End of War and Cheap Gas: Is China Beneficial Continuing Fights in Ukraine

Economist Vitaliy Shapran proposes to understand the economic motives of the global player and in the possibility of involving China in peace initiatives. To do this, he analyzes three common myths that are characteristic of China's perception of many inexperienced observers about China and its economic motives in the war in Ukraine. I am not a supporter of a reassessment of the role of China in the war in Ukraine, but I see that many myths have appeared around the economic motives of the PRC.

So let's understand the economic motives of the global player and in the possibility of engaging China in peace initiatives. I think that such a statement could be called just at the very beginning of the war. As the western, including secondary, sanctions, the war in Ukraine becomes a lot of sanctions risks and risks of inhibition of trade where it could not be.

The ideal option for the PRC is now the end of the war and the maintenance of the Russian Federation under the sanctions of the event that they would not be as difficult as it is now (I mean secondary sanctions), but would still block the sale of Russian oil and gas to Europe. In this case, the sanctions risks for Chinese business would decrease to zero and cheap oil and gas remained.

By the way, now we are seeing a turning point, not in the sense decisive, but in the sense that the PRC has begun to bow to the Russian Federation towards reducing gas prices to the level of those acting within Russia. The beginning of an economic attack on the Russians in the gas industry is not accidental. This industry provides long -term contracts as transactions are accompanied by infrastructure.

The PRC wants to consolidate a low gas price in the contract right now, until the Russians have no alternatives and then start to twist their hands at oil prices. If we take statistics on trade between the Russian Federation and China for 2023, it turns out that the Russian Federation exported to the PRC for $ 129 billion, and China to Russia - by $ 110 billion. For the same 2023, the USS was exported to US $ 501. 22 billion, and the United States to the PRC - by $ 148 billion.

In 2023, the same parity between China/EC exports was $ 500 billion/$ 282 billion. Therefore, the turnover between the EU+USA and the PRC was $ 1. 4 trillion against the turnover of the PRC of the Russian Federation of $ 240 billion. First, the difference in scale shows who is the main trading partner of the PRC and who is younger, minor. Secondly, parity in trade with the US and the EU is on the side of the PRC, which is their contribution to Chinese GDP.

Reducing this parity as a result of trade wars can significantly reduce the potential for GDP of China in 2024-2025, and this is not exactly part of Beijing's plans. Third, some of the Russians exports to the PRC are energy that China can buy in other countries, for example, in the Middle East. That is, China has a choice, but there is no such choice in Moscow. If the Chinese do not like the price of gas with the Russian Federation, then it will have to supply Moscow extracted except for penguins.

And finally, the main thing is that such a parity between the turnover of the PRC to the Russian Federation and the PRC to the EU+the United States will always be, since the Russian Federation is mostly supplier to the PRC of raw materials, and the PRC is mainly exporter of finished goods. Trade wars are unprofitable, and their risk is the greatest economic motive that should be taken into account in Beijing.

In my opinion, for the EU peace in Ukraine in the borders of 1991 is very important because of the proximity of the war to the borders of the EU. That is, for them peace is not so much economical as a safety issue, and therefore, it will have priority in negotiations. China is a truly respectable economic player to count, but there is a lot of "but". The GDP of the PRC, calculated on purchasing power, amounted to $ 31. 2 trillion, and nominal GDP - only 17. 8 trillion.

At the same time, in 2021-2023, nominal GDP of the PRC in dollars was almost unchanged, ceasing growth (see schedule). The difference between nominal GDP and GDP, which is calculated by purchasing power, gives an idea of ​​the price competitiveness of exports, but at the same time strongly affects the potential scale of the country's financial sector.

The volume of assets of banks and insurers of the US+EU cannot be compared with the volume of the same market participants in the PRC, the scale of their credit resources differs tenfold. Despite the fact that the People's Bank of China constantly keeps the economy in tone at credit injections, the PRC is dependent on foreign investments, but there is nothing to boast about. In 2023, net direct investments in the PRC fell to a thirty -year minimum.

The reason is the sanctions and the reorientation of Hi-Tech to the markets of India, Taiwan, Mongolia and more. A partially catastrophic fall in direct investment in the PRC is the price for a war on the war in Ukraine. Therefore, foreign investments are in fact needed for further real development.

Of course, the Russian Federation, Iran, Cuba and the DPRK can not provide such investments, and the risks of the EU+US and China trade war are in general put a cross in the prospect of FDI growth in the PRIE.

And finally, I often hear the question from colleagues and the media: is Ukraine capable of conducting full negotiations with the PRC as an equal partner? I think that Ukraine is able to negotiate with the PRC on equal footing with the support of the US and the EU and after consultation with our partners.

The block of military-political issues that interest Ukraine in relations with the PRC, can be resolved in full in favor of Ukraine, with a rigid EU and the USA in trade negotiations with the PRC. The Russians in the economic aspect are in relation to the PRC more than beggars, which are anywhere else to send their exports on the scale they need.

Of course, there is also a matter of communist ideology, there are issues of China+RF Partnership against NATO and there is a European bureaucracy that is difficult to form a rigid EU position in trade negotiations. But all these difficulties should be overcome by diplomats. Most of the economic factors are on the side of Ukraine and its allies. The author expresses a personal opinion that may not coincide with the editorial position.