context: Beijing has indicated tacit support of Moscow after the outbreak of war in Ukraine. While Russia's dependence on China increases as the war escalates, Beijing is facing growing international criticism for its funding of Russian aggression.
Despite its murky position on Russia’s invasion of Ukraine, Beijing sees opportunities to scale up Chinese exports to Russia as the country faces heightening Western sanctions. If the conflict continues, demand for Russian commodities and raw materials from countries other than China would fall sharply, leaving China to stand out as a buyer given a high degree of complementarity in China–Russia trade. As Russia’s biggest trading partner, China mainly exports electronic equipment and machinery—accounting for 51 percent of its $54.91 billion exports to Russia—in exchange for Russian resources.
More importantly, with Russian banks being banned from using SWIFT, Moscow and Beijing are looking to deeper financial cooperation. Russia is by far Beijing’s largest recipient of state sector financing. Since 2014 when the two countries opened their currency swap line, RMB settlements accounted for 28 percent of Chinese exports to Russia in the first half of 2021. In addition, RMB accounted for 17.7 percent of the Russian Central Bank’s Foreign Exchange Reserves in 2022, compared with just 0.1 percent in June 2017.
However, being cautious of sanction spillover, ICBC (Industrial and Commercial Bank of China) has restricted funding purchases of Russian commodities. Meanwhile, BOC (Bank of China) told its Singapore branch to stop funding Russian oil deals. AIIB (Asian Infrastructure Investment Bank) also suspended all activities related to Russia and Belarus on 3 Mar 2022.
What is happening now is just the beginning of Russia’s expansionism and China’s economic and financial support for Russia, comments Shi Yinhong 时殷弘 Renmin University International Relations professor, which does not mean that China supports expansionism. It only shows that Beijing feels the need to maintain and strengthen its strategic partnership with Moscow.