Stock Groups

How much can — and will — China help Russia as its economy crumbles?

[ad_1]

Xi Jinping (China’s president) meets Vladimir Putin, Russia’s president. They shake hands after a signing ceremony at the Russian-Chinese meeting that took place on the sidelines to the Eastern Economic Forum held in Vladivostok. September 11, 2018. 

Sergei Chriikov | AFP | Getty Images

Companies around the world may be threatened with asset freezes, sanctions or even withdrawals. hammering the Russian economyIn response to President Vladimir PutinMoscow was left with one all-powerful ally to which it can turn for support in the face of Ukraine’s military aggression.

Anton Siluanov, Russian Finance Minister said that “I believe that our partnership to China will still enable us to keep the cooperation that was achieved” in Sunday’s statement. 

In response to this, Jake Sullivan, the U.S. national defense advisor, stated that it warned Beijing of “absolutely be consequences” for large-scale sanctions and evasion attempts, as well as support to Russia in filling them. The issue was discussed by U.S. diplomats and Chinese diplomats over seven hours on Monday. 

Siluanov had made reference to U.S.-led asset freezes on nearly half of Russia’s central bank reserves – $300 billion of the $640 billion in gold and foreign currency that it had amassed since a previous wave of Western sanctions following its annexation of Ukraine’s Crimea in 2014.

Restricted reserves remain in Chinese Yuan and gold, making China Moscow the main source of potential foreign currency to support the spiraling. ruble amid devastating capital outflows.

These are some of Beijing’s strongest comments about the sanctions to date Chinese Foreign Minister Wang Yi said MondayIn a phone call, he stated that China was not part of the current crisis. He stated that China is entitled to defend its legitimate interests and rights.

CNBC reached out to the spokespersons of the China’s Dubai consulate and Abu Dhabi embassy.

Is China able to help Russia ease its economic problems? Theoretically, it could be quite a bit.

If China decided to open up a full swap line with Russia, accepting rubles as payment for anything it needed to buy — including crucial imports like technology parts and semiconductors that Moscow has been cut off from in the latest rounds of sanctions — China could essentially plug most of the holes fired into Russia’s economy by the West. 

It is not clear, however, if Beijing really wants to do this, or how it might backfire.

Maximilian Hess from the Foreign Policy Research Institute said that China could assist Russia in a way they can. But they could also face major secondary sanctions and renewed trade sanctions with the U.S.

Given the uncertain state of Chinese markets over the last few weeksHess stated that, with rising inflation and the new Covid-19 epidemic in the country it might not be the right time.

Partnership with no limits

China could take all of the risks and liabilities from the Russian Economy onto its own balance sheet, at a time where the Russian economy has been at its weakest point in many decades.

Maximilian Hess

Central Asia fellow, Foreign Policy Research Institute

China’s government expressed concern over the Ukraine conflict, but it did not express any. refused to call it an invasion or condemn RussiaThe Russian state news media pushed Moscow’s story of war to the forefront.

Holger Schmieding of Berenberg Bank was the chief economist and stated that Putin and China have expressed a strong interest in closer cooperation in a research note from March.

China loves to bring down the West. It would love to turn Russia into a submissive junior partner. Similar to its deal with Iran, it could use the position to purchase Russian oil, gas, and other commodities at a discount price. 

China’s support for Moscow’s leaders will be crucial to the success of Russia’s future economy. China is Russia’s second largest export market, after the European Union. Russia and China trade reached an estimated $1.5 billion. record high of $146.9 billion in 2021, up 35.9% year-on-year, according to China’s customs agency. China received $79.3 billion worth of Russian exports in 2021. Oil and gas accounted for 56%. China last year imported more from Russia than it exported by $10 billion. 

Schmieding claimed that Russia could use China in the future as a larger alternative market to its raw material exports, and as a way for them to bypass Western sanctions.

It could prove to be an unstable and fragile alliance for the two countries, with very different views of history.

A powerful alliance made up of G-7 countries, which includes the U.S., its European, and Asian partners can place harsh secondary sanctions against any entity supporting Moscow. The problem is that China is second in world economy and a critical part of global supply chain. This has a greater impact on global markets than Russia. A move to sanction China will have far greater consequences for global markets and could cause severe economic damage for the West.  

Stabilization: Do we tread a middle road?

China is still able to trade in rubles or yuan with Russian companies through Russian banks not yet sanctioned. Despite years of trying to boost bilateral trade between their currencies for many decades, this is still the case. the vast majority of that trade – including 88% of Russian exports – is still invoiced in dollarsOder euros

China may be literally catching a falling knife, as it takes on the sanctions and credit risks of Russia’s rapidly declining economy. 

Hess stated that China could relieve the majority of the pain. Hess said that if the Russian government offered these swap lines and all, it would be effectively taking on the entire liability and risk of Russia’s economy to their balance sheets at a moment when its economy is weakest for decades. 

Hess stated, “So this is maybe not the smartest economic move.” “But politics are different decisions.”

[ad_2]