Countries around the world
Are sanctioning Russia
Can China save Russia
From an economic meltdown?
Welcome to China Uncensored. I’m Chris Chappell.
This episode is sponsored by PC-Doctor Toolbox.
Protect your PC from software crashes,
hardware failures, and the kind of glitches that make your life miserable.
After Russia’s invasion of Ukraine almost two weeks ago,
Western countries responded swiftly with sanctions.
And they’re hitting Russia’s economy hard.
Sanctions are affecting up to 80% of banking assets in Russia.
They’re also limiting Russia’s access to key technology, and even cryptocurrencies.
And it’s not just Western countries sanctioning Russia.
Japan joined in.
So did South Korea.
And…Singapore. Yeah, Singapore. The last time Singapore unilaterally
sanctioned another country was in 1978.
According to Singapore’s foreign minister, despite Singapore’s friendly relations with Russia,
they had to stand up for Ukraine as a fellow smaller nation.
He said, “Unless we as a country stand up for principles that are the
very foundations for the independence and sovereignty of smaller nations,
our own right to exist and prosper as a nation may similarly be called into question.”
It’s almost like Singapore is worried about someday getting
sucked up by a nearby expansionist power. I wonder who that could be.
But Singapore is not alone.
When Japan and South Korea are reacting to Russia, they’re thinking about China, too.
Speaking of lessons for China,
many of the sanctions are targeting Russian oligarchs who support Putin.
You know what they say, you never appreciate your super yacht until it’s confiscated because
your friend just invaded another country. But yachts are the least of their worries.
According to the BBC, “some oligarchs sanctioned by the European Union are ‘shocked’
to find their debit cards no longer function, and they are now relying on using cash from safes.”
Yeah, whenever I have a problem with my debit card,
I also have to turn to the piles of cash in my multiple safes.
Meanwhile, every Chinese princeling watching this just broke out in a cold sweat. Because they don’t
even have hard cash. Bet making China a cashless society doesn’t sound so great now, does it?
But sanctions have targeted the broader Russian economy as well.
According to France’s finance minister, sanctions have frozen 1 trillion dollars of Russian assets.
And they’ve stopped Russia’s central bank from accessing almost half of its foreign reserves.
Which means it’s a lot harder for Russia to stop their currency from nose-diving.
And foreign businesses are cutting ties with Russia, too.
Western sanctions are not directly targeting Russia’s energy industry,
because Europe gets so much of its natural gas and oil from Russia.
But big oil companies are still cutting ties with Russia,
in part because the general sanctions make it hard to do business there.
There are some unforeseen consequences of this. Like,
will Russian airlines still be able to fly if their planes can’t get spare parts?
You know, when we talk about sanctioning countries like Russia or China,
we spend a lot of time worrying that it won’t work because we’re too dependent on them.
This is a good reminder that they are pretty dependent on us, too.
But as many countries sanctioned Russia or at least expressed disapproval at Russia’s actions,
there was one notable exception.
China announced they would not join sanctions on Russia.
What? These guys won’t sanction each other? I’m so surprised.
In fact, many expect China to save Russia from Western sanctions.
But can they? I’ll tell you more after the break.
Welcome back.
For years, Vladimir Putin has tried to insulate Russia from Western sanctions.
He’s built what’s been called Fortress Russia. A sanctions-proof economy.
Which is not so sanctions-proof after the US and Europe targeted Russia’s central bank.
Now there’s speculation that China could be Russia’s key to surviving sanctions.
In some ways, this is a no-brainer.
China and Russia have helped each other get around sanctions in the past.
Like when Russia helped Huawei when it was hit by US sanctions.
But because of the types of issues Russia is facing now,
it’s not as easy for China to just step in quickly.
For example, Europe is shutting down the Nord Stream 2 gas pipeline.
Now Russia has signed oil and gas deals with China,
which could partially make up for that loss.
But that’s not going to happen immediately. One deal doesn’t start until 2023. Another
involves a pipeline through Mongolia that hasn’t even been built yet.
When it comes to banking, it gets even trickier.
Now that it’s been sanctioned, Russia’s central bank can’t access
hundreds of billions of dollars of its foreign reserves.
Some of that money is in US, EU, Japanese, and British government bonds.
Others are in US dollars and euros in banks around the world. All of that is frozen now.
Russia does still have access to its 84 billion dollars worth
of Chinese government bonds. But they can only sell those bonds for Chinese yuan.
And pretty much only China and Chinese companies will take yuan.
The rest of the world prefers to do business in US dollars and euros.
Right now only 3 percent of international payments are done in yuan.
Although as sanctions continue, Russian companies are starting to open Chinese bank accounts.
And they may have to start using Chinese yuan, too.
But that’s a long-term process, not a quick easy fix.
Another issue is that some Russian banks have been cut off from SWIFT,
the international banking communication system.
SWIFT doesn’t transfer money, but it allows banks to communicate with each other. Being
cut off means it’s much harder for Russian banks to make financial transactions around the world.
Russia has developed its own bank communication system called SPFS,
but it’s pretty much only used inside Russia.
China also established its own system in 2015, called CIPS .
And there’s been talk that CIPS could help Russia get around the SWIFT ban.
But it really can’t. At least not yet.
CIPS only works for transactions in Chinese yuan. It’s part of China’s
efforts to increase global use of the yuan and decrease China’s reliance on US dollars.
But even after seven years, CIPS is tiny compared to SWIFT. Plus, CIPS is both a payment system and
a communication system. But most banks don’t use it as a communication system.
94 percent of banks that use CIPS for payments actually still communicate using…SWIFT.
So that doesn’t help Russian banks get around anything.
Is it possible that Russian banks could drive more use of CIPS for communication? Yes,
but like the future gas pipelines, that would be a long-term project and not a quick fix.
Some people have also suggested China’s digital
yuan could help Russia get around the SWIFT sanctions.
But the digital yuan hasn’t even fully launched yet.
It’s still in testing. So again, not a quick fix.
But the biggest issue isn’t that China’s alternate systems aren’t ready to help Russia yet.
The biggest issue is that China won’t help Russia if it means being sanctioned themselves.
There are already signs this is happening.
Chinese state-owned banks have restricted financing for Russian commodities.
These state-owned banks usually obey US sanctions because they need access to US dollars.
That means China isn’t buying things like Russian coal because the state-owned banks
don’t want to finance those purchases.
China-backed development banks have also stopped giving loans to Russia.
And things may get worse.
The US State Department has now explicitly warned
Beijing that it will be punished if it helps Russia evade sanctions.
And the Chinese Communist Party is not willing to destabilize its own economy to help Russia.
China and Russia may be best friends, but the Chinese regime always looks out for number one.
And this episode is sponsored by PC-Doctor Toolbox.
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I’m Chris Chappell. Thanks for watching China Uncensored.