A Slippery Slope for China

Over-supporting Russia’s Ukraine position risks greatly exacerbating ongoing US-China/Sino-western tensions and inviting tougher restrictions on China trade, investment, and commerce from the US and Europe. MNCs and foreign investors in China are keen to understand the potential impacts of the Ukraine situation on business in China. This Commentary frames the current situation and outlines the key guideposts members should be monitoring to gauge risks.

Insights for What’s Ahead

• As US-China relations have deteriorated, Sino-Russian relations have expanded to encompass an array of new trade and security partnerships. These partnerships are being put to the test by Russia’s war on Ukraine.

• China’s support for Russia on Ukraine, tacit or overt, runs the risk of repositioning China as an adversary to western powers, as opposed to the prevailing “strategic competitor” view most policy makers in the US and Europe have today.

• This shift is unlikely given China’s penchant for pragmatism, preservation of self-interest, and internal and external stability; but it is not implausible that China could prioritize ideological and geostrategic interests over economics given China’s many recent policy and ideological redirections.^[1]

• If such a repositioning happens, it would likely produce the consensus in Washington, Brussels, Berlin and elsewhere needed to advance tougher, possibly more collective, policies on Sino-western trade and investment, and harder sanctions on Chinese human rights issues. Sino-Western trade would effectively become more restrictive and Sino-western bifurcation and decoupling trends would accelerate. Contingency plans are warranted for this scenario.

• MNC strategists should closely monitor China’s maneuverings around the following guideposts for positions that could be seen as antagonistic or rivalrous by the US or Europe and therefore provoke toughened policy actions on China from the US and Europe.

• Progress and Nature of the War: The more brutal the war becomes and the more the brutalities of war are exposed by the media, the more antagonistic and rivalrous Chinese support for Russia will appear to both international and domestic audiences. The quicker and quieter the war, the more space there will be for China to support Russia without triggering backlash. 

• Intensity of Western Sanctions: The more intense and comprehensive the sanctions are, the less space there will be for China to end-run them, and the higher the risk will become of being labeled a “rival” for doing so. The less intense and comprehensive the sanctions, the more space there will be for China to support Russia without triggering backlash, and so forth for each of the below. 

• NATO’s Response: The stronger and more coordinated the NATO response to Russia, the higher the geostrategic risks of Chinese support, and the stronger influence that military considerations will have on US and European China policy. 

• Russian Responses and Retaliations: The more chaotic and destructive any Russian retaliations are on other countries, the more errant, unreliable, and irrational China will appear as a leading international actor if it seen as abetting or even fence-sitting for Russia. 

• The Domestic Response to China’s Position: The higher the level of domestic criticism and dissonance on China’s “interventionist” position the riskier overt support for Russia will become.

Monitoring these guideposts will require effort, as there are avenues for China to support Russia, financially and trade-wise, that are not going to be transparent.