As Russia braced for Western sanctions imposed after it launched its invasion of Ukraine, it was comforted by the expectation that China had its economic back. On of Russia's preeminent China experts, Vassily Kashin, gave a frank and extensive interview to Novaya Gazeta, where he specified those areas, where China could replace the West and those areas where Western products and technology still had no substitute. He also pointed out that China would become a monopoly buyer of Russian exports allowing it to dictate prices. China, however, would not use its power to interfere in Russian domestic politics. Kashin's bottom line is that China is the major victor of the Ukraine crisis.
The interview with Kashin follows below:[1]
Vassily Kashin (Source: Kommersant.ru)
China usually supports Russia in voting at the UN, but now it has abstained twice. What does this say about the PRC's stance?
The Chinese habitually demonstrate solidarity with Russia, but in some cases, when the Russian position is too controversial, when support would directly draw China into some deep conflict, in which the latter doesn't want to be involved, then it abstains. An example of this was Chinas vote during one of the UN Security Council meetings when the crisis over the Syrian city of Aleppo escalated back in 2016. The city was assaulted, Russia was heavily condemned, and China abstained.
When it comes [to voting on] territorial issues, China abstains too, for example, when Russia annexed Crimea. Thus, it was expected that China would abstain during the voting to condemn Russia on the territorial conflict in Ukraine. A 'yes' vote would directly harm the Chinese foreign policy.
They would never support the violation of territorial integrity based on referendums. That's why they couldn't possibly support either [annexation of] Crimea or the recognition of the 'People's Republics' of Donbass.
They have Taiwan nearby.
Exactly! The referendum is the favorite tool of Taiwan separatists. And the Chinese won't approve of such a precedent, nor will they vote in favor of it. However, this in no way reflects on their attitude towards Russia's actions. Regarding the Crimea issue, the Chinese provided Russia with some practical support.
[You've said] "practical." What is that like?
For two years (back in 2014-2015) they gave Russia more than 30 billion USD worth of loans to refinance corporate debts. And they built an energy bridge to the Crimea, because a special seabed cable of the required capacity is only produced in European countries and in China. They did what they could. But, certainly, they won't shoot themselves in the foot out of love for Russia.
But is there any love for Russia [in the PRC]? If, say, China had to choose, whom to "love" more, Russia or the US, who would it choose?
We have common interests with China. Both countries are engaged in a confrontation with the US. China's confrontation [with the US] began in 2018, and in 2020 an additional sharp deterioration of relations occurred against the backdrop of the COVID-19. At one point, even before the outbreak of hostilities in Ukraine, China was comparable to Russia in terms of hostility towards the US. When the "military special operation" in Ukraine broke out, there was simply a disconnect of Russo-American relations, while China still had only "poor relations."
Meanwhile, the Americans understand that Russia, whatever it does, does not pose systemic threat to American world economic dominance and cannot pretend to global leadership. China, however, effectively poses an existential threat to the US. Their economic models are incompatible. Therefore, a Sino-American struggle will occur, until one of the parties loses and backs down.
So far we have a common interest with China: to confront and damage the US.
Can China use this as a means against the US? Will it help Russia to spite America?
As I said previously, they've helped us a lot back in 2014-2015. Our current resilience is based on the fact that, according to the latest data, we have transformed a major part of our foreign exchange reserves into Chinese securities.
We [Russia] now have about 130 billion USD in yuan assets. That is why the US's and the EU's actions led to the seizure of only half of Russia's foreign exchange reserves. And given that the reserves were originally rather excessive, the situation is not as unfortunate, as it could have been.
Furthermore, over recent years, China has been very active in replacing Europe in several market segments associated with the supply of components, industrial equipment, and etc. Last year, China already reached about half of the European level. The European share in these segments was gradually decreasing, while China's share of trade was growing. I expected China to equal Europe in trade turnover with Russia within about 10 years.
However, now we are practically in a state of blockade on the part of the European states. Only supplies of energy and certain goods are left, and it's not clear what will happen to them next.
So now, I believe China will become our main trading partner either this year or next year. In the future Russia's dependence on trade with China will increase exponentially.
What is the benefit of converting reserves into yuan considering the latter is a non-convertible currency?
The yuan was included into the IMF "basket of reserve currencies," despite the fact that there are in fact certain limitations. Yuan is not as convenient for international settlements as the USD and the euro.
But the yuan's share in settlements has been increasing steadily, and in principle it's possible to conduct international trade in yuan, although it will facilitate higher transaction costs.
It also possible to simply trade with China in yuan, a legal framework for this has been established long ago. In addition, there is trading in the yuan-ruble currency pair. That is there is no need to convert the two currencies via the USD. A corresponding infrastructure exists.
And it's possible, as I understand it, to try to use yuan in settlements with third countries. After all, China's goal is to promote the yuan as a tool for international settlements. I believe that events unfolding today provide the potential for a powerful breakthrough in this direction. This could be a good thing for China.
What goods can we receive from China when trade volume increases? For instance, cars manufacturers stopped supplying cars and spare parts to Russia. Can China replace them?
China is the world's largest producer of various industrial products. I believe Chinese cars manufacturers will take the market share occupied by Korean and European ones. Apparently, they can somehow acquire the production assets as well.
Will all these plants in the Leningrad region, Kaluga, and other places be transferred to the Chinese?
I believe this will be the case. There are already assembly plants of Chinese car manufacturers in Russia, for example, the Haval company. At an earlier stage, the Chinese tried to enter Russian market, but they weren't very competitive. Now they will come here again, which will constitute a potent export breakthrough for the Chinese auto industry. After all, Russia is not the smallest market, and the Chinese, as I imagine, will become the dominant force in Russia.
Adverstisement in Russia for the Haval 9 under the banner "time of the powerful" (Source: Digitnews.in)
Well, their cars are bad.
That's not true anymore. They've invested a lot in order to improve quality, following basically the path that the Koreans took. So now the reputation of Chinese cars as 'bargain basement ' does not correspond to reality, they are of acceptable quality.
Naturally, in some ways their cars can be bested, but in some ways they are comparable to the budget models of European vehicles. On the plus side, the competition to the Chinese in Russia is disappearing. In other words, the Chinese have two directions in this regard: the first to take over the Russian car market, from which the European imports is withdrawing; the second is the gradual replacement of European manufacturers in the supply of automotive components.
I once carelessly bought Chinese headlights for a Volkswagen and regretted it later.
What year was that?
About eight 8 ago.
That was a different reality, the reputation of the Chinese car industry was different back then.
The majority of cars in Russia are predominantly of European and Korean manufacture. In the coming years, especially these cars will require spare parts.
I believe the Chinese will be able to supply them. The same cars are being sold in the Chinese market, they are much more localized there, and, probably, the spare parts will be supplied to Russia.
Provided the Europeans will try to prevent this, taking into account the reality in China, a huge number of resellers will appear, who will meet any demand in spare parts. However, one will definitely have to discuss this issue with experts in the car manufacturing industry.
- Russia is facing a much more serious problem regarding the aircraft fleet, provided the Western companies will recall the leased planes, stop servicing aircraft that remain in Russia, and won't even sell spare parts. We will be left with Superjets [meaning the Sukhoi Superjet]. At the same time, a dozen and a half of those are produced per year.
We can produce more Superjets...
However, their engines include French components, which will disappear.
That's true. But China can't help us in this respect. The Chinese are in an even worse position than we are, as their civil aviation programs are even more dependent on foreign components than our Superjet. And if we have a possibility at least limited production of the old Russian Tu-204 or Il-96 models (fully equipped with Russian-made components), the Chinese have no such possibilities. Aviation industry-wise, they most likely, won't be able to help us.
How will China help our 'special operation' industrial complex? [the interviewer uses "special operation" instead of the military- industrial complex as a dig at the war in Ukraine that official Russia insists is a special operation] It depends on the Western supplies too, doesn't it?
Things are much easier for our military-industrial complex. Both Russian and Chinese military-industrial complexes have been under almost all-encompassing Western sanctions for a very long time. The Chinese have gotten stronger over the recent years, while Moscow has been cooperating with them in the military-industrial sphere. Apparently, this cooperation will only increase. I believe, the sanctions will have the least effect on it. The only thing is that, due to the absolute impracticability of buying Western industrial equipment, we will have to buy more of Chinese equipment.
We were acquiring from the West not only equipment, but also technology and software. Can we count on China in this regard, too?
Naturally, it's impossible to comment on all technologies at once, as this field includes a thousand different areas. In some of them China has already become one of the world's leaders, while in others it can only manufacture poor copies. There is a group of economic sectors, in which Russia and China can have a powerful synergy, we can work together.
They will be interested in hiring Russian software developers, mathematicians. There are spheres in which Beijing may be interested in industrial cooperation, there are spheres in which Beijing is able to cover our demand for equipment. There are already enterprises in the PRC which are under the US sanctions, as part of the economic war with the US, (including manufacturers of electronics and of certain types of industrial equipment). It is a God-given opportunity for such companies to enter the Russian market.
Although it's clear that there will be a number of spheres, in which Chinese equipment won't be able to replace European ones. Thus, Russia will still try to buy it in Europe via some channels.
Will China be able to substitute for [the purchases of] oil and gas equipment?
For certain kinds of equipment, it will be able to. The situation with electric power industry and transport engineering equipment is rather good in China.
If our European partners will refuse to provide us with maintenance or spare parts for, say, Sapsan trains, then [it's worth noting that] China has been long copying, improving and manufacturing similar trains. Although there are spheres, in which they won't be able to help us.
Do you mean medical equipment, for instance?
In fact, the Chinese are major producers of medical equipment. This was also evident during the COVID-19 crisis, when they were the ones who increased exports of, for example, ventilator machines.
What about the quality?
Generally speaking, the entire world was buying their equipment, including the Americans, nobody actually complained. Although medical equipment is a complicated topic, I cannot speak with certainty here, it is necessary to ask narrow specialists.
As it seems, Russia not only have to find new sources of imports, but also something to do with its exports. Does China need as much gas, oil, metal, and everything that Russia supplies to Europe?
Potentially speaking, yes, the PRC needs it. China is 80% dependent on iron ore imports, and 70% - on oil imports. Also the country will sharply increase gas consumption, as it has set the ambitious goal of reducing CO2 emissions.
Simultaneously, US - China relations are worsening, and this is reflected in economic wars that involve America's allies: Canada, Australia and New Zealand. These are our direct competitors in terms of timber, gas, oil and other raw material supplies to China.
So China will have an interest in reorienting [its trade].
Where will we get the infrastructure for this? Experts laugh about the 'Sila Sibiry' pipeline as there is no gas at one end, and no buyers at the other.
Work on the Sila Sibiri (Power of Siberia) pipeline connecting Russia and China (Source: Rbc.ru)
A skyrocketing increase in supplies to China will indeed require new export infrastructure, i.e. the commissioning of new pipelines, expansion of the rail network, and construction of port facilities. This will require time and investment. In other words, it is impossible to increase exports to China right away. In addition, when China turns into a monopoly buyer for many of our goods, it will be able to dictate prices. And we will have to live with this.
This will allow for our industry to survive and generate employment. However, we will be losing money until foreign political tensions around Russia are lowered.
That is, until we can return to trade with the West?
Generally speaking, yes. It would be a very high degree of dependence [on the PRC].
The Chinese simply don't make investments for nothing; they put forward very strict demands regarding their share of the profits.
Well, not that strict, they act as normal investors, i.e. if they see an opportunity to assert pressure on you, they'll do it.
As a result, Russia will become very dependent on China, much more so than it is now dependent on the West. Are there threats to us in this regard, other than that the Chinese will be able to dictate prices to us?
China might be able to use the means of economic diplomacy to influence our political positions, provided economic dependence reaches a very high level.
Is China in principle prone to political pressure on those who depend on it?
China's policy of sanctions pressure and economic coercion has developed well of late. When they believe that someone has violated their vital interests, they do so very harshly.
One of the reasons for it could be any incorrect position on the Taiwan issue, or support of any opposition movements within China. The PRC is engaged in a sanctions war against Australia since 2020. They have not done that to Russia.
Haven't done yet.
One just have to bear in mind that they can do that, too. Before the 'special military operation' in Ukraine commenced, it was thought that China would be reaching the level of trade turnover with Russia on a par with that of the EU for another ten years, while Moscow in the meantime would be developing relations with other Asian countries. And by the time Europe's importance will be reduced, we will enjoy good trade relations with other countries, in addition to China. But the sanctions have already hit our relations with South Korea and Japan. Now all the events have accelerated, and we will have a complete reorientation toward China, I believe, within a year or two.
Should China decide to exert pressure on its partner, will this affect Russia's position on some purely Chinese matters, like relations with Taiwan, or might it want to tweak Russian domestic politics?
The quality that makes Chinese good partners, for which many like them, is their non-interference in domestic affairs.
So they won't demand compliance with human rights and other such 'nonsense,' isn't it?
They won't. I want to recall a specific example that dates back to the 1990s. It played an important role in creating an atmosphere of Russian-Chinese trust. If you remember, back then there was a period when the Communists [the CPRF party] controlled the executive branch in many Russian regions and had the largest faction in the State Duma. They demonstrated China in every way that they loved it and wanted to be friends. However, China, despite having such a trump card, did not make a single step. There was no activity other than inter-party ties and joint visits to the [Lenin] Mausoleum. The Russian leadership, already in the Yeltsin era, as I understand it, appreciated this conduct. Thus, there is a certain level of trust.
In the 1990s, China could not have had much influence on anything.
They had an opportunity to creep into our politics, but they didn't take it.
Back in the 1990s they weren't helping Russia, the way the West did.
Our entire defense industry survived thanks to China. In other words, the Chinese did play their part.
So it turns out, that China can in fact support the "special operation" in Ukraine, albeit indirectly. Because the sanctions are designed to stop the hostilities, and China can mitigate their effect on Russia, right?
It's better to put it differently, China will not damage relations with Russia due to pressure to stop the "special operation."
The Western sanctions won't be lifted, even if the "special operation" will be stopped now. They are designed to destroy the Russia's economy and prompt regime change. China is clearly not interested in this.
The Chinese don't like the 'special operation' per se, they were surprised by it; there is Foreign Minister Wang Yi's statement in this regard. But they don't need Russia's defeat.
As it turns out, China is the only beneficiary in this situation. It waits quietly 'for the enemy's corpse to float by' Am I correct?
Exactly so. Armed conflicts, as we know, benefit the most those, who do not take part in them. In fact, all of these events guarantee China's victory in the new Cold War.
All parties involved in this will suffer the heaviest economic losses, which won't be the case for China. The PRC will probably be affected by the rise in energy prices, but strategically the country's position will strengthen. And Russia will become economically dependent on it.
Another important issue is that after the extreme sanctions were introduced against Russia, the US has no means to deter it other than via military force. Accordingly, a significant part of the US military forces will be tied in Europe and won't be able to be deployed to contain China in Asia.
[1] Novayagazeta.ru, March 3, 2022.
