The Center for Army, Conversion and Disarmament Studies presents an article by Adil Kaukenov, Director of the China Center Center for Chinese Studies (Almaty), on the effects of the coronavirus pandemic on the Russian-Chinese partnership, on which sectors and areas of cooperation will most affect whether China will help Russia to overcome the economic crisis caused by the fall in world oil prices.
Coronavirus infection, which initially struck China and now spread to many other regions of the world, has created a new format of reality, characterized by rapid economic recession and unprecedented prospects after the end of the pandemic.
On estimated Bloomberg, global economy may lose up to $ 2,7 trillion due to coronavirus. Total blocking of the Chinese economy has led to downtime in production facilities, disruption of supplies of raw materials and finished goods. This in turn had an impact on the stock markets that are now in a zone of instability.
According to a study by the Supply Management Institute (ISM) on the impact of coronavirus on supply chains, almost 75% companies report a supply chain failure in some capacities due to coronavirus-related transportation restrictions, and more than 80% believe their organization will suffer some consequences from COVID-19.
In addition to the economic implications, the coronavirus also influenced political attitudes. The epidemic has fallen on the current geopolitical rift between China and the United States, as well as the specific foreign policy line specifically of President Donald Trump. Washington's criticism of China during the epidemic has provoked strong anger in Beijing, which is already affecting relations and rhetoric.
Today, China and Russia officially declare their strategic cooperation at the official level as the closest ever in the history of relations. However, in this context, the question arises whether the current Sino-Russian alliance will be able to sustain the global pandemic. Although in China the virus has already been virtually eliminated, in Russia COVID-19 has just begun to gain momentum. In such circumstances, the question is whether the Kremlin can overcome this challenge while remaining open.
The impact of COVID-19 on Russian-Chinese economic relations
The current economic relations between China and Russia are characterized by their inequality. If China ranks first in Russia's foreign trade, bypassing even Germany, then Russia did not enter the top ten in China in 2018, ranking 11th. Moreover, it is important to note that 71% of Russian exports are energy resources, primarily crude oil and petroleum products, while Chinese products are as much diversified as possible and actively occupy serious positions in high-tech and high-tech products.
COVID-19 outbreak first in China and subsequent quarantine measures most likely caused serious damage to the development of Sino-Russian trade, which has steadily grown over the past three years. Damage was relatively reduced by the fact that the epidemic was in the midst of celebrating the Chinese New Year (Spring Festival - Chunji), in which traditionally Chinese citizens rest from two weeks to a month. In reality, Russian companies have long become accustomed to this feature and are beginning to fill warehouses from December, in order to avoid downtime during February-March.
However, this year, the decline in Chinese activity began in December, and since mid-January most enterprises have risen. To date, Chinese enterprises have not yet returned to their normal mode of operation, which is due, on the one hand, to the effects of the epidemic in China and, on the other, to a fall in consumer demand due to quarantine from the largest consumers in the West and Middle East.
In this situation, Russian consumers have less influence on the restoration of Chinese production capacity, while the decline in energy consumption by China provoked disagreements within OPEC, which led to a dumping war on oil between Russia and Saudi Arabia.
For Beijing, this situation has positive elements, as the reduction in the cost of energy enables it to reduce production costs, reduce costs for ordinary consumers and exit the recession epidemic faster.
For Moscow, the situation is fraught with a severe economic crisis, in which the Chinese partner will not be able, and is unlikely to want to really help somehow. In this connection, the scenario of another round of falling of the level of incomes of the Russian population, inflation, and deterioration of the social situation is highly probable. China in this situation of crisis in Russia still remains in the win, as with the fall in the level of purchasing opportunities for Russians is growing demand for low-cost foreign goods, the leader in production of which is China.
For example, in the United States, it is extremely difficult for Chinese major smartphone and other consumer electronics manufacturers to gain recognition from the American consumer, and in Russia, a number of Chinese brands are essentially unbiased in terms of affordability and quality. Accordingly, if an American buyer is only choosing a price-oriented Chinese, then the Russian consumer usually distinguishes Chinese brands, divides them into different segments, placing some of them in the prestigious sector.
The geopolitical context of Russian-Chinese relations in the fight against COVID-19
The political influence of COVID-19 on Russian-Chinese cooperation has become even more visible. But in contrast to the economic sector, the opposite is true: for the Chinese, Moscow's support has become much more powerful than Beijing's gratitude for the Russians.
It should be noted that during the epidemic, China has come under heavy ideological "shelling" by the US and other Western countries. It was an unpleasant surprise for the Chinese political establishment and ordinary populace to see when instead of supporting the Chinese fight against the epidemic, the Western media systematically criticized and ridiculed both the measures of the Chinese government and the common habits of ordinary Chinese, in every way creating an image of "contagious" for all Chinese the inhabitant.
Chinese businessmen, tourists, Chinatowns and even many Asians have experienced xenophobia in many countries. They were required to wear masks, go home to China, etc., even if they had never visited China and were in general citizens of the country in question.
Against this backdrop, the benevolent rhetoric of the Russian leadership wishing China's victory over the virus, the deployment of Russian humanitarian aid to Wuhan, Russian volunteer doctors and other steps have generated strong positive response. For example, an expressive statement in Chinese by Russian Foreign Ministry official Maria Zakharova: "Hold China, hold Wuhan!" (中国 加油! 武汉 加油!) Not only has it received approval from Chinese political leadership, it has also become popular with numerous Internet users who are not spoiled by the support of Westerners.
Against this background, despite the fact that China is widespread in China, and in the course of the epidemic there were some cases of domestic xenophobia and racism, such facts were largely ignored by the Chinese side.
It should be noted here that demonstrating support and positive perceptions at a difficult time is really important for Beijing. For example, relations with Japan have traditionally been difficult for China, especially in the context of the historical grievances associated with the Japanese invasion during World War II. Usually, Chinese television is packed with numerous films and series on the subject of victory over Japanese militarism. However, after Tokyo surprisingly supported China during the COVID-19 epidemic, there was a sharp political warming between the two Asian giants. Moreover, anti-Japanese films were virtually stopped broadcast in Wuhan and throughout Hubei province.
South Korea's solidarity with China's pandemic, that Seoul did not close its borders with China, and many other steps also gave impetus to attempting to renegotiate relations, which until recently were experiencing an extremely difficult period. In the humanitarian field, US President Donald Trump has further criticized the Oscar award for the South Korean painting Parasites, which has been painfully received by many Koreans.
This unexpected warming in the China-South Korea-Japan triangle was, in particular, the result of the Asian epidemic intolerance in many countries. Until the epidemic swept through Italy, aggressive xenophobia and racism against Asians made Asian people think more about how they look in the eyes of Westerners and their Buddhist-Confucian world.
Losses for the Russian economy in the "Chinese" direction
Russia will receive damage from the spread of the coronavirus in a number of ways, and the most sensitive blow will be received not because of the epidemic inside China, but because of its development around the world, including in Russia.
It should be noted here that for the Kremlin, the issue of the COVID-19 epidemic in Russia - in terms of further action - has become very acute. Iranian and Italian experience has clearly demonstrated that denial of the problem or carelessness leads to a crippling illness, the defeat of a large number of the elderly and, inevitably, to the collapse of a medical care system that simply cannot cope with the flow of patients. For example, in Lombardy, Italy, doctors were faced with a cruel choice, more characteristic of wartime, who should be assisted: the prospective patient or the dying.
And if the traditional Russian partner Kazakhstan decided to go the hard way of full quarantine, with the closure of cities and the involvement of the army, then the Kremlin is strikingly cool. Although, according to Kazakhstani data, a number of infected people got to the country through Moscow hubs, as they are the main ones in the western direction for Kazakhstan.
Most likely, the Kremlin fears that due to the "zeroing", which failed to coincide with the fall in oil prices, severe quarantine can cause such a devastating economic effect for the population that the result can be quite specific people's discontent and mass protests. Accordingly, the bet is that the Russian population is accustomed to SARS, traditionally able to fight it, and accordingly there is a chance that COVID-19 will go unnoticed, if not diagnosed. How successful this tactic will be will only show time, but for other countries, and China in particular, the Russian bluff is unlikely to be effective.
Therefore, one can expect a negative economic effect for the tourism sector. The Chinese tourist is one of the most important for the Russian tourist industry today. And, despite periodically appearing in Russian media articles, that allegedly Chinese tourists do not bring benefits to the Russian economy, it is obvious that in Russia around a Chinese tourists has formed a whole cluster. Moreover, in this cluster, the main dividend, of course, is received by Russian business, which has attracted into its ranks whole layers of Russian specialists with knowledge of Chinese language and specifics, forced to leave China due to the tightening of the recent Chinese migration legislation.
Another sector affected by the epidemic is co-production. In particular, many Russian manufacturers receive virtually finished products from Chinese factories, but either disassembled or with Russian marking, so that after assembly already on the territory of the Russian Federation to obtain preferences as a Russian manufacturer within the framework of "import substitution". Especially, in the case of electronic devices for domestic use, alternative or other options for creation of Russian companies simply do not. Accordingly, the epidemic in China has put the sector in a shaky position, and now the suspicion of spreading the epidemic in Russia will further complicate contacts with Chinese partners.
But an even greater problem in Russian-Chinese trade will be another decline in Russians' purchasing power due to the ruble's depreciation against the dollar. Chinese goods will still occupy a leading position, but their quality will fall significantly, as the choice will be made in the direction of the cheapest offers. This could lead to a new decline in the image of Chinese goods, and from there, China itself in the eyes of the Russians. That overlaying prejudices against the Chinese in Russian society can complicate Russian-Chinese relations.
Possible options for the development of the situation
The most likely of the many possible development scenarios are the following:
# 1 - Coronovirus in Russia will adopt scales on the Italian variant, with so many casualties among the elderly that it would simply not be possible for the authorities to cover it with an outbreak of seasonal flu. In response, to the indignation of the population about the need for decisive action within the framework of populism, the Kremlin will take the path of hard quarantine, using the forces of the Russian Guard, military doctors, etc. Strict isolation will further reduce the standard of living of the population and the incidence of irritation. However, President V.V. Putin, using all the power of a propaganda machine, will be able to retain power, but real popularity ratings will be extremely low.
In this situation, even worse the burden for Russia will be new sanctions, stagnation of low oil prices and blocking of Russian oil companies by Washington's efforts.
It should be noted that despite the sympathy of Beijing and its hawk wing towards Moscow, the Chinese authorities will in no way be detrimental to their own economy. In particular, in the case of rampant coronavirus in Russia, the border is likely to be closed. More troublesome for the Kremlin is the fact that Chinese companies are not ready to work with companies that fall under the US sanction list. This trend was noticeable even after the situation with the Crimea, when the Chinese giants and banks began to sharply curtail cooperation with Russian actors who were subject to sanctions. As the cooperation with the sanctioning figures, it is also responsible for them.
For example, China's state-owned oil company Sinochem Corp, for example, is already fearful of cooperating with Rosneft, based on US threats to impose sanctions on Rosneft. Naturally, as seen in the Sino-Iranian cooperation, after a while the interested parties will find channels of work to circumvent the sanctions, but this is an incomparable volume with "white" forms. Thus, the Russian economy will be even more dependent on Chinese aid and willingness to cooperate.
# 2 - Russia's positive outcome of the coronavirus epidemic. That is, the number of severely injured will be small, thus, and with the onset of summer the infection will come to naught. Accordingly, Russian and Chinese partners will be able to resume their forms of cooperation in an accelerated mode, but the negative factor for Russia will continue to be low oil prices, a heavy exit of the world economy from the recession, and the US efforts to isolate Russia from foreign economic markets.
However, due to China's non-alternative to the Russian economy, Russian-Chinese cooperation in both scenarios will develop, with China, in any case, will find gains in the situation, as its economy is on a technological boom, so Beijing will always have something to offer Moscow, while Russia today is finding it difficult to move beyond the supply of energy, forests and weapons.
- Russian-Chinese cooperation is undergoing a relationship-building and the fight against the coronavirus has allowed both parties to demonstrate loyalty and mutual support.
- Moscow's solidarity with Beijing in its fight against COVID-19 has made it possible to improve Russia's image in the eyes of the Chinese population, which has even concealed cases of Russians' rejection of the Chinese because of the coronavirus.
- China is Russia's leading economic partner due to various factors, including geopolitical ones. Therefore, the coronavirus pandemic did not change the structure of economic relations of these countries. Chinese suppliers are an alternative for Russian buyers in a number of ways. And because of geopolitical factors, Moscow does not even suggest options for changing the supply chain, as it tried to do in the West, using the epidemic to change relations with China.
- The Russian economy is not a priority for Chinese companies, so COVID-19 has not made any major changes or shocks for the Chinese side. The expected epidemic in Russia is also unlikely to change anything for the majority of Chinese manufacturers.
- The Russian tourism sector will face serious difficulties this year, as Chinese tourists have experienced a certain psychological shock, and many have gone on to maintain life during the quarantine. However, most likely, next year, Chinese tourists will again become number 1 in quantity in Russia, in particular because of the fall of the ruble and the cheapening of many services in the tourism sector.
- China is unlikely to be able or willing to support the Russian economy in coming out of the recession triggered by the global pandemic. That is, at the political level Beijing will express its utmost sympathy for Moscow, but in economic terms it will rather come to the aid of Europe, in the expectation of winning the preferences of European consumers, who are one of the main buyers of Chinese products.
- COVID-19 has worsened relations between Beijing and Washington, which will give new impetus to military and political cooperation between China and Russia. Since the United States does not intend to soften its policy towards China or the Russian Federation, regardless of who will be president in the White House, this factor will seriously affect the drift of Beijing and Moscow to each other, despite the baggage of each other distrust.