China’s Belt and Road strafed by Vladimir Putin

Russia is destroying what China is trying to build. Having refused to condemn President Vladimir Putin's invasion of Ukraine and suppressed domestic criticism of Russia, Beijing is alienating many eastern European countries where it is constructing trade, investment and technology relationships under its ambitious Belt and Road Initiative.

Ukraine is strategically positioned across rail, road and energy pipelines linking Russia to the rest of Europe. Since it joined President Xi Jinping's signature infrastructure policy in 2017, Chinese companies have been upgrading the country's ports and subways.

And in 2020 Kyiv signed a memorandum of understanding with telecoms giant Huawei Technologies, which the United States has been trying to drive out of worldwide networks. With a population of 44 million, Ukraine provides an attractive market for companies such as smartphone maker Xiaomi (1810.HK), and it is an important source of agricultural produce. China bought 30% of its corn imports from Ukraine in 2021.

With Russian army convoys advancing toward Kyiv, Beijing is stuck watching missiles wreck a country once receptive to its overtures. The attacks are galvanizing pan-European sentiment against China, which refuses to call Russia's move an invasion. As the West and Moscow make it harder for private companies to transact, the flow of goods along the "Iron Silk Road," a rail system across which $75 billion of Chinese products travelled to Europe in 2021, is likely to slow.

Another casualty of war might be China's relationship with Poland, which has been trying to strike its own balance between Beijing and Washington. Poland is a major rail node on the Belt and Road and hosts Huawei's regional headquarters. Having experienced tribulations under Russian dominance, it is now being swamped by Ukrainian refugees who blame China for supporting Putin. Former Soviet satellites are aligning more closely with NATO and the European Union, further undermining Beijing's strategy in the region.

China's investment in the EU was already cooling. Its M&A deals there dipped to 6.5 billion euros in 2020, a 10-year low. Having miscalculated by openly backing Putin, Beijing is now trying to hedge that position. Unless it can orchestrate peace, however, the diplomatic and commercial damage will be hard to repair.

Context News

- Russian military commanders intensified bombardment of urban areas in Ukraine on 2 March after its ground forces struggled to make gains against Ukrainian resistance.

- On 1 March Chinese Foreign Minister Wang Yi spoke with Ukrainian Foreign Minister Dmytro Kuleba. He told Kuleba that China has always advocated respect for the sovereignty and territorial integrity of all countries but added that "regional security cannot be achieved by expanding military blocs," a reference to Russia's objections to Ukraine joining Nato.