The Ukraine war brings to a standstill China’s trade development policies in Eurasia and the dream of China’s belt and road initiative. The tense and security environment in Eastern Europe and Eurasia is precisely the opposite of China’s trade-economic interests. Beijing officials are now thinking of destroying their long-held trade ambitions internationally.
What is China Ukraine Trade?
The two countries have built strong trade ties, specifically since 2008. China has become Ukraine’s largest trading partner since 2019, with a trade turnover of 15.4 billion U.S. dollars in 2020, of which Ukraine exports goods worth 7.1 billion U.S. dollars. The total trade turnover increased from 2% of Ukraine’s GDP in 2001 to 11% in 2020. The two countries have cooperated closely in the military-technical domain and the space industry, with notable bilateral projects. By 2018 Ukraine had replaced the United States as the largest exporter of corn to China and had begun supplying China with modern jet engines for the military craft. Ukraine sold China the hull of its first aircraft carrier and gave 70% of its imported sunflower oil, a cooking ingredient as essential as rice. Chinese dealers are already signalling supply disruptions of sunflower oil that could add costs to price-sensitive households. Known as the breadbasket of Europe, Ukraine also exports corn to China, along with iron ore and aircraft engines critical to China’s defence.
During the 2009 flu pandemic in Ukraine, the Chinese government allocated free aid worth 3.5 million yuan ($500,000) to supply diagnostic devices, facemasks, eyeglasses, gloves, and other means of protection for Ukraine. From 2016 to 2021, China’s investment in Ukraine rose from $50 million to $260 million. Despite a small share of total Foreign Direct Investment (FDI), 0.5%, their growth rate is significantly ahead of FDI growth in general. Most Chinese state-owned companies invest in Ukrainian state-owned companies. Loans are usually also provided by state-owned banks. Chinese companies primarily work with Ukrainian ones in the energy sector and agriculture.
How is Ukraine’s war impacting China’s trade?
The global economy has been severely impacted because of the ongoing Russia-Ukraine conflict. Some countries have taken a stringent stance on the crisis by slapping multiple economic sanctions on Moscow after Russian President Vladimir Putin announced “military operations” in Ukraine. So suffered China as well.
China is Ukraine’s biggest trade partner (by exports). In 2020, Ukraine exported $7.1bn worth of goods to China, 14.5% of Ukraine’s total exports. China’s close ties to Russia perhaps outweigh any reliance on Ukraine. China relies on Russia to access Western European export markets and the international financial system. Russian exports to China are seven times more than Ukraine’s in terms of trade. Poland and Russia were Ukraine’s second and third-largest export partners, respectively, and Ukraine exported $3.3bn and $2.7bn worth of goods to these countries in 2020.
A damaged Ukraine indirectly causes damage to Chinese economies as demand for their goods will decline. Indeed, Ukraine’s total goods imports in 2020 amounted to $53.7bn. It ranked 47th globally in terms of import trade value.
Ukraine imports the most goods from China ($8.3bn worth); Ukraine’s main imports include mineral fuels, nuclear reactors, vehicles, and electrical machinery and equipment. Combined, these four commodities accounted for almost half (46%) of total Ukrainian imports in 2020. China, like the super house, relies on Ukrainian exports as it exports goods to China worth billions of dollars, like; Mineral fuels, nuclear reactors, boilers, machinery, vehicles, electrical machinery and equipment, etc.
Will china subside the effects of the Ukraine war?
Although China will suffer a lot from Russia Ukraine war, it has some other alternatives; thereby, it can tackle the problems that come near it. From reports, China’s trade ties with Russia and Ukraine are not insignificant, valued in 2021 at $147 billion and $19 billion, respectively. Some portion of this commerce will undoubtedly be impacted by both the conflict itself and subsequent sanctions, which will result in Chinese companies in these sectors taking a loss. Chinese exports to Russia, primarily finished goods, will likely suffer. This includes tech firms such as Xiaomi, Lenovo, and SMIC, which have substantial sales to Russia. Imports will be equally tricky.
It looks like China has restored trade in wheat, but it’s not clear how much additional latent demand there is in China, and domestic growers in the country’s northeast won’t be thrilled. Some commodity imports from Russia, such as potash, aluminium, and nickel, may be cut off due to sanctions, leading to higher producer prices in China. One of the most significant variables is natural gas. China may have smartly secured new supplies from Russia, but sanctions could make natural gas supplies and prices more volatile from now on. More significant Russian imports may also become a disincentive to implementing a more robust energy transition, a primary Chinese economic and diplomatic goal.
Regardless, Beijing has plenty of tools to handle any near-term volatility that would affect trade, investment, or consumption. Chinese macroeconomic policy has remained moderately loose, as there is still a focus on reducing financial risks. Inflation is currently not a significant threat. Finally, Beijing has allowed the yuan to remain strong (now around 6.3 to the U.S. dollar), but if necessary, it could pump much cash into the economy and supercharge exports by pushing the yuan lower. China will not have much difficulty having the economy grow 4.5–5.0 per cent this year.
What is China’s economic and political influence over Europe?
China’s growing influence on the world has profoundly affected her partner nations’ political and economic decisions. Recent conflict escalation between China and western countries gives rise to widespread concern over the possibility of delinking China from global trade and supply chain.
China’s economic and political footprint has expanded so quickly that many countries, even those with relatively strong state and civil society institutions, have struggled to grapple with the implications. There has been growing attention to this issue in the United States and the advanced industrial democracies of Japan and Western Europe. But “vulnerable” countries—those where the gap is most significant between the scope and intensity of Chinese activism, on the one hand, and, on the other, local capacity to manage and mitigate political and economic risks—face unique challenges. In these countries, the tools and tactics of China’s activism and influence activities remain poorly understood among local experts and elites. Within and beyond these countries, policy too often transposes Western solutions and is not well adapted to local realities.
Along with this, China has always proven a tough competitor for the West, especially for the United States. It has constantly undermined the U.S. in the technology race in many aspects or has punched it very hard. The sanctions imposed by the West over Russia has also not influenced Russia much as China (a close friend of Russia) have promised it to withstand every weather. West seems to have punctured by seeing that China has still influenced the trade despite the current sanctions over its mate.
Conclusion
Although Ukraine is a relatively small economy in world trade, it is essential in several commodities. The Russian invasion will directly impact products, which will decide the rise and fall. Ukraine has a significant comparative advantage. It is also a key player in several other commodities.
China will have to carefully balance economic support for Russia with its interests, given the likelihood of further sanctions on Moscow for its invasion of Ukraine. However, experts say larger Chinese firms and the government are unlikely to risk rupturing relations entirely with the West. The greatest threat of the Ukraine crisis to Beijing is that it becomes a pivot in world history that makes it far more difficult for China to achieve its economic overriding ambition.
And on the other hand, China has to maintain its influence over Europe and undermine its enemies to a greater extent. To shift the ship of benefits towards itself, it has to calm both the nations, Russia and Ukraine, using diplomatic tactics as it has already announced.
