Virendra Pandit
New Delhi: The US warning to China not to help Russia with supplies against Ukraine may have, for now, may have tamed Beijing. It felt the impact of the US threat on the bourses: anticipating the extension of the West’s sanctions against China, panicked investors have lost billions of dollars on Chinese bourses.
On March 4 alone, Hong Kong stocks tumbled, capping a third week of decline, after an escalation in the Russia-Ukraine conflict damaged Europe’s biggest nuclear power plant at Chernobyl. Haven trades strengthened. The Hang Seng Index slumped 2.5 percent to 21,905.29 at the close of Friday trading, taking the five-day drop to 3.8 percent, according to the media reports.
Although China is trying to play geopolitical chess from both sides to maximize gains, it also wants to avoid the spillover of US sanctions over Russia’s war. Chinese Foreign Minister Wang Yi said Beijing wants to keep off sanctions, in what is seen one of China’s most explicit statements yet on American penalties that are contributing to a historic market selloff.
“China is not a party to the crisis, nor does it want the sanctions to affect China,” Wang told his Spanish counterpart Jose Manuel Albares, by the telephone, while discussing the war in Ukraine. “But China has the right to safeguard its legitimate rights and interests, ” he asserted
With Russia’s invasion of Ukraine dragging on even after 20 days—Moscow had estimated it would be over within four days—and no clear end in sight, investors’ concerns mount Chinese companies could also face US sanctions if Beijing assisted Moscow with military supplies and financial help to a cash-strapped Russia reeling under sanctions.
The US had warned European allies that Russia had urged China, prior to launching the war against Ukraine in February, to supply armed drones.
On Monday, China dismissed the initial reports as “disinformation,” while Russia denied it asked Beijing for help, claiming it had enough resources to win the war. But they kept mum on armed drones, which China has sold to countries such as Saudi Arabia, Pakistan, and the United Arab Emirates.
The US had already imposed sanctions on China over human rights issues in Xinjiang and Hong Kong. Beijing sees compliance with American penalties as a violation of its sovereignty and vowed to keep normal trade relations with Russia.
“China always opposes the use of sanctions to solve problems, and even more opposes unilateral sanctions that have no basis in international law, which will undermine international rules and bring harm to the people’s livelihood of all countries,” Wang said.
So far, a cautious China has resisted taking retaliatory measures that could hurt its own economy even when the US is directly targeting Beijing. During the height of the trade war in 2019, China threatened but never implemented an “unreliable entities” list, and even state-run banks complied with US sanctions on Hong Kong. It also delayed imposing an anti-sanctions law on the financial hub after businesses expressed concern.
Wary of sanctions, China may encourage its big banks to abide by American restrictions and “tread carefully in helping Moscow navigate export controls on key technologies” as long as the US can credibly threaten secondary sanctions, analysts with the US research firm Rhodium Group said in a March 3 report, according to the media.
“The problem for Beijing is that maintaining economic and financial engagement with Russia will be hard to conceal under the current sanctions architecture.”
With the resurgence of Covid-19 in north-eastern provinces and its impact on the global economy, China also needs good relations with the US and its allies to meet its economic goals, particularly as growth has slowed down to the slowest pace in over three decades.
The US and European Union accounted for over a quarter of China’s total trade in 2020, compared with just 2.5 percent for Russia. Clearly, China has a difficult choice ahead.