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With the deepening of the war in Ukraine and the impact of international economic sanctions, Russia is constantly looking for allies.
China has sought to maintain a diplomatic distance from the conflict, choosing to abstain when the United Nations voted to condemn the Russian aggression.
But if China chooses to do so, how much help China can give Russia by expanding military and economic ties?
Could China possibly supply drones to Russia?
U.S. officials told the media that Moscow asked China for aid in military equipment to support its invasion of Ukraine.
China called the claim “sinister” and called the report “false.”
In recent years, most arms deals between the two countries have flowed from Russia to China.
China once relied on Russian military equipment to modernize its armed forces, which has become increasingly necessary following the 1989 Tiananmen Square crackdown by the United States and Europe by imposing arms embargoes on China.
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Terminal for receiving Russian gas in Tianjin, China
According to the Stockholm International Peace Research Institute, about 80 percent of China’s arms imports from 2017 to 2021 came from Russia. China is the second largest customer of Russian arms exports, accounting for 21% of Russia’s global exports.
But China has been gradually expanding its military production capacity and is now the world‘s fourth-largest arms exporter.
“China’s weapons are getting more advanced now. For example, Chinese drone manufacturing is an area of āāgreat interest to Russia,” said Siemon Wezeman of the Stockholm International Peace Research Institute.
But he said: “So far, we have not seen any evidence that Russia has bought Chinese drones.”
Sino-Russian trade has been growing
In 2021, China accounted for about 18 percent of Russia’s total trade, which was about $147 billion last year.
In January and February of this year, the total bilateral trade between China and Russia increased by 38.5% compared with the same period last year, reaching 26.4 billion US dollars.
When Putin went to the Beijing Winter Olympics in February, the two countries said they would boost trade to $250 billion by 2024.
China is a major importer of grains such as wheat and barley, and Russia, one of the world‘s largest producers, is a major Chinese seller.
Until recently, China restricted imports of wheat and barley from Russia due to fears of the outbreak. But those bans were lifted on the day Russia attacked Ukraine.
However, the EU remains Russia’s largest trading partner to this day. In 2021, its total trade volume will be almost double that of China and Russia.
That may be changing now.
“A reduction in EU-Russia trade is inevitable given the sanctions,” said trade economist Rebecca Harding. “The current crisis has brought increased attention within the EU to the need to diversify supply.”
Can China Buy Russian Energy?
China is one of Russia’s largest markets for oil, gas and coal.
China’s official media “People’s Daily” once quoted data from the General Administration of Customs of China that in 2021, China’s imports of energy products from Russia will be 334.29 billion yuan, a year-on-year increase of 47.4%. Russia is China’s largest source of energy imports, the second largest source of crude oil imports, and the largest source of electricity imports.
Just a week before Russia invaded Ukraine, the two countries struck a new coal trade deal worth more than $20 billion.
Putin also recently unveiled a new oil and gas deal between Russia and China worth about $117.5 billion.
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China is one of Russia’s largest markets for oil, gas and coal.
However, by far Russia’s largest energy market remains the European Union, which supplies 40% of its natural gas and about 26% of its oil.
“Russia’s oil and gas exports (to China) have grown by more than 9 percent a year over the past five years,” Harding said. “It’s a rapid growth, but even so, for Rosneft, the Chinese market is only half the EU market.”
Economic sanctions are starting to take effect
China said it would “continue to maintain normal trade cooperation” with Russia, but some Russian banks have been banned from using the SWIFT international funds clearing system.
That has forced companies in China and elsewhere to cut back on Russian purchases as traders struggle to arrange financing.
In recent years, both China and Russia have encouraged the development of alternative payment methods.
Russia has its own international settlement system STFM, and China has the RMB Cross-Border Payment System (CIPS), both of which operate in national currencies.
But the International System for Clearing of Funds still dominates financial transactions in global trade networks.
Citing official Russian data, the media reported that only 17 percent of trade between Russia and China currently uses the yuan (up from 3.1 percent in 2014).
Energy trade between the two countries is still mainly conducted in US dollars.
Germany, a major export destination for Russian gas, recently announced that it would suspend the new Nord Stream 2 gas pipeline in response to Russia’s invasion of Ukraine.
According to one analysis, the new pipeline agreed between Russia and China (Power of Siberia 2) will supply only one-fifth the capacity of the Nord Stream 2 pipeline.
It is unclear when the new gas pipeline in Siberia will start production. In the long run, China may want to increase its imports of natural gas from Russia to reduce its reliance on coal in order to meet its greenhouse gas reduction targets.