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China keeps the West guessing about economic pressure on Russia

BEIJING (AP) — Chinese leader Xi Jinping is keeping the West in doubt about whether Beijing will cooperate with tougher sanctions against Russia as he meets with President Vladimir Putin a year after declaring they had a “boundless” friendship before he left. the Kremlin’s invasion of Ukraine.

China has avoided violating sanctions, but its purchases of Russian oil and gas rose nearly 60% in August more than a year ago to $11.2 billion. That helps top up Moscow’s cash flow after the United States, Europe and Japan cut back on purchases and kicked Russia out of the global banking system.

Xi and Putin will meet this week in Uzbekistan at a meeting of the Shanghai Cooperation Organization, an eight-nation Central Asian security group.

Washington and its allies in the Group of Seven major economies want to squeeze Moscow enforce an upper limit on how many buyers can pay for their oil. That would require the cooperation of China, India and other energy-hungry Asian economies that have avoided taking sides and still buy from Russia.

“India and China may decide to stand aside and sign separate deals with Russia,” wrote Sergey Vakulenko, a former director of strategy at Russian gas giant Gazprom, in a report for the Carnegie Endowment for International Peace.

China’s potential role as a killjoy reflects its strength as the second largest economy in the world and his reluctance to hurt Russia.

Beijing-Moscow relations cooled during the Soviet era, but the two sides have formed a political marriage of convenience since the 1990s, united by shared frustration with American dominance in global affairs.

Russia is looking to China for support, said Alexander Gabuev, a leading Russian expert on relations with Beijing.

China is the largest trade and economic partner outside the sanctions coalition, he noted, contributing about 18% to Russia’s foreign trade. As Russia adopts the use of the Chinese yuan as its main foreign currency and looks to China to replace some technology it cannot buy from the West, it will increase further.

“China will be a much bigger partner to Russia later this year, and especially in the years to come, when the oil embargo is fully operational and gas exports to the EU are reduced, possibly to zero, except for what happens to through the EU. Turkish current,” Gabuev said.

Beijing bought 20% of Moscow’s crude exports last year, according to the International Energy Agency. Purchases are up this year helping top up Russia’s cash flow in the face of Western sanctions. China spent 60% more on Russian oil and gas in August than a year earlier, according to customs data.

The military wing of the ruling Communist Party, the People’s Liberation Army, spent billions of dollars on Russian fighter jets and other weapons starting in the late 1990s, but those purchases have dried up as China develops its own technology.

The G7 governments announced on September 2 that they would enforce maximum Russian oil prices by barring their shipping companies or insurers from dealing with any customers who pay more. They have yet to say when it might go into effect.

Other sanctions imposed by Washington, Europe and Japan are enforced under the threat that any country that violates them, even if it has not accepted them, could also be cut off from valuable Western markets and the global banking system.

China, the world’s largest energy consumer, has one of the world’s largest tanker fleets and its own insurers, which would allow Beijing to operate outside the G7’s borders.

If China, India or other Asian governments refuse to cooperate, the G7 has to decide whether to sanction its major trading partners and “risk waging economic warfare on multiple fronts,” Vakulenko wrote.

Meanwhile, Russia has threatened to stop selling to any country that complies.

The Xi government also sees Russian oil and gas as a way to diversify supplies and reduce strategic risks of potential disruptions. Last year, China bought 20% of Russia’s crude exports, according to the International Energy Agency.

China rejects sanctions already in force as improper because they were not imposed through the United Nations, where Beijing and Moscow have veto power as permanent members of the Security Council. But Chinese banks and companies have complied for fear of losing access to valuable Western markets or the global financial system.

China or other countries are not prohibited from buying Russian energy. But President Joe Biden has warned Xi of unspecified consequences if Beijing helps Moscow evade sanctions.

Some Chinese companies are pulling out of Russia, but Beijing appears to be looking for ways to profit from Moscow’s isolation.

Gazprom agreed last week to let the state-owned China National Petroleum Corp. pay in Russian rubles or Chinese yuan instead of dollars. That works in China’s favor, because few other exporters accept yuan, making it more likely that Russia will buy Chinese goods.

Access to cheap Russian oil and gas has helped China avoid the inflation that is affecting Western economies.

While inflation in the 17 countries that use the euro soared to a record 9.1%, consumer prices in China rose just 2.5% in August, down from 2.7% the previous month.

Apart from the imports that appear in the official data, China could also be buying Russian oil, along with crude from Iran and Venezuela, through traders in the Middle East.

Traders in Fujairah, a port in the United Arab Emirates, commingle shipments from suppliers under sanctions and shift them between tankers at sea to hide their origin, The Wall Street Journal reported on Aug. 29, citing unidentified traders.

Elsewhere, exports to China from Malaysia, an oil producer, exceed the Southeast Asian nation’s domestic production by a third, according to Bloomberg News, suggesting it is being used as a channel for other supplies.

China gave Moscow an economic lifeline following Western sanctions imposed over its seizure of Ukraine’s Crimea in 2014, agreeing to buy Russian gas in a 30-year, $400bn deal. Moscow turned to Chinese state-owned companies to help pay for oil and gas development after Crimea-related sanctions cut off Western funding.

On February 4, three weeks before Moscow’s attack on Ukraine, Beijing and Moscow announced a 30-year gas contract. The official Global Times newspaper said it will increase Russia’s annual supplies to China by 25%.

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