China is watching carefully and weighing its options as Russia cuts itself off further from the West. During the Cold War, ideological differences and conflicting objectives turned the two countries from friends to foes. But recent developments have propelled Russia and China’s relationship into a new era of strategic coordination. A robust China-Russia military and economic alliance could deliver a fatal blow to the international liberal order headed by the United States and its allies. China’s response to Russia’s war in Ukraine has the potential to reveal a major geopolitical shift with devastating implications for the West.

The 2022 U.S. Intelligence Report on China and Russia reveals a bleak global outlook. While Russia will continue to exploit every opportunity to undermine the United States, it does not seek a direct conflict with U.S. forces. Instead, Russia is likely to use its energy and cyber prowess to force states to the negotiating table. Russia and China are also expected to continue driving wedges between the United States and its allies, but China’s position in relation to this conflict has the potential to restructure the international order. Even before damaging sanctions were imposed, Russia’s economy was roughly half the size of California’s. China, on the other hand, is an economic powerhouse uninterested in nuclear arms control agreements intent on building a larger, more capable nuclear missile force within the next decade.

Russia China
China Russia trade agreement and Russian deals (3D Illustration, Image: iStockphoto)

The world is closely watching China’s more recent aggressive stance against independently governed Taiwan as the conflict in Ukraine unfolds. Taiwan reported 9 Chinese aircraft in its air defense zone on February 24, the same day Russian troops entered Ukrainian territory. While China is expected to walk a fine line in its dealings with Moscow to protect its economic interests, the parallels between Putin’s stance toward Ukraine and Xi’s goals in Taiwan cannot be overlooked. Putin and Xi see Ukraine and Taiwan, respectively, as part of their domains. Almost immediately after the Russian government threatened to target foreign weapon shipments to Ukraine, the Chinese government issued a similar threat, warning of the “worst consequences” for any country sending military support to Taiwan.

Whether President Xi decides to make a pass at Taiwan to realize his vision of China and Taiwan as “one China” during a time when international attention is focused on Ukraine remains to be seen. How China leverages its economic might in the weeks to come will provide more of an immediate insight into how the conflict in Ukraine could shape geopolitics. Russia is currently counting on China, its largest trading partner, to counteract the pain imposed by Western sanctions. And while China has denied being asked for military and economic assistance by Russia, the two countries continue their normal trade relations. Russia and China’s bilateral trade hit a record high of nearly $147 billion in 2021. Mere weeks before Putin announced the invasion, China signed a 30-year deal to buy increased volumes of Russian gas. Europe and China account for roughly 90% of Russia’s total oil exports. China was the largest buyer of Russian crude oil last year, but closer economic ties with the U.S. and Europe has forced China to publicly present itself as a potential mediator in the conflict. However, U.S. officials are becoming increasingly worried that China’s public comments are meant to deceive and appease Western leaders, as reports that China signaled openness to provide military and economic aid to Russia come to light.

Top U.S. officials have warned nations against helping Russia, now the world’s most sanctioned country, withstand its losses. China will likely continue its balancing act to safeguard its economy from losing access to the dollar-based international trading system. At the same time, China is attempting to reduce its dependence on the dollar while exploiting Russia’s political and economic isolation.

Since incurring a round of sanctions after annexing Crimea in 2014, Russia started developing a domestic alternative to SWIFT. Russia could now look to integrate its SPFS financial system with China’s much larger alternative CIPS. An alternative financial system would attract countries feeling marginalized by the dollar’s dominance, or those most vulnerable to U.S. sanctions. It would also undermine the West’s economic and political influence by letting countries circumvent financial penalties challenging the way America exerts its power. Western sanctions could cripple the Russian economy, but they also risk countries diversifying away from the U.S. dollar. With select banks barred from the SWIFT global banking system, Russian companies and banks are turning to the Chinese renminbi (yuan) when dealing with international trade and payments. It is unclear at this point whether the Chinese renminbi can support Russia’s international trade, but poor economic relations between the U.S. and China and the internationalization of the renminbi could provide a shield for the economic interests of authoritarian countries down the road. Saudi Arabia recently announced that it is considering accepting the yuan instead of dollars for Chinese oil sales. This would not only have a devastating affect on the U.S. dollar, but it could also dramatically alter the higher standard of living that people in western countries have been accustomed to.   

China and Russia seem more united than ever in their opposition to the rules-based international order. In rebuffing calls from the U.S. to help prevent a Russian invasion, China essentially gave a green light to Putin’s actions in Ukraine. If China’s gamble plays in its favor, a deeper cooperation with Russia will counterbalance U.S. dominance by enhancing the Indo-Pacific sphere of influence which could provide a safe haven to the world’s autocracies. Even though Western sanctions are certain to push Russia further into China’s financial sphere, an ironclad alliance is not a certainty. China most certainly does not want to be viewed as a global pariah, so it has carefully repositioned itself as a peacemaker. But the fundamental disruption to energy markets caused by the exclusion of Russian oil risks social instability in democratic countries, while providing an opportunity for China to increase purchases of discounted oil and commodities to protect its economy from the shared pain in the West.

If China helps Russia endure Western pressures, the emerging arc of autocracy will become consolidated enough to threaten the cohesiveness of the liberal order. And no matter what happens to Russia after the conclusion of the Ukraine conflict, this new Cold War has the potential to accelerate China’s rise.

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