Thoughts on Ukraine Part 12: Chinese Interests in the Ukraine Crisis

A 24 September 2021 report from the Center for Economic Security states that China was Ukraine’s largest trading partner. A 25 February VOA report states the Russian invasion places billions of China-Ukraine trade at risk.

“In the period from January to October 2021 alone, the trade turnover reached $15.76 billion, or 32.2% more than in the same period in 2020. This is a new record in Chinese-Ukrainian trade, and China has consistently remained Ukraine’s largest trading partner,” wrote Chinese Ambassador to Ukraine Fan Xianrong. It was headed even higher in January and February 2022 before the Russian invasion.

But the Ukraine-China trade does not tell the entire story. The EU is China’s second largest trading partner and much of that trade flows through rail lines in Russia. China has started some rail traffic through Ukraine, but it is in its infancy.

There is genuine concern that sanctions and conflict will affect the rail network and trade with the EU. The Chinese balance between its support for Russia and its trade with the EU could come under increased pressure in a prolonged conflict. China takes care of China and will make pragmatic decisions to protect its trade and its power. Trade and power, at least at the moment, are one and the same for China.

That raises an interesting question. What happens if the Chinese economic engine starts to sputter? There are some indicators of internal stressors within China that the economic engine keeps at bay. Is the current situation in China similar to Japan in the 1980s and 1990s? Japan Inc looked ready to conquer the world, but few outside Japan looked at its internal stressors. These finally came out and slowed the progress of Japan. Few today see Japan as a global economic threat and many born after 1990 probably cannot conceive of it.

I suspect Chinese leaders studied what happened to Japan and are determined to avoid the same outcome. Therefore, they will leverage any opportunity to protect and sustain their economic engine.

The western embargo of Russian oil provides one such opportunity. Russia desperately needs the oil revenues. China is the likely market for it, giving the Chinese even more leverage over Russia. How will China exercise this leverage?

From the Russian perspective, the most likely scenario is China remains publicly neutral and imports the goods and resources that Russia normally sent to the EU countries. Hopefully, from the Russian perspective, that does not come at too steep a discount. The most dangerous scenario is China moves into Siberia while Russia is focused on Ukraine and bogged down in it. China takes much of the resource rich areas of Siberia. Now the chances of that are low, but it is the most dangerous Chinese scenario for the Russians and would be devastating. The question is, would Russia use nuclear weapons to protect Siberia? Would Russia turn to the west?

From the Chinese perspective, the most likely scenario is Russia arrives at some from of peace settlement with Ukraine and ends hostilities. China wants the trade to continue to flow with the EU and would prefer this scenario, especially if the war weakens both Russia and the west and China can exploit and gain from these weaknesses. The most dangerous scenario is a coup in Russia that both ends the war in Ukraine and turns to the west. The chances are low, but if the war in Ukraine continues on and sanctions bite the kleptocrats/oligarchs hard, they could press for changes in government, if not an outright coup. If that were to happen, I suspect the kleptocrats/oligarchs will look to their own financial interests to determine the shape and policies of the government.

The other factor China will carefully consider is what affect does the Russian invasion of Ukraine have on China’s aspirations to gaine control over Taiwan? The Chinese appear to be escalating their pressure on Taiwan. If the west stands firm against Ukraine, will they continue to wait for a better opportunity? Of if they see weakness and lack of resolve in the west, will they exploit the current conditions to extract concessions from Taiwan or even to aggressive offensive operations?

The Chinese are sitting in the catbird seat during the Ukraine crisis. With patience and shrewd diplomacy, they can exploit virtually any outcome. They want to maintain their trade with the EU and keep their economic engine running. I suspect they want to see a protracted crisis that bleeds the west and Russia and strengthens their global position economically and militarily, while keeping the trade flowing. The crisis is in their interests, especially if sanctions blowback on the west and weaken them and open the door for a new reserve currency.