China Russia: 4 ways China is quietly making life more difficult for Russia

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China Russia: 4 ways China is quietly making life more difficult for Russia

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Now, with the Russian economy hit by sanctions from around the world, there is mounting evidence that China’s willingness and ability to help its northern neighbor may be limited. Beijing has refused to condemn Russia’s attack on Ukraine, but wants to avoid being hit by the sanctions it has repeatedly declared as an ineffective way to resolve the crisis.
“China is not part of the [Ukraine] crisis and does not want sanctions to hit China, “Foreign Minister Wang Yi said on Tuesday during a phone call with his Spanish counterpart.

Beijing also lent its full support on Wednesday to comments made earlier this week by the Chinese ambassador to Ukraine. “China will never attack Ukraine. We will help, especially economically,” Fan Xianrong said in a press release from the Lviv regional government.

Fears that Chinese companies could face US sanctions over ties to Russia contributed to an epic sale of Chinese shares last days. That crisis was reversed Wednesday when Beijing promised it would pursue policies to bolster its stuttering economy and keep financial markets stable.

US officials told CNN on Monday that they have information suggesting that China has expressed some willingness to provide Russia with requested military and financial assistance. China dismissed it as “disinformation”.
Analysts say that China is trying to find “a delicate balance” between rhetorical support for Russia but without further antagonizing the United States.

Beijing and Moscow share a strategic interest in challenging the West. However, Chinese banks cannot afford to lose access to US dollars, and many Chinese industries cannot afford it be deprived of US technology.

Analysis: China cannot do much to help sanctioned Russian economy

While China is Russia’s number 1 trading partner, Beijing has other priorities. Trade between the two countries accounted for only 2% of China’s total trade volume. The European Union and the United States have much larger quotas, according to Chinese customs statistics from last year.

Here are some measures that Beijing has taken in recent weeks to distance itself from the isolated e collapse Russian economy.

dropping the ruble

The Chinese currency, the yuan, does not trade completely freely, instead moving within bands established by officials of the People’s Bank of China (PBOC). Last week, they doubled the size of the ruble’s trading range, allowing the Russian currency to drop faster.

The ruble has already lost more than 20% of its value against both the dollar and the euro since the beginning of the war in Ukraine. By allowing the Russian currency to fall against the yuan, Beijing is not doing Moscow any favors.

Russians will have to pay more in rubles for Chinese imports such as smartphones and cars. Chinese phone brands like Xiaomi and Huawei are extremely popular in Russia and were competing Apple (AAPL) And Samsung (SSNLF) for pre-war market leadership.
Chinese carmakers, such as Great Wall Motor and Geely Auto, occupy 7% of the Russian market, selling more than 115,000 vehicles last year. Great Wall Motor has stopped supplying new cars to dealers in Russia due to exchange rate fluctuations.
Expanding the trading band would allow the yuan to keep pace with the wild swings of the ruble, so that Chinese companies can better “grasp the magnitude or trend of future exchange rate fluctuations and reduce exchange risks. using hedging methods, such as derivatives, “they say. owned by China Business Network reported last week.
Currently, about $ 25 billion of China-Russia trade is conducted in yuan, Chinese state media reported.

Sitting by reservation

The most significant help China could offer Russia is through the $ 90 billion of reserves Moscow holds in yuan, wrote Alicia García-Herrero, chief economist for Asia Pacific at Natixis, in a research report. Tuesday.

The sanctions have frozen about $ 315 billion of Russian reserves – or about half of the total – as Western countries have banned dealing with Russia’s central bank.

According to Russian state media, Russian Finance Minister Anton Siluanov said this week that the country wants to use the yuan reserves after Moscow was denied access to US dollars and euros.

The PBOC has so far made no comment on its position on these reservations.

If China allowed Moscow to convert its yuan reserves into US dollars or euros, “this would clearly help Russia’s current impasse,” García-Herrero noted. However, “the reputational risk of a potential violation of Western sanctions would be a huge step for the PBOC to take and thus makes it highly unlikely,” she said.

“The long-term gains from moving closer to Russia may not match the impact of Western investors who suddenly lose interest in China,” he added.

Suspension of aircraft parts

The sanctions imposed by the United States and the European Union mean that the world’s two largest aircraft manufacturers, Boeing (BA) And Airbus (EADSF), are no longer able to supply spare parts or provide maintenance support to Russian airlines. The same goes for jet engine manufacturers.

This means that Russian airlines could run out of components within weeks or fly planes without equipment being replaced as often as recommended to operate safely.

Because China won't stake its economy to save Putin

Earlier this month, a senior Russian official said China refused to send aircraft parts to Russia as Moscow searches for alternative supplies.

Valery Kudinov, chief airworthiness of the aircraft at the Russian air transport agency, was quoted by the Russian state news agency Tass as saying that Russia will seek opportunities to procure parts from countries including Turkey and India after a failed attempt. to get them from China.

“As far as I know … China refused,” Kudinov said.

In response to CNN’s request for comment, the Chinese Foreign Ministry reiterated that of Beijing opposition to the sanctions adding that China and Russia will maintain “normal economic and trade cooperation”.

China and Russia formed a civil aviation joint venture in 2017 to build a new long-haul widebody passenger aircraft, seeking to rival the duopoly of Boeing and Airbus. Production of the CR929 has begun, but disagreements over suppliers have caused delays. The plane was originally supposed to be offered to customers in 2024. But Russia postponed the timeline from 2028 to 2029.

Freezing of infrastructure investments

The World Bank stopped all its programs in Russia and Belarus after the invasion of Ukraine. It had not approved any new loans or investments to Russia since 2014 and none to Belarus since 2020.

More surprising, perhaps, is the decision of the Beijing-based Asian Infrastructure Investment Bank to do the same. In a statement earlier this month, he said he would suspend all his Russian and Belarus-related activities “while the war in Ukraine unfolds.” The move was “in the bank’s” best interest, “he added.

Frustrated by a relative lack of influence at the World Bank (based in Washington, DC) and the Asian Development Bank (where Japan is a major force), China launched the AIIB in 2016. In addition to hosting the headquarters overall, China supplies the bank president and has 26.5% of the vote. India and Russia have 7.6% and 6% respectively.
The AIIB’s decision to suspend operations in Russia means that $ 1.1 billion of approved or proposed loans to improve the country’s road and rail networks are now on hold.

– CNN’s Beijing office and Hannah Ritchie in Sydney contributed to this article.

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