Russian loan freeze reveals fine balance on China’s part

The decision by two China-backed development banks to halt ‘all activities’ with Russia shows that Beijing is toeing a cautious line with its close trading partner amid global condemnation of the attack on Ukraine, say the analysts.

It comes after announcements from the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank on Thursday sparked speculation over whether Beijing was changing its stance on Russia amid international pressure. growing.

China has always opposed sanctions against Russia for its military operation in Ukraine and refrained from calling its actions an “invasion”.

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Beijing will pay if it helps Russia evade sanctions, US official warns

Meanwhile, the United States, Canada, Britain and the European Union have ordered a series of financial sanctions against Moscow since its forces entered Ukraine last week, including banning at least seven banks Russians to use the Swift global secure messaging system that allows transactions, and freezing of its central bank assets.

China’s banking regulator on Wednesday affirmed Beijing’s opposition to financial sanctions against Russia.

However, the AIIB and NDB said the following day that activities with Russia would be “suspended”, with the former also including Belarus in the freeze.

The Chinese-led AIIB said it had suspended “all activities relating to Russia and Belarus” due to the conflict in Ukraine. Belarus supported Russian war efforts in their neighboring country.

Thursday’s statement from the Beijing-based bank also referred to the “war in Ukraine,” going further than many Chinese government-linked institutions that have tended to use the Kremlin’s description of a “military operation” to the place.

Russia is co-founder and number 3 shareholder of the AIIB, with China holding the largest stake.

Later the same day, the Shanghai-based NDB, also known as the “BRICS bank” in reference to founding members Brazil, Russia, India, China and South Africa, cited “ongoing uncertainties and restrictions” as a reason for putting “further deals with Russia on hold.”

Danil Bochkov, an analyst at the Russian Council for International Affairs in Moscow, said the banks’ decisions did not indicate that China was giving up its relations with Russia, but rather that time was needed to find ways to avoid the risks associated with the new sanctions.

“I think it will not have a significant effect on Russian-Chinese relations, because Russia is now more concerned about the current escalation with Ukraine than monitoring the behavior of its partners,” Bochkov said. .

“However, this fits into China’s logic… [and] his attempts to refrain from direct diplomatic involvement in the crisis while striking [an] extremely cautious line on doing business with Russia.”

BRICS countries are equal stakeholders in the NDB, but China holds the largest share in the AIIB with 26.5%, followed by India at 7.6% and Russia at 6%.

The AIIB’s voting structure is tied to shareholding and it is unclear how it came to the decision to cease its activities with Russia. The bank has not yet responded to questions from the To post.

Francois Godement, senior adviser for Asia at the Paris-based Institut Montaigne, said the European members of the AIIB, which represent about 23% of its voting rights, had contributed to the decision.

“The AIIB leadership’s decision was literally inevitable if it was to preserve its multilateral membership,” he said. “The question of continuing operations in Russia and with Russia was already on the ground given the previous European sanctions.”

China strives to portray the AIIB as an international institution, but skeptics see it as an attempt by Beijing to exert influence by funding its Belt and Road projects and setting up a counterweight to the World Bank and the International Monetary Fund.

The bank, which began formal operations in 2016, has 105 members. Its chairman – Jin Liqun – is Chinese, while the five vice-chairmen are British, Indonesian, Russian, Indian and German nationals.

The bank’s statement on Thursday claimed it was a “multilateral organization established by international treaty” that adheres to “international law.”

Godement noted that the choice of the word “war” was telling, but the reminder that the AIIB adhered to international law did not contradict the official Chinese position.

“It shows that China is not prepared to make sacrifices in principled support for Russia. It leaves open the question of all other Chinese institutions that are not multilateral and reinforces the idea that the AIIB is a distinct, one-of-a-kind experience,” he explained.

Bochkov said he thinks the two banks are taking time to figure out the best way forward in the current climate.

“So China [is taking] it’s time to think [about] how to adjust its behavior to avoid Western secondary sanctions without damaging its ties with Russia. [The] The AIIB’s move is more decorative since the bank has only two projects in Russia worth $800 million, which is a fraction [of its total commitments].”

The AIIB has so far approved two Russian projects for a total of $800 million, with another $300 million deal underway, out of a total of 168 approved projects valued at nearly $34 billion.

He is considering two projects in Belarus, for a total of around $200 million.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice journal on China and Asia for over a century. For more SCMP stories, please explore the SCMP app or visit the SCMP Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

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