Investors and international companies are also reassessing the risks associated with China because of the war. The concern is that China will begin to directly support Russia in hostilities and will also be subject to economic sanctions. The expert considers this likely.
The Sino-Russian friendship is now being monitored particularly closely. So far, China has not condemned Russia’s war of aggression, but it has also reportedly not given direct support to its important partner.
Today, Wednesday, the countries’ foreign ministers met in China’s Anhui province. According to the Russian news agency Interfax, Russia and China have agreed to deepen their cooperation.
Does China intend to take a clearer stand behind Russia in the war? What would follow?
Investors and international companies are also increasingly considering these issues. It appears that the Russian offensive war has already led investors to retreat from China.
However, according to the organisation’s economists, it is still too early to say whether this is a more permanent and long-lasting phenomenon. Still, it seems that Russia’s invasion of Ukraine has caused international investors to stop and look at China in a new light, economists write.
Chief Economist of Nordea Wind Koivun according to the war, investors generally thought differently about political risks. However, he recalls that China’s growth prospects are now overshadowed by many other factors, most notably the sharply erupting coronavirus and tight corona policy. These, too, have probably contributed to why capital has left China.
Economic sanctions are likely to extend to China soon
In particular, investors and international companies operating in China fear that sanctions will soon be imposed on China as well. This is likely to happen if China clearly begins to support Russia in the war and help it circumvent Western sanctions. For example, the United States has warned China of the consequences of assisting Russia.
An expert in China Sari Arho Havrén estimates that economic sanctions will very likely affect China this year as well. Arho Havrén is a Visiting Researcher at the University of Helsinki, a researcher at MERICS, a research institute in Berlin, and an expert in anticipating International Finland’s business relations in Brussels.
– The longer this war lasts, the more the pressure will increase that countries that do not take a clear position or support Russia will also be sanctioned in one way or another.
What the sanctions on China might look like is still unclear.
Expert: China will not abandon Russia
According to Arho Havré, China’s country risk has increased significantly due to the Russian offensive war. He still does not believe that China would abandon Russia and condemn its hostilities. Vice versa.
– China has signaled that it will maintain normal trade, financial and energy cooperation with Russia. It is hard to imagine that this would not include other help as well, but it is another matter how it will be provided and what kind of creative solutions will be found.
According to Arho Havrén, China cannot lose Russia as a strategic partner. It needs it as a counterweight to the United States and also as an ally in international organizations, he says.
– It must be remembered that China is even obsessed with superpower competition with the United States. In China, the situation is seen as the United States and the EU now demanding that the West help its friend Russia so that the West can then turn even harder against China.
Tuuli Koivu, on the other hand, estimates that China is likely to continue to balance between Russia and the West. Political relations with Russia are close, but so are economic relations with the West, he says.
– I think that China will keep the current choice and try to stay outside and be careful not to take a firm stand for as long as possible.
– If the situation escalates, the debate with China will certainly intensify. On the other hand, if a solution is found, China is likely to get out of this as a dog at the gate without taking a stand.
Russia’s offensive war and Western retaliation have also warned China about how quickly and effectively the European Union and the United States can impose sanctions on one country.
According to Arho Havrén, this is a kind of precedent that also raises the financial risks associated with China from the perspective of companies and investors.
The problems of China’s dependence are increasingly being assessed
Especially since the early stages of the coronavirus pandemic, the risks of interdependence have woken up around the world. The EU has also developed a strategy for self-sufficiency in the most critical areas. At the same time, the extent of China’s dependence on the manufacture of critical drugs, for example, has been awakened.
Tuuli Koivu estimates that as a result of the Russian invasion war, the dangers of China’s dependence will be examined even more in the West.
– This dependence on China has already been considered since the trade war started by Trump, and the pandemic also revealed vulnerabilities. Now, this is certainly the third factor that will add to the debate about how dependent our production chains, economies and consumers are on China.
Sino-Russian relations and the war in Ukraine will be on the agenda as EU and Chinese leaders meet at a remote summit on Friday.
You can discuss the subject until Thursday at 11 p.m.