The end of the year is always a good time to take stock. This applies to private life and it applies to geopolitics – after all, it's always about relationships. At issue in this case is how much China has benefited from its relationship with a Russia at war with the West following the invasion of Ukraine that began 22 months ago. The answer is a lot, a lot. Suffice it to say that trade between China and Russia exceeded $200 billion in the first eleven months of this year, a level that surprised the countries themselves. Chinese exports to Russia rose 69% in the first 11 months of this year compared to the same period in 2021 before the start of the war. Key to the increase was Moscow's need to turn to Beijing to buy everything from cars to computer chips after it separated economically from the West because of sanctions. Russia, in turn, sold oil and natural gas to China at reduced prices; Russian chocolate, sausages and other consumer goods are now available in abundance in Chinese supermarkets.
As the New York Times points out, car and truck manufacturers are undoubtedly the category that has benefited the most in China from expanding trade with Russia. The sales helped China overtake Japan as the world's largest car exporter this year. German manufacturers such as Mercedes-Benz and BMW were once strong sellers in Russia but withdrew because of the sanctions. It may seem strange that Russians, whose economy is increasingly resembling a war economy, have all this desire and, above all, the ability to make purchases in the automotive sector. The secret – in a certain macabre sense – is quickly revealed: if luxury car sales have collapsed in Russia, contributing to the decline in the overall size of the Russian car market, it is the poor and middle-class families who are buying at lower prices, whose members make up the majority of soldiers fighting in Ukraine. The reason for these purchases – Alexander Gabuev, director of the Carnegie Russia Eurasia Center, explained to the NYT – therefore also lies in the payments in case of death and disability that the Russian government and insurers pay to the families of Russian soldiers – up to 90,000 dollars in case of death. Moscow did not provide any information about the number of dead or injured, but the USA put the total number at 315,000.
The cars that the Chinese are bringing onto the Russian market relatively cheaply are cars with internal combustion engines: Beijing has a surplus of these because its consumers have quickly switched to electric cars. Another factor that allows prices to be kept low is that transport is carried out by rail. The result, according to data from GlobalData Automotive, is that Chinese car manufacturers have captured 55% of the Russian market: a real success considering that they had only 8% in 2021. “Never before have we seen automakers from a single country gobble up so much market share so quickly – the Chinese have been given a godsend,” commented Michael Dunne, an Asian auto consultant in San Diego.
The cars are a macroscopic example of a now consolidated trend that can also be found in the Chinese construction sector and is being put to a severe test by the internal real estate crisis: Over the summer, many Chinese construction workers found jobs on the 4,250 kilometer long Russian route border, where they built everything from skyscrapers, warehouses, train stations, pipelines and other infrastructure. According to Flavia Lucenti, an expert on China-Russia relations at Luiss Guido Carli University, “It is nothing new that China benefits from the crises that Russia itself creates. We already saw it in 2014-2015, with the first moment of crisis in Ukraine and then the annexation of Crimea: in these years a historic gas agreement was signed, very beneficial for Beijing. Such trade exchanges had never been achieved before, especially in gas, which is considered a strategic resource for China. This is already happening, primarily in response to China's need to diversify its trading partners: in an increasingly uncertain world, Beijing will need to expand and diversify to keep its ability to sell to more countries high to avoid this If the economy were to slow down, this would pose an internal problem for China as social stability would inevitably be threatened. Let us remember that there is a social pact between the Chinese Communist Party and the people: as long as the citizen becomes rich and prosperous, he will in return prove himself loyal to the ruling party.”
The economic glue between the two countries remains clearly energy. Moscow has to sell it, Beijing takes advantage of this need to get cheap prices. Cheap Russian energy, bypassing sanctions imposed by the West, has helped Chinese factories compete in global markets. Moscow has increased deliveries of natural gas to China via the Power of Siberia pipeline and is negotiating to build a second pipeline to transport gas from fields that supplied Europe before the war in Ukraine. Less than three weeks before the war in Ukraine, China and Russia had also agreed to build a third, smaller pipeline that would transport gas from easternmost Russia to northeastern China: construction of this project is progressing quickly.
The expansion of cross-border trade between the two countries is particularly significant as both the Russian Far East, which borders China, and North Korea are rapidly becoming regional trade hotspots. Chinese state media recently reported on the planned expansion of grain imports from Russia and announced the construction of a grain corridor that would connect Russia with China's Heilongjiang province, China's northeastern breadbasket.
Furthermore, Russia is also a way for China to indirectly disregard the Arctic, a concept that Xi Jinping himself made clear in September during a visit to the Chinese city of Harbin in the eastern province of Heilongjiang. Heilongjiang is China's “gateway to the north,” said the Chinese head of state.
“The Arctic Silk Road or Arctic Silk Road has been in Xi Jinping’s plans for several years,” emphasizes Lucenti. “Although China is geographically very far from the Arctic, China has always shown interest and demanded the status of a state near the Arctic, that is, a state near the Arctic, within the Arctic Council, precisely in order to gain influence to defend its interests in this region. We are talking about a region that is becoming increasingly interesting, also due to global warming, not only for the potential energy resources that will emerge from this area, but also for the trade routes that could be opened by crossing the Arctic. In this sense, good cooperation with Russia is fundamental.”
Just yesterday, Xi Jinping received Russian Prime Minister Mikhail Mishustin in Beijing and reiterated that “maintaining and developing Sino-Russian relations is a strategic decision taken by both sides based on the fundamental interests of the two peoples.” A crystal-clear way of saying that the borderless partnership between Russia and China is destined to become more and more consolidated.
As a recent analysis by Cepa (Center for European Policy Analysis) shows, this partnership extends – and will increasingly extend – to the defense sector. “The question is whether and how quickly the Sino-Russian political and economic axis will transform into a fundamental military pact. In July, Russian and Chinese naval forces conducted a joint military exercise in the Sea of Japan. While China's state-run Global Times said the Northern/Interaction-2023 exercise was the first time that both the Russian Navy and Air Force had participated in a joint exercise led by the Chinese Navy, the International Institute reported for Strategic Studies last”. Year, Russia and China conducted five or more military exercises in the Sea of Japan and the East China Sea. The most worrying aspect – notes Chels Michta – is that Russia has some cutting-edge military technologies. If it were to share these with China (and there are now signs that it is doing so), it would change the balance of power in the Indo-Pacific more quickly than most analysts had predicted, especially if China had access to naval technologies for its rapidly growing naval forces.