In this intelligence briefing, we explore the changes in economic engagement between China and Russia since the February 2022 invasion of Ukraine. With the help of transactions selected from Janes IntelTrak, we dig into the ways in which China and Russia have altered their economic behaviours following the invasion. We detail how a changing geoeconomic and geopolitical environment has affected trade routes, with far-reaching consequences for logistics infrastructure, equipment, and manufacturing.
Sanctions have had a serious impact on the ways in which China and Russia have increased currency co-operation over the past year since the invasion. We detail how China has helped to fill the gaps in providing technology and banking equipment to Russia and also how China has been able to taken advantage of the sudden excess supply of Russian energy. In this briefing, we explain how Chinese foreign investment has changed and what industries have benefitted most. We also make note of how Russia's over-reliance on China – as an economic and political lifeline – has left Russia in a relatively disadvantaged, asymmetric position.
Transcript
China-Russia economic engagement following the invasion of Ukraine
Hello and welcome to today's intelligence briefing. This briefing will focus on the evolution of the economic relationship between Russia and China,since Russia's invasion of Ukraine a little over a year ago. Today, with the help of some of the transactional data available in the Janes IntelTrak database, we will explore how the changes in the geopolitical and geoeconomic landscape have changed Chinese and Russian economic behaviors over the past year. My name is Nissa Felton, and I am a Senior Manager in the Geoeconomic Influence and Threat Intelligence unit at Janes. I will be leading today's briefing.
With the help of transactions selected from Janes IntelTrak,a database of Russian and Chinese commercial transactions and economic engagements going back over a decade, we will dig into the ways in which China and Russia have both altered their economic behaviors following the invasion.
These changes in behavior run the gamut from altered trade and logistics routes, changes in energy partnerships, the expansion of the automotive sector, consumer and industrial manufacturing, technology, and finance, and they can all be - at least in part - attributed to a changing geopolitical and geoeconomic environment. Jane's Group UK Limited | Registered in England and Wales | Company no. 12199785 | 2 On February 4, 2022 shortly before Russia's invasion of Ukraine, China and Russia released a joint statement on China-Russia relations in the “new era”, declaring their partnership to have “no limits” and to have no “forbidden” areas of cooperation.
Three weeks later, Russia invaded Ukraine as the world watched on, in real time. While many observers refer to this partnership as an alliance, it may be more accurate to refer to the coupling as a partnership of convenience or a strategic alignment. Regardless of the label, it's clear that China views Russia as a strategic asset. In the year since Ukraine was invaded, analysts at Janes have detailed numerous instances of economic and commercial engagement between the two countries, that serve each other's strategic objectives, and which we will explore in this briefing.
Much has been said about the exodus of mostly Western companies from Russia. However, the truth is much harder to distill. According to recent research (Yale and the Wilson Center,) as many as 1,200 foreign companies have left Russia or substantially reduced their activities in the country.
In reality, as of February 2023, only about 8.5% of EU and G7 registered firms have divested from at least one Russian subsidiary since the invasion of Ukraine. Among American firms, the number is higher, by the end of November 2022 nearly 16% had managed to exit the Russian market. This low number is likely a reflection of difficult realties on the ground including Russian President Vladimir Putin's recent decrees that prohibit foreign owners in quote “enemy countries” to close deals without his approval, leaving many companies in limbo.
Companies are also trying to mitigate losses by maintaining at least a low level of operation until they can find an appropriate buyer, as it would be otherwise be difficult to sell a company not generating revenue. China has been able to take advantage of the real and perceived exodus of businesses from Russia as well as the change in trade patterns. Over the past year, China had the largest year-on-year increase in exports to Russia. Bilateral trade between China and Russia increased by 33% in the first 10 months of 2022, topping $154 billion USD. Chinese imports of Russian crude oil were up 44% from 2021.
For the first time Russian eastbound rail freight outweighed westbound rail freight, reflecting the actions by the EU to blockade Russian trains, changing trade patterns, as well as Russia's “Pivot to Asia”. China's robust trade with its northern neighbor has cushioned Russia from the full effects of sanctions, export controls, and the punitive exodus of foreign companies from Russia.
As you can see from Janes IntelTrak data, while trade volumes have gone up over the past year, investment has fallen sharply as reflected by the 2022 numbers at the top left of the slide. These investment figures are the lowest numbers recorded since Janes IntelTrak began tracking bilateral investment activity in 2010.
It's important to briefly touch on the geopolitical context in which both China and Russia are operating. The two countries share a worldview characterized by an aversion to U.S. hegemony. Both China and Russia aspire to return to multipolarity and view the United States as a common strategic threat. For China, Russia has the unique ability to, in tandem with itself, counterbalance the United States. It is this commonality that has helped to propel the two countries together in alignment.
Russia, and its tactics of disruption, has provided a distraction that is useful for China, as the US must now address conflict with two nuclear powers. Meanwhile, China has provided Russia with the support of a major country which lends credibility to Russia in front domestic and international audiences. Increased trade between China and Russia has effectively thrown Russia an economic lifeline.
Their shared contempt for Western sanctions has also led to increased collaboration in the two countries' currencies and accelerated regional de-dollarization activity.
Russia's actions in Ukraine, and the resulting fallout, has created a dependence that has put Russia at a relative disadvantage with China. It is now clear that Russia is the junior partner in the relationship. Some analysts refer to this dependency as “Russia's strategic miscalculation” since this evolution of the two countries' relationship has left Russia more beholden to China and in a relatively weaker position than it was, prior to the war. China also seems to understand this dynamic and this is why China is in such a strong position to deliver concessions on imports. We see this play out in the energy sector. China has tried to maintain an appearance of neutrality in its response to Russia's invasion. China has simultaneously tried to manage its strategic relationships with both the United States, the EU more generally, and with Russia. Beijing has not explicitly supported Russia's military actions, but it has criticized Western sanctions against Russia. In addition, China's diplomatic outreach to Russia and Ukraine following the invasion has been uneven, and China's General Secretary Xi Jinping has yet to hold direct talks with Ukrainian President Volodymyr Zelensky.
