China-Russia Relations

Context:

Trade between China and Russia reached a record high last year, reflecting strong economic ties between the countries despite Western sanctions on Moscow. Combined imports and exports with Russia totalled $244.8 billion in 2024, according to China’s General Administration of Customs, up from $240.1 billion in 2023

History of China-Russia Relations

• Cold War
  • Russia and China were cold to each other during the Cold War. The relationship was characterized by mistrust and doctrinal differences.
• Mikhail Gorbachev
  • The thaw came in 1989 when Mikhail Gorbachev became the first Soviet leader to visit China.
• Treaty of Good-Neighbourliness and Friendly Cooperation
  • In 2001, the two countries signed the Treaty of Good-Neighbourliness and Friendly Cooperation, paving the way for expanding economic and trade ties.
  • The treaty was extended in June 2021, citing that “Russian-Chinese coordination plays a stabilising role in world affairs“.

Current Developments in China-Russia Relations

• Russia’s 2014 annexation of Crimea in Ukraine led to a sharp downturn in Russia’s ties with the US, NATO, and European Union (EU).
  • This was also the turning point in Russia’s ties with China, which revealed the possibilities, potential, and the limits of the relationship.
• Sanction on Russia
  • When the US, EU, and Australia imposed sanctions on Russia, Russia turned reflexively to China.
• Russia-China Trade Deal
  • Russia opened its doors wide for Chinese investments, and struck a USD 400 billion deal for Gazprom, the Russian state monopoly gas exporter, to supply 38 billion cubic metres (bcm) annually to China for 30 years from 2025.
  • Since 2016, trade between the two countries has gone from USD 50 bn to over USD 147 bn.
  • China is now Russia’s largest trading partner.
• Ukraine Crisis
  • The Ukraine crisis has been an opportunity for each country to express solidarity with the other’s grievance against the US.

Interest Differences between Russia & China

• The China-Russia compact is not yet a formal security alliance against the West, nor an ideological partnership.
  • Russia’s Interest
    • Russia’s main security interests lie in Asia, China’s are in Europe.
    • Russia is not willing to become China’s junior partner due to its smaller economy and strong memory of its lost superpower status.
  • China’s Interest
    • For China, war in Ukraine is the least suitable of options.
  • Ukraine’s Interest
    • For Ukraine, it is a crucial link in china’s BRI project.

Consequence of the Ukrainian War

• The U.S. and its allies froze $300 billion of Russia’s foreign exchange reserves as well as imposed a SWIFT ban on Russian banks involved in dual-use goods.
• China’s Anxiety
  • China, holding about $770 billion of its reserve in U.S. treasuries, fears similar financial penalties in case tensions with the West rise.

Dual Hegemony Fears

• Russia and China’s Concern
  • Both Russia and China are concerned with the dominance of the U.S. dollar in international transactions and the SWIFT system.
  • Both countries have attempted to de-dollarize their economies and develop alternative payment systems, such as China’s Cross-Border Interbank Payment System (CIPS).

SWIFT System

• Founded in Belgium in 1973, operated by the G-10 central banks.
• The banks and financial institutions used it for safely sending and receiving information on monetary transactions.

Problem Under Dual Dominance

• Trade Dependency
  • Russia is the net minor beneficiary of the trade with China but has a biased trade relation with China.
• Energy Dependency
  • More than 70 percent of Russia’s export to China in fossil fuel leaves Russia highly exposed to China’s change in its energy requirement.
• High-priority Goods Importation
  • In 2023, 89% of Russia’s high-priority goods were imported from China.

Policy India should Follow?

• Neutral Approach
  • India should treat its relations with both countries and the US separately.
  • A less confrontational relationship between the two would be a big relief for India.
• Trilateral Cooperation
  • India should encourage mutually beneficial trilateral cooperation between Russia, China, and India.