To what extent can China – and will – help Russia at a time when its economy is collapsing?

Sanctions, freezing of assets and withdrawal of international companies are hits the russian economy to respond to President Vladimir PutinThe military attack on Ukraine, leaving Moscow with only one ally powerful enough to rely on as a source of potential support: China.

“I believe that our partnership with China will continue to allow us to maintain, and not only maintain, but also increase the cooperation that we have achieved in an environment where Western markets are closed,” Russian Finance Minister Anton Siluanov said on Sunday.

In response, US National Security Adviser Jake Sullivan said he had warned Beijing that “there will certainly be consequences for large-scale sanctions, evasion efforts or Russia’s support to stem them.” US and Chinese diplomats discussed the issue on Monday over seven hours of talks.

Siluanov noted the US-led asset freeze of nearly half of Russia’s central bank reserves – $300 billion of the $640 billion in gold and foreign currency it has amassed since an earlier wave of Western sanctions following its annexation of Ukraine’s Crimea peninsula in 2014.

The remaining reserves are gold and the Chinese yuan, effectively making China the main potential source of foreign exchange to support the upward spiral. rubles Amid devastating capital inflows.

In some of Beijing’s most outspoken comments on sanctions to date, Chinese Foreign Minister Wang Yi said on Monday During a call with a European counterpart, he said that “China is not a party to the crisis and does not want the sanctions to affect China.” “China has the right to protect its legitimate rights and interests,” he added.

Spokespeople for the Chinese consulate in Dubai, the Abu Dhabi embassy and the South African embassy were not immediately available for comment when contacted by CNBC.

To what extent can China help ease Russia’s economic pain? Much in theory.

If China decides to open a full barter line with Russia, accepting the ruble as payment for anything it needs to buy — including important imports like technology parts and semiconductors that Moscow has cut off in recent rounds of sanctions — China could essentially block it. The West has unleashed the most holes in the Russian economy.

But whether it is entirely in Beijing’s interest, and how counterproductive it is, is another matter.

“In terms of how much China can help Russia, it can help them a lot,” Maximilian Hess, a Central Asia fellow at CNBC’s Foreign Policy Research Institute, told CNBC. “But they could risk imposing significant secondary sanctions on themselves, renewing a major trade war and sanctions with the United States and the West as well.”

Considering the uncertainty of the Chinese markets over the past few weeks“This may not be the best time to do it,” Hess said, amid spiraling inflation and the new COVID-19 outbreak in the country.

Before the invasion, Beijing and Moscow announced a “borderless” strategic partnership that they said was aimed at countering US influence. China’s position was to ultimately blame the US and NATO eastward expansion in the conflict, etc. On March 7, its foreign minister, Wang Yi, described Russia as his country’s “most important strategic partner.”

“No matter how dangerous the international scene is, we will maintain our strategic focus and promote the development of a comprehensive Sino-Russian partnership in the new era,” Wang said from Beijing.

And while the Chinese government has expressed “concern” about the conflict in Ukraine, it has done so I refused to call it an invasion or condemnation of RussiaThis prompted Moscow’s narrative of the war on its state news outlets.

“China and Putin have a clear interest in working together more closely,” Holger Schmieding, chief economist at Berenberg Bank, wrote in a research note in early March.

“China is happy to make trouble for the West and will not mind gradually turning Russia into a compliant junior partner.” It can also take advantage of its position to buy oil, gas, and other Russian goods at discounted prices, similar to what it does with Iran.

To what extent China’s leadership and its steps to support Moscow will play a major role in the future of the Russian economy. China is Russia’s largest export market after the European Union; Trade between China and Russia reached a score high $146.9 billion in 2021, up 35.9% year on year, according to China’s customs agency. Russian exports to China amounted to $79.3 billion in 2021, of which oil and gas account for 56%. China’s imports from Russia exceeded its exports by more than $10 billion last year.

“Russia can use China over time as a larger alternative market for its raw material exports and a channel to help circumvent Western sanctions,” Schmieding said.

“But for both countries with their very different perceptions of history, it may be an unstable and fragile alliance that may not hold out to Putin.”

The powerful coalition of G7 economies, made up of the United States and its European and Asian partners, could impose harsh secondary sanctions on any entity that supports Moscow. But the problem here is that China’s economy is the second largest in the world and an essential part of global supply chains. It affects global markets much more than Russia does. Any move to impose sanctions on China would mean much larger global impacts, and potentially economic pain for the West as well.

Can Beijing continue to allow Russia access to and trade in its yuan reserves, Totaling about $90 billion, or about 14% of Russia’s foreign exchange reserves? Yeah. But what if Beijing allowed the Russian Central Bank to sell yuan-denominated assets for dollars or euros? This is likely to expose her to penalties.

China can still trade with Russian companies in rubles and yuan through Russian banks that are not yet sanctioned. But despite many years of work to increase bilateral trade in its own currencies, The vast majority of that trade – including 88% of Russian exports – It’s still being billed at dollar or euro.

Not only that, but China can basically catch a falling knife by incurring the credit risks and penalties of the rapid deterioration of the Russian economy.

“China can relieve the vast majority of the pain,” Hess said. “But if they show these barter lines and everything, they will take all the obligations and risks related to the Russian economy into their balance sheet at a time when the Russian economy has been at its weakest in decades.”

“This is probably not the most economically wise move,” Hess said. “But politics are different decisions.”