China is the only major economy that still has a direct link to a rapidly isolated Russia – but pressure is mounting on Beijing to change that.

Just weeks after the two countries signed a 'no limits' partnership agreement, China is left with no choice but to recalibrate its stance on bilateral trade and macroeconomics with Moscow after President Vladimir Putin launched an unprovoked war against Ukraine.

While Beijing will continue to rely on Moscow as a long-term strategic partner in warding off America's global influence, it will undoubtedly be wary of the international response if it decides on actions that could be construed as condoning aggression. of Putin, according to experts.

Chinese companies will also be reluctant to trade and invest in a country cut off from much of the global economy.

On Monday, the Russian ruble fell 30% after a coordinated set of sanctions by Western allies restricted the Russian central bank's ability to use its $630 billion in foreign exchange reserves and cut it off from SWIFT, the largest banking payment network in the world.

So far, Chinese politicians have focused less on their ability to help Russia than on general comments on the impact of sanctions on the Russian and European economies, while the People's Bank of China has yet to provide information on the state of Russia's foreign exchange reserves or currency swap line.

According to the latest figures from the Bank of Russia, in June 2021, about 13% of Russia's foreign exchange reserves – or about $77 billion – were made up of Chinese assets. Moscow could try to sell these assets to increase its struggling liquidity.

“China will be very careful about how it supports the Russian economy. The risks for China are incredible,” said Max Zenglein, chief economist at Merics, a China-focused think tank in Berlin.

Even experts close to the Chinese government are pessimistic about the future of the Russian economy following the latest round of sanctions.

"In the context of financial sanctions and export controls, the business environment in Russia will continue to deteriorate, and international investors will definitely reduce their activities in Russia and leave the Russian market," said Han Yichen, specialist. of Eurasia at the China Institutes of Contemporary International Relations, the official think tank of China's national security apparatus said in an article.

pay for war
Beijing will soon have to heed the demands of a Russian central bank facing tighter liquidity than at any time since the end of the Cold War. The key question for Chinese leaders is: does he want to be seen as the financier of Putin's war chest?

"If Russia looks abroad where its reserves are not yet frozen, it will not be Europe, it will not be in the United States, it will be in China. But for that you need a lot of help from political decision-making in China," said Jonathan Hackenbroich, a sanctions policy expert at the European Council on Foreign Relations.

"If China is to undermine Western sanctions, it must also recognize that it will face a stronger voice in a united Europe, the United States and Japan, which can quickly put China in a stronger position. tricky," Zenglein added.

The central banks of Russia and China set up currency swap lines after the West imposed sanctions on Russia for its annexation of Crimea in 2014, at a time when China was also seeking to expand the global use of its currency to challenge the strong position of the dollar.

A year later, China introduced the Cross-Border Interbank Payment System (CIPS), a much smaller alternative to Belgian SWIFT. It has 1,280 financial institutions worldwide, compared to 11,000 for SWIFT.

The problem is that neither the Russians nor the Chinese consider each other's currencies useful. In fact, it wasn't until early February that Russia and China reached a natural gas deal in euros, not their own currencies.

While the ruble is now on the edge of a cliff, the Chinese yuan is far from being a strong international currency. More than 40% of global payments are processed in dollars, while the yuan accounts for 2%.

"Currently, people in Russia are lining up to withdraw their deposits in rubles, dollars and euros - not yuan," said Iikka Korhonen, director of the Bank of Finlan.