It is obviously not a chance if the Russian assault against Ukraine has been launched the day after the closing ceremony of the Olympic Winter Games in Beijing. The attention of the world must not being diverted. China saw in that ceremony an opportunity to increase its international influence. And Moscow wanted to protect the priviledged links the Russian leaders had with their Chinese couterparts. The Vladimir Poutine presence during the inauguration, when he had not left his country since the beginning of the pandemic, had been an other symbolic gest revealing his will to be sure, if not of its support but of a benevolent neutrality at the eve of Ukraine invasion, because it would suscite, the Kremlin was sure about that, very strong reactions from Western countries.
Tensions between Washington and Beijing, before the start of the war, were already real and had, as their origin, the classical rivalry between two great powers. Their economic interests were frequently common ones and sometimes contradictory which until now has allowed to avoiding a confrontation where it would have been only losers. But if China was openly supporting the Russian assault, the country would have had to cope with a hardening of these tensions and to their extension into Europe, with major economic and financial consequences. It is why Beijing abstained itself from voting at the United Nations Security Council about the condemnation of the Russian aggression of Ukraine. Through the non support of Moscow and its abstention, China was avoiding the risk of an extension of the sanctions against Russia and was protecting its relations with its neighbor.
These relations are despite that much less important than it is said. Chinese exports toward Russia are only representing a low percentage of the total. The only area which could be qualified as strategic regards natural gas. But it must not to be overestimated. China has decided in 2010 to increase its utilization in order to reduce its dependency to coal in its power plants which were emitting huge quantities of small particles dangerous for health. That would also contribute to slow the growth of CO2 emissions in order, at term to put a ceiling on them and to become a country with net zero emissions. Natural gas consumption rose between 2010 and 2020 from 96 to 335 billion m3. Despite the discovery of important shale gas fields, production did not follow and increased only from 96 to 194 billion m3.
To guarantee its supplies, Beijing had built pipelines connected with central Asia fields, and notably with Turkmenistan, and plants to process LNG. Long term contracts with the Gulf countries and Australia were signed and an intense cooperation with Russia has been instaured. A first pipeline has been built and put into operation in 2019 and a second one is currently under work to desserve the North of the country. Between 2010 and 2020, Russian natural gas imports have risen from 13 to 40 billion m3, i.e. less than 15% of the country total consumption. Even if these volumes will increase after the puting into operation of the second pipeline, they are not important enough to compensate the consequences for Russia of a potential stoppage of the European imports. Oil imports are much more important but fossil fuels markets are more flexible and Moscow would certainly find other clients if China decided to change its supplier.
Under its Belt and Road Initiative, have been built train lines with Europe going through Russia, Baltic States and Belarus and more marginaly through Ukraine in order to reducing costs and supply times for the Chinese goods exported to European clients which, to their turn, could use them to send their ones in better conditions. The current conflict has not affected the infrastructures but many European companies have stopped to use them, both for safety and political reasons.
At last, it is low likely that China help Russia to circumventing financial sanctions decided by Western countries because the risk of generating retaliation measures would be without any bearing with the profits the country could take from it. So, the Chinese economy is much less affected by the war in Ukraine that we could think and it is why must not be overestimated its consequences because China is confronted with other much more important challenges.
A 5.5% growth target has been fixed for 2022. It is a little inferior to passed trends when growth had been over 6%. But the volume of the Chinese production is now by large superior to what it was in the past. So its forecast increase in 2022 will be by large bigger that ten years ago when growth was twice more important. To the difference with other countries, the pandemic has only provoked a short time slowing of the 2020 growth and not the heavy recession observed elsewhere. So, during the three years, 2020, 2021 and 2022, the Chinese economy progression will be very superior to the one of the other major economies.
But that forecast has been made before the Covid-19 pandemic rebound which has just been observed and the tough measures decided by the government with the confinment, surely a temporary one, of Shenzhen. That area is the equivalent of California for the United States and constitutes one of the major centers of technological innovation in China. That will necessarly weight on 1st half growth.
To the difference of Western countries, China seems to have been less affected by inflation which would remain around 3% due to the measures taken to limit the consequences of the commodities prices increase. Foreign balance surplus and the control of public deficits which would remain around GDP 3% also allow to adopting fiscal refunds in favor of enterprises and financial transfers toward local authorities. So the monetary policy will remain oriented toward the support of the growth and interest rates reductions by the Central Bank or a reduction of banks mandatory reserves ratios are likely.
But that doesn’t impeach the apparition of financial shocks like these which have hurt Hong kong and Shanghai markets after the resurgence of the sanitary crisis. The excessive indebtedness of the real estate sector has been many times pointed out and after Evergrande, two other important developers, Logan and Peer Times China, have seen their notations downgraded and put near default situation. The speculation on the commodities markets has reached worrying levels and the nickel market has been closed during several days due to the massive speculative bearish bets of the Tsingshan group which has not been able to finance its margin calls asked by its lenders.
Along with China development, the country is facing the problems the other majors economies have met before it. It is in that context that has occurred the war in Ukraine and it is why if that one must last, the Beijing neutral position cannot be forever because the economic and financial stakes of its relations with Western countries are much more important than these coming from its relations with Moscow.