Position of neutrality

Throughout the war in Ukraine, China has been openly and persistently trying to maintain a position of neutrality. At the same time, official Beijing consistently opposes any economic sanctions and defiantly does not join them. Chinese leader Xi Jinping declared the “illegitimacy” of anti-Russian sanctions and the need to continue economic cooperation as early as March 6 and began to defend this position in almost all his speeches and negotiations related to Ukraine, for example, at a summit with EU leaders on April 1 and during his speeches at the Boao Pan-Asian Forum. And the Russian media are actively quoting the words of Foreign Ministry spokesman Zhao Lijian, who said that “sanction pressure is the wrong way to solve the Ukrainian crisis.”

The same opinion is shared by Russian politicians and pro-Kremlin experts. Officials believe (but it is not known how sincerely) that China is "playing on their side." Russian Foreign Minister Sergei Lavrov said on June 1: "We feel the support of Beijing in the work to uphold the principled Russian approaches to the formation of a security architecture in Europe." Lavrov says the countries are implementing "all approved cooperation programs." Moreover, Russia does not stop trying to enlist even more support from the PRC, for example, by directly transferring to China the lists of market niches vacated after the exit of Western companies.

Quiet Exit

Despite all the efforts of Russian diplomats and fervent bilateral assurances of the inviolability of the partnership between Moscow and Beijing, economic relations between the countries are far from smooth, and in some areas the PRC de facto joins the sanctions against Russia.

So, on May 6, the WSJ released an exclusive report stating that Chinese companies are gradually and “quietly” leaving the Russian market. Indeed, in the first months of the war, exports of goods from China to Russia began to fall markedly, falling by 27% in March and by 25% in April. It is the technology sector that sags most noticeably - already at the beginning of March, analysts began to pay attention to the fact that the supply of Chinese smartphones to Russia had almost halved , primarily due to the largest manufacturers - Xiaomi, Huawei and Oppo. To date, deliveries have decreased so much that in Russia the goods are already running out. On June 8, RIA Novosti reported that Huawei had begun closing retail outlets in Russia because there were not enough products in warehouses.

Chinese companies are gradually and “quietly” leaving the Russian market

The supply of laptops also fell by about 40% due to an export freeze by Lenovo, the most popular brand of laptops in Russia after HP.

In an interview with the Financial Times, one of the former members of the Xiaomi board of directors noted that openly declaring a reduction or suspension of sales in Russia is too “sensitive” a political position for Chinese corporations. “However, from a business point of view, it makes sense to stand back and watch what happens,” he argues. Another FT interlocutor, a former director of Huawei, agrees with his colleague: “Doing business in Russia now is very risky.”

The same strategy is followed by public corporations. For example, Honor, a Chinese manufacturer of smartphones and other consumer equipment owned by a state-owned enterprise controlled by the municipality of Shenzhen, suspended the shipment of new goods to Russia.

Special mention is the Chinese company SZ DJI. It is the largest consumer drone maker in the world - also sponsored by the Chinese government. On March 16, Deputy Prime Minister of Ukraine Mikhailo Fedorov tweeted to the company demanding to block the drones used by the Russian army for military purposes. Despite the fact that DJI did not meet immediately, company representatives suggested that the Ukrainian government submit an official request for the installation of geofences on the territory of Ukraine to disable active drones, and also announced the condemnation of the use of their products "to the detriment". And a month later, on April 27, DJI openly announced the suspension of business in Russia and Ukraine for "internal verification of compliance with international jurisdictions." This is the first such step for Chinese companies.

Supply issues are not limited to drones and consumer goods. On March 25, it became known that the Chinese state-owned energy and chemical corporation Sinopec, which ranks second in China in the extraction and processing of gas and oil, froze negotiations on cooperation with Russia, calling into question a potential investment of half a billion dollars.

Other joint projects with Russia also came under attack. The UnionPay payment system, which the Russian banks that fell under the sanctions were counting on to cooperate with, froze them a month after the start of negotiations. In a conversation with RBC, sources in Russian banks noted that UnionPay did not specify the official reason for the freeze and did not mention sanctions.

The UnionPay payment system froze them a month after the start of negotiations

UnionPay is not the only banking sector player to suspend relations with Russia. Almost immediately after the outbreak of hostilities in Ukraine, on February 26, it became known that several of the largest Chinese state-owned banks imposed restrictions on investment in Russian assets. Among them are the Industrial and Commercial Bank of China, as well as the Bank of China - the first and fourth largest commercial banks in the world, respectively. The consequences for Russia are already becoming noticeable - on June 7, Sberbank stopped making international transfers in yuan, without specifying specific reasons. At the same time, commercial banks, like technology companies, have not yet openly announced these restrictions and their links to the war in Ukraine, preferring a “quiet exit”.

This approach was not shared by the Asian Infrastructure Investment Bank (AIIB). It is an international financial institution founded and de facto run by China and competing with the International Monetary Fund and the World Bank. Since 2015, Russia has been a participant and one of the largest shareholders of the AIIB.

On March 3, the AIIB published a statement on the war in Ukraine. The bank expressed condolences to "all those affected" and announced a halt and review of "all operations related to Russia and Belarus." At the same time, the AIIB can be unequivocally regarded as an instrument of Beijing's foreign policy and economic diplomacy. John Ikenberry, professor of political science and international relations at Princeton University, believes that the AIIB was created precisely to promote Chinese influence in international politics. In this case, the suspension of its activities in Russia may say even more than the steps of commercial banks and technology companies.

What is China afraid of?

Thus, Chinese companies and large institutions, both private and public, mainly adhere to one course - towards a “quiet exit” from Russia. They formally condemn anti-Russian sanctions, but at the same time they join them where they seem necessary. There may be several reasons for this. For example, the fear of secondary sanctions. The Western restrictions imposed on Russia have proven to be broad enough to pose a threat to players not directly affected by them. Steve Brazier, chief executive of research firm Canalys, explains in an interview with The Wall Street Journal that Chinese tech companies are afraid that sanctions against Russian organizations could "automatically" extend to their trading partners:

“If any Chinese laptop maker were also cut off from semiconductor supplies, it would be disastrous. You can understand why they try to avoid it.”

The same goes for banks - Joseph Thorijian, an American University Russia and China specialist, speaking of Chinese financial institutions, notes that they are just as sensitive to secondary sanctions - and this forces them to distance themselves from Russia.

Some experts from China adhere to the same opinion. In an interview with the Financial Times, Zhang Kai, a lawyer at East & Concord Partners, a firm that advises Chinese companies on dealing with Russia, thinks Washington has a free hand on sanctions:

“Sanctions against Russia are still not very specific, and a lot depends on enforcement, in an area where the US has a lot of room to maneuver.”

Another reason may lie in the political situation in China itself. Within China's ruling party, sentiments about Xi Jinping's formally pro-Russian policies seem to be starting to diverge. On May 10, an article by former Ambassador to Ukraine Gao Yusheng was published in China, in which he speaks extremely negatively about Russia, its failures in the war and points out the need for an early ceasefire. For unnamed reasons, the article was removed, but it managed to make some noise and was soon replaced by another , no less critical, by Yan Xuetong, a leading Chinese professor of international relations. In it, he accuses Russia of violating the UN charter, warns that she will have to pay a high price, and argues that the war is not beneficial to China.

Director of the Indian Center for China Analysis and Strategy Jayaveda Ranade believes that the increase in the number of negative articles against Russia speaks of discontent among party members and Xi's uncertainty about his position.

Against the backdrop of the upcoming third election in Xi Jinping's career, the head of China is interested in mass support. Although he is now defending his position on Russia, there is no guarantee that he will succeed. However, even in this case, a noticeable change in policy seems unlikely - after all, China is much more interested in its own well-being than in supporting a “friend”.

For now, one thing is for sure: China's "silent sanctions" are likely to continue and expand, with their consequences for Russia becoming more apparent over time.