“China’s leaders are walking a very difficult tightrope on Ukraine,” said Craig Singleton, senior China fellow at the Foundation for the Defense of Democracies, a DC-based think tank.
“China’s complicated messaging suggests that Beijing will continue to blame Washington and its allies for provoking Russia,” Singleton said.
However, “such moves will fall far short of further antagonizing the United States on account of Beijing’s desire to avoid a complete breakdown in US-China relations,” he added.
Close but relatively small trading ties
Before Russia’s invasion of Ukraine, Putin had deepened his country’s ties with China significantly.
Last year, 16% of China’s oil imports came from Russia, according to official statistics. This makes Russia the second biggest supplier to China after Saudi Arabia. About 5% of China’s natural gas also came from Russia last year.
China has also signed Russian banks onto its Cross-Border Interbank Payment System (CIPS), a clearing and settlement system seen as a potential alternative to SWIFT, the Belgium-based secure messaging service that connect hundreds of financial institutions around the world.
China and Russia share a strategic interest in challenging the West. But the invasion of Ukraine has put the friendship to the test.
“There is not yet any indication that China sees aiding Russia as worth violating Western sanctions,” said Neil Thomas, a China analyst at Eurasia Group, adding that a “flagrant” defiance of those sanctions would come with a “heavy economic punishment” for Beijing as well.
“Beijing’s much-touted lifting of import restrictions on Russian wheat was agreed before the invasion and does not indicate Chinese support,” he said.
But for China, Russia matters a lot less: Trade between the two countries made up just 2% of China’s total trade volume. The European Union and the United States have much larger shares.
Chinese banks and companies also fear secondary sanctions if they deal with Russian counterparts.
“Most Chinese banks cannot afford to lose access to US dollars and many Chinese industries cannot afford to lose access to US technology,” said Thomas.
According to Singleton, these Chinese entities “could very quickly find themselves subject to increased Western scrutiny if they are perceived in any meaningful way as aiding Russian attempts to evade U.S.-led sanctions.”
“Recognizing that China’s economy and industrial output have been under enormous pressure in recent months, Chinese policymakers will likely attempt to strike a delicate balance between supporting Russia rhetorically but without antagonizing Western regulators,” he added.
ICBC and Bank of China did not respond to a request for comment from CNN Business.
Significant practical constraints
Even if China wants to support Russia in areas that are not subject to sanctions — such as energy — Beijing may face severe restrictions, experts said.
The “financial sanctions that have been imposed on Russia by the West put significant practical constraints on China’s dealings with Russia even where they don’t restrict them directly,” said Mark Williams, chief Asian economist at Capital Economics, in a research note on Wednesday.
Some commentators have suggested that China’s CIPS could be used as an alternative by Russia, now that seven Russian banks have been removed from SWIFT.
But CIPS is much smaller in size. It has only 75 direct participating banks, compared with more than 11,000 member institutions in SWIFT. About 300 Russian financial institutions are in SWIFT, while only two dozen Russian banks are connected to CIPS.
“In practice, because CIPS is limited to payments in [yuan], it is only currently used for transactions with China. Banks elsewhere are unlikely to turn to CIPS as a SWIFT workaround while Russia is an international pariah,” Williams said.
Neither can China replace the United States in providing key technologies for Russia’s needs.
Russia imports mostly low-end computer chips from China, which are used in cars and home appliances. Both Russia and China rely on the United States for high-end chips needed for advanced weapons systems.
That could lead Chinese tech companies — particularly larger ones — to exercise even more caution in potential deals with Russia.