research scholar at Yale Law School’s Paul Tsai China Center. He compared it to 2014, noting that now “Russia is more dependent on China”.
A decision to engage “in the next huge project with Russia while Russia is bombing Ukraine” would send a critical message about Beijing’s deepening ties with Moscow, said Tatiana Mitrova, a research fellow at the CGEP.
With imports of microchips, 5G equipment and heavy industrial machinery now subject to US export controls, Russia has turned to Chinese manufacturers. Moscow imported $4.8 billion in electric machinery and parts from China last year as supplies from other countries plummeted, according to Bruegel, a Brussels-based think-tank.
Chinese customs data shows that exports of certain semiconductors to Turkey – including basic items such as diodes and transistors – more than doubled in 2022, while Turkey, whose high-tech exports were previously negligible, increased sales to Russia.
“While China became by far the leading exporter of semiconductors to Russia after the war, exports often had either a Turkish or a [UAE] connection,” Shagina said. This tactic aims to create “layers that can protect China from sanctions risks”, she added.
The surge has come even though many leading Chinese technology companies such as Huawei have wound down exports to Russia for fear of US sanctions. Instead, obscure Chinese manufacturers have taken their place.
“These are mostly Chinese companies that just don’t work on foreign markets in anything like the volumes that major brands do,” said Vita Spivak, associate consultant at specialist risk consultancy Control Risks.
While Russia’s cutting-edge imports were “more or less diversified” before the war, she said, “now they are reorienting towards Chinese suppliers to the extent that the Russian market is very often totally dependent on the Chinese market”.
The results have often been mixed. “There are all these sh*tty Chinese companies supplying 5G [telecommunications] equipment. It’s the second and third tier. It’s more like 4.2G. But it’s not nothing,” a senior Russian technology investor said.
Chinese technology is also Russia’s only option for continuing to produce much of the energy that China is importing.
Yakov and Partners, McKinsey’s former Russian arm, described Russia’s previous dependence on western oilfield service groups such as Halliburton and Baker Hughes as an “Achilles heel”, because production was expected to decline 20 per cent after their departure.
High-tech projects such as Novatek’s Arctic LNG project in western Siberia are also affected. But Russian executives insist there are workarounds.
“Let’s say you are missing a compressor ... because Siemens makes it,” said one executive. “Maybe you do without the compressor. Maybe you get two compressors from China that are less good. But for most things it is workable.” – Copyright The Financial Times Limited 2023
