How China’s ‘wins’ in the Ukraine war can go beyond the economy

While China is expected to benefit economically from a weakened Russia, the US could be a bigger winner, especially in its campaign to contain China
If the US wants China to help with Ukraine, it must respond to China’s demands for rapprochement on trade and technology. Regardless, China can play the role of peacemaker, but will have to strike a delicate balance between Russia and the West

Winston Mok

Published: 4:30pm, 12 Apr 2022

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The war in Ukraine is fought not only with satellite imaging and portable weapons, but also through smartphones, media and finance. Both Ukraine and Russia are doomed to lose in this war, with collateral economic damage spreading across the globe. The potential “winners” are the United States and China, so the war and eventual peace in Ukraine must be understood in the context of great power rivalries among Russia, the US and China.

George Kennan – a key architect of the US containment strategy against the Soviet Union – warned 25 years ago that Nato’s expansion towards the Russian border would be “the most fateful error of American policy in the entire post-Cold War era”. Kennan lived to see the start of the Iraq War but not the eventual fulfilment of that tragic mistake.

While nothing justifies Russia’s invasion of and atrocities in Ukraine, the US and Nato are hardly innocent bystanders. Moral outrage and sanctions cannot bring peace, and this is made more difficult by contests at the regional and global levels. With strategic ramifications for both, the war in Ukraine has only heightened the competition between the US and China.

Witnessing how the West has weaponised finance and economics in this conflict, China has learned a great deal. China might be the leading manufacturing and trading nation, but the prowess of the Western-controlled global financial system is starkly demonstrated in the sanctions against Russia.

China has long sought to reduce reliance on the US dollar system. As a top priority, China must now accelerate the development of alternative international financial and trade settlement systems, such as displacing the petrodollar with the petroyuan.

China is poised to emerge as a winner in this conflict, benefiting from a weakened and isolated Russia. Reduced demand for Russian gas from Europe gives China improved bargaining power in its purchases of Russian resources. More doors to investing in Russian assets at attractive prices could open, although China might wait until after the war.

02:20

Russian factory city producing Lada cars braces for tough times amid sanctions for Ukraine invasion

With the Russian market vacated by Western companies, Chinese companies can rush in to fill the gap. China could capture a share of the exodus of talent from Russia. This talent could also stay in Russia and work for Chinese employers which expand their operations from research and development to marketing.

At a secondary level, China will also gain from Europe’s accelerated transition to green energy. As a big importer of energy, China will benefit from reduced global demand for fossil fuels. A leader in solar and wind power technologies, China could see export growth in its green energy equipment.

However, the United States could emerge as an even bigger winner than China. The US has repaired its relationship with Nato, which was crumbling after years of neglect under former US president Donald Trump. It can strengthen its alliances in the Asia-Pacific. The rearmament in Europe will be a boon to US defence contractors, and the US could gain if greater exports of its oil and gas to Europe replace Russian supply.

02:51

Putin tells ‘unfriendly’ nations to pay in roubles for Russian gas as economic sanctions bite

However, the greatest potential gain for the US is leveraging the Ukraine war in its efforts to contain China. Beijing could risk important trade and investment relationships if it is seen as alienating the West and supporting Russia by not fully sanctioning Moscow.

The US could also use China’s reluctance to join the West as a way to escalate trade sanctions and other measures against Beijing. China could be forced to break its ties with Russia, and the absence of this important economic and strategic partner could increase China’s vulnerability.

If the US wants China to help with Ukraine, it must respond to China’s demands for rapprochement on trade and technology. China will weigh its interests by balancing what it can gain from the US against what it would lose on Russia. Instead, the US has done the opposite by stepping up pressure on China. Such actions constitute the main instrument the US uses to push China to join the West against Russia.

If the US was actually a righteous and compassionate nation, it would work with China to find a path towards peace in Ukraine. Instead, its obsession with China is overriding any humanitarian concerns.

Few US politicians are secure enough to jump off the anti-China bandwagon. US political leaders tend to be highly constrained in their ability to do the right thing. The “subordination of the strategic element to domestic politics” – a phrase former US secretary of state Henry Kissinger used in 2014 to describe the European Union’s stance on Ukraine – vividly captures US policies towards China.

01:05

Mariupol destruction visible from the air as Ukraine and Russia continue to fight over port city

Should China be expected to be virtuous even when it is against its own interests? That is a big ask. The primary responsibility of the Chinese government is to safeguard the long-term well-being of its 1.4 billion people. Keeping one’s own country in order comes before trying to bring peace to the world.

Nevertheless, China can be a peacemaker. Instead of behaving in the confrontational manner adopted by the West, China can discreetly nudge Russia at the right time and in the right way. China can also play an instrumental role in the long-term peace of Ukraine through reconstruction, investment and trade.

In the process, China will have to navigate a delicate balance between the West and Russia. It must reach deep into its cultural tradition to find moral courage. While not being naive about the reality of global rivalries, it needs faith that somehow justice will prevail. If it succeeds as a compassionate peacemaker, China will stand tall among the nations in the spirit of unity.

Winston Mok, a private investor, was previously a private equity investor