China and Russia are frenemies with benefits

When Vladimir Putin meets Xi Jinping in Beijing on Friday, he can be sure of a warm welcome. Expect statements of unity and support, sprinkled with headline-grabbing gas pipeline announcements, comforting funding deals and slightly stilted photo opportunities. China's leader needs a high-profile guest at his underpopulated Winter Olympics. Russia's president, facing the prospect of crippling economic sanctions from the West, needs an economic and political lifeline.

It's a meeting loaded with significance — Xi has kept diplomacy virtual through the pandemic and Putin has largely eschewed foreign trips. But it's a timely show of pragmatism, rather than "unbreakable friendship," much less a step toward a solid anti-Western alliance. Will Beijing support Moscow in the event that brinkmanship in Ukraine results in a military incursion, and even heavier economic punishment and political isolation? To a point, yes. Can it replace ties with the West? That seems far more unlikely.

Putin was right when he wrote this week that the partnership has reached "an unprecedented level." US foreign policy has created common ground, accelerating a dynamic that was already in train. But, as relationship agony aunts so often hear, it's also complicated. China is an economic power in the ascendant with security ambitions, in a stronger bargaining position than the Kremlin would like — certainly no longer the "little brother" of Soviet years. There are limits to what China will do, as its caution in the aftermath of the annexation of Crimea in 2014 demonstrated.

On the military front, there has been a rapprochement. Russia's wariness in military matters persisted longer than elsewhere. But its reluctance to sell certain high-end weapons and to collaborate too closely has ebbed. Russia sees a limited window before China's domestic capabilities no longer require imports from the north. They have carried out joint exercises and worked on interoperability, complete with publicity shots of hugging troops freighted with meaning for two countries that once skirmished along their border. There's a reason Moscow is confident enough, while dealing with the Ukraine crisis, to reduce the number of troops on the border with Mongolia and China to what Alexander Gabuev, chair of the Carnegie Moscow Center's Russia in the Asia-Pacific Program, points out is virtually a historic low. Yet here again, these ties aren't an alliance — they didn't stop Russia from delivering its S-400 missile-defense system to India, with whom China has recently clashed.

Moscow and Beijing support each other's self-perception as a great power deserving a louder voice on the world stage. They have somewhat complementary economies and are both autocracies who speak up against "color revolutions," as they did in Kazakhstan last month. Their propaganda outlets churn out similar narratives of Western decline and disarray. In the United Nations Security Council this week, Russia accused the US of "whipping up tensions and rhetoric and provoking escalation" over Ukraine. China supported the view: "Russia has repeatedly stated that it has no plans to launch any military action. And Ukraine has made it clear that it does not need a war," China's United Nations Ambassador Zhang Jun said. "Under such circumstances, what is the basis for the country's concern to insist that there may be a war?"

But while Beijing is happy to back Moscow with disingenuous comments in New York, the political alignment isn't always so neat. China's fears over territorial integrity mean it has not recognized the independence of separatist Georgian territories Abkhazia or South Ossetia, as Russian ally Venezuela has, nor the annexation of Crimea — while Moscow has not had to take a position on the South China Sea. In the Arctic, Russia is happy to take Chinese investment, but is irked by China's "near-Arctic state" pretensions. As Gabuev put it to me, the two are never against each other — but are not always together.

But what about the multi-billion dollar question of whether China can shield Russia economically, should Putin trigger dramatic Western sanctions over Ukraine? Can Beijing be the economic ally Russia needs? Here, Moscow has good reason to curb its enthusiasm, starting with the reluctance of Chinese banks to get embroiled in US sanctions.

Zhongnanhai sees Russia as a reliable energy partner, one that vies with Saudi Arabia for the top oil supplier spot. China accounted for nearly 20% of Russia's external trade in January to November last year, up from closer to 10% before Putin's Crimean adventure in 2014. But Europe is still a far larger partner, and there's a worrying asymmetry in the detail that may give Russia pause. Energy and minerals made up more than 70% of China's imports from Russia; China, meanwhile, is exporting electrical goods and industrial equipment. China has invested heavily in alternative raw material suppliers — Russia, without Europe, has far less choice.

Then there's the lack of enthusiasm among Chinese companies for Russia's market, given its poor demographics, stagnating economy and increasingly hostile attitude toward foreigners. Nigel Gould-Davies, at the International Institute for Strategic Studies, suggests foreign direct investment, which relies on a willingness to make long-term commitments on the ground, is a helpful barometer — and the news is not good. Russia, he points out, accounts for just 2% of China's foreign investment outflows. While there are big ticket investments like Yamal LNG, less symbolic investments face all the friction and restrictions that hold back others. 

China will continue to provide some funding support and will likely lend a hand on technology — but none of this is fast or a complete swap. Russia is wary of overreliance in key areas, and Beijing's ability to help reduce Moscow's reliance on the dollar and euro is limited. The Chinese yuan is not freely convertible and initiatives like state-controlled Sberbank PJSC's mobile transfers to Alipay wallets, or the use of yuan-denominated oil contracts, are still more symbolic than practical. Alternatives to the Swift international payments system are nascent.

Beijing's Olympic meeting will be about a demonstration of unity. Certainly Putin can't afford a powerful enemy to the south. What's less clear, however, is whether he can afford a powerful friend.

Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.