Many people ask why China chose Russia over Ukraine in its stance over the war? In Chinese official language, China’s official stance on the war has been clear and consistent. China has not expressed condemnation or support for Russia’s so-called military operation but calls for respect for countries’ reasonable security concerns. China has not recognized the independence of Crimea, Luhansk, or Donetsk. China expresses support for Ukraine’s sovereignty and territorial integrity -- that language is how far China can go in expressing opposition to Russia’s invasion of Ukraine. China has sent humanitarian aid to Ukraine and called on both parties to hold talks for stopping the war, but China has not responded to two requests from Ukraine. One is for China to be one of the security guarantors, together with other major countries. The other is for Chinese Xi Jinping to directly talk with Volodymyr Zelensky.
On bilateral relations with Russia and Ukraine, China’s stance is that it carries out normal trade cooperation with Russia and Ukraine and that it has not provided military assistance to either country. According to US senior officials, China has not evaded sanctions or provided military equipment to Russia, although Washington has put five Chinese companies to a trade blacklist for allegedly supplying items to Russian sanctioned entities.
This article analyses the economic importance of Russia and Ukraine respectively for China especially in the supply of strategic goods and shows that both countries are important suppliers of strategic goods to China, although Russia is far more important in terms of energy supply. China’s choice over the war is not so much between Russia and Ukraine, but more how much China gets involved. In any way, the war is a destabilizing factor for China’s economy, which could have far-reaching social and political consequences.
The impact of the war on China’s economy
China is the biggest trading partner for both Russia and Ukraine. In terms of total trade volume, the direct impact of the Russian-Ukrainian conflict on China is relatively limited. The bilateral trade with Ukraine is only 0.2% of China’s total foreign trade, in comparison with about 2.3% with Russia. However, on a few strategic items in energy, agriculture, and mining products, China relies heavily on Russia and Ukraine. Soon after the war broke out, the Chinese leadership reportedly instructed NDRC to encourage state-owned enterprises to search alternative sources of imports of grains, iron ore, and energy to make up for the potential drop in supplies from the two countries in conflict.
China is heavily reliant on oil and gas imports for energy. In 2021, 72% of China’s crude oil consumption was from imports, and 45% of natural gas was from imports. China is also the world’s biggest importer of grains, although with a lower degree of reliance -- 19.4%. Apart from the war’s direct impacts on bilateral trade, indirect impacts on China’s economy show in the rising price of raw materials for Chinese companies, which added inflationary pressure on the Chinese economy. The war and the ensuing turbulences in the global stock market have also led to volatilities in the Chinese stock market. Moreover, the Ukraine war, China’s technology-trade war with the US, and the domestic Covid lockdown measures have been the three major factors that hinder China’s economic growth this year, which could have far-reaching consequences for jobs and social stability.
China’s economic relations with Ukraine
China is Ukraine’s biggest trading partner with a trade volume of USD 19.3 billion in 2021. China praises Ukraine for being one of the first supporters for the Belt and Road Initiative (BRI) in. 2013, although that was a gesture from President Viktor Yanukovych. Since it became a member of the BRI in 2017, Ukraine has been an important transit hub of the the Eurasian Land Bridge—a network of railways that connect Europe and Asia that is mainly constructed or sponsored by China. The war damages in Ukraine and the deteriorated diplomatic relations between Lithuania and China mean that those two parts of the Land Bridge are largely out of operation and that the route via Kazakhstan, Russia, Belarus, and Poland has become more important, even though the latter is also filled with uncertainties because of sanctions on Russia and Belarus.
Moreover, the war has stalled or damaged Chinese invested projects in Ukraine. In 2021, Chinese companies obtained more than US$6.6 billion contracts for construction work in Ukraine. The three largest Chinese investments are from China National Machinery Industry Corporation, China Hydropower, and State Grid, with an investment amount of more than US$1 billion each. China has been an active investor, contract constructor, and financier of projects in important sectors in Ukraine including infrastructure, agriculture, energy, and telecommunications, including the war-torn ports of Mariupol port and Odesa. Other major projects include China Harbour Engineering’s dredging works at Yuzhny and Chernomorsk seaports and China Pacific Construction’s investment of US$2 billion in Kyiv Metro Line 4 as well as the railway connecting Kyiv and Boryspil International Airport.
In terms of supply of strategic goods, Ukraine used to play a significant role in China’s food security. China is a major buyer of Ukraine's corn, barley, and sunflower oil. In 2021, imports of grains from Ukraine accounted for 20.04% of China’s total imports of those grains. Among them, corn accounted for 29% of China's total corn imports.
At the same time, China has in recent years strived to build up national reserves of strategic goods, especially in energy and food, in an international environment that the leadership perceives as uncertain and challenging. The latest estimate of grains reserve is over 280 tons of the three major staples -- wheat, corn, and rice. The Covid-19 pandemic, the measures of restricting food export taken by major agricultural countries since mid 2021, and the Ukraine war prompted China to intensify efforts in increasing food reserve by increasing both domestic production and imports. One estimation has that China had reserved enough grains for 1.5 years’ consumption by the end of 2021.
In official statements on the conflict, China says that Ukraine should be a bridge between East and West, not a frontier of great power confrontation. That was not echoed in Ukraine. The Ukrainian Foreign Minister Dmytro Kuleba said in a written interview with Xinhua news agency in April 2022: “Ukraine is a European country both geographically and historically. Taking the European path is a choice made by the Ukrainian people, and this development approach is supported by the overwhelming majority of Ukrainians. They would not agree to play the role of a buffer between East and West. Ukraine is indeed on the border between East and West, but Ukraine is not a bridge that anyone can cross at will.”
China’s economic relations with Russia
China has been Russia’s biggest trading partner in consecutive 12 years. Bilateral trade volume reached $146.9 billion in 2021, with China running a deficit of about $12 billion. China’s trade volume with Russia is only about one tenth of China’s combined trade with the US and EU, but China's imports from Russia accounted for 22.73% of its total fertilizer imports, 18.75% of nickel and related products, 18.38% of wood and wood products, and 12.48% of mineral fuels and mineral oil. Most important of all, China is heavily reliant on Russia for energy import.
Energy and mineral products accounted for more than 70% of China's imports from Russia. Russia is China's biggest source of energy import and electricity import, as well as the second biggest source of crude oil import (after Saudi Arabia) and coal import (after Indonesia). Among them, China increased coal import from Russia since it began informal restriction of coal import from Australia.
Russia is especially important for China’s oil import. According to an estimation, China's current Strategic Petroleum Reserve (SPR) is 220 million barrels, equivalent to 15 days' consumption. When commercial storage and oil company inventories are also counted, China may have 60 days’ supply. It is still far under International Energy Agency (IEA)’s recommendations that countries have 90 days’ reserve.
In 2021, China imported 79.64 million tons of oil from Russia, or 16% of its total oil imports, closely following 17% from Saudi Arabia. Soon after Russia invaded Ukraine, Chinese state-owned companies avoided new deals with Russian oil companies despite discounted price because they did not wish to be seen as openly supporting Russia. Chinese banks also restricted financing for purchases of Russian commodities or deals with Russian oil companies. They continued to honour existing contracts and agreements made at the 4 February summit between Xi Jinping and Putin. But as the war dragged on with rounds of EU sanctions on Russia, Russia diverted oil exports from Europe to China, India, and other countries. China increased oil import from Russia since May 2022, facilitated by payment in the Chinese currency RMB since April. In June 2022, China replaced EU for the first time to become the biggest importer of Russian crude oil, accounting for 40% of Russia’s total crude export or 20% of China’s total crude imports.
Russia is not the biggest supplier of natural gas to China but non the less important as the second largest pipeline gas supplier (after Turkmenistan). Russia began supply gas to China in December 2019 through the Power of Siberia 1 (or Eastern route) pipeline, which reached 10 billion cubic meters (bcm) in 2021 and would reach the maximum capacity of 38 bcm per year by 2025. The two countries agreed in January 2022 to construct a 50-bcm Power of Siberia 2 pipeline in 2024-2030, which would diversify some of Russia’s gas export to Europe, which was between 150 bcm and 190 bcm before the war (the capacity of Nord Stream 1 is 55 bcm).
China views pipeline gas and oil as more secure than liquified natural gas (LNG) and oil shipments, which are subject to higher geostrategic risks, especially if they need to sail through the Malacca Strait. If the US and EU impose energy embargo on China, shipments from the Middle East cannot be guaranteed despite China’s good relations with the Persian Gulf countries. Russia, on the other hand, has pipelines as well as railway and sea transport to connect to North and Northeast China.
Apart from Russia’s status as an important supplier of strategic goods to China, it is an irreplaceable partner for Beijing in the current challenging international environment. According to Professor Zhao Huasheng, a leading Russia expert in China and former director of the Research Centre for Shanghai Cooperation Organisation, China cannot afford to lose the historical level of trust and strategic partnership that it has built with Russia since 1996 -- one word of condemnation or one measure of sanction from Beijing would be seen as a stab in the back by Russia and destroy all the trust. Especially when China is encircled by the US’s Indo-Pacific strategy from the sea, China needs a friendly Eurasian region at its land borders. In times of a major strategic crisis -- that is, a conflict in the Taiwan Strait -- China would even need Russia more to have a stable strategic rear.
A major factor of instability for China
The protracted Russian war in Ukraine has not only resulted in a grave humanitarian crisis but also brought chaos to global energy and food supplies, international capital markets, supply chains, and the global economy as a whole. It is indeed not something China wishes to see, in Chinese official words. China does not want to choose between Ukraine and Russia in its official stance or become part of the conflict. But at a strategic level, China’s choice is not so much between Russia and Ukraine. The analysis here shows although both Ukraine and Russia are important suppliers of strategic goods to China, Russia is far more important for China in both economic and strategic terms – or more precisely: an irreplaceable partner.
China’s choice is more about how much it puts stakes of its own development and stability on Russia, and how much it engages in mediating the conflict. In Chinese official language, China is neither a party nor a perpetrator in this conflict. But can China really stay out of the direct and indirect repercussions of the war? The Russia-Ukraine war, China’s tech-economic war with the US, and the domestic Covid lockdown measures are the top three destabilizing factors for China’s economy this year. The target of 5.5% GDP growth, set at March’s National People’s Congress, looks difficult to achieve. China is under the pressure of avoiding a massive return to poverty and needs to deal with a historic high unemployment rate: the registered urban unemployment rate was 6.1% in April 2022 and 18.2% among the 16-24 years old. At a crucial time of the 20th Chinese Communist Party Congress in October 2022 and National People’s Congress in March 2023 when reshuffles in the highest level of party committees take place, the Chinese leadership is prioritising economic and social stability. That is why a more active role in seeking an end to the war would benefit China both in the short term and in the long term.
