Western sanctions on Russia over its Ukraine invasion are
forcing China to recalibrate ties with the Eurasian Economic Framework (EAEU),
an economic union of post-Soviet states, with collaborations under the Belt and
Road Initiative now at risk of secondary sanctions.
Beijing and Moscow signed a joint statement on cooperation
between the EAEU and belt and road projects in 2015, a year after the union
between Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan was established.
China and the EAEU agreed on greater economic coordination
in 13 areas, including customs, trade, intellectual property rights, e-commerce
and government procurement.
The enhanced coordination meant countries would not have to choose
between Russia and China, said a commentary by the China Institute of
International studies.
But with Russia now subject to sweeping Western
sanctions after invading Ukraine, China’s economic relations with its northern
neighbour and other EAEU countries is increasingly tricky.
“Collaboration between EAEU and Belt and Road Initiative is
affected because sanctions from America and Europe increased the risk of
secondary sanctions for Chinese companies,” said Zhao Long, a researcher at the
Shanghai Institute for International studies.
Contractors and investors involved in EAEU and belt and road
joint projects could run afoul of restrictions if they seek financing or
conduct other business with companies that have been targeted by Western
sanctions, he said.
The risk of these secondary sanctions has prompted hundreds
of businesses and multilateral institutions to suspend ties with Russia.
The Asian Infrastructure Investment Bank and Bank of China
have curtailed Russian access to capital markets, according to a database
compiled by Yale University’s School of Management.
Chinese tech giant Huawei has also halted new orders and
furloughed some staff in Russia, the database showed.
Oil and gas behemoth Sinopec has suspended talks with Russia
for a gas chemical plant worth up to US$500 million, and at least five Chinese
companies stopped work on Russia’s Arctic LNG 2 project in northern Siberia at
the end of May this year.
“The war in Ukraine is impacting bilateral developments
between Russia and China, and the coordination within the Eurasian union,” said
Paul Stronski, senior fellow at Carnegie’s Russia and Eurasia Program.
China says ‘no limits’ in cooperation with Russia
“On sanctions, we are seeing Beijing being quite supportive
of Moscow in this war, which is surprising given China’s normal approach to
condemn separatism and interference in the internal affairs of another country.
That is essentially what Russia is doing.”
But beyond diplomatic support and motivation to buy
cheap energy, many Chinese companies have been wary of running afoul of US or
EU sanctions because both economies are far more important export and trade
markets for companies in China, Stronski said.
The impact of sanctions imposed on Russia will be felt
across the EAEU because the design of the union ties them to Russia’s own fate,
according to Kataryna Wolczuk, an associate fellow at Chatham House’s Russia
and Eurasia programme, and Rilka Dragneva, professor at the University of
Birmingham’s school of law.
Kazakhstan and Kyrgyzstan, for example, are likely to see
negative impacts on their currencies and remittances, while restrictions will
affect the trade of key commodities, they wrote on the think-tank’s website
last month.
Katarzyna Czerewacz-Filipowicz, an Associate Professor at
Bialystok University of Technology’s faculty of engineering management in
Poland, said firms like Cargotor, Maersk and Mediterranean Shipping Company
have suspended rail freight services through Russia as a sign of solidarity
with Ukraine.
“Sanctions have also been applied to Russian railways, and
this is probably why the uncertainty about the Belt and Road Initiative
arises,” she said. “However, it is worth emphasizing that the sanctions include
access to financial markets and transactions in securities. Thus, they do not
cover cargo transit contracts via Russia.”
A rail line from the Chinese border through Kazakhstan,
Russia, Belarus and into the European Union, which was heavily subsidized by
the Chinese side and seen as vital to get goods from China to Europe through the
EAEU, is now dead, said Stronski.
“European suppliers now are wary about putting their goods
on a train via Russia given the reputational risks, or fears that Russia will
hold up these goods,” he said. “Chinese producers have grown wary of using the
route, given all the same reasons.”
Increasingly alert to external uncertainty, China is prioritizing
risk control and prevention for its belt and road push this year, according to
a report released in early March by the National Development and Reform
Commission.
And Chinese companies have already begun scaling back
international investment under the initiative.
Some 194 belt and road projects valued at US$13.66 billion
were announced last year, down from 399 projects valued at US$80.51 billion in
2020, according to a report by financial data provider Refinitiv released in
December last year.
As for Russia, international isolation will hasten its pivot
to the East by building the friend-shoring alliances, said Zhao at the Shanghai
Institute for International studies.
“Members of the EAEU will hasten the free flow of trade,
services, capital, labour and the progress of local settlements in the region
before 2025,” he said. “They’ll also strengthen security initiatives with their
allies in order to broaden the post-Soviet space of influence.”
