Damdul, Tibbetan Scholar.

Russia’s attack on Ukraine has thrown a major challenge in China’sefforts to come to the rescue of sanctions-riddled Moscow. Its plan toeconomically support Russia through Renminbi-Rouble transactions willmaterialise or not is in the realm of speculation as there is a fear thatBeijing’s $3.2 trillion reserves lying in US treasuries will almost freeze ifit continues with any business deal with Moscow. 

In the initial days of the Ukraine war, China had refused to termthe Russian assault on the East European country an “invasion” and hadcondemned the US-led sanctions on Moscow. But at the same time, it distanceditself from recognising Donetsk and Lugansk—Ukraine’s rebel territories whoseindependence Russia recognised 72 hours before war on the East European countryon February 24. 

Then in the middle of Russia’s attack on Ukraine, China-led AsianInfrastructure Investment Bank (AIIB) in which Moscow is also one of thepartners, announced putting all activities relating to Russia and Belarus onhold. 

However, before the world could take notice of it, the NewDevelopment Bank of the BRICS, in which all five countries, including Russia isan equal stake holder, announced putting all new transactions with Russia onhold citing unfolding uncertainties and restrictions amidst war onUkraine. 

China, which has twice abstained from voting against Russia’saggression on Ukraine in the UNSC, has a habit of creating a diplomatic miasma.The international community has seen such uniqueness of China’s character inthe case of Afghanistan and Myanmar in the recent past. 

In particular, in the case of Afghanistan, it appeared that Chinawould play a lead role by recognising the Taliban-led government in Kabul.Every step taken by Beijing, post the US withdrawal from Afghanistan, gave animpression that China would fill the void left by America in the insurgency-hitcountry. 

Nearly eight months have passed since the US left Afghanistan,China is yet to step in the landlocked nation with meaningful help for the Afghanpeople. China was the first foreign country to pledge emergency humanitarianaid of worth 200 million yuan to Afghanistan.

This is exactly what China is doing in respect to the Ukrainecrisis. It condemned the US’ recent decision to expel 12 Russian diplomats ofthe Russian Permanent Mission to the UN. On the other hand, to show the worldthat it is against attack on a sovereign country, it repeatedly says, “Wealways advocate respect for the sovereignty and territorial integrity of allcountries, and peaceful resolution of international disputes based on thepurposes and principles of the UN Charter.” 

In hindsight, it is seen as China’s criticism of Russia for itsinvasion of Ukraine. It is also seen as Beijing’s balancing act. For the sakeof a market and dollar-centric international financial system, it doesn’t wantto jeopardise its relations with the European Union and the US. It knows itseconomy is not in good health. Chinese leaders have themselves set a target ofachieving around 5.5 per cent growth in 2022—the lowest in 30 years, yet higherthan what analysts have predicted about the Chinese economy. 

According to a conservative estimate, the Chinese economy willgrow about 4 per cent in 2022. Goldman Sachs has already cut its 2022 forecastfor China’s economic growth to 4.3 per cent down from 4.8 per cent previously.Nomura, the Japanese financial holding company, has also predicted 4.3 per centgrowth for China’s economy in 2022.  The World Bank has predicted that theChinese economy will grow to 5.1 per cent in 2022. The Bretton Woodsinstitution has further warned that high debt, persistent supply chainbottlenecks and coronavirus-related restrictions will jeopardize China’seconomic activity. Similarly, the International Monetary Fund has projected 4.8per cent growth for the world’s second-largest economy in 2022 and 5.2 per centin 2023. In its latest report, the IMF has cited Covid-19 outbreak’s effect onconsumer spending and a property market downturn as the reason for the slowgrowth of the Chinese economy.

In this backdrop, if China wishes to avowedly continue witheconomic engagement with Russia which has been slapped with umpteen numbers ofsanctions, it will find deep in the morass of problem, warn several analysts.From freezing the assets of Russia’s central bank (limiting its ability toaccess $630 billion of its dollar reserves) to removing its banks from theSWIFT messaging system to banning people and businesses from dealing with itsfinancial institutions to markets to banning imports of gas and oil---are amongnotable penalties that the US and its western alliance have imposed on Moscow.Those countries which wish to engage with Russia, politically, financially,militarily or in the field of science & technology and space will getthemselves shadowed by such harsh sanctions. 

But then for China, the Ukrainian crisis has given an opportunityto play its game nonchalantly. It wants to weaken US alliances in Europe andthe Indo-Pacific, while at the same time cutting to size America’s globaldominance—all this without harming its  own economic interests and hittingits relations with the US and the West. It endorses Russia’s stand that the USand NATO are responsible for the war on Ukraine. China’s Foreign MinistrySpokesperson Zhao Lijian in his recent press briefing quoted several experts onUkraine as saying that “objective and rational assessments have failed to beincorporated into the policy of the US, the West and NATO.” He also said thatRussia’s legitimate security demands ought to be taken seriously andproperly. 

All this along, there is an attempt by China to distance itselffrom Russia. Chinese Foreign Minister Wang Yi decried Russia’s scale of attackand resultant humanitarian crisis in Ukraine. He said that it is absolutelyimperative for all sides to exercise restraint to prevent the conflict from“getting out of control.”  

Amidst this, China’s largest state-owned banks have restrictedfinancing for the purchase of Russian commodities. Industrial & CommercialBank of China (ICBC) have stopped issuing US dollar-denominated letters ofcredit for the purchase of Russian commodities. The Bank of China has alsostopped financing for Russian commodities. However, till date, there is noannouncement from China on Renminbi-Rouble transactions. There is a suspicionthat China will continue with this mode of financial transaction—all thisbehind the curtain and away from the international community’s scrutinizingeyes.