A Friend In Need Is A Friend In Debt? Sino-Russian Energy Woes

Sino-Russian cooperation has no boundaries, claimed President Vladimir Putin and President Xi Jinping in an unprecedented memorandum they released during the Winter Olympics this year. These authoritarian fellow travelers openly promised mutual support and cooperation in their plans to confront and eventually supplant the American-led international order directly.

Outwardly, this new alliance of authoritarians was conspiring to and was already challenging the West. On February 4^th, 2022, a gas deal denominated in euros for an additional 10 billion cubic meters (bcm) of gas was signed between Gazprom and CNPC, raising the Russian capacity to export to China up to 48 bcm. This project is small compared to Russia’s long-term economic objective: a pipeline network from Siberia and Mongolia to China. Of particular interest is the Soyuz-Vostok pipeline, which alone would be able to supply an additional 50 bcm of natural gas, doubling Russia’s export capacity to China. In the face of new sanctions, it seems Russia is enthusiastically looking to the east.

While Moscow is enthusiastic about these plans, Beijing is not. China’s lack of enthusiasm reveals the simple truth of their bond. It is not a relationship of equals. Russia’s international isolation has resulted in the country seeking out favors from Beijing, who, for their part, has no desire to go down with the Russian ship. What deals have gone forward that Moscow has benefited from have been planned for years and on the Chinese end have been carefully calibrated, wherein new Chinese infrastructure is not dependent on or only utilizing Russian energy.

After the exodus of Western energy companies from Russia, such as BP, Equinor, Exxon, ENI, and Shell, one may expect that Chinese companies would eagerly fill the vacuum. Doing so may be profitable and also advance a political project of the Sino-Russian anti-Western Axis. Such actions would be evidence of cooperation, yet they have not materialized. While China’s CNPC does have existing significant stakes in Russian projects, such as Novatek’s Arctic LNG project and Yamal LNG projects (20%) and the Rosneft led Sakhalin-3 Veninsky project (49%), the shares are neither expanding nor controlling.

While with business, there are still lingering concerns that Western companies’ departures from Russia can provide China opportunities, it is not the case that Beijing is ready or willing to buy ventures the West vacates. In fact, Chinese investment in Russia appears to be stalling and retreating. The most notable example comes from halting of a half-billion-dollar comprehensive chemicals project led by Sinopec inside Russia. Given the current state of Sino-Russian cooperation, the vision touted by Putin of Sino-Russian cooperation dethroning the dollar as the world’s reserve currency is a fantasy, especially since neither party appears ready to use the other’s currency and instead currently uses euros. China’s capital and currency controls render the yuan not fully convertible, while China does not trust the stability or value of the ruble.

China has many reasons to overhype Sino-Russian cooperation while not substantively strengthening it. Russia’s underperformance in Ukraine has not inspired confidence, with former Chinese ambassador to Ukraine Gao Yusheng saying that Russia was “heading for defeat.” China has discerned that it will benefit just as much from a Russian defeat in Ukraine as from a pyrrhic victory. Moscow has only Beijing to rely on in either scenario as Russia has lost all its bargaining power and has no allies to speak of. What cooperation does exist is entirely in the hands of Beijing to direct and develop.

For now, the Axis seems to wobble. China obviously values its economic growth more than cooperation with a moribund Russia, with Beijing repeatedly turning down the Kremlin’s direct requests for assistance. While Russia must make a desperate, violent play to re-acquire its superpower status, China has nothing but time to develop and grow into a superpower peacefully. Carefully crafted Western sanctions have made China choose between strategic cooperation and economic growth, and it appears to have chosen the latter.

The policy implications of this hollow cooperation with Russia are vital to consider. As it appears that Sino-Russian cooperation is overstated, the West must carefully construct future sanctions not to provide China with unwelcome inroads in Russia. The West must also carefully analyze future sanctions to avoid collateral damage elsewhere which may change China’s evaluation of cooperation versus growth. Should the West economically punish China regardless of what it does regarding Russia, Beijing has a greater incentive to assist Moscow. This war has already made Russia China’s junior partner. The West must take care not to accelerate this process.

With assistance from Wesley A. Hill