How is China mitigating the effects of sanctions on Russia?

In an essay exploring China's approach to mitigating the impact of sanctions on Russia, it becomes clear that the relationship between these two nations, while pronouncedly cooperative, is nuanced and not without its limitations.

The leaders of China and Russia have publicly declared a 'no limits' partnership, a proclamation that has been followed by high-level visits and announcements of new trade, investment, and industrial production initiatives. However, this partnership is bounded by Beijing's strategic interests, which often diverge from Moscow's, especially in the context of the Ukraine conflict and the resulting Western sanctions.

One of the most significant ways China is assisting Russia is by providing an alternative currency for transactions. The Chinese yuan has replaced the dollar as Russia’s most traded currency since early 2023. This shift was catalyzed by US sanctions on several Russian banks, which restricted their ability to conduct cross-border transactions in dollars. As G7 sanctions constrained Russian financial institutions' ability to transact in leading reserve currencies, the yuan emerged as a viable alternative, being a stable and widely traded currency issued by a non-sanctioning authority.

Central bank currency swap lines have played a pivotal role in increasing the yuan's circulation within the Russian economy. Despite China's capital controls, which make it difficult for foreigners to obtain yuan, Beijing has backed currency swap facilities, enabling the exchange of rubles for yuan between Russia and China's central banks. These measures have facilitated the introduction of yuan into the Russian economy and, by extension, have helped Russia manage the value of the ruble and its foreign exchange transactions.

Furthermore, China’s increased energy trade with Russia has partly compensated for Moscow’s lost market share in the West. Beijing’s spending on Russian energy surged from $57 billion before the invasion to $88 billion after, allowing Moscow to offset lost revenues in the EU market. However, China maintains informal quotas on crude oil imports, thus limiting exposure to any individual energy exporter, which places Russia in a position of asymmetric dependence on its economic partnership with China.

Despite the growth in trade, China has been cautious in its support, especially in technology transfers. The import of integrated circuits from China to Russia significantly increased, yet China has restricted the export of advanced technologies like the Loongson microprocessors. These moves signal Beijing's protective stance towards its advanced technology, likely influenced by the West's imposition of export controls on advanced semiconductors against China.

It is important to note that China is not the sole country augmenting trade with Russia. Other nations, including India and Turkey, have expanded their trade relations with Russia. India, for instance, has become a significant destination for Russian crude oil exports, and several Central Asian and Caucasus countries have increased their exports of electronic equipment to Russia.

Nonetheless, China’s relationship with Russia is marked by caution and pragmatism. Chinese banks, for example, have not become creditors to the Russian government, reflecting an aversion to steps that could trigger secondary sanctions or increase China's strategic dependence on Russia. Likewise, China has hedged against reliance on Russian energy imports.

In conclusion, while the public rhetoric suggests an unrestricted partnership, the reality of China's support for Russia amid Western sanctions is a careful balancing act. China provides critical economic relief to Russia, particularly through the yuan and increased energy trade. However, it simultaneously maintains a cautious approach, especially in technology transfers and financial engagements, to safeguard its own strategic interests and avoid the risk of secondary sanctions.