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China In Eurasia

Tuesday 10 May 2022

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People watch a TV broadcasting the news of Russian troops launching their attack on Ukraine at a restaurant in Hong Kong on February 24.

Since its February 24 invasion of Ukraine, Moscow has grappled with severe sanctions on its economy and a flood of Western political and military aid to Kyiv that caught the Kremlin off-guard.

For China, Russia's war in Ukraine has already provided a series of instructive episodes.

Policymakers in Beijing are closely watching the continued Western response toward Moscow to better understand the potential reaction in the event of a Chinese invasion of Taiwan, which China claims as its territory and has threatened to invade if Taipei refuses to submit to its control.

Beijing has thus far been left "unsettled" by the aftermath of Russia's invasion, according to CIA Director William Burns, who told the Financial Times on May 7 that the tough Western response against Moscow came as a surprise to China's leadership and could affect its calculations for Taiwan.

But Burns added that he doesn't believe Chinese President Xi Jinping's long-term desire to gain control over Taiwan has changed.

So what lessons is Beijing drawing from the Ukraine war?

Chinese leadership appears to be pushing forward on a self-reliance drive, a trend that was already under way but which the war in Ukraine made more imperative for Beijing. In the meantime, Chinese companies have moved cautiously while interacting with Russia's sanctioned economy, despite both Xi and Russian President Vladimir Putin declaring a "no-limits" partnership between their countries in February.

With concern mounting in Beijing that it could be blocked from Western economies by sanctions and penalties similar to those that have been put on Russia, RFE/RL spoke with Alicia Garcia-Herrero, the chief economist for Asia-Pacific at the investment bank Natixis.

RFE/RL: We've seen lots of headlines lately about some smaller-scale Chinese refineries buying up Russian oil at a discounted price. What do you make of these moves and what does that tell us about how China will approach dealing with the Russian economy moving forward?

Alicia Garcia-Herrero: There isn't an obvious [answer] here. China is approaching Russia on the surface, at least, in a very friendly way. [When] we look at words rather than the deeds, the narrative is extremely positive: both officially but also in the media; but in reality China is quite hesitant and very careful about avoiding secondary sanctions [from the United States].

Alicia García Herrero
Alicia García Herrero

We see, certainly when it [comes to] banks, they have generally stopped offering letters of credit to Russia. We also know from anecdotal evidence that some smaller [Chinese] refineries are buying up oil [often at a discounted rate]. [But] to me, that's not big proof of massive support because India is doing the same and so are many other [countries]. Therefore, I would not see that as a game changer.

What could be a game changer is Chinese exports [to Russia], but exports of the right thing, meaning exports of semiconductors -- especially commercial and military fusion semiconductors -- because we know that Russia needs that for its military equipment. [But] that can be much harder to track.

But from what we can track, I would argue that all in all, China's being quite careful in its actual actions. If [Beijing] needs to [take a] risk it will be where it's most needed for Russia and I don't think that is imports of energy, because they can always [get it] at a discount.

RFE/RL: It seems that some investors are pulling back from the country and there are reports that Chinese regulators have held an emergency meeting with domestic and foreign banks to discuss how they could protect the country's overseas assets from potential future U.S.-led sanctions similar to those imposed on Russia for its invasion of Ukraine. So, how is the war in Ukraine affecting the Chinese economy?

Garcia-Herrero: First we need to notice that beyond Russia and the war, China is going through its own hell due to COVID, which is a major shock for the country. So it's hard to disentangle those, in my view. COVID and [COVID-related lockdowns] are much bigger economic hits. So even if China's ambiguous position on the war in Ukraine could have had an impact, we might not see it because of COVID having such a larger one.

But beyond this immediate impact there [were] quite large [investor] portfolio outflows from China [in] March and April. So one could say that's a sign that investors are fearing sanctions, but I think there are many other reasons to explain that. For instance, the yield differential with the United States has vanished because we're well above 3 percent already for U.S. treasuries, so, it just doesn't make much sense to keep your Chinese sovereign bonds right now with a depreciating currency. That makes it hard for me to say that China is really suffering from its position on Ukraine. Rather, what I would say is that Beijing is anguishing over what may happen to China because of Ukraine, which is not necessarily something immediate.

Soldiers train during a military exercise in northern Taiwan in January 2021.
Soldiers train during a military exercise in northern Taiwan in January 2021.

I think that's the key. It's more about how China may react. It's a fear over what may happen to China [and how] that could actually change the picture rather than any sanctions themselves.

This brings me to the reported emergency meeting that the [People's Bank of China] held about what to do in the event of sanctions [on China]. We only have some leaks here and there [about this meeting], so it's hard to know what they were discussing; but my sense from those leaks is that it was not really about secondary sanctions. I think what China is really worried about is what happens if [Beijing] does something about Taiwan.

When you read [the leaks], it's more about protecting China's [foreign-currency] reserves. That means it's actually preparing for a type of Russia scenario, but on steroids, because China's foreign-currency reserves are many times bigger than those of Russia.

And fretting about this could indeed lead China to make decisions that could be quite something for the world, like starting to divest from U.S. Treasury [bonds]. So, it is indirectly related to what we've seen happen from the war in Ukraine, but it's not a direct [effect]. I think that it's important to take into account that the whole world is learning right now from the [Western reaction] to [Russia's invasion] and, in the case of China, it is even preemptively reacting based on what it is learning from this war.

RFE/RL: The future is obviously very difficult to predict, but what is a realistic forecast for what we can expect from China economically and also down the road with its relationship with Russia?

Garcia-Herrero: I think China will continue to make precautionary, isolationist decisions. We've already seen this with the Great Firewall that blocks off the Internet and we saw more moves happen related to the trade war with the United States that happened under the [administration of U.S. President Donald] Trump.

[Beijing] has already been creating barriers, but this [process] has accelerated because of Trump and then COVID, then [the war in] Ukraine, and then again due to COVID [in China]. I don't think we're going to see that trend change, either. If I were asked to advise the Chinese government -- which I don't think will happen -- about what to do to reduce the risk of sanctions, I would say to do the exact opposite of what they are doing now. They should be increasing their interdependence because that's their leverage [with the West]. The fact that they're not even seeing it this way is because this [more isolationist] mindset has already [set in].

A screen shows the eastern route during an official ceremony to launch Russian natural gas supplies to China via the Power of Siberia pipeline in the Black Sea resort of Sochi in December 2019.
A screen shows the eastern route during an official ceremony to launch Russian natural gas supplies to China via the Power of Siberia pipeline in the Black Sea resort of Sochi in December 2019.

This brings me to Russia, which is also in a similar mindset. That makes it a type of strategic partner, but in a coincidental way. [Beijing and Moscow] find themselves seeing the world in a shared way with the same type of mindset and that has brought them closer, but I think it's important to note that these kinds of coincidental partnerships don't last very long, especially if you look at Russian and Chinese history. The [set of] conditions that made them partners might change over time and could change very quickly when it finally does.

I think that it's unavoidable for Russia and China to be closer together, but it's not a choice. It's a friendship of need, not of want. They happen to be in similar circumstances, and I don't even want to say that they were forced into these circumstances, it's mainly due to their vision of the world.

And for the West, I think it's important to understand the reasons why, because other than China and Russia, there's many other countries out there watching [who] could begin to feel the same way.

This interview was edited and condensed for clarity
Chinese riot police patrol a street in Urumqi in China's Xinjiang Province. A new study finds that China is hunting Uyghurs and other Muslim minorities through a global dragnet that is increasingly relying on cooperation with governments in the Middle East and South and Central Asia. (file photo)

Welcome back to the China In Eurasia briefing, an RFE/RL newsletter tracking China’s resurgent influence from Eastern Europe to Central Asia.

I’m RFE/RL correspondent Reid Standish and here’s what I’m following right now.

Even before Russia’s invasion of Ukraine, Chinese President Xi Jinping had plenty on his plate: maintaining ambitious growth targets, a deepening rivalry with Washington, climate change, demographic pressure, blowback from a tough COVID-zero strategy, and paving the way for a precedent-defying third term as leader.

But the Ukraine war has compounded those problems and set off a cascade of knock-on effects that are shifting Chinese policy at home and abroad.

Finding Perspective: In foreign policy, Beijing has clearly wedded itself to Russia throughout its war and betrayed long-held principles about the inviolability of sovereignty and nonbelligerence toward other nations by refusing to call Moscow’s unilateral actions an “invasion.”

Across Eurasia, this is playing out in unexpected ways, as I explored here in a recent article.

The Shanghai Cooperation Organization (SCO) -- a regional bloc of China, India, Kazakhstan, Kyrgyzstan, Pakistan, Russia, Tajikistan, and Uzbekistan -- is Beijing’s umbrella organization for this part of the world and represents a balance of power between Beijing and Moscow, the region’s two hegemons.

The SCO has struggled at times with finding an overriding mission, and fallout from the war risks derailing that further, especially as Beijing must now navigate between backing Russia and embracing many SCO members’ desire for more distance from Moscow.

“Due to its size and geography, China’s role [in Central Asia] will grow [following the war], but the SCO won’t have many success stories to point to,” Temur Umarov, a fellow at the Carnegie Moscow Center, told me. “Beijing is also now seen as a supporter of Russia and as a country that isn't doing much to restrain Moscow when many [SCO members] are seeing it as a potential threat.”

Why It Matters: China’s footprint in Eurasia and the future of the SCO are just one example of repercussions from the war that could hinder wider Chinese goals.

While China grapples with a sustained economic slowdown due to COVID-19 lockdowns, the war has pushed up costs for Chinese businesses and contributed to fading overseas demand for their exports.

This not only raises the possibility of recession inside China but also globally, as the world economy risks becoming deprived of one of its main engines at a time when inflation and war fallout are also set to hit Europe and the United States later this year.

Read More

  • A top Chinese investor, whose fund manages more than $50 billion, made headlines when he warned that the Chinese economy was in “the worst shape in the past 30 years” during a leaked video and that government policies of late could trigger a “deep economic crisis” comparable to the 2008 global financial crash.
  • On the flip side, Ray Dalio, who manages the world’s largest hedge fund, Bridgewater, recently spoke with The New York Times’ Kara Swisher on her Sway podcast about how China’s rise could still displace the United States as the world’s top economy.

Expert Corner: The Czech Republic Takes Aim At China

Readers asked: “The new Czech government is speaking out strongly against China over its support for Russia in the war. What’s behind this outspoken move and what can it actually accomplish?”

To find out more, I asked Martin Hala, an expert at Charles University in Prague and the director of Sinopsis, a project that tracks China in Europe:

“In the last decade, the Czech Republic has experienced close and instructive encounters with China’s external influence machinery and an understanding has emerged that Chinese and Russian interests in the country -- and in Central and Eastern Europe -- are closely intertwined and are often advanced by the very same co-opted domestic actors. There is a growing awareness that the two powers are striving to set up an alternative 'Eurasian' political bloc and challenge the existing international order and liberal democratic values that Prague and its neighbors opted for in 1989.

“Central and Eastern Europe finds itself uncomfortably close to the divide between the Euro-Atlantic and 'Eurasian' blocs, with Ukraine’s choice to be part of the former leading to aggression by the latter -- in the form of Russia’s invasion and China’s tacit support. That has alarmed many in the region, including the Czech Republic, who now seek additional political and security arrangements not only in the Euro-Atlantic, but also in the Indo-Pacific.”

Do you have a question about China’s growing footprint in Eurasia? Send it to me at StandishR@rferl.org or reply directly to this e-mail and I’ll get it answered by leading experts and policymakers.

Three More Stories From Eurasia

1. Pakistan Bombing Raises Chinese Security Fears

Three Chinese citizens and their Pakistani driver were killed on April 26 in a blast carried out by a suicide bomber in the city of Karachi, Radio Mashaal, RFE/RL’s Pakistani service, reported.

What You Need To Know: The bombing was claimed by the Baloch Liberation Army (BLA), a separatist group that has targeted Chinese nationals in the past and the attack will once again test Beijing's patience with repeated attacks against its citizens in the country.

The Chinese nationals were teachers at a Confucius Institute tied to the University of Karachi, and the BLA said the attack was carried out by a 30-year-old mother of two, which, as my colleague Abubakar Siddique notes, marks a new form of tactics for the group.

The BLA, a separatist group, says it is fighting for a bigger share of Balochistan's abundant natural resources and mines and has attacked infrastructure projects and engaged in battles with Pakistani security forces over the years.

In a statement after the blast, the militant group said it had deliberately targeted Chinese citizens and warned of more attacks unless China halted projects in Balochistan Province, many of which are linked to Beijing’s multi-billion-dollar Belt and Road Initiative (BRI).

2. The New Great Wall Of Steel

China is hunting Uyghurs and other Muslim minorities through an expanding global dragnet that is increasingly relying on cooperation with governments in the Middle East and South and Central Asia, according to a new study from the Wilson Center.

What It Means: I interviewed Bradley Jardine, the author of the report, who explained how China’s rise granted Beijing newfound leverage over governments and allowed it to co-opt them as partners in a spreading repression campaign.

The study's dataset documented 5,532 cases of Uyghurs facing intimidation, 1,150 cases of Uyghurs detained in a host country, and 424 cases of Uyghurs deported or extradited to China, from 1997 to January 2022.

And of the 10 countries where Uyghurs, as well as ethnic Kazakhs, Kyrgyz, and other groups remain most vulnerable to detention or extradition, China is the largest financial creditor for five of them: Pakistan, Kyrgyzstan, Tajikistan, Cambodia, and Burma, leading to deals where Jardine said local leaders “trade human rights for economic opportunity.”

Beijing launched a brutal crackdown that has swept more than 1 million Uyghurs, Kazakhs, and other Muslim minorities into detention camps and prisons in its western Xinjiang Province and extended the effort abroad to intimate those who fled repression into silence or extradite them back to China.

3. From Xinjiang To Kazakhstan

My colleague Nurtai Lahanuly from RFE/RL’s Kazakh Service spent time with 20 families in Kazakhstan whose ethnic Kazakh relatives from neighboring Xinjiang recently immigrated, and he had some revealing interactions with them that get to the heart of where conversation about the camp system stands in both countries.

The Details: Following the collapse of the Soviet Union in 1991, Kazakhstan opened its doors to ethnic Kazakhs scattered outside its borders as part of a repatriation program that offered a pathway to citizenship, with China being one of the main areas home to Kazakhs abroad.

But immigration has been complicated in recent years by Beijing’s dragnet in Xinjiang, which has targeted Uyghurs but also caught up ethnic Kazakhs and Kazakh citizens.

The new arrivals that Nurtai interviewed were mostly middle-aged or elderly and came to Kazakhstan to be close to family that had already immigrated to the Central Asian country.

In one exchange, Oraltay Nurdynay, a 59-year-old ethnic Kazakh who recently immigrated, denied the existence of the camp system inside China when first asked about it and expressed concern about his Kazakh citizenship application being denied if he criticized China due to Nur-Sultan’s close relationship with Beijing. Later, he admitted that he had been pressured to sign documents upon entering Kazakhstan saying that he wouldn’t discuss Chinese policies inside the country.

But Yeraly Sakanuly, Nurdynay's former neighbor in China who immigrated earlier to Kazakhstan, spoke more openly about the friends and relatives who are still in the camp system in Xinjiang, many of whom were sentenced for simply practicing their Muslim faith openly.

Across The Supercontinent

Showcase: Serbia has presented for the first time the FK-3 air-defense system recently purchased from China, RFE/RL’s Balkan Service reported.

An Evolving Line: Since Russia’s February invasion of Ukraine, China’s state-run media have emerged as a potent outlet for Kremlin propaganda, but a recent interview with Ukraine’s foreign minister, where he was given space to freely criticize Moscow and warn about the fallout from backing the Kremlin, may point to some subtle changes. I explored what it could mean here.

Touchdown In Tokyo: German Chancellor Olaf Scholz made his first trip to the Asia-Pacific, and unlike his predecessor, Angela Merkel, who visited China during her first trip to the region, Scholz went to Japan.

New Routes: As Western sanctions have hampered overland trade that relied on Russian rail lines to get Chinese goods to Europe, Beijing has opened new routes moving through Central Asia and the Caucasus to get to Germany.

One Thing To Watch

The groundwork continues to get laid for Xi to take up a third term in power as leader of the Communist Party at its 20th congress later this year.

Beijing has already made moves to centralize more power across China’s provinces, and additional moves to avoid any hiccups for Xi are set to come. There’s no fixed date for the congress, but the past few have been held in either October or November, although the decisions for top jobs take place in advance and behind closed doors. One coming venue is a seaside retreat by Communist Party power brokers in Beidaihe that is usually held in July or August, where they lobby for their top picks.

That’s all from me for now. Don’t forget to send me any questions, comments, or tips that you might have.

Until next time,

Reid Standish

If you enjoyed this briefing and don't want to miss the next edition, subscribe here. It will be sent to your in-box on the first and third Wednesdays of each month.

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About The Newsletter

In recent years, it has become impossible to tell the biggest stories shaping Eurasia without considering China’s resurgent influence in local business, politics, security, and culture.

Subscribe to this dispatch in which correspondent Reid Standish builds on the local reporting from RFE/RL’s journalists across Eurasia to give you unique insights into Beijing’s ambitions and challenges.

The newsletter is sent on the first and third Wednesdays of each month.

To subscribe, click here.

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