Will China fund Moscow’s arsenal of war upon Western sanctions? – POLITICO

China is Only the major economy still has a direct path to a rapidly isolated Russia – but pressure is growing on Beijing to change that.

Just a few weeks after the two countries signed the “unlimited” partnership agreement, China now has no choice but to readjust its stance on bilateral trade and macroeconomics with Moscow. after President Vladimir Putin launched a gratuitous war with Ukraine.

While Beijing still wants to see Moscow as a long-term strategic partner to counter US global influence, it will certainly have to be wary of the international response if it chooses measures that can be construed. is support for Putin’s aggression, according to experts.

Chinese businesses will also be reluctant to trade and invest in a country already cut off from a large part of the global economy.

On Monday, the Russian ruble fell as much as 30% after a series of coordinated sanctions by Western allies limited Russia’s central bank’s ability to deploy $630 billion in foreign exchange reserves. and cut it off from SWIFT, the world’s largest bank payment network.

Chinese policymakers have so far focused less on their ability to help Russia than on general comment on the impact of sanctions on the Russian and European economies, while the central bank China’s central government has not given any clues about the status of Russia’s foreign exchange reserves or the flow of currency swaps.

About 13% of Russia’s foreign exchange reserves – or an estimated $77 billion – are in Chinese assets as of June 2021, according to the report. Bank of Russiamost recent data. Moscow may seek to sell off these assets to increase its alleged liquidity.

“China will be very cautious about how it will support the Russian economy,” said Max Zenglein, chief economist at Mercics, a China-focused think tank in Berlin. China is unbelievable.”

Even experts with ties to the Chinese government are pessimistic about the future of the Russian economy after the latest round of sanctions.

“Against the backdrop of financial sanctions and export controls, Russia’s business environment will deteriorate further, and international investors will inevitably reduce their business activities in Russia and leave the country. the Russian market,” Han Yichen, an Eurasian expert at the China Institute of Contemporary International Relations, the official think tank of China’s national security apparatus, wrote in a note. article.

Paying for War

Before long, Beijing will have to weigh the demands of a Russian central bank in the face of tighter liquidity than at any time since the end of the Cold War. The key question for the Chinese leadership is: Do they want to be seen as sponsors of Putin’s war chest?

“When Russia looks abroad, where its reserves haven’t been frozen, it won’t be Europe, it won’t be in the US, it’s going to be in China. But to get there, you need to do that. there is political decision-making in China, said Jonathan Hackenbroich, sanctions policy expert at the European Council on Foreign Relations.

Zenglein added: “If China is seen as undermining Western sanctions, it also needs to realize that it will deal with a stronger voice in a united Europe, the US and Japan.

The central banks of Russia and China set up currency swap lines after the West imposed sanctions on Russia for its annexation of Crimea in 2014, at a time when China also wanted to. expanding the use of the currency globally to challenge the strong position of the dollar. .

A year later, China launched a Cross-Border Interbank Payment System (CIPS), a much smaller alternative to Belgium-based SWIFT. It boasts membership of 1,280 financial institutions around the world, compared with SWIFT’s 11,000.

The problem here is that neither the Russians nor the Chinese consider each other’s currencies useful. Indeed, as recently as early February, Russia and China agreed on a natural gas deal in euronot their own currency.

While the ruble is currently on the brink of a cliff, the Chinese yuan is not a strong international currency. More than 40% of global payments are settled in dollars, while the yuan accounts for 2%.

“Currently in Russia, people are queuing to withdraw deposits in rubles, dollars and euros – not in multipliers,” said Iikka Korhonen, head of the Bank of Finland Institute of Emerging Economies. yuan”. “The fact that the Russian central bank has a relatively large share of the Chinese yuan in practice will not be of much use.”

https://www.politico.eu/article/will-china-fund-moscows-war-chest-amid-western-sanctions/?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication Will China fund Moscow's arsenal of war upon Western sanctions? - POLITICO

Fry Electronics Team

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